FISCAL NOTE

Date Requested: January 09, 2019
Time Requested: 03:47 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1729 Introduced HB2071
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 exempt a percentage of social security benefits from personal income tax based on individual's overall amount of taxable income.
    
    According to the provisions of this bill, the amount of social security benefits that is exempt from personal income tax is determined by a taxpayer’s taxable income. As the taxpayer’s taxable income increases the percentage of social security benefits that is exempt is reduced according to the following schedule:
    • If an individual’s taxable income between $0 and $50,000 then 100 percent of social security benefits are exempt from West Virginia personal income tax.
    • If an individual’s taxable income between $50,000 and $70,000 then 80 percent of social security benefits are exempt from West Virginia personal income tax.
    • If an individual’s taxable income between $70,000 and $80,000 then 60 percent of social security benefits are exempt from West Virginia personal income tax.
    • If an individual’s taxable income between $80,000 and $90,000 then 40 percent of social security benefits are exempt from West Virginia personal income tax.
    • If an individual’s taxable income between $90,000 and $100,000 then 20 percent of social security benefits are exempt from West Virginia personal income tax.
    • If an individual’s taxable is exceeds $100,000 then zero percent of social security benefits are exempt from West Virginia personal income tax.
    
    According to our interpretation, the passage of the bill would reduce General Revenue Fund collections by roughly $50.0 Million in FY2020. The value of the proposed tax exemption will grow over time as the population ages and the number of individuals receiving social security benefits increases.
    
    The Governor’s official revenue estimate incorporates the assumption that the Legislature would enact the Governor’s proposed bill to exempt taxable social security benefits from state taxation beginning in Tax Year 2019. Therefore, relative to the Governor’s official revenue estimate, the provisions of the bill would reduce state tax collections by roughly the same amount in FY2020.
    
    Additional administrative costs incurred by the State Tax Department would be $51,000 in FY2020 and $40,000 upon full implementation.
    



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 51,000 40,000
Personal Services 0 40,000 40,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 1,000 0
Other 0 10,000 0
2. Estimated Total Revenues 0 -50,000,000 0


Explanation of above estimates (including long-range effect):


    According to the provisions of this bill, the amount of social security benefits that is exempt from personal income tax is determined by a taxpayer’s taxable income. As the taxpayer’s taxable income increases the percentage of social security benefits that is exempt is reduced according to the following schedule:
    • If an individual’s taxable income between $0 and $50,000 then 100 percent of social security benefits are exempt from West Virginia personal income tax.
    • If an individual’s taxable income between $50,000 and $70,000 then 80 percent of social security benefits are exempt from West Virginia personal income tax.
    • If an individual’s taxable income between $70,000 and $80,000 then 60 percent of social security benefits are exempt from West Virginia personal income tax.
    • If an individual’s taxable income between $80,000 and $90,000 then 40 percent of social security benefits are exempt from West Virginia personal income tax.
    • If an individual’s taxable income between $90,000 and $100,000 then 20 percent of social security benefits are exempt from West Virginia personal income tax.
    • If an individual’s taxable is exceeds $100,000 then zero percent of social security benefits are exempt from West Virginia personal income tax.
    According to our interpretation, the passage of the bill would reduce General Revenue Fund collections by roughly $50.0 Million in FY2020. The value of the proposed tax exemption will increase over time as the population ages and the number of individuals receiving social security benefits increases.
    The Governor’s official revenue estimate incorporates the assumption that the Legislature would enact the Governor’s proposed bill to exempt taxable social security benefits from state taxation beginning in Tax Year 2019. Therefore, relative to the Governor’s official revenue estimate, the provisions of the bill would reduce state tax collections by roughly the same amount in FY2020.
    
    Additional administrative costs incurred by the State Tax Department would be $51,000 in FY2020 and $40,000 upon full implementation.
     
    



Memorandum


    The stated purpose of this bill is to exempt a percentage of social security benefits from personal income tax based on individual's overall amount of taxable income.
    
    The bill adds a new subdivision (8) of subsection (c) that implements a sliding scale of the percentage of social security benefits to be exempt based on an individual’s taxable income.
    
    The language of subsection (c) can be improved in order to be more precise, e.g., up to and including $70,000 for the lower end of the bracket and greater than $70,000 (i.e., equal to or greater than $70,001) for the upper end of the bracket. Additionally, the phrase ‘modifications reducing federal adjusted gross income’ is preferred rather than ‘subtracted from’ as in the bill.
    
    As written, the $8,000 declining modification is still allowed for persons attaining the age of 65 or if permanently and totally disabled. Thus, a person receiving social security could take the percentage and the $8,000 modification. However, where a surviving spouse of a person age 65 or older or the surviving spouse of a permanently and totally disabled person, the $8,000 cap remains in place. This may be an oversight.
    
    
    



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