FISCAL NOTE
Date Requested: February 04, 2020
Time Requested: 11:08 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2544 |
Introduced |
HB4689 |
|
|---|
| 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 encourage investments in technologies that will enhance investment and create opportunities to state residencies by creating incentives for investment in technology resources in West Virginia; authorizing local governmental units to create solar power generation facilities to provide to businesses desiring availability of those facilities to locate in the state; creating a tax credit for construction of fiber optic infrastructure to attach businesses and residents that desire that technology; and creating a tax credit for information and technology companies that create 250 or more jobs in West Virginia.
According to our interpretation, this bill has more than one purpose. The first section authorizes local governments to construct renewable energy projects in order to attract businesses that have established sustainability goals. The bill also allows local governments to enter into agreements with existing utilities.
The bill also creates two new tax credits. The first credit is for investment in fiber optics projects. A company may be eligible for a non-refundable tax credit equal to as much as 100 percent of actual expenditures related to West Virginia production of a qualified fiber optics project. The bill defines fiber optic infrastructure as technology and medium used in the transmission of data as pulses of light through a strand or fiber made of glass or plastic optical fiber and includes installation and construction of all necessary technology to support its operation and delivery. The proposed tax credit for fiber optics projects would be applied against Corporation Net Income Tax and the Personal Income Tax liabilities. The bill also refers to the Business Franchise Tax which ended on January 1, 2015. Under the provisions of this bill, expenditures used for calculating the proposed fiber optic tax credit may not be used for claiming the Economic Opportunity Tax Credit or the Manufacturing Investment Tax Credit. The bill does allow the transfer or sale of the tax credits whose proceeds would be exempt from the Consumer Sales and Use Tax, Corporation Net Income Tax and Personal Income Tax. The bill does not allow carryback of credits to a prior taxable year that does not have qualified expenditures for the amount of any unused portion of any annual credit allowance. The amount of this proposed fiber optic tax credit is equivalent to between 80 percent and 100 percent of the cost of construction of fiber optics facilities. Nationally, fiber optic infrastructure costs roughly $20,000 per mile. The FCC provides financial assistance to fiber optic providers that agree to invest their own capital and deliver service to underserved census blocks. Roughly 72.9 percent of the State population utilizes broadband internet.
The second credit is for the benefit of any company that brings one hundred or more new information technology jobs to West Virginia. The non-refundable tax credit that is equivalent to one hundred percent of tax liability derived from the creation of a new information technology jobs. The term “tax liability” is not defined in the bill. Excess tax credit can be transferred or sold. Proceeds from the transfer or sale of these credits would be exempt for the Sales and Use Tax, Corporation Net Income Tax and Personal Income Tax. This bill defines information technology company as any business that has a primary purpose of manufacturing, operating or participating in information technology which is regulated as a utility by the Public Service Commission. The State Development Office would certify to the State Tax Division that an eligible company has created 100 or more full-time jobs in West Virginia related to the creation of a new information technology facility in the State.
The proposed tax credits could create significant losses to the General Revenue Fund in future fiscal years. These losses would be difficult to calculate as we do not know how many fiber optic installations would be financed through General Revenue Fund tax credits. We also do not know the clear definition of the tax credit base for the proposed information technology employment tax credit. Both of these credits may be sold to someone with tax liability.
Additional administrative costs incurred by the State Tax Department would be $30,000 in FY2022 and $5,000 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 |
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, this bill has more than one purpose. The first section authorizes local governments to construct renewable energy projects in order to attract businesses that have established sustainability goals. The bill also allows local governments to enter into agreements with existing utilities.
The bill also creates two new tax credits. The first credit is for investment in fiber optics projects. A company may be eligible for a non-refundable tax credit equal to as much as 100 percent of actual expenditures related to West Virginia production of a qualified fiber optics project. The bill defines fiber optic infrastructure as technology and medium used in the transmission of data as pulses of light through a strand or fiber made of glass or plastic optical fiber and includes installation and construction of all necessary technology to support its operation and delivery. The proposed tax credit for fiber optics projects would be applied against Corporation Net Income Tax and the Personal Income Tax liabilities. The bill also refers to the Business Franchise Tax which ended on January 1, 2015. Under the provisions of this bill, expenditures used for calculating the proposed fiber optic tax credit may not be used for claiming the Economic Opportunity Tax Credit or the Manufacturing Investment Tax Credit. The bill does allow the transfer or sale of the tax credits whose proceeds would be exempt from the Consumer Sales and Use Tax, Corporation Net Income Tax and Personal Income Tax. The bill does not allow carryback of credits to a prior taxable year that does not have qualified expenditures for the amount of any unused portion of any annual credit allowance. The amount of this proposed fiber optic tax credit is equivalent to between 80 percent and 100 percent of the cost of construction of fiber optics facilities. Nationally, fiber optic infrastructure costs roughly $20,000 per mile. The FCC provides financial assistance to fiber optic providers that agree to invest their own capital and deliver service to underserved census blocks. Roughly 72.9 percent of the State population utilizes broadband internet.
The second credit is for the benefit of any company that brings one hundred or more new information technology jobs to West Virginia. The non-refundable tax credit that is equivalent to one hundred percent of tax liability derived from the creation of a new information technology jobs. The term “tax liability” is not defined in the bill. Excess tax credit can be transferred or sold. Proceeds from the transfer or sale of these credits would be exempt for the Sales and Use Tax, Corporation Net Income Tax and Personal Income Tax. This bill defines information technology company as any business that has a primary purpose of manufacturing, operating or participating in information technology which is regulated as a utility by the Public Service Commission. The State Development Office would certify to the State Tax Division that an eligible company has created 100 or more full-time jobs in West Virginia related to the creation of a new information technology facility in the State.
The proposed tax credits could create significant losses to the General Revenue Fund in future fiscal years. These losses would be difficult to calculate as we do not know how many fiber optic installations would be financed through General Revenue Fund tax credits. We also do not know the clear definition of the tax credit base for the proposed information technology employment tax credit. Both of these credits may be sold to someone with tax liability.
Additional administrative costs incurred by the State Tax Department would be $30,000 in FY2022 and $5,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to encourage investments in technologies that will enhance investment and create opportunities to state residencies by creating incentives for investment in technology resources in West Virginia; authorizing local governmental units to create solar power generation facilities to provide to businesses desiring availability of those facilities to locate in the state; creating a tax credit for construction of fiber optic infrastructure to attach businesses and residents that desire that technology; and creating a tax credit for information and technology companies that create 250 or more jobs in West Virginia.
This bill has more than one objective and the title may be insufficient regarding the two tax credits. There is also an interstate commerce issue with preferable tax treatment for the employment of West Virginia residents. There are some administration issues with these proposed tax credits.
It appears as if qualifying costs are calculated by the State Development Office and will operate like the Tourism Tax Credit. The Public Service Commission may offer greater insight regarding technical terms and the State Development Office may need to review this bill since it has significant obligations related to the administration of the two proposed tax credits.
The proposed tax credit related to fiber optic infrastructure is transferable and the proceeds from the transfer are exempt from both the Sales and Use Tax and the Personal Income Tax. It is not clear how long the transferred credit can be claimed. The Tax Commissioner may not seek recourse against the purchaser, apparently even in cases of fraud. Failure to comply with these sections will result in disallowance of the proposed credit.
The language related to the calculation of the income derived from the profits of an eligible information technology company that the second proposed tax credit applies to would need clarification. A method related to the calculation of this income would improve the language of this section of the bill. A definition of tax liability would help given that one may interpret tax liability to be all federal, state and local taxes incurred.
The State Development Office has reporting requirements related to Tax Credit Review and Accountability reports for these proposed tax credits. The Tax Commissioner would need authority to enter Memorandums of Understanding for the State Development Office to obtain some of this information.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov