FISCAL NOTE
Date Requested: March 18, 2021
Time Requested: 11:15 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2458 |
Introduced |
SB424 |
|
|---|
| 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 create a fixed income tax credit for low-income workers, establish procedures for claiming the credit, and define terms.
According to our interpretation, the bill, if passed, would create the Fixed Income Credit for Low-income Senior Citizens. For tax years beginning on or after January 1, 2022, any resident of West Virginia who is a low-income senior citizen and has reported fixed income on their federal income tax return of more than $1,000 but less than $20,000 is allowed a credit under this bill. The amount of credit is equal to one percent of the applicant’s fixed income on their federal income tax return, reduced by four percent for every percentage point the taxpayer is above 125 percent of the federal poverty guideline. “Low income” is defined as federal adjusted gross income for the tax year that is 150 percent or less of the federal poverty guideline based upon the number of individuals in the household. To qualify as a low-income senior citizen, an applicant must be 65 years of age or older and meet the definition of “low income”. Under this bill, “fixed income” is any income reported by the credit applicant on their federal return that is not “earned income” as defined by the Internal Revenue Code.
Per our interpretation, more than 80,000 West Virginia senior citizens who are currently filing a state return would be within the 150 percent federal poverty guidelines. Of those, more than 70,000 would potentially be eligible for the full calculated credit amount. In addition, more than 50,000 West Virginia senior citizens who file a federal return, but are not required to file a state return, would likely fall within the guidelines. Information on the unearned income of senior citizens who may be eligible for the credit is not available from state or federal sources. Though it is not possible to generate an accurate estimate of the loss in collections to the General Revenue Fund, data suggests that the loss would be in the range of $10 to $20 million annually starting in FY2023.
Additional administrative costs incurred by the State Tax Department would be $61,500 in FY2023 and $40,000 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 |
0 |
40,000 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
0 |
40,000 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the bill, if passed, would create the Fixed Income Credit for Low-income Senior Citizens. For tax years beginning on or after January 1, 2022, any resident of West Virginia who is a low-income senior citizen and has reported fixed income on their federal income tax return of more than $1,000 but less than $20,000 is allowed a credit under this bill. The amount of credit is equal to one percent of the applicant’s fixed income on their federal income tax return, reduced by four percent for every percentage point the taxpayer is above 125 percent of the federal poverty guideline. “Low income” is defined as federal adjusted gross income for the tax year that is 150 percent or less of the federal poverty guideline based upon the number of individuals in the household. To qualify as a low-income senior citizen, an applicant must be 65 years of age or older and meet the definition of “low income”. Under this bill, “fixed income” is any income reported by the credit applicant on their federal return that is not “earned income” as defined by the Internal Revenue Code.
Per our interpretation, more than 80,000 West Virginia senior citizens who are currently filing a state return would be within the 150 percent federal poverty guidelines. Of those, more than 70,000 would potentially be eligible for the full calculated credit amount. In addition, more than 50,000 West Virginia senior citizens who file a federal return, but are not required to file a state return, would likely fall within the guidelines. Information on the unearned income of senior citizens who may be eligible for the credit is not available from state or federal sources. Though it is not possible to generate an accurate estimate of the loss in collections to the General Revenue Fund, data suggests that the loss would be in the range of $10 to $20 million annually starting in FY2023.
Additional administrative costs incurred by the State Tax Department would be $61,500 in FY2023 and $40,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to create a fixed income tax credit for low-income workers, establish procedures for claiming the credit, and define terms.
It is perhaps incorrect to say that this is a “tax credit” because it does not appear to be offsetting any tax liability or be applied against any existing tax. The bill does not provide the Tax Department sufficient authority to implement this tax credit as there is no rule making authority, and the bill does not make the credit subject to the Tax Procedure and Administration Act or the Crimes and Penalties Act. The bill title does not mention that this “tax credit” is refundable and does not require the claimant to pay or file any taxes. There is no provision for recapture of the tax credit if it is determined that the claimant was not entitled, or if there was an overpayment.
The bill states that the credit must be claimed within one month of filing their federal tax return. Depending on the timing of the federal filing, this may make the application for credit due before a taxpayer’s Personal Income Tax return is due to the State. It will also be impossible for the Tax Department to monitor who has timely filed the application for the tax credit because the State Tax Department does not generally receive copies of federal returns. The Tax Commissioner is to remit the credit to the taxpayer within 90 days following receipt of a properly filled out claim. This will be difficult for the Tax Department to administer as there will likely be a number of claims for the credit during the West Virginia Personal Income Tax filing season. The bill does not state what happens if a claim is not paid within 90 days or if the claim is rejected. Also, it is unclear if the credit amount can be used to offset any tax liability.
The credit amount is determined by calculating one percent of the income, excluding earned income, claimed by the claimant on their federal income tax return. This may be difficult to determine as there is no spot on the federal tax return that lists an amount of “unearned income” that is being taxed. A claimant would need to add together various forms of income reported on the federal tax return to determine the amount eligible for the credit. It is unclear how the Tax Department is to monitor or enforce the amount claimed on the credit because the Tax Department does not receive a copy of the federal return.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov