FISCAL NOTE
Date Requested: January 14, 2019
Time Requested: 11:23 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1243 |
Introduced |
HB2230 |
|
|---|
| 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 provide a deduction from adjusted federal gross income for persons whose income is $100,000 or less the entirety of any income received under the federal Social Security System.
According to the provisions of this bill, for taxable years beginning after December 31, 2019, people with an adjustable gross income of $100,000 or less will receive a State Personal Income Tax deduction on any income received under the federal Social Security System.
According to our interpretation, passage of the bill would reduce General Revenue Fund collections by roughly $67.4 million in FY2021 due to the exclusion of taxable social security benefits from the State Personal Income Tax for those with adjustable gross incomes of $100,000 or less. 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. Given that the provisions of this bill would not be in effect until TY2020 or FY2021, actual estimated revenues would be nearly $50 million higher for FY2020 relative to the official estimated under the assumption that this bill would pass in lieu of the Governor’s proposed bill.
Additional administrative costs incurred by the State Tax Department would be $51,000 in FY2021 and $40,000 per year in 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 |
0 |
40,000 |
| Personal Services |
0 |
0 |
40,000 |
| 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 |
-67,400,000 |
Explanation of above estimates (including long-range effect):
According to the provisions of this bill, for taxable years beginning after December 31, 2019, people with an adjustable gross income of $100,000 or less will receive a State Personal Income Tax deduction on any income received under the federal Social Security System.
According to our interpretation, passage of the bill would reduce General Revenue Fund collections by roughly $67.4 million in FY2021 due to the exclusion of taxable social security benefits from the State Personal Income Tax for those with adjustable gross incomes of $100,000 or less. 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. Given that the provisions of this bill would not be in effect until TY2020 or FY2021, actual estimated revenues would be nearly $50 million higher for FY2020 relative to the official estimated under the assumption that this bill would pass in lieu of the Governor’s proposed bill.
It is also important to note the presence of a cliff in which Taxpayers with similar liabilities will receive different tax treatment. Significant inequity occurs when taxpayers slightly below the income cutoff are eligible to deduct taxable Social Security benefits while Taxpayers slightly above the cutoff are not eligible for the modification. For example, consider two West Virginia residents who are 65 years of age. Both received taxable Social Security benefits of $23,000. Person A’s federal adjusted gross income is determined to be $100,001 and Person B’s federal adjusted gross income is determined to be $99,999.
Under the proposed bill, Person A would qualify for the decreasing modification for excluding taxable Social Security Benefits while Person B would not. If we assume full exclusion of taxable Social Security benefits are in place, Person A will be able to reduce federal adjusted gross income by the amount of taxable Social Security benefits ($23,000) to determine West Virginia Taxable Income of $66,999 (after subtraction for one personal exemption and the full $8,000 senior modification). This individual’s tax due is $3,229. By comparison, Person B would not be able to reduce federal adjusted gross income by the amount of taxable Social Security benefits, thus West Virginia Taxable Income is $ 90,001 (after subtraction for one personal exemption and the full $8,000 senior modification). Person B would pay an additional $1,496 of West Virginia Personal Income Tax on incremental income of just $1. This individual’s tax due is $ 4,725.
Additional administrative costs incurred by the State Tax Department would be $51,000 in FY2021 and $40,000 per year in fiscal years thereafter.
Memorandum
The stated purpose of this bill is to provide a deduction from adjusted federal gross income for persons whose income is $100,000 or less the entirety of any income received under the federal Social Security System.
The proposed bill states that “all income received under the federal Social Security System” may be subtracted from an eligible taxpayer’s federal adjusted gross income. Subsection (c) states that the modifications listed under that subsection are to be subtracted from adjusted gross income to the extent included therein. Many of the modifications listed under subsection (c) also specifically state that the modification may only subtract income already included in the federal adjusted gross income. The modification in this bill does not do so. Therefore, someone may question whether this bill intended to permit a taxpayer to deduct more than what was included in the federal adjusted gross income. Additionally, the bill covers “all income received under the federal Social Security System,” without specifically outlining what that means. Presumably this modification covers the benefits received under 42 U.S.C., Chapter 7, which is the Social Security Act.
The proposed bill incorrectly uses the term “adjustable” federal gross income. The bill should refer to “adjusted” federal gross income. That error may cause confusion with some taxpayers.
The proposed bill has an effective date of taxable years beginning after December 31, 2019. However, the bill title fails to mention the internal effective date. Also, the bill title states that it is “exempting” from personal income tax the social security benefits for persons with an adjusted gross income of $100,000 or less. Under the West Virginia Code this is a modification, not an exemption. If it were an exemption, it may run afoul of the West Virginia Constitution, Art. 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