FISCAL NOTE
Date Requested: February 12, 2019
Time Requested: 02:38 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3284 |
Introduced |
HB3112 |
|
|---|
| CBD Subject: |
Economic Development |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Increases Revenue From Existing Sources, Decreases 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 require an analysis of the economic impact and strengths and weaknesses of incentives provides for job creation in West Virginia and to facilitate job creation in West Virginia. The bill delineates the use of moneys in the Entrepreneurship and Innovation Fund. The bill establishes and Entrepreneurship and Innovation Authority to encourage and coordinate programs and investments that advances the competitiveness of West Virginia companies in the global economy.
According to our interpretation, the duty of tax incentive evaluations would be transferred from the Tax Department to a newly established Tax and Economic Incentives Review Committee consisting of a certified public accountant, two economic development representatives, an auditor employed by a private auditing firm, representatives from both the West Virginia University College of Business and Economics and Marshall University College of Business and Economics, the president of the West Virginia Economic Development Authority, the West Virginia Secretary of Commerce, the West Virginia Secretary of Revenue, and the West Virginia Legislative Auditor. The definition of economic incentives is comprehensive.
The provisions of this bill would also eliminate current requirements for periodic tax credit review and accountability reports related to the Economic Opportunity Tax Credit (a program affecting roughly 30 Taxpayers at an annual cost of roughly $6.5 million), the Manufacturing Investment Tax Credit ( a program affecting less than 100 Taxpayers at an annual cost of roughly $4.5 million), and the West Virginia Innovative Mine Safety Technology Tax Credit (a program affecting so few Taxpayers that no accountability report is required under current Law). In addition, accountability report language would be repealed for tax credits that have already been terminated including the Strategic Research and Development Tax Credit, the High-Growth Business Investment Tax Credit, the West Virginia Film Industry Investment Act and the Commercial Patent Incentives Tax Act.
Finally, the provisions of this bill would also create the West Virginia Entrepreneurship and Innovation Authority consisting of seventeen members, supplanting the authority of the West Virginia Development Office to use moneys in the Entrepreneurship and Innovation Investment Fund to support entrepreneurship, creation of business startups, improvements in workforce participation, and attracting individuals to relocate to West Virginia. The bill creates a matching funds program to coordinate with the federal Small Business Innovation Research Program and to offer qualified businesses with grants of up to $250,000.
This fiscal note does not attempt to measure the scope of the newly created grant fund or other activities of the newly created West Virginia Entrepreneurship and Innovation Authority.
A narrow scope of review might fail to fully uncover reasons behind the failure of some programs. In some cases, a tax incentive may promote the activity sought by Legislative intent but may come up short on results due to other factors. For example, the Legislature created the Manufacturing Investment Tax Credit to encourage “the location of new industry in this State, and the expansion, growth and revitalization of existing industrial facilities in this State.” This program provides all manufacturers in the State with a 5% capital investment tax credit. Despite the existence of such a tax credit since 1969 (previously the Industrial Expansion Credit between 1969 and 2002), the manufacturing sector has declined in West Virginia relative to the rest of the country. Between 1997 and 2017, manufacturing real gross domestic product rose by 43% in the United States, but fell by 19% in West Virginia despite the State investment tax credit. The marginal benefits of the investment tax credit failed to overcome the huge disadvantage of high property taxes on machinery and equipment used in manufacturing. West Virginia is among the top five states in the country in terms of effective tax rates imposed on industrial personal property. Local personal property taxes on manufacturing machinery and equipment are far greater in magnitude than any State imposed taxes. Some manufacturers in West Virginia also face an additional municipal gross receipts tax with significant tax burden not found elsewhere. The disadvantages of these local taxes are difficult to impossible to overcome with State tax incentives.
Depending on level of review, the administrative costs associated with review of tax and economic incentives could easily become large relative to the size of some of these incentive programs. However, we lack knowledge to be able to properly quantify such potential costs.
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 |
0 |
| Personal Services |
0 |
0 |
0 |
| 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 duty of tax incentive evaluations would be transferred from the Tax Department to a newly established Tax and Economic Incentives Review Committee consisting of a certified public accountant, two economic development representatives, an auditor employed by a private auditing firm, representatives from both the West Virginia University College of Business and Economics and Marshall University College of Business and Economics, the president of the West Virginia Economic Development Authority, the West Virginia Secretary of Commerce, the West Virginia Secretary of Revenue, and the West Virginia Legislative Auditor. The definition of economic incentives is comprehensive.
The provisions of this bill would also eliminate current requirements for periodic tax credit review and accountability reports related to the Economic Opportunity Tax Credit (a program affecting roughly 30 Taxpayers at an annual cost of roughly $6.5 million), the Manufacturing Investment Tax Credit ( a program affecting less than 100 Taxpayers at an annual cost of roughly $4.5 million), and the West Virginia Innovative Mine Safety Technology Tax Credit (a program affecting so few Taxpayers that no accountability report is required under current Law). In addition, accountability report language would be repealed for tax credits that have already been terminated including the Strategic Research and Development Tax Credit, the High-Growth Business Investment Tax Credit, the West Virginia Film Industry Investment Act and the Commercial Patent Incentives Tax Act.
Finally, the provisions of this bill would also create the West Virginia Entrepreneurship and Innovation Authority consisting of seventeen members, supplanting the authority of the West Virginia Development Office to use moneys in the Entrepreneurship and Innovation Investment Fund to support entrepreneurship, creation of business startups, improvements in workforce participation, and attracting individuals to relocate to West Virginia. The bill creates a matching funds program to coordinate with the federal Small Business Innovation Research Program and to offer qualified businesses with grants of up to $250,000.
This fiscal note does not attempt to measure the scope of the newly created grant fund or other activities of the newly created West Virginia Entrepreneurship and Innovation Authority.
A narrow scope of review might fail to fully uncover reasons behind the failure of some programs. In some cases, a tax incentive may promote the activity sought by Legislative intent but may come up short on results due to other factors. For example, the Legislature created the Manufacturing Investment Tax Credit to encourage “the location of new industry in this State, and the expansion, growth and revitalization of existing industrial facilities in this State.” This program provides all manufacturers in the State with a 5% capital investment tax credit. Despite the existence of such a tax credit since 1969 (previously the Industrial Expansion Credit between 1969 and 2002), the manufacturing sector has declined in West Virginia relative to the rest of the country. Between 1997 and 2017, manufacturing real gross domestic product rose by 43% in the United States, but fell by 19% in West Virginia despite the State investment tax credit. The marginal benefits of the investment tax credit failed to overcome the huge disadvantage of high property taxes on machinery and equipment used in manufacturing. West Virginia is among the top five states in the country in terms of effective tax rates imposed on industrial personal property. Local personal property taxes on manufacturing machinery and equipment are far greater in magnitude than any State imposed taxes. Some manufacturers in West Virginia also face an additional municipal gross receipts tax with significant tax burden not found elsewhere. The disadvantages of these local taxes are difficult to impossible to overcome with State tax incentives.
Depending on level of review, the administrative costs associated with review of tax and economic incentives could easily become large relative to the size of some of these incentive programs. However, we lack knowledge to be able to properly quantify such potential costs.
Memorandum
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov