FISCAL NOTE
Date Requested: February 06, 2023
Time Requested: 09:40 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3368 |
Introduced |
HB3245 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Increases Revenue From Existing Sources, 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 an election for pass-through entities to pay income taxes at the entity level rather than pass the income through to individual owners. The bill sets forth the method of claiming the election; defines terms; sets forth a rate of tax; deals with claims for refunds and issuing assessments; deals with claiming tax credits; provides increasing and decreasing modifications for partners and shareholders when the pass-through entity elects to pay the tax at the entity level; provides for rulemaking; and sets forth an effective date which is retroactive.
Based on our interpretation, the legislation would allow a qualifying pass-through entity to make an election to pay Personal Income Tax at the entity level for the taxable year. The rate of tax on the West Virginia taxable income of the pass-through entity that elects to pay the tax at the entity level would be 6.5 percent. Electing pass-through entities may be eligible for credits, deductions, or other adjustments. However, any credit or unused portion of credit claimed by an electing pass-through entity shall not pass-through to its partners or shareholders. In the case of any overpayment of tax, only the qualifying pass-through entity may request a refund. Partners or shareholders of a qualifying pass-through entity that has made the election to pay the tax at the entity level may subtract from their federal adjusted gross income the amount of the taxpayer’s pro rata share of income to the extent it was included in the entity’s West Virginia taxable income and the taxpayer’s federal adjusted gross income. In addition, partners or shareholders would add to their federal adjusted gross income the amount of the tax payer’s pro rata share of any loss from the entity to the extent is was included in the entity’s West Virginia taxable income and the taxpayer’s federal adjusted gross income. The legislation is effective for taxable years beginning on and after January 1, 2022.
According to our interpretation, there would be a minimal increase in General Revenue Fund collections beginning in FY2024. The increase would be due to tax being collected at the maximum Personal Income Tax rate and without inclusion of a specific Taxpayer’s adjustments, modifications, and other tax credits.
Additional administrative costs incurred by the State Tax Department would be $15,000 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 |
15,000 |
0 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
15,000 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
Based on our interpretation, the legislation would allow a qualifying pass-through entity to make an election to pay Personal Income Tax at the entity level for the taxable year. The rate of tax on the West Virginia taxable income of the pass-through entity that elects to pay the tax at the entity level would be 6.5 percent. Electing pass-through entities may be eligible for credits, deductions, or other adjustments. However, any credit or unused portion of credit claimed by an electing pass-through entity shall not pass-through to its partners or shareholders. In the case of any overpayment of tax, only the qualifying pass-through entity may request a refund. Partners or shareholders of a qualifying pass-through entity that has made the election to pay the tax at the entity level may subtract from their federal adjusted gross income the amount of the taxpayer’s pro rata share of income to the extent it was included in the entity’s West Virginia taxable income and the taxpayer’s federal adjusted gross income. In addition, partners or shareholders would add to their federal adjusted gross income the amount of the tax payer’s pro rata share of any loss from the entity to the extent is was included in the entity’s West Virginia taxable income and the taxpayer’s federal adjusted gross income. The legislation is effective for taxable years beginning on and after January 1, 2022.
According to our interpretation, there would be a minimal increase in General Revenue Fund collections beginning in FY2024. The increase would be due to tax being collected at the maximum Personal Income Tax rate and without inclusion of a specific Taxpayer’s adjustments, modifications, and other tax credits.
Additional administrative costs incurred by the State Tax Department would be $15,000 in FY2024.
Memorandum
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov