FISCAL NOTE
Date Requested: January 15, 2019
Time Requested: 02:57 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1658 |
Introduced |
HB2402 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
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 exempt social security benefits from personal income tax.
The bill proposes a modification that would reduce federal adjusted gross income, for West Virginia Personal Income Tax purposes, by the amount of Social Security benefits paid to the extent that the benefits are included in federal adjusted gross income. The modification would be effective for taxable years beginning after December 31, 2018.
According to our interpretation, passage of the bill would reduce General Revenue Fund collections by roughly $92.0 million in FY2020 due to the exclusion of taxable social security benefits from the State Personal Income Tax. The value of the proposed tax exclusion will grow over time as the population ages and the number of individuals receiving social security benefits increases.
The Governor’s official revenue estimate incorporates the assumption that the legislature would enact the Governor’s proposed bill to exempt taxable social security benefits from state taxation beginning in tax year 2019. Therefore, relative to the Governor’s official revenue estimate, the provisions of the bill would reduce state tax collections by roughly $42 million in FY2020.
Additional administrative costs incurred by the State Tax Department would be $51,000 in FY2020 and $40,000 in each of the fiscal years thereafter.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2019
Increase/Decrease
(use"-") |
2020
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
51,000 |
40,000 |
| Personal Services |
0 |
40,000 |
40,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
1,000 |
0 |
| Other |
0 |
10,000 |
0 |
| 2. Estimated Total Revenues |
0 |
-92,000,000 |
0 |
Explanation of above estimates (including long-range effect):
According to our interpretation, passage of the bill would reduce General Revenue Fund collections by roughly $92.0 million in FY2020 due to the exclusion of taxable social security benefits from the State Personal Income Tax. The value of the proposed tax exclusion will grow over time as the population ages and the number of individuals receiving social security benefits increases.
The Governor’s official revenue estimate incorporates the assumption that the legislature would enact the Governor’s proposed bill to exempt taxable social security benefits from state taxation beginning in tax year 2019. Therefore, relative to the Governor’s official revenue estimate, the provisions of the bill would reduce state tax collections by roughly $42 million in FY2020.
Additional administrative costs incurred by the State Tax Department would be $51,000 in FY2020 and $40,000 in each of the fiscal years thereafter.
Memorandum
The stated purpose of this bill is to exempt social security benefits from personal income tax.
The bill does not accomplish its purpose as it provides a reducing modification rather than an exemption. There is a title defect in this bill as it fails to mention the internal effective date.
The bill does not define “social security benefits. The proposed bill covers all the benefits received under 42 U.S.C., Chapter 7, the Social Security Act. However, there are a few items in the Social Security Act which may not be typically thought of as social security benefits, such as providing funds to assist the States in the administration of their unemployment compensation laws. Therefore, some definition of what benefits are included in this proposed modification would be useful to avoid confusion and possible litigation.
The bill adds language to W. Va. Code §11-21-12(c)(5), without underlining that language or noting that it is making a change to that subdivision. It adds “all forms of military retirement, including regular Armed Forces, Reverse and National Guard” to that subdivision. This language is not currently in the Code and the bill does not underline it as new language or address it in the bill note. The bill may be using old statutory language, as this language was removed from this subdivision in 2017 as part of HB 201 in Section Extraordinary Session, when military retirement was added under W. Va. Code §11-21-12(c)(7)(C).
This proposed bill adds a new subdivision (8) under W. Va. Code §11-21-12(c).Under current subdivisions (8) and (9) of W. Va. Code §11-21-12(c) (which are renumbered as subdivisions (9) and (10) in the proposed bill), taxpayers age 65+, or certified permanently disabled, or their surviving spouse, are already allowed to subtract $8,000 from any source from their federal adjusted gross income. Currently, under subdivision (9), which deals with the $8,000 modification for the surviving spouse of any person over 65 years or certified permanently disabled, the modification is reduced by the amount taken under subdivisions (1), (2), (5), (6), (7) and (8). Current subdivision (8) is the $8,000 modification for taxpayers aged 65+ or permanently disabled, as discussed above. Therefore, the amount of the modification that the surviving spouse may take under subdivision (9) is reduced by the amount taken by the aged 65 or older or certified permanently disabled spouse from subdivision (8).
This proposed bill renumbers subdivisions (8) and (9) to (9) and (10) but fails to change the reference to subdivision (8) to renumbered subdivision (9) under the modification for the surviving spouse. The language of subdivision (9) [which is renumbered to subdivision (10) in the bill] would need to be changed so that the modification is reduced by the amount take under (1), (2), (5), (6), (7) and (9). As written in this bill, it appears that an eligible taxpayer who is aged 65 or older or certified permanently disabled may be able to take the modification under this new proposed subdivision for their social security benefits as well as claim the $8,000 modification under subdivision (8) [which is subdivision (9) under the proposed bill]. While, a surviving spouse would have to reduce any modification under subdivision (9) [which is subdivision (10) under the proposed bill] by the amount taken for 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.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov