FISCAL NOTE
Date Requested: February 08, 2023
Time Requested: 03:48 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3471 |
Introduced |
HB3305 |
|
|---|
| CBD Subject: |
Finance and Administration |
|---|
|
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 create the Small Business and Entrepreneurship Act.
This bill would allow the first $100,000 of any new business income included in the taxpayer’s State adjusted gross income to be reduced for the first three tax years of the business’s operation by 20 percent. New businesses that are eligible for this modification must have begun operations on or after January 1, 2023. This modification applies to the Personal Income Tax. Additionally, this bill imposes a Corporation Net Income Tax of 3 percent for the first $100,000 of income with any remaining portion of income to be taxed at the existing rate. This new tax applies for the first three years of the new corporation. Beginning with the fourth tax year, the Corporation Net Income Tax would revert to its normal rate. This would apply for the tax years beginning on and after July 1, 2024.
According to US Census Bureau data from 2019, the most recent available year, there were 98,223 total firms and 120,926 establishments in West Virginia. However, this number of total firms is not limited to those that are headquartered in the state as required by this bill. The bill does not define a small business. The bill defines a new business as one that has been established on January 1, 2023, or later. The Office of the Secretary of State reported that there has been an average of 17,894 new business filings in West Virginia over the past five years, though these are not necessarily headquartered in the state. The provisions of this bill ad significant complexity to the calculation of income taxes, particularly for individual taxpayer shareholders of pass-through business entities. Compliance costs would be high relative to tax savings for affected taxpayers. As a result, we are unable to provide a reasonable estimation of the revenue impact of this bill.
Additional administrative costs incurred by the State Tax Department would be $71,500 in FY2024 and $45,000 in subsequent fiscal years.
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 |
71,500 |
45,000 |
| Personal Services |
0 |
45,000 |
45,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
1,500 |
0 |
| Other |
0 |
25,000 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
This bill would allow the first $100,000 of any new business income included in the taxpayer’s State adjusted gross income to be reduced for the first three tax years of the business’s operation by 20 percent. New businesses that are eligible for this modification must have begun operations on or after January 1, 2023. This modification applies to the Personal Income Tax. Additionally, this bill imposes a Corporation Net Income Tax of 3 percent for the first $100,000 of income with any remaining portion of income to be taxed at the existing rate. This new tax applies for the first three years of the new corporation. Beginning with the fourth tax year, the Corporation Net Income Tax would revert to its normal rate. This would apply for the tax years beginning on and after July 1, 2024.
According to US Census Bureau data from 2019, the most recent available year, there were 98,223 total firms and 120,926 establishments in West Virginia. However, this number of total firms is not limited to those that are headquartered in the state as required by this bill. The bill does not define a small business. The bill defines a new business as one that has been established on January 1, 2023, or later. The Office of the Secretary of State reported that there has been an average of 17,894 new business filings in West Virginia over the past five years, though these are not necessarily headquartered in the state. The provisions of this bill ad significant complexity to the calculation of income taxes, particularly for individual taxpayer shareholders of pass-through business entities. Compliance costs would be high relative to tax savings for affected taxpayers. As a result, we are unable to provide a reasonable estimation of the revenue impact of this bill.
Additional administrative costs incurred by the State Tax Department would be $71,500 in FY2024 and $45,000 in subsequent fiscal years.
Memorandum
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov