FISCAL NOTE

Date Requested: March 12, 2021
Time Requested: 11:27 AM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1303 Introduced HB3116
CBD Subject: Taxation


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 provide a refundable Earned Income Tax Credit from state personal income tax for taxpayers who also qualify for the Earned Income Tax Credit on their federal income tax. According to our interpretation, if passed, the legislation would add a new section of code creating a refundable tax credit based on a percentage of the Federal Earned Income Credit (Federal EITC) allowable. The amount of credit would gradually increase from a base of 25 percent of the allowable Federal EITC in TY2022 to 28 percent of the Federal EITC for tax years after December 31, 2025. The credit would only be available to full-year West Virginia residents. Per our interpretation, if the credit is first applied to any tax liability and the remaining credit is refunded, there would be a loss in General Revenue collections of $79.6 million in FY2023 and slightly increasing losses as the percentage of credit allowable increases in subsequent fiscal years. The American Rescue Plan Act of 2021, which was signed into law on March 11, 2021, temporarily expands the eligibility and value of the Federal Earned Income Tax Credit for tax year 2021. If Congress continues the program into future years, it would increase the revenue loss of the proposed West Virginia refundable tax credit by as much as $15.8 million per year. In addition, the West Virginia credit would be tied into the Federal credit and West Virginia would automatically be subject to any future changes in the Federal credit. Additional costs to the State Tax Department would be $184,200 in FY2022 and $170,000 in subsequent fiscal years.



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 0 184,200 170,000
Personal Services 0 160,000 160,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 4,200 0
Other 0 20,000 10,000
2. Estimated Total Revenues 0 0 -79,600,000


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


According to our interpretation, if passed, the legislation would add a new section of code creating a refundable tax credit based on a percentage of the Federal Earned Income Credit (Federal EITC) allowable. The amount of credit would gradually increase from a base of 25 percent of the allowable Federal EITC in TY2022 to 28 percent of the Federal EITC for tax years after December 31, 2025. The credit would only be available to full-year West Virginia residents. Per our interpretation, if the credit is first applied to any tax liability and the remaining credit is refunded, there would be a loss in General Revenue collections of $79.6 million in FY2023 and slightly increasing losses as the percentage of credit allowable increases in subsequent fiscal years. The American Rescue Plan Act of 2021, which was signed into law on March 11, 2021, temporarily expands the eligibility and value of the Federal Earned Income Tax Credit for tax year 2021. If Congress continues the program into future years, it would increase the revenue loss of the proposed West Virginia refundable tax credit by as much as $15.8 million per year. In addition, the West Virginia credit would be tied into the Federal credit and West Virginia would automatically be subject to any future changes in the Federal credit. Additional costs to the State Tax Department would be $184,200 in FY2022 and $170,000 in subsequent fiscal years.



Memorandum


The stated purpose of this bill is to provide a refundable Earned Income Tax Credit from state personal income tax for taxpayers who also qualify for the Earned Income Tax Credit on their federal income tax. The bill phases in a state earned income tax credit (WVEITC), based on a percentage of the Federal Earned Income Credit (Federal EITC). The bill provides that a resident may claim a refund in the amount, if any, by which the applicable percentage specified of the Federal EITC as allowable for the taxable year exceeds the state personal income tax for the taxable year. The language appears to mean that the state credit is allowed only when the applicable percentage multiplied by the allowable Federal EITC is greater than the taxpayer’s state personal income tax. This result may not meet the intended purpose of the legislation.



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