FISCAL NOTE
Date Requested: October 17, 2017
Time Requested: 08:45 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 5004 |
Introduced |
HB203 |
|
|---|
| CBD Subject: |
Governor -- Bills Requested By, Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill as introduced is to increase the amount of tax credit for qualified rehabilitation expenditures on historic structures to be used against personal and corporate net income taxes from 10 percent to 25 percent for expenditures made on or after June 30, 2018, to provide for use of the tax credit on or after January 1, 2020, and to make these changes subject to certain annual and per projects caps.
Under current law, a 10 percent State tax credit applies to certified historic structures that also qualify for a 20 percent federal tax credit. The tax credit offsets both Personal Income Tax and Corporation Net Income Tax liabilities. According to the provisions of this bill, the credit allowed against Personal Income Tax and Corporation Net Income Tax liabilities for certified historic structures would increase from 10 percent to 25 percent for expenditures made after June 30, 2018. For any credit authorized for qualified rehabilitation expenditures made on and after July 1, 2018, the proposed legislation would delay availability to offset liabilities to tax years beginning on and after January 1, 2020.
Under the assumption that there is no increase in the current average amount of annual qualified rehabilitation expenditures, the increase in tax credit would result in a loss of roughly $1.6 million per year of investment to the General Revenue Fund once the enhanced credits can be taken against West Virginia income tax liabilities after the rehabilitation work is completed. The initial loss in FY2021 could be greater than subsequent years due to the initial one-year lag in the capacity to offset tax liabilities to tax years beginning on and after January 1, 2020. In addition, the proposed legislation would levy an application fee equal to the lesser of either (1) 0.5 percent of the amount of tax credits requested or (2) $10,000 per application. Based on recent trends, this provision could yield between $15,000 and $25,000 in fees for the State Historic Preservation Office if the average annual amount of credit remains relatively flat.
This estimate of revenue losses related to the increase in credit allowed beginning in FY2021 is based on prior trends of this credit. There is currently no available information to adequately project usage of the credit after a rate increase. While the possibility exists that utilization of the credit could increase with a larger credit allowance, any such shifts in utilization will be largely driven by market demand. Absent such an economic driver, the increased tax credit rate will have little effect on utilization. The demand for historic rehabilitation would be expected to be much greater in geographic areas with low rates of excess building capacity.
Additional administrative costs incurred by the State Tax Department would be $5,500 for the first full year of implementation in FY2021 and $5,000 for each year thereafter.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2017
Increase/Decrease
(use"-") |
2018
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
0 |
5,500 |
| Personal Services |
0 |
0 |
5,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
0 |
500 |
| 2. Estimated Total Revenues |
0 |
0 |
-1,600,000 |
Explanation of above estimates (including long-range effect):
Under current law, a 10 percent State tax credit applies to certified historic structures that also qualify for a 20 percent federal tax credit. The tax credit offsets both Personal Income Tax and Corporation Net Income Tax liabilities. According to the provisions of this bill, the credit allowed against Personal Income Tax and Corporation Net Income Tax liabilities for certified historic structures would increase from 10 percent to 25 percent for expenditures made after June 30, 2018. For any credit authorized for qualified rehabilitation expenditures made on and after July 1, 2018, the proposed legislation would delay availability to offset liabilities to tax years beginning on and after January 1, 2020.
Under the assumption that there is no increase in the current average amount of annual qualified rehabilitation expenditures, the increase in tax credit would result in a loss of roughly $1.6 million per year of investment to the General Revenue Fund once the enhanced credits can be taken against West Virginia income tax liabilities after the rehabilitation work is completed. The initial loss in FY2021 could be greater than subsequent years due to the initial one-year lag in the capacity to offset tax liabilities to tax years beginning on and after January 1, 2020. In addition, the proposed legislation would levy an application fee equal to the lesser of either (1) 0.5 percent of the amount of tax credits requested or (2) $10,000 per application. Based on recent trends, this provision could yield between $15,000 and $25,000 in fees for the State Historic Preservation Office if the average annual amount of credit remains relatively flat.
This estimate of revenue losses related to the increase in credit allowed beginning in FY2021 is based on prior trends of this credit. There is currently no available information to adequately project usage of the credit after a rate increase. While the possibility exists that utilization of the credit could increase with a larger credit allowance, any such shifts in utilization will be largely driven by market demand. Absent such an economic driver, the increased tax credit rate will have little effect on utilization. The demand for historic rehabilitation would be expected to be much greater in geographic areas with low rates of excess building capacity.
Additional administrative costs incurred by the State Tax Department would be $5,500 for the first full year of implementation in FY2021 and $5,000 for each year thereafter.
Memorandum
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov