FISCAL NOTE
Date Requested: January 22, 2018
Time Requested: 11:50 AM |
| Agency: |
Tax & Revenue Department, WV State |
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| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1308 |
Introduced |
HB4244 |
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|---|
| CBD Subject: |
|
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FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing Revenue, Increases Existing Expenses
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to grant business tax credits to businesses that financially support students enrolled in the state’s community and technical colleges. The bill establishes the amount of credits available. The bill sets forth conditions. The bill defines terms. The bill requires rule-making. The bill establishes an effective date.
According to our interpretation, the provisions of the proposed bill would generally provide a tax credit ranging between 50 percent and 65 percent for business employer donations to qualified employees. The maximum allowable employer donation is presumed to be capped at $500,000 and the maximum of amount of tax credit is capped at $325,000 per qualified business employer. The qualified employee must have been employed as a full-time employee for more than one year, reside and work in West Virginia, and have received an “associate degree, a certification, advanced skill set certificate, or a skill set certificate” from a qualifying West Virginia community and technical college. The tax credit applies in the year following the one-year anniversary date of initial employment by the employer of the qualified employee. Since the proposed bill states the credit is allowed for donations occurring after December 31, 2018, it is presumed the program would begin in 2019.
The language of the bill suggests a donation of $50,000 to an eligible employee in exchange of a tax credit of $25,000 per student. However, gifts by employers to employees of more than $15,000 might be subject to the federal gift tax. There are no requirements related to the use of the donated funds by the eligible employee/student. The language of the proposed legislation also indicates that the tax credit may be used to offset State Business and Occupation Tax (B&O Tax). This limitation of tax offset qualification effectively restricts use of the proposed tax credit to electric power companies and other public utilities that are subject to the State B&O Tax.
If not for the restriction of tax credits to application against the State B&O Tax, the potential cost of this proposed tax credit could be significant given the high rate of tax credit and the large credit caps per qualified employer and large donation caps per qualified employee. For comparison purposes, West Virginia currently offers an Apprenticeship Training Tax Credit with a limit of no more than $2,000 per qualified employee at a cost to the State of up to $0.5 million per year. The annual cap on this proposed tax credit is up to $325,000 per qualified employer.
Additional administrative costs incurred by the State Tax Department would be $86,000 in FY2020 and $35,000 for each year thereafter.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2018
Increase/Decrease
(use"-") |
2019
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
0 |
35,000 |
| Personal Services |
0 |
0 |
35,000 |
| 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 our interpretation, the provisions of the proposed bill would generally provide a tax credit ranging between 50 percent and 65 percent for business employer donations to qualified employees. The maximum allowable employer donation is presumed to be capped at $500,000 and the maximum of amount of tax credit is capped at $325,000 per qualified business employer. The qualified employee must have been employed as a full-time employee for more than one year, reside and work in West Virginia, and have received an “associate degree, a certification, advanced skill set certificate, or a skill set certificate” from a qualifying West Virginia community and technical college. The tax credit applies in the year following the one-year anniversary date of initial employment by the employer of the qualified employee. Since the proposed bill states the credit is allowed for donations occurring after December 31, 2018, it is presumed the program would begin in 2019.
The language of the bill suggests a donation of $50,000 to an eligible employee in exchange of a tax credit of $25,000 per student. However, gifts by employers to employees of more than $15,000 might be subject to the federal gift tax. There are no requirements related to the use of the donated funds by the eligible employee/student. The language of the proposed legislation also indicates that the tax credit may be used to offset State Business and Occupation Tax (B&O Tax). This limitation of tax offset qualification effectively restricts use of the proposed tax credit to electric power companies and other public utilities that are subject to the State B&O Tax.
If not for the restriction of tax credits to application against the State B&O Tax, the potential cost of this proposed tax credit could be significant given the high rate of tax credit and the large credit caps per qualified employer and large donation caps per qualified employee. For comparison purposes, West Virginia currently offers an Apprenticeship Training Tax Credit with a limit of no more than $2,000 per qualified employee at a cost to the State of up to $0.5 million per year. The annual cap on this proposed tax credit is up to $325,000 per qualified employer.
Additional administrative costs incurred by the State Tax Department would be $86,000 in FY2020 and $35,000 for each year thereafter.
Memorandum
The stated purpose of this bill is to grant business tax credits to businesses that financially support students enrolled in the state’s community and technical colleges. The bill establishes the amount of credits available. The bill sets forth conditions. The bill defines terms. The bill requires rule-making. The bill establishes an effective date.
The proposed bill does not define certain terms, including “donation,” “student,” “full-time,” “employee,” or “resides and works in West Virginia.” There does not appear to be any requirements as to how donations are to be received or spent, that donations go toward enrolling in community and technical colleges, how donations are to be made, or whether donations should be in cash or if room and board or other items of value would qualify for the credit.
Other than a questionable reference to the State B&O Tax, the proposed bill does not state against which tax liabilities this tax credit may be used. Further, language that the credit “may only be used toward the employee’s base salary” is vague and unclear as to whether credits may be used against withholding taxes.
As written, the bill does not state whether the unused tax credits may be carried forward or backward. Further, this bill does not specify in what tax year this credit may first be claimed. Ambiguity in the language of the bill could make this tax credit program difficult to enforce and could result in litigation.
The proposed tax credit may raise constitutional concerns. The proposed bill may be in violation of Article X of the West Virginia Constitution that requires taxation “be equal and uniform throughout the state,” and could violate the State’s equal protection clause (Section 10, Article III of the West Virginia Constitution).
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov