FISCAL NOTE
Date Requested: January 12, 2023
Time Requested: 07:45 PM |
| Agency: |
Tax & Revenue Department, WV State |
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| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2272 |
Introduced |
HB2002 |
|
|---|
| CBD Subject: |
Taxation |
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|
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 increase support for families.
This fiscal note only addresses the tax provisions within the bill. Based on our interpretation, the bill would establish a refundable one-time personal income tax credit of up to $5,000 based on qualified expenses paid by the taxpayer in the process of an adoption for tax years beginning after December 31, 2022. The taxpayer may elect to take the adoption credit as a refundable credit or to claim the credit over three successive tax years. The credit may not be carried back to any prior taxable year. The bill defines qualified adoption expenses as reasonable and necessary adoption fees, court costs, attorney fees and other expenses which are directly related to the legal adoption of an eligible child by the taxpayer. Adoptions of a child who is not a citizen or resident of the United States are not eligible for the tax credit. In addition, the bill adds a $2,000 personal exemption for an unborn child for tax years beginning on or after July 1, 2023.
According to our interpretation, passage of the bill would result in an increase in General Revenue Fund collections of $100,000 in FY2024 and a decrease in General Revenue Fund collections of roughly $1.0 million in FY2025, and in subsequent fiscal years. The wording of the proposed legislation restricts the ability of taxpayers to fully utilize the adoption credit because the amount of credit is limited to qualified adoption expenses paid by the taxpayer. This limitation reduces the value of the credit and would increase General Revenue Fund collections by roughly $100,000 per year. For estimation purposes, it is assumed that a taxpayer could not claim two personal exemptions for a child who is both conceived and born in the same tax year. Based on this assumption, the addition of a personal exemption for an unborn child would reduce General Revenue Fund collections by roughly $1.1 million per year.
Additional administrative costs incurred by the State Tax Department would be $20,000 in FY2024.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2023
Increase/Decrease
(use"-") |
2024
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
20,000 |
0 |
| Personal Services |
0 |
5,000 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
15,000 |
0 |
| 2. Estimated Total Revenues |
0 |
100,000 |
-1,000,000 |
Explanation of above estimates (including long-range effect):
Based on our interpretation, the bill would establish a refundable one-time personal income tax credit of up to $5,000 based on qualified expenses paid by the taxpayer in the process of an adoption for tax years beginning after December 31, 2022. The taxpayer may elect to take the adoption credit as a refundable credit or to claim the credit over three successive tax years. The credit may not be carried back to any prior taxable year. The bill defines qualified adoption expenses as reasonable and necessary adoption fees, court costs, attorney fees and other expenses which are directly related to the legal adoption of an eligible child by the taxpayer. Adoptions of a child who is not a citizen or resident of the United States are not eligible for the tax credit. In addition, the bill adds a $2,000 personal exemption for an unborn child for tax years beginning on or after July 1, 2023.
According to our interpretation, passage of the bill would result in an increase in General Revenue Fund collections of $100,000 in FY2024 and a decrease in General Revenue Fund collections of roughly $1.0 million in FY2025, and in subsequent fiscal years. The wording of the proposed legislation restricts the ability of taxpayers to fully utilize the adoption credit because the amount of credit is limited to qualified adoption expenses paid by the taxpayer. This limitation reduces the value of the credit and would increase General Revenue Fund collections by roughly $100,000 per year. For estimation purposes, it is assumed that a taxpayer could not claim two personal exemptions for a child who is both conceived and born in the same tax year. Based on this assumption, the addition of a personal exemption for an unborn child would reduce General Revenue Fund collections by roughly $1.1 million per year.
Additional administrative costs incurred by the State Tax Department would be $20,000 in FY2024.
Memorandum
The stated purpose of this bill is to increase support for families.
There is no internal effective date in the bill although the amendments make clear that the current “nonfamily adoption” tax credit with its unique provisions applies only to tax years through 2022, with the new credit applying to tax years 2023 forward. As written, this permits taxpayers who are seeking the current tax credit ($4,000) under the current law to still carry forward credit from the $4,000 amount (for up to three years).
Subsection (c) may be subject to multiple interpretations; it appears to mean that if one incurs expenses prior to the year of adoption, then the credit can be claimed in the year the adoption is final. If expenses are incurred in the year of adoption or after, then one can claim the credit in the year the expense was incurred or paid. Subject to the $5,000 cap, this would mean that there could be multiple years in which a credit may be claimed: the year of the adoption and any other later year in which expenses were incurred.
However, the (current) $4,000 credit amount is not connected to adoption “expenses” and uses the term “in the year of adoption.” It is unclear whether that means that those taking the $4,000 credit in 2022 might also be able to take the refundable $5,000 credit in 2023 based upon their adoption “expenses” in 2022 since the new credit is “allowed for any expense paid or incurred before the taxable year in which the adoption was final.”
For taxable years beginning on or after July 1, 2023, a resident individual shall be allowed a West Virginia exemption of $2,000 for an unborn child of the resident individual who is not aborted. “Unborn child” is not defined. This would apparently permit a personal exemption in the year before the child is born. As stillbirths and miscarriages are not excepted, those events would apparently not result in the individual exemption being later disallowed. This varies from federal law where exemption for an unborn child is not allowed.
The bill appears to have a title defect as the title does not mention the $2,000 exemption for an unborn child.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov