FISCAL NOTE
Date Requested: February 09, 2022
Time Requested: 02:22 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2396 |
Introduced |
HB4460 |
|
|---|
| 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 authorize application of the manufacturing investment tax credit and the manufacturing property tax adjustment credit against personal income tax.
The proposed bill would extend the application of two separate manufacturing sector tax credits to Personal Income Tax liability associated with manufacturing business income effective for tax years beginning on or after January 1, 2023. The Manufacturing Investment Tax Credit is based on capital investment in a manufacturing facility and may offset up to 60% of tax attributable to the net income of the manufacturer. The Manufacturing Property Tax Adjustment Credit equals the amount of West Virginia tangible personal property tax paid by the manufacturer on its manufacturing inventory. This inventory tax credit may offset up to 100% of tax attributable to the net income of the manufacturer. Prior to 2015, pass-through business entities (e.g., S-corporations, partnerships, and limited liability companies) engaged in manufacturing activity could reduce their Business Franchise Tax liability with use of both the Manufacturing Investment Tax Credit and the Manufacturing Property Tax Adjustment Credit. However, ability to use such tax credits was lost when the Business Franchise Tax was effectively eliminated for all Taxpayers. Aggregate tax credit claims against the Business Franchise Tax by qualified pass-through entities were significantly less than aggregate claims by qualified C-corporations.
The existing Manufacturing Investment Tax Credit offsets Corporation Net Income Tax and Severance Tax at a cost of roughly $2.0 million per year. The current Manufacturing Property Tax Adjustment Tax Credit offsets Corporation Net Income Tax and costs roughly $2.0 million per year. Based on past history, the cost of extending these two credits to Personal Income Tax should be significantly less than the value of current claims against the Corporation Net Income Tax. However, we are unable to more accurately determine the amount of revenue loss to the General Revenue Fund in FY2024 and subsequent fiscal years.
Additional administrative costs incurred by the State Tax Department would be $20,000 in FY2024.
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 |
0 |
| Personal Services |
0 |
0 |
0 |
| 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 proposed bill would extend the application of two separate manufacturing sector tax credits to Personal Income Tax liability associated with manufacturing business income effective for tax years beginning on or after January 1, 2023. The Manufacturing Investment Tax Credit is based on capital investment in a manufacturing facility and may offset up to 60% of tax attributable to the net income of the manufacturer. The Manufacturing Property Tax Adjustment Credit equals the amount of West Virginia tangible personal property tax paid by the manufacturer on its manufacturing inventory. This inventory tax credit may offset up to 100% of tax attributable to the net income of the manufacturer. Prior to 2015, pass-through business entities (e.g., S-corporations, partnerships, and limited liability companies) engaged in manufacturing activity could reduce their Business Franchise Tax liability with use of both the Manufacturing Investment Tax Credit and the Manufacturing Property Tax Adjustment Credit. However, ability to use such tax credits was lost when the Business Franchise Tax was effectively eliminated for all Taxpayers. Aggregate tax credit claims against the Business Franchise Tax by qualified pass-through entities were significantly less than aggregate claims by qualified C-corporations.
The existing Manufacturing Investment Tax Credit offsets Corporation Net Income Tax and Severance Tax at a cost of roughly $2.0 million per year. The current Manufacturing Property Tax Adjustment Tax Credit offsets Corporation Net Income Tax and costs roughly $2.0 million per year. Based on past history, the cost of extending these two credits to Personal Income Tax should be significantly less than the value of current claims against the Corporation Net Income Tax. However, we are unable to more accurately determine the amount of revenue loss to the General Revenue Fund in FY2024 and subsequent fiscal years.
Additional administrative costs incurred by the State Tax Department would be $20,000 in FY2024.
Memorandum
The stated purpose of this bill is to authorize application of the manufacturing investment tax credit and the manufacturing property tax adjustment credit against personal income tax.
The definition of “eligible taxpayer” in the proposed new code section §11-13S-4(a)(2) does not mention the current definition of “eligible taxpayer” in §11-13S-3(a)(1), which leaves the article with two definitions for the same term. It is unclear if the current definition in §11-13S-3(a)(1) would still be in effect or if it would be replaced in its entirety by the new definition of the bill becomes law.
The amendment to the Manufacturing Investment Tax Credit contains two extra subsections (c) and (d). The bill already includes those subsections at line 136 and line 139. Both subsections (c) relate to “carryover” while the (d) subsections relate to different subjects, i.e., “application for credit required” and “annual schedule”. The language of the extra subsections (c) and (d) appear identical to the current W.Va. Code §11-13Y-5(c) and (d).
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov