FISCAL NOTE

Date Requested: January 28, 2016
Time Requested: 03:20 PM
Agency: Tax Department, State
CBD Number: Version: Bill Number: Resolution Number:
1945 Introduced SB421
CBD Subject: Taxation


FUND(S):

General Revenue Fund

Sources of Revenue:

General Fund

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 bill is to terminate the Behavioral Health Severance and Business Privilege Tax; to specify the effective date of this termination; to establish the method of payment of outstanding refund claims; to generate a replacement revenue stream by changing the durable medical goods sales tax exemption to home users only; to specify the effective date of this amendment; to provide the method of claiming this exemption; and to provide definitions for clarification.
    
    The bill is in response to a recommendation from the U.S. Department of Health and Human Services Office of the Inspector General questioning whether the behavioral health severance tax is a permissible health-care related tax. The State, in consultation with the U.S. Centers for Medicare and Medicaid Services, has agreed to pursue legislation to end the behavioral health severance tax.
    
    Effective July 1, 2016, the bill eliminates the five percent severance tax on gross proceeds of behavioral health service providers, and attempts to replace up to $14 million of the lost revenue of around $16 million by restricting the exemption from the Consumers Sales and Service and Use Tax of durable medical equipment to home use. The narrowing of the sales tax exemption for durable medical equipment would increase General Revenue by up $14 million per year beginning in FY2017. The provisions of this bill would result in a net revenue loss of roughly $2.0 million. These changes have been incorporated into the Governor’s official revenue estimates for FY2017. The revenue loss would be smaller than potential federal funding penalties associated with the continuation of current law.
    
    Administrative costs to the Tax Department will be $11,000 in FY2017 and $5,000 in each year thereafter. 
    



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 11,000 5,000
Personal Services 0 0 5,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 11,000 0
2. Estimated Total Revenues 0 0 0


Explanation of above estimates (including long-range effect):


    The bill is in response to a recommendation from the U.S. Department of Health and Human Services Office of the Inspector General questioning whether the behavioral health severance tax is a permissible health-care related tax. The State, in consultation with the U.S. Centers for Medicare and Medicaid Services, has agreed to pursue legislation to end the behavioral health severance tax.
    
    Effective July 1, 2016, the bill eliminates the five percent severance tax on gross proceeds of behavioral health service providers, and attempts to replace up to $14 million of the lost revenue of around $16 million by restricting the exemption from the Consumers Sales and Service and Use Tax of durable medical equipment to home use. The narrowing of the sales tax exemption for durable medical equipment would increase General Revenue by up $14 million per year beginning in FY2017. The provisions of this bill would result in a net revenue loss of roughly $2.0 million. These changes have been incorporated into the Governor’s official revenue estimates for FY2017. The revenue loss would be smaller than potential federal funding penalties associated with the continuation of current law.
    
    Administrative costs to the Tax Department will be $11,000 in FY2017 and $5,000 in each year thereafter. The bill accomplishes its stated purpose.
    



Memorandum


    



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