FISCAL NOTE
Date Requested: February 12, 2020
Time Requested: 10:38 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3194 |
Introduced |
HB4892 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund, Personal Income Tax Reduction Fund
Sources of Revenue:
General Fund Personal Income Tax Reduction Fund
Legislation creates:
Decreases Existing Revenue, Increases Existing Expenses, Creates New Fund: Personal Income Tax Reduction Fund
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purposed of this bill is to direct certain revenue sources into a new Personal Income Tax Reduction Fund. When the balance of the fund reaches a certain threshold at the end of a fiscal year, state personal income tax rates will reduce by a quarter percent beginning Jan 1 of the following calendar year. Then, at the beginning of the next fiscal year, the amount equal to that threshold will be deposited from the Personal Income Tax Reduction Fund into the General Revenue Fund of the state. Each time these events occur, the personal income tax rates will be reduced by 0.25%.
This fiscal note addresses only tax-related provisions. Estimates associated with Lottery Fund diversions would come from the Lottery Commission.
The proposed bill would establish a new Personal Income Tax Reduction Fund. This fund will have deposits made into it on and after January 1, 2020 from various sources including sales and use collections on all sales made through the internet, several revenue sources generated from the State Lottery Commission, and 25 percent of surplus revenues. At the end of any fiscal year, if the Personal Income Tax Reduction Fund is funded at an amount equal to or exceeding 2.5 times the total net reduction in personal income tax revenue collections that would have been received in that fiscal year if the income tax rates for that fiscal year had been reduced by 0.25 percent, the Secretary of Revenue shall certify the fund to the State Tax Commissioner on or before the next ensuing July 31. Upon certification, for all taxable years beginning on or after the next ensuing January 1, the personal income tax rate decreases by 0.25 percent in each tax bracket for all taxpayers. In addition, upon certification, on the next ensuing July 1, the Secretary of Revenue shall transfer the above calculated minimum funding amount from the Personal Income Tax Reduction Fund to the General Revenue Fund of the state.
The proposed bill would redirect the net amount of all state sale and use tax collections on all sales made through the internet. This provision is subject to varying interpretations as to what determines a sale “made through the internet”. The broadest interpretation of this provision would include all sales in which the internet was used to order, ship, or buy a product whether the sale was completed on-line or at a brick and mortar store. Per this interpretation, the reduction in General Revenue Fund collections would be roughly $65 million in FY2020 and $170 million in FY2021, and by increasing amounts over time as internet sales as a share of total sales grow in subsequent fiscal years.
According to the provisions of the bill, the Personal Income Tax rate is reduced in the following calendar year after the Personal Income Tax Reduction Fund is equal to or exceeds 2.5 times the total net reduction in personal income tax revenue collections that would have been received in the fiscal year if the income tax rates for that fiscal year had been reduced by 0.25 percent. The Personal Income Tax rate would be reduced by 0.25 percent in each tax bracket for all taxpayers when this occurs. The first year that the rate reduction would be applicable is for Tax Year 2022 which would affect Fiscal Year 2023 General Revenue Fund collections. If this Personal Income Tax rate reduction were to occur General Revenue Fund collections would reduce by roughly $120 million in FY2023. This bill has the potential to diminish the Personal Income Tax rates nearly every calendar year when the Personal Income Tax Reduction Fund meets the funding requirements in the prior fiscal year, to the point of effectively abolishing the Personal Income Tax.
Additional administrative costs incurred by the State Tax Department would be $35,000 in FY2020, $20,000 in FY2020 and $100,000 in each fiscal year thereafter.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2020
Increase/Decrease
(use"-") |
2021
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
35,000 |
20,000 |
100,000 |
| Personal Services |
0 |
20,000 |
20,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
35,000 |
0 |
80,000 |
| 2. Estimated Total Revenues |
-65,000,000 |
-170,000,000 |
0 |
Explanation of above estimates (including long-range effect):
This fiscal note addresses only tax-related provisions. Estimates associated with Lottery Fund diversions would come from the Lottery Commission.
The proposed bill would establish a new Personal Income Tax Reduction Fund. This fund will have deposits made into it on and after January 1, 2020 from various sources including sales and use collections on all sales made through the internet, several revenue sources generated from the State Lottery Commission, and 25 percent of surplus revenues. At the end of any fiscal year, if the Personal Income Tax Reduction Fund is funded at an amount equal to or exceeding 2.5 times the total net reduction in personal income tax revenue collections that would have been received in that fiscal year if the income tax rates for that fiscal year had been reduced by 0.25 percent, the Secretary of Revenue shall certify the fund to the State Tax Commissioner on or before the next ensuing July 31. Upon certification, for all taxable years beginning on or after the next ensuing January 1, the personal income tax rate decreases by 0.25 percent in each tax bracket for all taxpayers. In addition, upon certification, on the next ensuing July 1, the Secretary of Revenue shall transfer the above calculated minimum funding amount from the Personal Income Tax Reduction Fund to the General Revenue Fund of the state.
The proposed bill would redirect the net amount of all state sale and use tax collections on all sales made through the internet. This provision is subject to varying interpretations as to what determines a sale “made through the internet”. The broadest interpretation of this provision would include all sales in which the internet was used to order, ship, or buy a product whether the sale was completed on-line or at a brick and mortar store. Per this interpretation, the reduction in General Revenue Fund collections would be roughly $65 million in FY2020 and $170 million in FY2021, and by increasing amounts over time as internet sales as a share of total sales grow in subsequent fiscal years.
According to the provisions of the bill, the Personal Income Tax rate is reduced in the following calendar year after the Personal Income Tax Reduction Fund is equal to or exceeds 2.5 times the total net reduction in personal income tax revenue collections that would have been received in the fiscal year if the income tax rates for that fiscal year had been reduced by 0.25 percent. The Personal Income Tax rate would be reduced by 0.25 percent in each tax bracket for all taxpayers when this occurs. The first year that the rate reduction would be applicable is for Tax Year 2022 which would affect Fiscal Year 2023 General Revenue Fund collections. If this Personal Income Tax rate reduction were to occur General Revenue Fund collections would reduce by roughly $120 million in FY2023. This bill has the potential to diminish the Personal Income Tax rates nearly every calendar year when the Personal Income Tax Reduction Fund meets the funding requirements in the prior fiscal year, to the point of effectively abolishing the Personal Income Tax.
The automatic shifting of funds from current appropriations to a tax reduction fund might require more frequent Legislative Sessions to make necessary mid-year budgetary adjustments with associated additional administrative costs.
Additional administrative costs incurred by the State Tax Department would be $35,000 in FY2020, $20,000 in FY2020 and $100,000 in each fiscal year thereafter.
Memorandum
The stated purposed of this bill is to direct certain revenue sources into a new Personal Income Tax Reduction Fund. When the balance of the fund reaches a certain threshold at the end of a fiscal year, state personal income tax rates will reduce by a quarter percent beginning Jan 1 of the following calendar year. Then, at the beginning of the next fiscal year, the amount equal to that threshold will be deposited from the Personal Income Tax Reduction Fund into the General Revenue Fund of the state. Each time these events occur, the personal income tax rates will be reduced by 0.25%.
This bill would not accomplish its purported purpose and the formula is inherently flawed. According to the provisions of the bill, Personal Income Tax rates shall be determined pursuant to 11B-2-22, which is in the article establishing the Budget Office. It is not appropriate for Personal Income Tax rates to be determined in any article other than Chapter 11, Article 21. The bill creates the Personal Income Tax Reduction fund in 11B-2-33(a) and uses vague language that the fund will be funded continuously and on a revolving basis as well as vague references to other provisions of the code.
Subsection (b) sets forth how this fund will be funded. The only subdivision that pertains to a tax administered by the Tax Commissioner is the first, which includes any sales and use tax from internet sales after January 1, 2020. It may be difficult to administer this provision. Gathering this data may require core Gentax programming changes, which could cost millions of dollars. It is unclear how the municipal sales tax administered by the State Tax Commissioner will be treated.
Subsection (c) provides that, if the fund reaches “an amount equal to or exceeding 2.5 times the total net reduction in personal income tax revenue collections that would have been received in that fiscal year if the income tax rates for that fiscal year had been reduced by 0.25 percent,” then the Secretary of Revenue shall certify this information to the State Tax Commissioner on or before the next July 31. This standard is extremely vague, subject to misinterpretation, and the amount will change yearly. The bill is silent regarding who makes the calculation. Once certified, this section will determine the Personal Income Tax rates, which may be reduced 0.25 percent. After the certification, on the next ensuing July 1, the Secretary of Revenue shall transfer the sum of the multiplication described above from the Personal Income Tax Reduction Fund to the General Revenue Fund.
Subsection (e) provides that the Tax Commissioner shall issue Administrative Notices informing the taxpaying public what the rates will be. This is not sufficient notice to employers, pass-through entities, and banks, all of whom have withholding requirements, and taxpayers who may be required to make estimated income tax payments.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov