FISCAL NOTE

Date Requested: February 23, 2021
Time Requested: 12:27 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
2168 Introduced HB2644
CBD Subject:


FUND(S):

General Revenue Fund, local governments

Sources of Revenue:

General Fund local property tax revenue

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 enact the West Virginia Innovation Free-Trade Act of 2021 consisting of West Virginia Innovation Free-Trade Business Technology Property Valuation Act and the West Virginia Innovation Free-Trade Tax Credit Act, the purpose of which is to encourage the development and use in this state of emerging technologies to create good jobs and grow West Virginia’s economy. The bill defines terms. The bill specifies the method of valuation of certain property. The bill provides for application to county assessors by specified date. The bill provides a procedure for protest and appeal of determination by county assessor. The bill requires the West Virginia Development Office to report to the Joint Committee on Government Finance on the economic impact. The bill makes legislative findings. The bill allows credit and exemption from certain taxes. The bill provides for computation of credit, application of credit and period for which credit is allowed. The bill requires an application to claim the credit. The bill requires that new jobs be good-paying jobs with health benefits. The bill requires identification of investment credit property and recomputation of credit in event of premature disposition of investment property. The bill provides for forfeiture of unused tax credits and redetermination of credit allowed. The bill imposes recapture tax under specified circumstances to recover state taxes and property taxes. The bill allows transfer of qualified investment to successors. The bill provides rules for failure to keep records of investment credit property. The bill provides rules for interpretation and construction of act. The bill provides for tax credit review and accountability. The bill specifies effective dates and termination dates. The bill provides rule-making authority. The bill provides a severability clause. As written, this bill would create a tax credit for capital investment and development of the use in West Virginia of “innovative business technologies,” would set the valuation, for Property Tax purposes, of “innovative business technologies” at 5 percent of the original cost, and would provide an exemption for eligible businesses from sales and use taxes on tangible personal property (excluding motor fuels and motor vehicles, unless the vehicle is an alternative fuel vehicle) and services purchased for use or consumption by the eligible taxpayer in the emerging technology business activity. The bill indicates “innovative business technologies” includes, but is not limited to, emerging technologies and other business technologies that primarily use state-of-the-art methodologies, practices or techniques to manufacture, produce or provide its primary goods or services. The tax credit would be available to new businesses or a new segment of a business primarily engaged in an emerging technology industry or is primarily utilizing new innovative business technologies. The amount of credit is based upon the amount of qualified investment and number of jobs created. Additionally, the bill provides criteria for the eligible new jobs, including the median compensation and benefits. Also, reports on the tax credit and Property Tax valuation are required. The State Tax Department does not have sufficient data to estimate the potential revenue impact of this proposed credit or the proposed Property Tax valuation. The proposed local Property Tax valuation provision is new. However, most of the other proposed State tax incentives in this bill would largely duplicate benefits already offered under existing tax policies, such as direct use exemptions under the Consumers Sales and Service Tax, the Economic Opportunity Tax Credit for job creation or the Manufacturing Investment Tax Credit. Tax provisions adding duplicative tax benefits tend to add additional complexity to the Tax Code with some increase in compliance costs. The provisions of this bill provide for tax credits against the Business Franchise Tax, even though that tax was effectively removed for businesses as of 2015. Administrative costs incurred by the State Tax Department would be $35,000 in FY2022 and $10,000 per year in fiscal years thereafter. Additional administrative costs for local governments would be minimal.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2021
Increase/Decrease
(use"-")
2022
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 35,000 10,000
Personal Services 0 10,000 10,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 25,000 0
2. Estimated Total Revenues 0 0 0


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


As written, this bill would create a tax credit for capital investment and development of the use in West Virginia of “innovative business technologies,” would set the valuation, for Property Tax purposes, of “innovative business technologies” at 5 percent of the original cost, and would provide an exemption for eligible businesses from sales and use taxes on tangible personal property (excluding motor fuels and motor vehicles, unless the vehicle is an alternative fuel vehicle) and services purchased for use or consumption by the eligible taxpayer in the emerging technology business activity. The bill indicates “innovative business technologies” includes, but is not limited to, emerging technologies and other business technologies that primarily use state-of-the-art methodologies, practices or techniques to manufacture, produce or provide its primary goods or services. The tax credit would be available to new businesses or a new segment of a business primarily engaged in an emerging technology industry or is primarily utilizing new innovative business technologies. The amount of credit is based upon the amount of qualified investment and number of jobs created. Additionally, the bill provides criteria for the eligible new jobs, including the median compensation and benefits. Also, reports on the tax credit and Property Tax valuation are required. The State Tax Department does not have sufficient data to estimate the potential revenue impact of this proposed credit or the proposed Property Tax valuation. The proposed local Property Tax valuation provision is new. However, most of the other proposed State tax incentives in this bill would largely duplicate benefits already offered under existing tax policies, such as direct use exemptions under the Consumers Sales and Service Tax, the Economic Opportunity Tax Credit for job creation or the Manufacturing Investment Tax Credit. Tax provisions adding duplicative tax benefits tend to add additional complexity to the Tax Code with some increase in compliance costs. The provisions of this bill provide for tax credits against the Business Franchise Tax, even though that tax was effectively removed for businesses as of 2015. Administrative costs incurred by the State Tax Department would be $35,000 in FY2022 and $10,000 per year in fiscal years thereafter. Additional administrative costs for local governments would be minimal.



Memorandum


The stated purpose of this bill is to enact the West Virginia Innovation Free-Trade Act of 2021 consisting of West Virginia Innovation Free-Trade Business Technology Property Valuation Act and the West Virginia Innovation Free-Trade Tax Credit Act, the purpose of which is to encourage the development and use in this state of emerging technologies to create good jobs and grow West Virginia’s economy. The bill defines terms. The bill specifies the method of valuation of certain property. The bill provides for application to county assessors by specified date. The bill provides a procedure for protest and appeal of determination by county assessor. The bill requires the West Virginia Development Office to report to the Joint Committee on Government Finance on the economic impact. The bill makes legislative findings. The bill allows credit and exemption from certain taxes. The bill provides for computation of credit, application of credit and period for which credit is allowed. The bill requires an application to claim the credit. The bill requires that new jobs be good-paying jobs with health benefits. The bill requires identification of investment credit property and recomputation of credit in event of premature disposition of investment property. The bill provides for forfeiture of unused tax credits and redetermination of credit allowed. The bill imposes recapture tax under specified circumstances to recover state taxes and property taxes. The bill allows transfer of qualified investment to successors. The bill provides rules for failure to keep records of investment credit property. The bill provides rules for interpretation and construction of act. The bill provides for tax credit review and accountability. The bill specifies effective dates and termination dates. The bill provides rule-making authority. The bill provides a severability clause. The bill creates preferential property tax valuation and a tax credit for the use of innovative technologies. While this bill does broadly define components of “innovative technology”, more detail regarding its history would be useful for purposes of the proposed tax credit. The reference in this bill to the Business Franchise Tax should be removed as it terminated on January 1, 2015.



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