FISCAL NOTE
Date Requested: February 08, 2023
Time Requested: 11:57 AM |
| Agency: |
Tax & Revenue Department, WV State |
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| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3437 |
Amendment |
HB3333 |
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| CBD Subject: |
|
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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 create a tax credit for taxes paid for a royalty interest.
Based on our interpretation, the legislation would create a personal income tax credit for any taxpayer who is a legal resident of West Virginia and who is assessed ad valorem property tax for a royalty interest on or after July 1, 2023. The credit would be equal to the property tax paid on the royalty interest. Tax credit in excess of the taxpayer’s liability for the taxable year may be carried over and applied as a credit against future taxable years.
The assessed value of Royalty Interest property for TY2023 is nearly $3.3 billion with property tax due of nearly $73 million. It is not possible to determine the portion of this tax which would be attributable solely to West Virginia residents and therefore eligible for the personal income tax credit. The credit would be available to individual shareholders of S corporations, limited liability companies and partnerships but not businesses organized as C corporations. The credit would also not apply to nonresidents.
Additional administrative costs incurred by the State Tax Department would be $32,500 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 |
32,500 |
0 |
| Personal Services |
0 |
22,500 |
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):
Based on our interpretation, the legislation would create a personal income tax credit for any taxpayer who is a legal resident of West Virginia and who is assessed ad valorem property tax for a royalty interest on or after July 1, 2023. The credit would be equal to the property tax paid on the royalty interest. Tax credit in excess of the taxpayer’s liability for the taxable year may be carried over and applied as a credit against future taxable years.
The assessed value of Royalty Interest property for TY2023 is nearly $3.3 billion with property tax due of nearly $73 million. It is not possible to determine the portion of this tax which would be attributable solely to West Virginia residents and therefore eligible for the personal income tax credit. The credit would be available to individual shareholders of S corporations, limited liability companies and partnerships but not businesses organized as C corporations. The credit would also not apply to nonresidents.
Additional administrative costs incurred by the State Tax Department would be $32,500 in FY2024.
Memorandum
The stated purpose of this bill is to create a tax credit for taxes paid for a royalty interest.
The bill’s title does not mention “recapture,” carryover,” or the authorization of legislative rules. In addition, the limitation on giving the tax credit to West Virginia residents only, and not to non-resident holders of West Virginia royalty interests, may pose constitutional problems.
Article X of the West Virginia Constitution requires that taxation “be equal and uniform throughout the state…”. The proposed language in the bill may arguably violate Section 10 of Article III of the West Virginia Constitution, which is the state’s equal protection clause. The state legislature “may make reasonable classifications in enacting statutes provided the classifications are based on some real and substantial relation to the objects sought to be accomplished by the legislation, and any person who assails any such classification has the burden of showing that it is essentially arbitrary and unreasonable.”
The bill also seems to present a possible violation of the dormant Commerce Clause. The dormant Commerce Clause precludes States from imposing a tax which discriminates against interstate commerce either by providing a direct commercial advantage to local business or by subjecting interstate commerce to the burden of “multiple taxation”. The bill seems to present a prima facie constitutional violation of the dormant Commerce Clause by giving favorable tax treatment to trusts created and administered by West Virginia state chartered banks or by a federally chartered bank with its corporate headquarters in West Virginia.
The bill does not give the Tax Commissioner authority to prescribe appropriate forms on which individuals claiming the exemption can document their qualification for the exemption; not any rule-making authority given.
To receive the tax credit, the taxpayer must be a legal resident of West Virginia. This residency requirement does not apply to corporations. The language about corporations seems unnecessary since the bill does not include the corporation net income tax as a tax against which the credit can be applied.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov