FISCAL NOTE
Date Requested: January 29, 2019
Time Requested: 04:32 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1582 |
Introduced |
HB2724 |
|
|---|
| 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 provide a temporary tax credit for small group employers to cover a tax credit of up to 50 percent of the costs of branding, marketing and advertising of agricultural or manufactured products produced or manufactured in West Virginia. The bill establishes limits. The bill provides that the credit be available for five years.
According to the provisions of this bill, any eligible small group employer with fewer than twenty-five employees is allowed a credit of up to 50 percent of the costs of branding, marketing and advertising of agricultural or manufactured products produced or manufactured in West Virginia. An eligible employer must also maintain its corporate headquarters in West Virginia. The total amount of tax credit that may be used in any tax year in combination with the owners of the eligible taxpayer may not exceed $10,000, and the total tax credits authorized to all applicants may not exceed $100,000 in a year. The bill provides for the tax credit to be applied against Business Franchise Tax, Corporation Net Income Tax or Personal Income Tax on business profits. The Business Franchise Tax was eliminated as of 2015. Therefore, tax credits would apply to income taxes with a maximum four-year carry-over period for unused tax credits. The annual cost of the program could easily approach the aggregate statutory cap of $100,000 beginning in FY2021. The proposed bill fails to provide guidance for handling aggregate tax credit claims in excess of the statutory $100,000 cap.
Additional administrative costs incurred by the State Tax Department would be $7,000 in FY2021 and $2,000 per year in subsequent fiscal years.
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 |
2,000 |
| Personal Services |
0 |
0 |
2,000 |
| 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 the provisions of this bill, any eligible small group employer with fewer than twenty-five employees is allowed a credit of up to 50 percent of the costs of branding, marketing and advertising of agricultural or manufactured products produced or manufactured in West Virginia. An eligible employer must also maintain its corporate headquarters in West Virginia. The total amount of tax credit that may be used in any tax year in combination with the owners of the eligible taxpayer may not exceed $10,000, and the total tax credits authorized to all applicants may not exceed $100,000 in a year. The bill provides for the tax credit to be applied against Business Franchise Tax, Corporation Net Income Tax or Personal Income Tax on business profits. The Business Franchise Tax was eliminated as of 2015. Therefore, tax credits would apply to income taxes with a maximum four-year carry-over period for unused tax credits. The annual cost of the program could easily approach the aggregate statutory cap of $100,000 beginning in FY2021. The
proposed bill fails to provide guidance for handling aggregate tax credit claims in excess of the statutory $100,000 cap.
Additional administrative costs incurred by the State Tax Department would be $7,000 in FY2021 and $2,000 per year in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to provide a temporary tax credit for small group employers to cover a tax credit of up to 50 percent of the costs of branding, marketing and advertising of agricultural or manufactured products produced or manufactured in West Virginia. The bill establishes limits. The bill provides that the credit be available for five years.
There are technical problems and Constitutional concerns with this bill. The bill purports to add a new section, but it should say it is adding a new article.
This proposed credit would be difficult to administer because it does not define the term “employees”. For example, it is not clear how part-time or part year employees would be calculated in determining credit eligibility. The bill would be difficult to enforce as written. Litigation would likely result, as there is significant confusion surrounding the qualifications for the tax credit. It is not clear that the small business must be the same entity that produces the agricultural or manufactured product made in West Virginia.
It is also not clear whether no more than $100,000 in tax credits may be given to all taxpayers in each year, or that a given taxpayer may not receive more than a total of $100,000 in tax credits.
The bill does not specify if the entire tax credit program expires after five years, or if a taxpayer is no longer allowed to apply again five years after the first time it claimed a credit.
As this bill provides a tax credit for the marketing goods that are produced or manufactured in the State with business headquarters also located in West Virginia, this would likely be a violation of interstate commerce which likely would result in Constitutional challenges due to concerns with Commerce Clause violations.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov