FISCAL NOTE

Date Requested: February 08, 2023
Time Requested: 03:48 PM

3471	Introduced	HB3305
Agency:	Secretary of State
CBD Number:	Version:	Bill Number:	Resolution Number:
CBD Subject:	Finance and Administration

FUND(S):

General revenue. Appropriated Special Revenue.

Sources of Revenue:

Other Fund 1617, 0155, 1612

Legislation creates:

Decreases Existing Revenue

Fiscal Note Summary

Effect this measure will have on costs and revenues of state government.

If passed, this bill would have an immediate impact on the Secretary of State’s Business & Licensing Division’s budget of at least $2,600,000 annually, with escalating costs over the next several years. The escalation costs cannot be estimated as we are uncertain as to how many businesses would be whimsically formed, though experience suggests that this range would be between large and immense. Beginning January 1, 2024, a mere 6 months after the proposed effective date of this bill, the U.S. Corporate Transparency Act will become effective. Associated filing requirements regarding Beneficial Ownership Information designed by FinCEN to prevent sanctions evasion by countries including Russia, Iran, and North Korea as well as to combat international money laundering would be significantly complicated by the increase in bad faith filings this bill would permit, incentivized by no restriction on simply closing a business after 3 years then re-opening. The fiscal impact of this aspect on our agency is unknown but would generally relate to responding to an increase in citizen complaints. Moreover, repercussions from this bill, if passed, would increase friction between WV businesses and FinCEN, and would also be expected to decrease WV business compliance with the Corporate Transparency Act while simultaneously creating legal exposure for new West Virginia businesses. Between January 1, 2022 and December 31, 2022, the Secretary of State’s Business & Licensing Division generated $1,815,680 in new business registration fees. These fees are not split and are used to pay salaries, rent, office supplies, etc. An appropriation from the Legislature would be necessary to offset this revenue loss while maintaining the current level of public services. For fees other than registration fees charged during the first 3 years of a business’ existence, our Office estimates that amendment, termination, AAO, and other fees charged to new businesses would be result in approximately a $400,000 to $500,000 annual decrease in revenues. Waiver of all fees for the first 3 years of a business’ existence would create an unintended consequence of incentivizing businesses to terminate every 3 years and re-open. Beyond the loss in reasonable revenues that cover the costs of operations, it would triple the number of filings. We forecast the need for increased staff to process these cyclical filings of 4-6 additional B&L specialists, which would increase staffing costs for salary and benefits of approx. $47,000 per employee annually, coming to an increase in human resource cost of approx. $188,000 to $282,000 annually. The expected termination and re-formation of businesses every year would also create the unintended consequence of flooding the IRS with requests for new FEINs (free of charge), and similarly flood the WV Tax Division with requests for new WV Business Licenses ($30 each). Redundant business licenses will correlate to increased rates of non-compliance and penalties on West Virginia business owners. This Office cannot predict the fiscal impact on the WV Tax Division. Our Office currently spends about $85,000 annually on certified mailings to administratively dissolve non-compliant companies who did pay to register (excluding veterans and young entrepreneurs who do not pay registration fees). Current Code requires these mailings to be sent by certified mail. It is difficult to estimate the number of certified mailings that would be necessary if our business registry was inundated with bad faith filings, however, we can extrapolate from the number of business failures that we have seen resulting from the aspiring home business owners who returned to the traditional workforce after Covid. The number of non-compliant companies currently on track for eventual administrative dissolution are: 1 year behind: 36,421; 2 years behind: 27,774; and, 3 years behind: 24,017. Recognizing that these are businesses who did pay all necessary fees, we estimate the certified mail cost would increase by $40,000 to $80,000 annually upon implementation of this bill, though the possibility of a dramatic escalation in these administrative dissolutions is certainly possible. Reducing the already low cost of entry in the WV market to a zero cost of entry is expected to facilitate an overwhelming number of whimsical filings with our office. The financial impact of these filings would be significant to our agency and detrimental to the business environment in West Virginia. An already crowded database of distinguishable names would become flooded, leaving fewer and fewer available names for bona fide new businesses. We estimate the costs associated with business name challenges of the proposed new business fee waiver to be minimal, though we note the strong probability of intense aggravation amongst those desiring to start a new business in West Virginia. Without fees, there would be no incentive for businesses under 3 years old to file annual reports which are necessary to ensure that service of process addresses are available both for State government use (e.g. Tax) as well as to ensure plaintiffs’ access to justice in our Courts. Our Office is unable to estimate the financial impact the lack of accurate service of process addresses would have on the Courts or other agencies who rely on the accuracy of our database for official correspondence with West Virginia businesses. Recognizing that the WV One Stop is a 4-agency endeavor between the Secretary of State, Tax, Labor and Workforce, a dramatic increase in whimsical SOS filings would have a correlated impact on the other 3 agencies as well. Our Office is unable to predict the fiscal ramifications on those other agencies but would expect them to be significant. Though not required by Code, the WV Small Business Development Center also relies on our new business filing data to identify businesses that may benefit from their services. We expect they would also face increased fiscal ramifications with no apparent value added. We note that the West Virginia Secretary of State’s Office has neither raised, nor requested the authority to raise, business fees since 2017 despite significant inflation over that same time period. The current new business registration fee in West Virginia is $100. The current fee to register a new business in West Virginia is consistent with our neighboring states: Ohio is $99, Pennsylvania is $125; Maryland is $300; Virginia is $100, and Kentucky is $55 ($40+15). Though the submitter of this fiscal note was not in state government at the time, I understand that a similar fee waiver was proposed by the former Secretary of State's administration, and that it was not adopted by the Legislature due to the predicted catastrophic fiscal impact on our Office, and related detrimental impact on the West Virginia business environment.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2023 Increase/Decrease (use"-")	2024 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	2,600,000	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):

Please see summary.

Memorandum

Please see summary.

Person submitting Fiscal Note: Chris Alder
Email Address: CAlder@wvsos.gov