FISCAL NOTE
Date Requested: March 09, 2021
Time Requested: 12:30 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3002 |
Introduced |
SB605 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Creates New 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 promulgate a tax on digital advertising in the State of West Virginia.
This bill would levy a tax on the annual gross revenues derived from digital advertising in this state. The amount is determined using an apportionment fraction, with the numerator being the annual gross revenues derived from digital advertising services in this state and the denominator being the annual gross revenues derived from digital advertising services in the United States. The tax rate would be assessed as follows:
Global Annual Gross Revenue Tax Rate
From: Through:
$100,000,000 $1,000,000,000 2.5%
$1,000,000,001 $5,000,000,000 5%
$5,000,000,001 $15,000,000,000 7.5%
Exceeding $15,000,000,000 10%
This bill would have the tax paid annually on or before April 15 each year and estimated quarterly tax on or before June 15, September 15, and December 15 of that year. Because there is no internal effective date given, the tax is first applicable to tax years beginning on January 1, 2022.
According to a report from the Tax Foundation, Maryland is the only other state to have proposed such a tax on digital advertising. Because of the difficulty of quantifying the digital advertising coming into West Virginia, and the requirement to identify the “state from which revenues from which digital advertising services are derived”, we are unable to accurately estimate the revenue impact from this bill. Any potential revenue from such a tax would be depressed in initial years due to the expectation of litigation on several fronts. In addition, there would be compliance issues regarding enforcement of the collection from foreign companies.
Additional administrative costs would be $50,000 in FY2022. For subsequent years, the State Tax Department does not have sufficient information to determine the additional costs that would be incurred. This new tax could affect a large number of taxpayers and require substantial additional costs beginning in FY2023.
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 |
50,000 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
50,000 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
This bill would levy a tax on the annual gross revenues derived from digital advertising in this state. The amount is determined using an apportionment fraction, with the numerator being the annual gross revenues derived from digital advertising services in this state and the denominator being the annual gross revenues derived from digital advertising services in the United States. The tax rate would be assessed as follows:
Global Annual Gross Revenue Tax Rate
From: Through:
$100,000,000 $1,000,000,000 2.5%
$1,000,000,001 $5,000,000,000 5%
$5,000,000,001 $15,000,000,000 7.5%
Exceeding $15,000,000,000 10%
This bill would have the tax paid annually on or before April 15 each year and estimated quarterly tax on or before June 15, September 15, and December 15 of that year. Because there is no internal effective date given, the tax is first applicable to tax years beginning on January 1, 2022.
According to a report from the Tax Foundation, Maryland is the only other state to have proposed such a tax on digital advertising. Because of the difficulty of quantifying the digital advertising coming into West Virginia, and the requirement to identify the “state from which revenues from which digital advertising services are derived”, we are unable to accurately estimate the revenue impact from this bill. Any potential revenue from such a tax would be depressed in initial years due to the expectation of litigation on several fronts. In addition, there would be compliance issues regarding enforcement of the collection from foreign companies.
Additional administrative costs would be $50,000 in FY2022. For subsequent years, the State Tax Department does not have sufficient information to determine the additional costs that would be incurred. This new tax could affect a large number of taxpayers and require substantial additional costs beginning in FY2023.
Memorandum
The stated purpose of this bill is to promulgate a tax on digital advertising in the State of West Virginia.
The bill, as written, is not sufficient for the Tax Commissioner to administer the tax.
The taxpayer shall attach records required by the Tax Commissioner. The taxpayer is required to keep records. The bill gives no time limit on record retention.
If a party reasonably expects the annual gross revenues from digital advertising services in the state to exceed $1 million, the party is to file a “declaration of estimated tax” on or before April 15 of the year the party anticipates establishing nexus. Otherwise, the party files the tax on April 15 of the year following the calendar year of attaining the qualifying annual gross revenue from the state.
The following are examples which do not conform to West Virginia’s legislative drafting manual or code language:
• Quarterly estimates are required to be filed with the “comptroller” rather than Tax Commissioner in line 8 of §11-29-4;
• Monetary amounts are not written as in the Legislative Drafting Manual; and
• The bill requires a “Declaration of estimated tax” rather than report and paying the tax.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov