FISCAL NOTE
Date Requested: March 03, 2023
Time Requested: 10:26 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2789 |
Amendment |
HB2526 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing Revenue, Increases Existing Expenses
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The bill has no stated purpose.
Based on our interpretation, the proposed legislation would add Article §11-13MM, the “West Virginia Property Tax Adjustment Act”. The new Article would create a refundable motor vehicle property tax credit, a refundable personal income tax credit based on real property taxes paid by an eligible disabled veteran, and a refundable tax credit based on certain property taxes paid by small businesses. In addition, the proposed legislation reduces Personal Income Tax rates and provides for future Personal Income Tax reductions.
Effective for tax years beginning on and after January 1, 2024, an eligible taxpayer who owns motor vehicles may receive a refundable income tax credit for the amount of West Virginia ad valorem property tax timely paid on the owned motor vehicles during the personal income taxable year or corporation net income taxable year, as applicable. If the annual tax credit exceeds the amount of income tax subject to offset, the eligible taxpayer may claim the excess amount as a refundable credit.
Effective for tax years beginning on and after January 1, 2024, an eligible Disabled Veteran may receive a refundable personal income tax credit in the amount of West Virginia ad valorem property tax timely paid on his or her homestead during the personal income tax year. A “Disabled Veteran taxpayer” means a person honorably discharged from any branch of the armed services of the United States who is considered at least ninety percent totally and permanently disabled due solely to service-connected disabilities by the Department of Veterans Affairs.
Effective for tax years beginning on and after January 1, 2024, an eligible small business taxpayer may receive a tax credit of 50 percent of the amount of West Virginia ad valorem property tax due and timely paid during the personal income taxable year or corporation net income taxable year, as applicable. The credit may be used to offset up to 100 percent of the taxpayer’s state income tax liability. If the annual tax credit exceeds the amount of income tax subject to offset, the eligible taxpayer may claim the excess amount as a refundable credit. A “small business” is defined as a business with personal property located in this state with an aggregate appraised value of $1 million or less. The definition of “small business”, as applicable to this tax credit, does not include any person holding a working interest in any oil, natural gas, or natural gas liquid producing property or any public service company that is centrally assessed by the state for property tax purposes.
Effective for taxable years beginning on and after January 1, 2023, the following personal income tax rates will be effective: 2.36 percent on the first $10,000 of taxable income ($5,000 for married filing separate); 3.15 percent on taxable income ranging between $10,000 and $25,000 ($5,000 and $12,500 for married filing separate); 3.54 percent on taxable income ranging between $25,000 and $40,000 ($12,500 and $20,000); 4.72 percent on taxable income ranging between $40,000 and $60,000 ($20,000 and $30,000 for married filing separate); and 5.12 percent on taxable income in excess of $60,000 ($30,000 for married filing separate). In addition, effective January 1, 2023, the tax rate for nonresident composite and withholding obligations and withholding on gambling winnings will be 5.12 percent.
A provision provides for future personal income tax reductions. Beginning on August 15, 2024 and every August 15th thereafter, the Secretary of Revenue will determine whether the total fiscal year general revenue fund collections less the amount of severance tax collected from the immediately preceding fiscal year are in excess of inflation adjusted base year revenues less base year severance tax collected. If the total fiscal year adjusted general fund collections are more than the inflation adjusted base year revenues, then there will be a reduction in the personal income tax rates beginning in the next taxable year. The reduction in personal income tax rates for a tax year may not be greater than 10 percent.
According to our interpretation, the proposed 100 percent income tax credit for ad valorem property tax paid on motor vehicles would decrease General Revenue Fund collections by up to $157.9 million in FY2025 under the assumption of full participation. However, less than 100 percent of the assessed tax will be timely paid. An estimate of the net amount of tax credit claims would be expected to range between $135 million and $140 million in FY2024 with annual costs gradually rising over time along with the average value of motor vehicles.
According to our interpretation and an estimate of 9,300 eligible homeowners, the proposed 100 percent personal income tax credit for real estate taxes paid by Disabled Veterans, would decrease General Revenue Fund collections by up to $8.4 million beginning in FY2025. The revenue impact of the tax credit could be less because some of these taxpayers may already be eligible for the Homestead Exemption which exempts the first $20,000 of assessed value from property tax.
According to our interpretation, business personal property tax data is reported at the county level and many businesses have personal property located in multiple counties. Therefore, it is not possible to accurately determine the businesses which would have aggregate personal property in this state of less than $1 million. However, it is anticipated that the reduction in General Revenue Fund collections from this credit would be less than $35 million beginning in FY2025.
According to our interpretation, the retroactive personal income tax rate reduction, would reduce General Revenue Fund collections by up to $114.6 million in FY2023, $695.6 million in FY2024, $609.5 million in FY2025, and $634.4 million in FY2026. The decline in General Revenue Fund collections would continue to increase in subsequent fiscal years due to underlying tax base growth. The estimate for FY2024 is inclusive of $581 million in direct impact and $114.6 million due to the retroactive portion of the bill.
According to our interpretation, additional personal income tax rate reductions could begin as soon as calendar year 2025, if actual adjusted collections for FY2024 exceed an inflation adjusted target. It is not possible to accurately determine the timing and amount of future tax reductions based on currently available data. However, in no case will a future triggered reduction be greater than 10 percent in a single year.
Additional administrative costs incurred by the State Tax Department would be $10,000 in FY2023, $231,000 in FY2024, and $185,000 in subsequent fiscal years.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2023
Increase/Decrease
(use"-") |
2024
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
10,000 |
231,000 |
185,000 |
| Personal Services |
0 |
180,000 |
180,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
6,000 |
0 |
| Other |
10,000 |
45,000 |
5,000 |
| 2. Estimated Total Revenues |
-114,600,000 |
-695,600,000 |
-817,800,000 |
Explanation of above estimates (including long-range effect):
Based on our interpretation, the proposed legislation would add Article §11-13MM, the “West Virginia Property Tax Adjustment Act”. The new Article would create a refundable motor vehicle property tax credit, a refundable personal income tax credit based on real property taxes paid by an eligible disabled veteran, and a refundable tax credit based on certain property taxes paid by small businesses. In addition, the proposed legislation reduces Personal Income Tax rates and provides for future Personal Income Tax reductions.
Effective for tax years beginning on and after January 1, 2024, an eligible taxpayer who owns motor vehicles may receive a refundable income tax credit for the amount of West Virginia ad valorem property tax timely paid on the owned motor vehicles during the personal income taxable year or corporation net income taxable year, as applicable. If the annual tax credit exceeds the amount of income tax subject to offset, the eligible taxpayer may claim the excess amount as a refundable credit.
Effective for tax years beginning on and after January 1, 2024, an eligible Disabled Veteran may receive a refundable personal income tax credit in the amount of West Virginia ad valorem property tax timely paid on his or her homestead during the personal income tax year. A “Disabled Veteran taxpayer” means a person honorably discharged from any branch of the armed services of the United States who is considered at least ninety percent totally and permanently disabled due solely to service-connected disabilities by the Department of Veterans Affairs.
Effective for tax years beginning on and after January 1, 2024, an eligible small business taxpayer may receive a tax credit of 50 percent of the amount of West Virginia ad valorem property tax due and timely paid during the personal income taxable year or corporation net income taxable year, as applicable. The credit may be used to offset up to 100 percent of the taxpayer’s state income tax liability. If the annual tax credit exceeds the amount of income tax subject to offset, the eligible taxpayer may claim the excess amount as a refundable credit. A “small business” is defined as a business with personal property located in this state with an aggregate appraised value of $1 million or less. The definition of “small business”, as applicable to this tax credit, does not include any person holding a working interest in any oil, natural gas, or natural gas liquid producing property or any public service company that is centrally assessed by the state for property tax purposes.
Effective for taxable years beginning on and after January 1, 2023, the following personal income tax rates will be effective: 2.36 percent on the first $10,000 of taxable income ($5,000 for married filing separate); 3.15 percent on taxable income ranging between $10,000 and $25,000 ($5,000 and $12,500 for married filing separate); 3.54 percent on taxable income ranging between $25,000 and $40,000 ($12,500 and $20,000); 4.72 percent on taxable income ranging between $40,000 and $60,000 ($20,000 and $30,000 for married filing separate); and 5.12 percent on taxable income in excess of $60,000 ($30,000 for married filing separate). In addition, effective January 1, 2023, the tax rate for nonresident composite and withholding obligations and withholding on gambling winnings will be 5.12 percent.
A provision provides for future personal income tax reductions. Beginning on August 15, 2024 and every August 15th thereafter, the Secretary of Revenue will determine whether the total fiscal year general revenue fund collections less the amount of severance tax collected from the immediately preceding fiscal year are in excess of inflation adjusted base year revenues less base year severance tax collected. If the total fiscal year adjusted general fund collections are more than the inflation adjusted base year revenues, then there will be a reduction in the personal income tax rates beginning in the next taxable year. The reduction in personal income tax rates for a tax year may not be greater than 10 percent.
According to our interpretation, the proposed 100 percent income tax credit for ad valorem property tax paid on motor vehicles would decrease General Revenue Fund collections by up to $157.9 million in FY2025 under the assumption of full participation. However, less than 100 percent of the assessed tax will be timely paid. An estimate of the net amount of tax credit claims would be expected to range between $135 million and $140 million in FY2024 with annual costs gradually rising over time along with the average value of motor vehicles.
According to our interpretation and an estimate of 9,300 eligible homeowners, the proposed 100 percent personal income tax credit for real estate taxes paid by Disabled Veterans, would decrease General Revenue Fund collections by up to $8.4 million beginning in FY2025. The revenue impact of the tax credit could be less because some of these taxpayers may already be eligible for the Homestead Exemption which exempts the first $20,000 of assessed value from property tax.
According to our interpretation, business personal property tax data is reported at the county level and many businesses have personal property located in multiple counties. Therefore, it is not possible to accurately determine the businesses which would have aggregate personal property in this state of less than $1 million. However, it is anticipated that the reduction in General Revenue Fund collections from this credit would be less than $35 million beginning in FY2025.
According to our interpretation, the retroactive personal income tax rate reduction, would reduce General Revenue Fund collections by up to $114.6 million in FY2023, $695.6 million in FY2024, $609.5 million in FY2025, and $634.4 million in FY2026. The decline in General Revenue Fund collections would continue to increase in subsequent fiscal years due to underlying tax base growth. The estimate for FY2024 is inclusive of $581 million in direct impact and $114.6 million due to the retroactive portion of the bill.
According to our interpretation, additional personal income tax rate reductions could begin as soon as calendar year 2025, if actual adjusted collections for FY2024 exceed an inflation adjusted target. It is not possible to accurately determine the timing and amount of future tax reductions based on currently available data. However, in no case will a future triggered reduction be greater than 10 percent in a single year.
Additional administrative costs incurred by the State Tax Department would be $10,000 in FY2023, $231,000 in FY2024, and $185,000 in subsequent fiscal years.
Memorandum
The bill has no stated purpose.
For the ad valorem property tax credits, the Tax Commissioner is provided with rule-making authority, and instructed to make an annual report to the Joint Committee on Government and Finance that reflects the amount of credits claimed in each category. There is a meaningful typo: “….shall be redated and otherwise formatted and presented so as to preserve the confidentiality of taxpayers and tax information” –“redated” should probably be “redacted.”
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov