FISCAL NOTE
Date Requested: February 02, 2023
Time Requested: 02:52 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3335 |
Introduced |
HB3227 |
|
|---|
| 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.
Under W.Va. Code §11-21-97, West Virginia currently has two credits offsetting both Personal Income Tax and Corporation Net Income Tax equivalent to 50 percent of the cost of operation to the employer who provides or sponsors child-care less any amounts paid by employees during a taxable year and a 100% capital investment tax credit for qualified investment placed in service on or after July 1, 2022. This bill allows the employer to be eligible for the credit if they have a contract for at least one year with a DHHR licensed provider within reasonable distance of the employer’s facility.
Under current law, qualified 501(c)(3) and 501(c)(6) non-profit corporations may transfer their tax credits to a third party. The provisions of this bill would also allow these entities to take these credits 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.
Passage of this bill will have minimal impact on the General Revenue Fund.
Additional administrative costs incurred by the State Tax Department would be $10,000 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 |
10,000 |
0 |
| Personal Services |
0 |
0 |
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):
Under W.Va. Code §11-21-97, West Virginia currently has two credits offsetting both Personal Income Tax and Corporation Net Income Tax equivalent to 50 percent of the cost of operation to the employer who provides or sponsors child-care less any amounts paid by employees during a taxable year and a 100% capital investment tax credit for qualified investment placed in service on or after July 1, 2022. This bill allows the employer to be eligible for the credit if they have a contract for at least one year with a DHHR licensed provider within reasonable distance of the employer’s facility.
Under current law, qualified 501(c)(3) and 501(c)(6) non-profit corporations may transfer their tax credits to a third party. The provisions of this bill would also allow these entities to take these credits 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.
Passage of this bill will have minimal impact on the General Revenue Fund.
Additional administrative costs incurred by the State Tax Department would be $10,000 in FY2024.
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.
The bill title may be insufficient since there is more than one tax credit against the Corporation Net Income Tax. In the bill, there is one credit is for capital investment, a second for operating costs, and a transferable credit for non-profit corporations.
The provisions allowing non-profit employers to keep employee withholdings poses serious legal issues. Taxes withheld from employees’ pay is only held in trust by the employers for taxes paid on behalf of the employee in satisfaction of the employee’s income tax liability. Essentially, this bill allows an employer to take a credit against taxes which are held in trust for its employees.
This bill amends W.Va. Code §11-24-44, which passed during the 2022 Legislative Session. Language is now added to this bill which adds the requirement that off-site premises that are contracted through a licensed provider have a term for at least one year. The child-care provider would be permitted to fill uncontracted spaces by making them available to the general public. “Reasonable distance” is not defined in this bill. Additionally, the meaning of “in order to protect the provider and spaces allowed by DHHR rules” lacks clarity.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov