FISCAL NOTE

Date Requested: January 25, 2016
Time Requested: 01:53 PM
Agency: Tax Department, State
CBD Number: Version: Bill Number: Resolution Number:
2310 Introduced HJR30
CBD Subject:


FUND(S):

General Revenue Fund, local governments

Sources of Revenue:

General Fund,Other Fund local governments

Legislation creates:

Neither Program nor Fund



Fiscal Note Summary


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


    The stated purpose of this resolution is to propose an amendment to the West Virginia Constitution that would exempt personal property in the form of manufacturing inventory and manufacturing equipment from ad valorem taxation.
    
    As written, this resolution proposes an amendment to the Constitution of the State of West Virginia to be submitted to the voters of the State at the next general election to be held in the year 2016. The amendment would exempt tangible personal property in the form of manufacturing inventory and manufacturing equipment from Property Tax. There is no definition of manufacturing within the resolution. If “manufacturing” is defined using the North American Industry Classification System (NAICS) code series ranging between 31 and 33, then, the exemption of all manufacturing equipment and manufacturing inventory would result in a property tax revenue loss of $43.0 million Statewide annually. Of this $43.0 million, the revenue loss would be roughly $12.8 million to the State General Revenue Fund, $11.5 million to county commissions, $15.8 million to county boards of education, and $2.9 million to municipalities. The distribution of estimated property tax revenue loss is based on information from taxes levied as reported in the FY 2016 Classified Assessed Valuations Taxes Levied publication of the State Tax Department and the incorporation of the calculation of local property tax share within the State Aid to Schools Formula. Counties with a higher than average concentration of manufacturing activity (e.g. counties bordering the Ohio River) would be impacted more than others by the provisions of this resolution.
    
    The net State General Revenue Fund loss would be reduced from $12.8 million to roughly $10.3 million per year due to the effective elimination of a state tax credit equal to local taxes paid on manufacturing inventory. Net total State and local revenue loss would be $40.5 million per year.
    
    This estimate does not include inventory and machinery related to the coal mining industry or any equipment associated with producing oil and gas. Once a well is producing, the value of the equipment, up to the point of sale, is assumed to be included in the value of the working interest (producer interest) of the well. Excluding such equipment from oil and gas valuations would require a change to the Legislative Rule governing such valuations. Additionally, the estimate does not include any tax impact on public utility personal property. The addition of industrial tangible personal property of the mining sector and public utility tangible personal property would significantly increase the estimated loss.
    
    Additional administrative costs for the State Tax Department would be $50,000. The additional administrative costs to the Tax Department are related to changes to the impacted Legislative Rules and programming. Additional administrative costs for local governments cannot be determined.
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2016
Increase/Decrease
(use"-")
2017
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 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):


    As written, this resolution proposes an amendment to the Constitution of the State of West Virginia to be submitted to the voters of the State at the next general election to be held in the year 2016. The amendment would exempt tangible personal property in the form of manufacturing inventory and manufacturing equipment from Property Tax. There is no definition of manufacturing within the resolution. If “manufacturing” is defined using the North American Industry Classification System (NAICS) code series ranging between 31 and 33, then, the exemption of all manufacturing equipment and manufacturing inventory would result in a property tax revenue loss of $43.0 million Statewide annually. Of this $43.0 million, the revenue loss would be roughly $12.8 million to the State General Revenue Fund, $11.5 million to county commissions, $15.8 million to county boards of education, and $2.9 million to municipalities. The distribution of estimated property tax revenue loss is based on information from taxes levied as reported in the FY 2016 Classified Assessed Valuations Taxes Levied publication of the State Tax Department and the incorporation of the calculation of local property tax share within the State Aid to Schools Formula. Counties with a higher than average concentration of manufacturing activity (e.g. counties bordering the Ohio River) would be impacted more than others by the provisions of this resolution.
    
    The net State General Revenue Fund loss would be reduced from $12.8 million to roughly $10.3 million per year due to the effective elimination of a state tax credit equal to local taxes paid on manufacturing inventory. Net total State and local revenue loss would be $40.5 million per year.
    
    This estimate does not include inventory and machinery related to the coal mining industry or any equipment associated with producing oil and gas. Once a well is producing, the value of the equipment, up to the point of sale, is assumed to be included in the value of the working interest (producer interest) of the well. Excluding such equipment from oil and gas valuations would require a change to the Legislative Rule governing such valuations. Additionally, the estimate does not include any tax impact on public utility personal property. The addition of industrial tangible personal property of the mining sector and public utility tangible personal property would significantly increase the estimated loss.
    
    Additional administrative costs for the State Tax Department would be $50,000. The additional administrative costs to the Tax Department are related to changes to the impacted Legislative Rules and programming. Additional administrative costs for local governments cannot be determined.
    



Memorandum


    The stated purpose of this resolution is to propose an amendment to the West Virginia Constitution that would exempt personal property in the form of manufacturing inventory and manufacturing equipment from ad valorem taxation.
    
    The terms “manufacturing”, “manufacturing equipment” and “manufacturing inventory” are not defined in the bill.
    
    Currently, West Virginia Code §11-13Y-4 provides credit against corporate net income tax in the amount of West Virginia ad valorem property tax paid on the value of manufacturing inventory. To be eligible, the taxpayer must be a manufacturing business which is defined in the Code and limited to businesses with certain NAICS codes. It is unclear whether the proposed resolution would only apply to these types of businesses and inventories or whether this resolution anticipates a broader exemption.
    



    Person submitting Fiscal Note: Mark Muchow
    Email Address: kerri.r.petry@wv.gov