FISCAL NOTE

Date Requested: January 25, 2019
Time Requested: 01:24 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
2749 Introduced SB439
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 create five-year tax credits for persons engaged in industrial hemp manufacturing. The bill establishes eligibility requirements for the tax credit and the amount of tax credit allowed. According to our interpretation of this bill, in tax years beginning on or after January 1, 2020, an eligible taxpayer engaged in industrial hemp manufacturing is allowed a tax credit in the amount of 50 percent of their capital expenditures for the first five taxable years. Businesses that benefit from other state economic development programs or incentives that result in a reduction of their income tax liability are not eligible for this credit. This credit would first be applied to the eligible taxpayer’s Corporation Net Income Tax liability and then to their Personal Income Tax liability and may not exceed 50 percent of the entity’s state income tax within a single year. The bill defines industrial hemp as all parts and varieties of the plant cannabis sativa L. containing no greater than one percent tetrahydrocannabinol. The 2014 United States Farm Bill allows a state to grow industrial hemp if it has implemented an official agricultural pilot program. In West Virginia, a person who produces or distributes industrial hemp must first secure a certificate from the State Commissioner of Agriculture. In 2017, the Legislature allowed cultivation of industrial hemp for commercial purposes. The 2018 Farm Bill legalized industrial hemp nationally. According to the Congressional Research Service, West Virginia had a total of 14 production acres of industrial hemp in 2017. We cannot estimate the loss to the General Revenue fund upon passage of this bill as it would be difficult to determine the amount of capital investment related to industrial hemp manufacturing in West Virginia. Additional administrative costs incurred by the State Tax Department would be $20,000 in FY2021 and $5,000 per year in subsequent fiscal years.



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 5,000
Personal Services 0 0 5,000
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 of this bill, in tax years beginning on or after January 1, 2020, an eligible taxpayer engaged in industrial hemp manufacturing is allowed a tax credit in the amount of 50 percent of their capital expenditures for the first five taxable years. Businesses that benefit from other state economic development programs or incentives that result in a reduction of their income tax liability are not eligible for this credit. This credit would first be applied to the eligible taxpayer’s Corporation Net Income Tax liability and then to their Personal Income Tax liability and may not exceed 50 percent of the entity’s state income tax within a single year. The bill defines industrial hemp as all parts and varieties of the plant cannabis sativa L. containing no greater than one percent tetrahydrocannabinol. The 2014 United States Farm Bill allows a state to grow industrial hemp if it has implemented an official agricultural pilot program. In West Virginia, a person who produces or distributes industrial hemp must first secure a certificate from the State Commissioner of Agriculture. In 2017, the Legislature allowed cultivation of industrial hemp for commercial purposes. The 2018 Farm Bill legalized industrial hemp nationally. According to the Congressional Research Service, West Virginia had a total of 14 production acres of industrial hemp in 2017. We cannot estimate the loss to the General Revenue fund upon passage of this bill as it would be difficult to determine the amount of capital investment related to industrial hemp manufacturing in West Virginia. Additional administrative costs incurred by the State Tax Department would be $20,000 in FY2021 and $5,000 per year in subsequent fiscal years.



Memorandum


The stated purpose of this bill is to create five- year tax credits for persons engaged in industrial hemp manufacturing. The bill establishes eligibility requirements for the tax credit and the amount of tax credit allowed. Capital expenditures is defined in Section 263 of the Unites States Internal Revenue Code of 1986. Although IRC §263 provides examples of capital expenditures, it does not provide an actual definition of the term.



    Person submitting Fiscal Note: Mark Muchow
    Email Address: kerri.r.petry@wv.gov