FISCAL NOTE
Date Requested: March 02, 2017
Time Requested: 01:26 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2649 |
Introduced |
SB484 |
|
|---|
| CBD Subject: |
Governor -- Bills Requested By |
|---|
|
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 solve the immediate fiscal crisis and stabilize the budget of the State of West Virginia. This bill increases the sales and service tax and use tax rates by one-half cent from 6% to 6.5%, with an expiration date of June 30, 2020, if certain parameters are met with respect to the revenue shortfall reserve funds. The bill also limits the exemption or exception of certain professional services and advertising services from the sales and services tax and use tax, and eliminates the exemption from sales tax for certain sales of materials acquired for use in state highway projects. This bill creates and provides for the operation of an annual privilege tax of two tenths of 1% on the gross income of entities engaging in commercial activity in this state, exempting certain entities from the tax, and providing for an expiration date of June 30, 2020 if certain parameters are met with respect to revenue shortfall reserve funds. In addition, this bill increases the rate of the barrel tax on nonintoxicating beer and eliminates the film industry tax credit. Finally, this bill establishes a commission to study feasibility of eliminating West Virginia personal income tax.
According to our interpretation, the proposed bill would modify current Tax Law by (1) eliminating the West Virginia Film Credit; (2) temporarily increasing the Consumer Sales and Service Tax and Use Tax rate; (3) removing exemptions for non-medical professional services and advertising services; (4) remove the annual revenue transfer to the Division of Highways for sales of construction and maintenance materials used in construction or maintenance of highways; (5) increasing the beer barrel tax rate; and (6) imposing a 0.2 percent Commercial Activity Tax. With the exception of the Division of Highways transfer, which takes effect May 1, 2017, these changes would be effective July 1, 2017. The increased sales and use tax rate and imposition of the Commercial Activity Tax sunset on June 30, 2020, provided that certain provisions for reserve fund balances are met.
The largest revenue impact of the proposed tax changes stems from the imposition of a Commercial Activity Tax, which is expected to increase collections in FY2018 by approximately $214.3 million. Other large revenue contributors in FY2018 include the increase in the sales tax rate ($92.7 million) and the removal of the non-medical professional services exemption ($82.0 million). In total, the proposed changes are expected to increase revenues by approximately $409.1 million in FY2018 and by $458.0 million in FY2019 for the first full year of effect.
The table below provides net revenue gains estimated for each category from FY2018 through FY2021. We note these estimates assume conditions on June 30, 2019 are sufficient to repeal the sales and use tax rate increase and Commercial Activity Tax effective July 1, 2020. As it is impossible to determine whether the total reserve funds balance would meet these conditions on a particular day, we note that the increased taxes could continue into FY2021 and alter these estimates.
Tax/Credit FY2018 FY2019 FY2020 FY2021
Film Tax Credit $0 million $2.5 million $3.0 million $3.0 million
Sales and Use Tax $92.7 million $103.6 million $106.0 million $8.5 million
Professional Services $82.0 million $91.6 million $93.7 million $89.7 million
Advertising Services $5.6 million $6.1 million $6.3 million $6.0 million
DOH Transfer $11.7 million $11.7 million $11.7 million $11.7 million
Beer Barrel Tax $2.8 million $3.0 million $3.0 million $3.0 million
Commercial Activity Tax $214.3 million $239.5 million $245.0 million $20.4 million
Total Revenues $409.1 million $458.0 million $468.7 million $142.3 million
Additional administrative costs incurred by the State Tax Department would be $135,000 in FY2017 and $365,000 for each year 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 |
135,000 |
365,000 |
365,000 |
| Personal Services |
0 |
65,000 |
65,000 |
| Current Expenses |
50,000 |
300,000 |
300,000 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
85,000 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
414,500,000 |
142,300,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the proposed bill would modify current Tax Law by (1) eliminating the West Virginia Film Credit; (2) temporarily increasing the Consumer Sales and Service Tax and Use Tax rate; (3) removing exemptions for non-medical professional services and advertising services; (4) remove the annual revenue transfer to the Division of Highways for sales of construction and maintenance materials used in construction or maintenance of highways; (5) increasing the beer barrel tax rate; and (6) imposing a 0.2 percent Commercial Activity Tax. With the exception of the Division of Highways transfer, which takes effect May 1, 2017, these changes would be effective July 1, 2017. The increased sales and use tax rate and imposition of the Commercial Activity Tax sunset on June 30, 2020, provided that certain provisions for reserve fund balances are met.
The largest revenue impact of the proposed tax changes stems from the imposition of a Commercial Activity Tax, which is expected to increase collections in FY2018 by approximately $214.3 million. Other large revenue contributors in FY2018 include the increase in the sales tax rate ($92.7 million) and the removal of the non-medical professional services exemption ($82.0 million). In total, the proposed changes are expected to increase revenues by approximately $409.1 million in FY2018 and by $458.0 million in FY2019 for the first full year of effect.
The table below provides net revenue gains estimated for each category from FY2018 through FY2021. We note these estimates assume conditions on June 30, 2019 are sufficient to repeal the sales and use tax rate increase and Commercial Activity Tax effective July 1, 2020. As it is impossible to determine whether the total reserve funds balance would meet these conditions on a particular day, we note that the increased taxes could continue into FY2021 and alter these estimates.
Tax/Credit FY2018 FY2019 FY2020 FY2021
Film Tax Credit $0 million $2.5 million $3.0 million $3.0 million
Sales and Use Tax $92.7 million $103.6 million $106.0 million $8.5 million
Professional Services $82.0 million $91.6 million $93.7 million $89.7 million
Advertising Services $5.6 million $6.1 million $6.3 million $6.0 million
DOH Transfer $11.7 million $11.7 million $11.7 million $11.7 million
Beer Barrel Tax $2.8 million $3.0 million $3.0 million $3.0 million
Commercial Activity Tax $214.3 million $239.5 million $245.0 million $20.4 million
Total Revenues $409.1 million $458.0 million $468.7 million $142.3 million
Additional administrative costs incurred by the State Tax Department would be $135,000 in FY2017 and $365,000 for each year thereafter.
Memorandum
The stated purpose of this bill is to solve the immediate fiscal crisis and stabilize the budget of the State of West Virginia. This bill increases the sales and service tax and use tax rates by one-half cent from 6% to 6.5%, with an expiration date of June 30, 2020, if certain parameters are met with respect to the revenue shortfall reserve funds. The bill also limits the exemption or exception of certain professional services and advertising services from the sales and services tax and use tax, and eliminates the exemption from sales tax for certain sales of materials acquired for use in state highway projects. This bill creates and provides for the operation of an annual privilege tax of two tenths of 1% on the gross income of entities engaging in commercial activity in this state, exempting certain entities from the tax, and providing for an expiration date of June 30, 2020 if certain parameters are met with respect to revenue shortfall reserve funds. In addition, this bill increases the rate of the barrel tax on nonintoxicating beer and eliminates the film industry tax credit. Finally, this bill establishes a commission to study feasibility of eliminating West Virginia personal income tax.
The proposed bill unintentionally removes the professional educational services exemption. This note incorporated the intent that such services would remain exempt in its analysis. Further, the sunset provisions introduce issues that were not intended. As written, the sunset provision would be evaluated on a single day, and the temporary tax increases would remain in effect indefinitely if conditions were not met at that time. The intent was to allow reevaluation at a future date.
The proposed grandfather provisions for Film Tax Credits approved prior to July 1, 2017 may not allow sufficient time for execution of eligible film.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov