FISCAL NOTE
Date Requested: January 23, 2024
Time Requested: 04:27 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2935 |
Introduced |
HB5034 |
|
|---|
| 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 stated purpose of this bill is to provide a reduction of the business and occupation tax rate for companies who have 75% or more of their workforce as West Virginia residents.
According to our interpretation, this bill would reduce the overall business and occupation tax rate by 2.5 percent for companies that employ at least 75 percent of their workforce as West Virginia residents. The state business and occupation tax applies to electric power companies, public utilities, and natural gas storage companies. In FY2023, West Virginia collected $116,747,000 in B & O Tax. Under the assumption that all affected companies pass the 75 percent West Virginia resident workforce test, a reduction in the overall tax rate of 2.5 percent would result in a loss in revenue of at least $2.9 million per year.
Additional administrative costs incurred by the State Tax Division would be $15,000 in FY2024.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2024
Increase/Decrease
(use"-") |
2025
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
15,000 |
0 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
15,000 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
-2,900,000 |
-2,900,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, this bill would reduce the overall business and occupation tax rate by 2.5 percent for companies that employ at least 75 percent of their workforce as West Virginia residents. The state business and occupation tax applies to electric power companies, public utilities, and natural gas storage companies. In FY2023, West Virginia collected $116,747,000 in B & O Tax. Under the assumption that all affected companies pass the 75 percent West Virginia resident workforce test, a reduction in the overall tax rate of 2.5 percent would result in a loss in revenue of at least $2.9 million per year.
Additional administrative costs incurred by the State Tax Division would be $15,000 in FY2024.
Memorandum
The stated purpose of this bill is to provide a reduction of the business and occupation tax rate for companies who have 75% or more of their workforce as West Virginia residents.
There are several issues with this bill. The threshold to receive the credit is vague. The term “at least 75 percent” does not include a timeframe. A company may have more or less than 75 percent of employees as in-state residents at any given time throughout the year. It is unclear if this threshold is something that only needs to be met at one point in time or if the employer needs to prove an average of 75 percent employment of in-state residents. Further, businesses may have operations in West Virginia yet still be based in another state and have their employees in another state. It is unclear if the 75 percent threshold only applies to the workforce at facilities located in West Virginia or if the threshold applies to the company’s worldwide workforce.
Additionally, subsection (b) states that companies shall be entitled to a “2.5 percent overall reduction” in their B & O tax rate. A definition of “overall reduction” is absent in this bill. The lack of definition as to what “overall” means will lead to administrative difficulties and may lead to litigation. If “overall” means a variance higher or lower than 2.5 percent is permitted, it should be stated in this bill.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov