FISCAL NOTE

Date Requested: February 21, 2017
Time Requested: 01:05 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
2476 Introduced HB2591
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 provide a temporary tax credit for small group employers to cover a tax credit of up to fifty percent of the costs of branding, marketing and advertising of agricultural or manufactured products produced or manufactured in West Virginia. The bill establishes limits. The bill provides that the credit be available for five years.
    
    According to the provisions of this bill, any eligible small group employer with fewer than twenty-five employees is allowed a credit of up to 50 percent of the costs of branding, marketing and advertising of agricultural or manufactured products produced or manufactured in West Virginia. An eligible employer must also maintain its corporate headquarters in West Virginia. The total amount of tax credit that may be used in any tax year in combination with the owners of the eligible taxpayer may not exceed $10,000, and the total tax credits authorized to all applicants may not exceed $100,000 in a year. The bill provides for the tax credit to be applied against Business Franchise Tax, Corporation Net Income Tax or Personal Income Tax on business profits. The Business Franchise Tax was eliminated as of 2015. Therefore, tax credits would apply to income taxes with a maximum four-year carry-over period for unused tax credits. The annual cost of their program could easily approach the aggregate statutory cap of $100,000 beginning in FY2019. The proposed bill fails to provide guidance for handling aggregate tax credit claims in excess of the statutory $100,000 cap.
    
    Additional administrative costs incurred by the State Tax Department would be $15,000 in FY2019. Additional costs would be minimal in fiscal years thereafter.
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2017
Increase/Decrease
(use"-")
2018
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 0 2,000
Personal Services 0 0 2,000
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):


    According to the provisions of this bill, any eligible small group employer with fewer than twenty-five employees is allowed a credit of up to 50 percent of the costs of branding, marketing and advertising of agricultural or manufactured products produced or manufactured in West Virginia. An eligible employer must also maintain its corporate headquarters in West Virginia. The total amount of tax credit that may be used in any tax year in combination with the owners of the eligible taxpayer may not exceed $10,000, and the total tax credits authorized to all applicants may not exceed $100,000 in a year. The bill provides for the tax credit to be applied against Business Franchise Tax, Corporation Net Income Tax or Personal Income Tax on business profits. The Business Franchise Tax was eliminated as of 2015. Therefore, tax credits would apply to income taxes with a maximum four-year carry-over period for unused tax credits. The annual cost of their program could easily approach the aggregate statutory cap of $100,000 beginning in FY2019. The proposed bill fails to provide guidance for handling aggregate tax credit claims in excess of the statutory $100,000 cap.
    
    Additional administrative costs incurred by the State Tax Department would be $15,000 in FY2019. Additional costs would be minimal in fiscal years thereafter.
    
    



Memorandum


    The stated purpose of this bill is to provide a temporary tax credit for small group employers to cover a tax credit of up to fifty percent of the costs of branding, marketing and advertising of agricultural or manufactured products produced or manufactured in West Virginia. The bill establishes limits. The bill provides that the credit be available for five years.
    
    The bill proposes creating the Small Business Tax Credit, incorrectly designated as a new section, rather than as an article. The new article consists of one Code section, designated as §11-13DD-1.
    
    The requirement that the taxpayer “must maintain its corporate headquarters in West Virginia” is not defined and would be subject to argument and interpretation. Further, there is no requirement that the new or existing business be properly registered with the Tax Department to claim the credit.
    
    If this proposed bill passes, it might face legal challenges as violating the “dormant” Commerce Clause which prohibits states from passing legislation that improperly burdens or discriminates against interstate commerce. The bill specifically provides a tax credit only for those businesses maintaining corporate headquarters in West Virginia.
    
    The bill title is also defective. The bill title simply refers to “a new section” when in fact, the Code is amended by adding a new “article”. The bill title also does not refer to an effective date, the taxes to which the tax credit are to be applied, or its carryforward or forfeiture provisions. In other words, it does not sufficiently give notice to the contents of the bill.
    
    
    



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