FISCAL NOTE
Date Requested: February 15, 2022
Time Requested: 09:26 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2676 |
Introduced |
HB4760 |
|
|---|
| 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 tax credit to for-profit and nonprofit corporations to encourage the establishment of child-care facilities for the benefit of their employees. The credit for for-profit corporations would be taken against the corporate net income tax. The credit for nonprofit corporations would apply to payroll withholdings and would allow the nonprofit to recoup costs associated with employer-provided childcare by keeping a certain percentage of employee personal income tax withholdings that would otherwise be remitted to the State Tax Department.
The provisions of this bill would create two separate tax credits related to childcare costs paid by employers.
The most significant of the two tax credits would be equal to 100% of the cost of employer provided or employer sponsored day care for employees less any employee share of such costs. This tax credit would offset up to 50% of annual corporation net income tax for for-profit employers and up to 50% of employee withholding taxes payable for non-profit corporation employers. Excess tax credits would be available for carryover for a period of up to five years. Employers must certify to the Tax Department the names of the employees, the name of the childcare provider, and other information necessary to ensure that tax credits relate only to employees receiving daycare services provided or sponsored by their employer.
The second tax credit is a 100% capital investment tax credit for qualified investment placed in service on or after July 1, 2022, in an employer provided childcare facility intended for the sole benefit of the qualified employer. The tax investment credit would be pro-rated for use over a five-year period at a rate of 20% per year. The tax credit in conjunction with other available tax credits would offset up to 50% of annual corporation net income tax for for-profit employers and up to 50% of employee withholding taxes payable for non-profit corporation employers. Excess tax credits would be carried over for an additional period of up to three years. If the employer removes qualified property from service prior to the expiration of 13 ensuing years, the employer would be subject to some possible recapture of tax credits.
Since 501(c)(3) and 501(c)(6) non-profit corporations are already exempt from both federal and West Virginia income taxes, these proposed credits would be taken against the employee’s payroll withholding tax that were withheld by the employer. The Withholding Tax is a tax withheld from employees’ pay and not a tax paid by the employer.
Nationally, roughly 6 percent of companies currently offer employees childcare benefits while both parents are employed in 63 percent of American families with children. Passage of this bill will likely yield a reduction in the General Revenue Fund of some significance beginning in FY2023 largely due to the 100 percent tax credit for the cost of employer-provided or employer-sponsored childcare services.
Additional administrative costs incurred by the State Tax Department would be $45,000 in FY2024 and $20,000 per year in subsequent fiscal years.
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 |
0 |
20,000 |
| Personal Services |
0 |
0 |
20,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
The provisions of this bill would create two separate tax credits related to childcare costs paid by employers.
The most significant of the two tax credits would be equal to 100% of the cost of employer provided or employer sponsored day care for employees less any employee share of such costs. This tax credit would offset up to 50% of annual corporation net income tax for for-profit employers and up to 50% of employee withholding taxes payable for non-profit corporation employers. Excess tax credits would be available for carryover for a period of up to five years. Employers must certify to the Tax Department the names of the employees, the name of the childcare provider, and other information necessary to ensure that tax credits relate only to employees receiving daycare services provided or sponsored by their employer.
The second tax credit is a 100% capital investment tax credit for qualified investment placed in service on or after July 1, 2022, in an employer provided childcare facility intended for the sole benefit of the qualified employer. The tax investment credit would be pro-rated for use over a five-year period at a rate of 20% per year. The tax credit in conjunction with other available tax credits would offset up to 50% of annual corporation net income tax for for-profit employers and up to 50% of employee withholding taxes payable for non-profit corporation employers. Excess tax credits would be carried over for an additional period of up to three years. If the employer removes qualified property from service prior to the expiration of 13 ensuing years, the employer would be subject to some possible recapture of tax credits.
Since 501(c)(3) and 501(c)(6) non-profit corporations are already exempt from both federal and West Virginia income taxes, these proposed credits would be taken against the employee’s payroll withholding tax that were withheld by the employer. The Withholding Tax is a tax withheld from employees’ pay and not a tax paid by the employer.
Nationally, roughly 6 percent of companies currently offer employees childcare benefits while both parents are employed in 63 percent of American families with children. Passage of this bill will likely yield a reduction in the General Revenue Fund of some significance beginning in FY2023 largely due to the 100 percent tax credit for the cost of employer-provided or employer-sponsored childcare services.
Additional administrative costs incurred by the State Tax Department would be $45,000 in FY2024 and $20,000 per year in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to provide a tax credit to for-profit and nonprofit corporations to encourage the establishment of child-care facilities for the benefit of their employees. The credit for for-profit corporations would be taken against the corporate net income tax. The credit for nonprofit corporations would apply to payroll withholdings and would allow the nonprofit to recoup costs associated with employer-provided childcare by keeping a certain percentage of employee personal income tax withholdings that would otherwise be remitted to the State Tax Department.
Paragraph (C) under proposed section 11-24-44(d) states, “The tax imposed under this article for the recapture year shall be increased by the excess of the recapture amount over the amounts taken into account under subparagraphs (A) and (B) of this paragraph, as applicable,” which is inappropriate, because the tax due is based upon the IRC and Chapter 11, Articles 21 and 24. A credit is claimed against tax due but does not change the amount of tax due.
Subsection (e) sets forth a credit for operating costs, which is equal to “100 percent of the cost of operation to the employer less any amounts paid for by employees during a taxable year.” This language is excessively vague and ripe for exploitation. The credit is available to employers who provide or sponsor childcare for employees.
Subsection (g) sets forth “Credit applied to non-profit corporations,” stating the credit shall be taken against employee payroll withholdings made pursuant to §11-21-71 of the code. It is not clear whether this section means the subsection (b) or (e) credit, or both.
Credit recapture for the Credit for Capital Investment in Child Care Property is allowed for fourteen years; however, this credit must be claimed in five years.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov