FISCAL NOTE
Date Requested: January 29, 2024
Time Requested: 03:13 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3045 |
Introduced |
HB5304 |
|
|---|
| CBD Subject: |
Economic Development |
|---|
|
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 create the Small Business Payroll Tax Credit, a three-year program establishing a tax credit for defined payroll taxes paid on up to 10,400 employee hours at a statutorily designated wage rate for new businesses with 15 or fewer employees, allowing for growth to 25 employees but capping the credit at 10,400 employee hours and eliminating the credit for businesses of 26 employees or greater; establishing a start date and end date; listing the amounts of credits which may be claimed in each year of the program; and requiring the Department of Economic Development to track the progress of this program and present a report.
According to our interpretation, the bill creates a “Small Business Payroll Tax Credit” for any business formed on or after July 1, 2024, which employs fewer than 15 employees. The business must be newly formed and cannot have existed in West Virginia with the same members at any period between 2014 and 2024. The “Small Business Payroll Tax Credit" is set up as a three-year program beginning on July 1, 2024 and ending on December 31, 2027. The program will apply to tax years beginning January 1, 2025, January 1, 2026, and January 1, 2027. The amount of credit would be based on a three-year capped system. In the first tax year of claiming the credit, the cap is $14,260; the second year is capped at $9,112; and the third tax year cap is $4,563. The credit may be taken by the individual taxpayer or the corporate taxpayer. Certain ambiguities in this bill, such as the lack of definition for “payroll taxes,” and inconsistencies, such as for whom the credit is applicable, make it difficult to reasonably estimate the impact on General Revenue Fund collections.
Additional administrative costs to the State Tax Division would be $15,000 in FY2025, $36,500 in FY2026, and $35,000 in subsequent fiscal years.
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 |
0 |
15,000 |
35,000 |
| Personal Services |
0 |
0 |
35,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
15,000 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the bill creates a “Small Business Payroll Tax Credit” for any business formed on or after July 1, 2024, which employs fewer than 15 employees. The business must be newly formed and cannot have existed in West Virginia with the same members at any period between 2014 and 2024. The “Small Business Payroll Tax Credit" is set up as a three-year program beginning on July 1, 2024 and ending on December 31, 2027. The program will apply to tax years beginning January 1, 2025, January 1, 2026, and January 1, 2027. The amount of credit would be based on a three-year capped system. In the first tax year of claiming the credit, the cap is $14,260; the second year is capped at $9,112; and the third tax year cap is $4,563. The credit may be taken by the individual taxpayer or the corporate taxpayer. Certain ambiguities in this bill, such as the lack of definition for “payroll taxes,” and inconsistencies, such as for whom the credit is applicable, make it difficult to reasonably estimate the impact on General Revenue Fund collections.
Additional administrative costs to the State Tax Division would be $15,000 in FY2025, $36,500 in FY2026, and $35,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to create the Small Business Payroll Tax Credit, a three-year program establishing a tax credit for defined payroll taxes paid on up to 10,400 employee hours at a statutorily designated wage rate for new businesses with 15 or fewer employees, allowing for growth to 25 employees but capping the credit at 10,400 employee hours and eliminating the credit for businesses of 26 employees or greater; establishing a start date and end date; listing the amounts of credits which may be claimed in each year of the program; and requiring the Department of Economic Development to track the progress of this program and present a report.
There are numerous issues with this bill. The bill has a title defect. The bill title states that the program applies to businesses with 15 or fewer employees. However, §11-13NN-3(b) provides that the $20 per employee up to 15 employees only applies if the number of employees is less than 15. As such, the bill’s title that the program applies to businesses of 15 employees or fewer is incorrect because parts of this bill apply only to businesses with less than 15 employees. Additionally, the bill title states that the credit is eliminated for employers with 26 employees or greater. However, §11-13-NN-2(b)(3) excludes businesses with greater than 25 employees from claiming the credit under 11-13-NN-2(a)(1) and (a)(2) but does not prevent those businesses from claiming the credit under 11-13-2-(a)(3).
Additionally, the terminology used to describe terms like “15 employees or less” and “greater than 25 employees” are used inconsistently. The terminology used to describe and delineate the different credits that eligible businesses may claim should be uniform. The terms “taxpayer” and “eligible taxpayer” are used interchangeably, and usage should be uniform.
The lack of definition for “payroll taxes” is highly problematic. The phrase “payroll taxes” is a nebulous concept and is not a term of art. The conception of “payroll taxes” may include things such as local taxes, state taxes, federal taxes and FICA taxes. For this bill to be properly administered, the term needs to be clearly defined to include the specific taxes the bill contemplates. Additionally, there are other terms that are lacking a definition, such as:
● Small Business
● Newly formed businesses
● Member
● Employee hours
This bill has an effective date of July 1, 2024 and ends on December 31, 2027. It applies to tax years 2025, 2026, and 2027.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov