FISCAL NOTE

Date Requested: February 27, 2020
Time Requested: 12:04 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1307 Introduced HB4159
CBD Subject: Alcoholic Liquors and Beers


FUND(S):

General Revenue Fund

Sources of Revenue:

General Fund Agriculture Development Fund

Legislation creates:

Creates New Revenue, Decreases Existing Revenue, Increases Existing Expenses, Creates New Fund: Agriculture Development Fund



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


The stated purpose of this bill is to facilitate the economic development of hard cider in the state by reclassifying hard cider in code. According to our interpretation, this bill would exempt hard cider from the Wine Liter Tax. Hard cider is currently taxed at the Wine Liter Tax rate of $1.00 per gallon. Effective July 1, 2020, hard cider would be taxed at the rate of 22.6 cents per gallon, and the revenues would be deposited in a special revenue account in the State Treasury known as the Agriculture Development Fund. The bill provides that wineries, farm wineries, and suppliers eligible for federal tax credits would be eligible for these credits in West Virginia. This bill defines hard cider as a type of wine that is derived primarily from the fermentation of apples, peaches, honey, or other fruit, or from apple, pear, peach or other fruit juice concentrate and water with an alcohol volume content between 0.5 percent and 12.5 percent. According to the most recent West Virginia Wine Liter Tax return data, roughly 140,000 gallons of hard cider were sold in West Virginia. The hard cider exemption from the Wine Liter Tax would reduce General Revenue Fund collections by approximately $140,000 per year beginning in FY2021 and thereafter. The new tax on hard cider would generate roughly $30,000 per year for the Agriculture Development Fund in FY2021 and thereafter. Additional administrative costs incurred by the State Tax Department would be $40,000 in FY2020 and $5,000 in subsequent fiscal years. Sections of this bill pertaining to licensing of hard cider would be administered by the Alcohol Beverage Commission



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 40,000 5,000 5,000
Personal Services 0 5,000 5,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 40,000 0 0
2. Estimated Total Revenues 0 -140,000 -140,000


Explanation of above estimates (including long-range effect):


According to our interpretation, this bill would exempt hard cider from the Wine Liter Tax. Hard cider is currently taxed at the Wine Liter Tax rate of $1.00 per gallon. Effective July 1, 2020, hard cider would be taxed at the rate of 22.6 cents per gallon, and the revenues would be deposited in a special revenue account in the State Treasury known as the Agriculture Development Fund. The bill provides that wineries, farm wineries, and suppliers eligible for federal tax credits would be eligible for these credits in West Virginia. This bill defines hard cider as a type of wine that is derived primarily from the fermentation of apples, peaches, honey, or other fruit, or from apple, pear, peach or other fruit juice concentrate and water with an alcohol volume content between 0.5 percent and 12.5 percent. According to the most recent West Virginia Wine Liter Tax return data, roughly 140,000 gallons of hard cider were sold in West Virginia. The hard cider exemption from the Wine Liter Tax would reduce General Revenue Fund collections by approximately $140,000 per year beginning in FY2021 and thereafter. The new tax on hard cider would generate roughly $30,000 per year for the Agriculture Development Fund in FY2021 and thereafter. The global cider market was estimated at $4.3 billion as of 2018. and the U.S beer industry sold roughly 2.3 million barrels of cider during this same time period. The reduction of beer consumption in the United States and United Kingdom has added to the growth of improved craft hard ciders. Apple cider is the most popular type of hard cider, making up roughly 60 percent of the global hard cider market in 2018. Additional administrative costs incurred by the State Tax Department would be $40,000 in FY2020 and $5,000 in subsequent fiscal years. Sections of this bill pertaining to licensing of hard cider would be administered by Alcohol Beverage Commission



Memorandum


The stated purpose of this bill is to facilitate the economic development of hard cider in the state by reclassifying hard cider in code. This bill makes several changes to how hard cider is to be taxed, but the bill does not reclassify hard cider as it is still a type of wine. The bill does not give the Tax Commissioner any rulemaking authority. The bill title does not mention the internal effective date of this proposed tax reduction. Currently, the West Virginia Tax Procedure and Administration Act is applicable to the Wine Liter Tax. However, the bill does not make this Act applicable to the proposed tax on hard cider. Under this bill, there is a license for a “hard cider distributor”, which differs from and is licensed differently from a “distributor”. A hard cider distributor only distributes hard cider and does not distribute other types of wine. However, in the proposed hard cider tax, the generic term “distributor” is used. Clarification is needed to ensure that all sales of hard cider are covered under this proposed tax and a taxpayer does not claim that they are selling cider to a different type of distributor than that contemplated in the tax. The bill also provides that wineries, farm wineries and suppliers eligible for federal tax credits under 26 U.S.C. §5041(c)(1) will also be eligible for state tax credits. Therefore, this bill gives a state tax credit when a taxpayer may already be receiving a federal tax credit. This credit would not be allowed against the Wine Liter Tax. This may cause Constitutional concerns regarding fair and equal taxation, or possibly violate the State’s equal protection clause under Section 10 of Article 3 of the West Virginia Constitution. The bill does not mention the five percent Local Wine and Liquor Tax, which is imposed on the purchase price of the sales of wine in addition to the Consumer Sales and Use Tax. Hard cider is likely still subject to that tax, as it is still covered under the definition of wine. However, since the 5% Local Wine and Liquor Tax applies, in part to wine distributors, this new change, adding a category of hard cider distributor, may cause confusion under these taxes as well.



    Person submitting Fiscal Note: Mark Muchow
    Email Address: kerri.r.petry@wv.gov