FISCAL NOTE
Date Requested: February 13, 2018
Time Requested: 01:07 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2449 |
Introduced |
HB4537 |
|
|---|
| CBD Subject: |
|
|---|
|
FUND(S):
Public Employees Insurance Agency Special Fund
Sources of Revenue:
Special Fund
Legislation creates:
Increases Revenue From Existing Sources, Increases Existing Expenses, Creates New Fund: Public Employees Insurance Agency Special Fund
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to increase the tobacco products excise tax with the increased revenue be used by the Public Employees Insurance Agency to reduce employees premiums.
According to our interpretation, the proposed bill would raise the excise taxes on cigarettes to $1.55 per pack of 20 and on other tobacco products to 15.5 percent of the wholesale price effective July 1, 2018. The proposed bill does not affect the excise tax on e-cigarette liquids. The additional revenue collected from these tax increases are dedicated to the Public Employees Insurance Agency (PEIA) Special Fund created by this bill.
As written, modification to statute related to the tax on other tobacco products could be interpreted to mean that the first 12 percent of all proceeds from this portion of the Tobacco Products Tax code are dedicated to the General Revenue Fund with the remaining 88 percent dedicated to the PEIA Special Fund. We presume the intent is to dedicate all revenues received from the current 12 percent tax on the wholesale price to General Revenues with revenues collected in excess of 12 percent (i.e., 3.5 percent) being dedicated to the PEIA Special Fund. Alternate interpretation will alter the distribution of revenues as estimated in this analysis. Further, it is presumed floor stock tax collections for products for sale as of July 1, 2018 would be dedicated to the PEIA Special Fund as well.
The proposed tax increases would yield roughly $31.3 million in revenues from the increased tax on cigarettes and $3.4 million in revenues from the increased tax on other tobacco products in FY2019, reflecting the 11-month collection period of the increased taxes beginning in August 2018 (reflecting July 2018 sales). In addition, the proposed bill would result in approximately $6.1 million in one-time floor stock tax collections in FY2019 across both tobacco products.
Based on our understanding, tax collections resulting from the increased rates would be dedicated to the PEIA Special Fund, in addition to all floor stock tax revenues received from the increased tax rates, with the balance being deposited into the General Revenue Fund. To administer this distribution of collections, the Tax Department would consider the proportionate share of the current tax and the proposed tax and apply this proportion to collections received. As a result, the proposed bill is expected to benefit the PEIA Special Fund by roughly $53.7 million in FY2019, $48.5 million in FY2020, and $47.9 million in FY2021. It is important to note, however, that this would also result in General Revenue Fund losses of roughly $13.5 million in FY2019, $11.0 million in FY2020, and $10.8 million in FY2021 relative to current Law.
Additional administrative costs incurred by the State Tax Department would be $45,000 in FY2018, $25,000 in FY2019, and $5,000 per year 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 |
45,000 |
25,000 |
5,000 |
| Personal Services |
0 |
25,000 |
5,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
45,000 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
53,700,000 |
0 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the proposed bill would raise the excise taxes on cigarettes to $1.55 per pack of 20 and on other tobacco products to 15.5 percent of the wholesale price effective July 1, 2018. The proposed bill does not affect the excise tax on e-cigarette liquids. The additional revenue collected from these tax increases are dedicated to the Public Employees Insurance Agency (PEIA) Special Fund created by this bill.
As written, modification to statute related to the tax on other tobacco products could be interpreted to mean that the first 12 percent of all proceeds from this portion of the Tobacco Products Tax code are dedicated to the General Revenue Fund with the remaining 88 percent dedicated to the PEIA Special Fund. We presume the intent is to dedicate all revenues received from the current 12 percent tax on the wholesale price to General Revenues with revenues collected in excess of 12 percent (i.e., 3.5 percent) being dedicated to the PEIA Special Fund. Alternate interpretation will alter the distribution of revenues as estimated in this analysis. Further, it is presumed floor stock tax collections for products for sale as of July 1, 2018 would be dedicated to the PEIA Special Fund as well.
The proposed tax increases would yield roughly $31.3 million in revenues from the increased tax on cigarettes and $3.4 million in revenues from the increased tax on other tobacco products in FY2019, reflecting the 11-month collection period of the increased taxes beginning in August 2018 (reflecting July 2018 sales). In addition, the proposed bill would result in approximately $6.1 million in one-time floor stock tax collections in FY2019 across both tobacco products.
Based on our understanding, tax collections resulting from the increased rates would be dedicated to the PEIA Special Fund, in addition to all floor stock tax revenues received from the increased tax rates, with the balance being deposited into the General Revenue Fund. To administer this distribution of collections, the Tax Department would consider the proportionate share of the current tax and the proposed tax and apply this proportion to collections received. As a result, the proposed bill is expected to benefit the PEIA Special Fund by roughly $53.7 million in FY2019, $48.5 million in FY2020, and $47.9 million in FY2021. It is important to note, however, that this would also result in General Revenue Fund losses of roughly $13.5 million in FY2019, $11.0 million in FY2020, and $10.8 million in FY2021 relative to current Law.
Additional administrative costs incurred by the State Tax Department would be $45,000 in FY2018, $25,000 in FY2019, and $5,000 per year for each year thereafter.
Memorandum
The stated purpose of this bill is to increase the tobacco products excise tax with the increased revenue be used by the Public Employees Insurance Agency to reduce employees premiums.
As written, the proposed bill would be difficult to administer. The bill’s language contains the same proviso with respect to both the increase in the cigarette excise tax and the tax on the wholesale price of other tobacco products. That proviso states, “…notwithstanding any other provision of law, payments from the special fund for the benefit of employees may not be subject to any adjustment.” The amgibuity of this statement would make interpretation difficult.
The proposed bill also changes the tax rate by deleting the tax rate effective date of July 1, 2016, which is problematic. Enforcement of the tax rate effective July 1, 2016 will be difficult, as this effectively reverts the tax rates to rates in effect prior to the July 1, 2016 change. Late filing taxpayers or taxpayers entering an agreement to pay back taxes will be able to state the past tax rate as being the rate prior to the 2016 amendments.
As written, the proposed bill does not address subsection (a), which states that the purpose of the excise tax is to provide revenue for the General Revenue Fund. The bill now diverts some of the tax revenue to the Public Employees Insurance Agency (PEIA) Special Fund. In addition, the bill may not adequately create the new fund. It does not designate that the fund is created in the State Treasury and provides little direction other than the stated purpose. The proposed bill is silent as to oversight, reporting, or clear requirement of payments being made to the PEIA Special Fund.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov