FISCAL NOTE
Date Requested: February 28, 2019
Time Requested: 09:21 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1477 |
Comm. Sub. |
SB106 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing Revenue
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The purpose of this bill is to alleviate double taxation on foreign income at the state level under the personal income tax. The section sunsets the credit for foreign income in 2069.
According to our interpretation, the proposed bill would allow a tax credit against the Personal Income Tax for both state and national foreign income taxes paid. There is a similar tax credit allowed at the federal level. IRS data indicate that in Tax Year 2016 more than 20,000 West Virginia taxpayers claimed the federal credit at a total cost of roughly $5.1 million to the U.S. Treasury. At the federal level, taxpayers may choose between the tax credit option or the itemized deduction option for foreign income taxes paid. Under the provisions of this bill, it is possible for taxpayers to receive double credit for foreign taxes paid, once at the federal level and once at the State level. Passage of the bill would cause a loss to General Revenue Fund collections of roughly $2.0 million per year. As there is no internal effective date, this tax credit would first be allowable in the 2020 tax year and would affect revenues beginning in FY2021. Per the provisions of this bill, the tax credit would sunset on July 1, 2069.
Additional administrative costs incurred by the Tax Department would be $6,000 in FY2020 and $1,000 in each fiscal year thereafter.
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 |
6,000 |
1,000 |
| Personal Services |
0 |
1,000 |
1,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
5,000 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
-2,000,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the proposed bill would allow a tax credit against the Personal Income Tax for both state and national foreign income taxes paid. There is a similar tax credit allowed at the federal level. IRS data indicate that in Tax Year 2016 more than 20,000 West Virginia taxpayers claimed the federal credit at a total cost of roughly $5.1 million to the U.S. Treasury. At the federal level, taxpayers may choose between the tax credit option or the itemized deduction option for foreign income taxes paid. Under the provisions of this bill, it is possible for taxpayers to receive double credit for foreign taxes paid, once at the federal level and once at the State level. Passage of the bill would cause a loss to General Revenue Fund collections of roughly $2.0 million per year. As there is no internal effective date, this tax credit would first be allowable in the 2020 tax year and would affect revenues beginning in FY2021. Per the provisions of this bill, the tax credit would sunset on July 1, 2069.
Additional administrative costs incurred by the Tax Department would be $6,000 in FY2020 and $1,000 in each fiscal year thereafter.
Memorandum
The purpose of this bill is to alleviate double taxation on foreign income at the state level under the personal income tax. The section sunsets the credit for foreign income in 2069.
West Virginia has entered into Memorandums of Understanding with other state taxing jurisdictions in order to carry out the provisions of W.Va. Code ยง11-21-20. It is not possible for the Tax Department to enter into Memorandums of Understanding with every foreign jurisdiction to which a West Virginia resident might travel and earn income.
Foreign income is included in federal adjusted gross income which is the starting point to determine West Virginia taxable income. Although foreign income is generally subject to federal taxation, the federal Foreign Earned Income Exclusion establishes an amount of foreign earned income that is excluded from federal income taxation and thus West Virginia income taxation.
The burden of providing proof of taxes paid to a foreign jurisdiction could be challenging and the time required to review the additional documentation would be significant.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov