FISCAL NOTE
Date Requested: February 01, 2022
Time Requested: 10:16 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2264 |
Introduced |
HB4410 |
|
|---|
| 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 cause the allocation and apportionment of income for flow-through entities to be the same as allocation and apportionment of income for C-corporations.
Per our interpretation, the bill would amend provisions of the allocation and apportionment of income of nonresidents from multistate business activity section of the West Virginia Personal Income Tax to mirror the recent legislative changes made to the allocation and apportionment section of the West Virginia Corporation Net Income Tax. The apportionment formula is used when a business has income from both inside and outside of West Virginia. The bill states that the changes do not apply to W. Va. Code §11-21-12K, §11-21-37b, and §11-21-37c. The changes would be effective for taxable years beginning on and after January 1, 2022.
Under current law, apportionment of income is typically done using a four-factor formula consisting of a property factor, a payroll factor, and a double weighted sales factor. This bill would convert the apportionment formula to a single sales factor formula with the numerator being sales in West Virginia and the denominator being sales everywhere. Businesses already incur tax liabilities on property and payroll in West Virginia. Moving to a single sales factor apportionment will prevent businesses from being penalized for locating within the state. Additional changes to the apportionment formula would include elimination of the current throw-out rule which requires taxpayers to exclude from their West Virginia business income tax calculations sales from states in which they were not subject to tax and the adoption of “market-based sourcing” for services and tangible property.
Per our interpretation, the effect of the bill will vary considerably by taxpayer based on the type of business and their economic performance in any given year. The changes to the Personal Income Tax allocation and apportionment formula of nonresident business income should be revenue neutral over time with losses associated with elimination of the throw-out rule offset by gains associated with a move to market-based sourcing for allocation of services between states.
Additional administrative costs incurred by the Tax Department would be $15,000 in FY2023.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2022
Increase/Decrease
(use"-") |
2023
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
15,000 |
0 |
| Personal Services |
0 |
5,000 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
10,000 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
Per our interpretation, the bill would amend provisions of the allocation and apportionment of income of nonresidents from multistate business activity section of the West Virginia Personal Income Tax to mirror the recent legislative changes made to the allocation and apportionment section of the West Virginia Corporation Net Income Tax. The apportionment formula is used when a business has income from both inside and outside of West Virginia. The bill states that the changes do not apply to W. Va. Code §11-21-12K, §11-21-37b, and §11-21-37c. The changes would be effective for taxable years beginning on and after January 1, 2022.
Under current law, apportionment of income is typically done using a four-factor formula consisting of a property factor, a payroll factor, and a double weighted sales factor. This bill would convert the apportionment formula to a single sales factor formula with the numerator being sales in West Virginia and the denominator being sales everywhere. Businesses already incur tax liabilities on property and payroll in West Virginia. Moving to a single sales factor apportionment will prevent businesses from being penalized for locating within the state. Additional changes to the apportionment formula would include elimination of the current throw-out rule which requires taxpayers to exclude from their West Virginia business income tax calculations sales from states in which they were not subject to tax and the adoption of “market-based sourcing” for services and tangible property.
Per our interpretation, the effect of the bill will vary considerably by taxpayer based on the type of business and their economic performance in any given year. The changes to the Personal Income Tax allocation and apportionment formula of nonresident business income should be revenue neutral over time with losses associated with elimination of the throw-out rule offset by gains associated with a move to market-based sourcing for allocation of services between states.
Additional administrative costs incurred by the Tax Department would be $15,000 in FY2023.
Memorandum
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov