FISCAL NOTE
Date Requested: February 13, 2017
Time Requested: 01:26 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1472 |
Introduced |
|
|
|---|
| 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 exempt a percentage of social security benefits from personal income tax based on individual’s overall amount of taxable income.
According to the provisions of this bill, in tax years beginning after December 31, 2017, a percentage of Social Security benefits would be subtracted from the taxpayer’s federal adjusted gross income for West Virginia Personal Income Tax purposes. It does not limit the amount to be subtracted. The amount to be subtracted is based on overall gross income. For purposes of this estimate, we assume that the term “taxable income” means federal adjusted gross income. If income is below $50,000, then 100% of taxable benefits would be excluded. If income is between $50,000 and $70,000, 80% of taxable benefits would be excluded. If income is between $70,000 and $80,000, 60% of taxable benefits would be excluded. If income is between $80,000 and $90,000, 40% of taxable benefits would be excluded. If income is between $90,000 and $100,000, 20% of taxable benefits would be excluded. If income is over $100,000, there would be no exclusion for taxable benefits.
According to our interpretation, passage of this bill would result in a reduction of General Revenue Fund collections of roughly $41.0 million in FY2019. The value of this proposed tax exclusion will escalate over time as members of the baby-boom generation begin receiving Social Security benefits.
Additional administrative costs incurred by the State Tax Department would be $24,000 in FY2019 and $10,000 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 |
10,000 |
| Personal Services |
0 |
0 |
10,000 |
| 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 |
-41,000,000 |
Explanation of above estimates (including long-range effect):
According to the provisions of this bill, in tax years beginning after December 31, 2017, a percentage of Social Security benefits would be subtracted from the taxpayer’s federal adjusted gross income for West Virginia Personal Income Tax purposes. It does not limit the amount to be subtracted. The amount to be subtracted is based on overall gross income. For purposes of this estimate, we assume that the term “taxable income” means federal adjusted gross income. If income is below $50,000, then 100% of taxable benefits would be excluded. If income is between $50,000 and $70,000, 80% of taxable benefits would be excluded. If income is between $70,000 and $80,000, 60% of taxable benefits would be excluded. If income is between $80,000 and $90,000, 40% of taxable benefits would be excluded. If income is between $90,000 and $100,000, 20% of taxable benefits would be excluded. If income is over $100,000, there would be no exclusion for taxable benefits.
According to our interpretation, passage of this bill would result in a reduction of General Revenue Fund collections of roughly $41.0 million in FY2019. The value of this proposed tax exclusion will escalate over time as members of the baby-boom generation begin receiving Social Security benefits.
Additional administrative costs incurred by the State Tax Department would be $24,000 in FY2019 and $10,000 in fiscal years thereafter.
Memorandum
The stated purpose of this bill is to exempt a percentage of social security benefits from personal income tax based on individual’s overall amount of taxable income.
The proposed bill lacks clarity in that it uses the term “taxable income” when discussing the income ranges. It is not clear what is meant by taxable income. This is a modification that lowers an individual’s federal adjusted gross income to determine a resident’s West Virginia adjusted gross income. Therefore, the amount of income that is taxable by West Virginia is not known until all the applicable modifications have been taken. The language would be more precise if the proposed bill stated that the income ranges were based upon “federal adjusted gross income” rather than “taxable income”.
The bill is worded in a manner such that individuals who happen to earn exactly $50,000, $70,000, $80,000 or $90,000 would be included in two percentage groups. Perhaps the bill might be clearer if it were phrased in a manner such that anyone earning more than $50,000 but less than $70,000 is in one group, and anyone earning $70,000 or more, but less than $80,000 is another group and so on.
As written, it appears that an eligible taxpayer may be able to take the modification for their social security benefits as well as claim the $8,000 modification. On the other hand, a taxpayer would have to reduce the $8,000 for the surviving spouse by the amount taken for the social security benefits under this proposed new subdivision. In fact, the spousal modification could not be taken if the individual deducted $8,000 or more in social security benefits.
The proposed bill has an effective date of taxable years beginning after December 31, 2017. However, the bill title fails to mention the internal effective date. Also, the title states that it is “exempting” a percentage of social security benefits from state income taxation. Under the West Virginia Code, this is a modification, not an exemption. If it were an exemption, its language may conflict with that of the WV Constitution, Article X, §1, which only provides the ability to exempt from income taxation “incomes below a minimum to be fixed from time to time” and does not authorize exemptions based upon the category of income.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov