FISCAL NOTE
Date Requested: January 30, 2020
Time Requested: 02:58 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1502 |
Introduced |
HB4610 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Increases Revenue From Existing Sources, 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 require lessees of West Virginia real estate who make natural resources royalty payments for in-state property to any nonresident lessor, to withhold West Virginia personal income tax on natural resources royalty payments. The bill provides exceptions, penalties, defines terms and grants rule-making authority.
Per our interpretation, the bill provides that every lessee of West Virginia real estate who makes a natural resources royalty payment to a lessor who does not reside in West Virginia must withhold West Virginia personal income tax on the natural resources royalty payments to that lessor and remit the withheld amount to the Tax Commissioner. The withholding of the tax is optional with respect to payments to a lessor who receives less than $1,000 annually in natural resource royalty payments from the lessee and is at the discretion of the lessee. Royalty income from West Virginia properties are subject to West Virginia Personal Income Tax regardless of individual residency. The provisions of this bill may improve compliance. The provisions of the bill would be effective for all taxable years beginning after December 31, 2020. Based on our interpretation, the passage of the proposed legislation could increase General Revenue Fund collections by up to $500,000 in FY2021 and $2.0 million in subsequent fiscal years.
Additional administrative costs incurred by the Tax Department would be $30,000 in FY2021 and $10,000 in subsequent fiscal years.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2020
Increase/Decrease
(use"-") |
2021
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
30,000 |
10,000 |
| Personal Services |
0 |
10,000 |
10,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
20,000 |
0 |
| 2. Estimated Total Revenues |
0 |
500,000 |
2,000,000 |
Explanation of above estimates (including long-range effect):
Per our interpretation, the bill provides that every lessee of West Virginia real estate who makes a natural resources royalty payment to a lessor who does not reside in West Virginia must withhold West Virginia personal income tax on the natural resources royalty payments to that lessor and remit the withheld amount to the Tax Commissioner. The withholding of the tax is optional with respect to payments to a lessor who receives less than $1,000 annually in natural resource royalty payments from the lessee and is at the discretion of the lessee. Royalty income from West Virginia properties are subject to West Virginia Personal Income Tax regardless of individual residency. The provisions of this bill may improve compliance. The provisions of the bill would be effective for all taxable years beginning after December 31, 2020. Based on our interpretation, the passage of the proposed legislation could increase General Revenue Fund collections by up to $500,000 in FY2021 and $2.0 million in subsequent fiscal years.
Additional administrative costs incurred by the Tax Department would be $30,000 in FY2021 and $10,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to require lessees of West Virginia real estate who make natural resources royalty payments for in-state property to any nonresident lessor, to withhold West Virginia personal income tax on natural resources royalty payments. The bill provides exceptions, penalties, defines terms and grants rule-making authority.
The withholding of tax is optional with respect to payments to a lessor who receives less than $1,000 annually in natural resources royalty payments from the lessee and is at the discretion of the lessee. The language providing discretion in observing a law contradicts the basic purpose of providing society a predictable system of rules to be followed and enforced in relation to regulating conduct. Leaving observance of a law to the discretion of an individual is counter-productive to the statute’s existence. It would be better to make the withholding of amounts less than $1,000 an exception to the requirement to withhold, or to change the language and establish $1,000 as a minimum requirement for withholding.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov