FISCAL NOTE
Date Requested: February 12, 2020
Time Requested: 11:50 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3158 |
Introduced |
SB755 |
|
|---|
| 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 create the West Virginia Works – High Wage Business Tax Credit Act.
According to our interpretation, this bill would create a tax credit for eligible taxpayers creating high wage jobs in coordination with the State Development Office and the State Tax Department. The maximum credit allotment is $5.0 million per fiscal year, and the total amount of credit that may be awarded or used by an eligible taxpayer in any taxable year would not exceed 10 percent of the salaries for the new direct jobs. The tax credit benefit limitation would be higher than the maximum 6.5 percent tax rate imposed on employee salaries. Most high wage jobs in West Virginia would likely fall under the professional services category with medical services leading the way. The proposed tax credit is available for ten years; however, any unused credit can be carried forward to future years. Excess credit can also be claimed as a refundable credit, not to exceed $100,000 per taxpayer, including owners and their controlled group, if applicable. This bill defines a new high-wage jobs as a new job created in West Virginia by an eligible employer on or after July 1, 2020. The employee would have to work for at least 48 weeks and the wages paid to the employee would be at least 2.25 times the state median salary. The bill defines eligible employer as a person who is an owner or operator of a project facility registered to do business in West Virginia, offering health benefits to all its full-time eligible employees and certifies that it pays at least 50 percent of their health care premiums. Excluding the bill’s reference to the Business Franchise Tax, which was terminated on January 1, 2015, this proposed tax credit would be first applied to the eligible taxpayer’s Corporation Net Income Tax liability and then to their Personal Income Tax liability.
A new high-wage job that was created by another employer for which an application for the proposed tax credit was received by the State Development Office and is under review by the Tax Department prior to the time of the business merger or acquisition or other change in business organization would remain eligible for the proposed high-wage growth business tax credit for the remainder of the consecutive qualifying periods. This bill defines qualifying period as the period of 12 months beginning on the day an eligible employee begins working in a new high-wage job or the period of 12 months beginning on the anniversary of the day an eligible employee began working in a new high-wage job. However, a new high-wage job is not eligible for this proposed tax credit if the new job created is due to an eligible employer entering into a contract or becoming a subcontractor to a contract with a governmental entity that replaces one or more entities performing functionally equivalent services for the governmental entity. The exception to this provision arises if the job created is a new high-wage job that is not being performed by an employee of the replaced entity. Passage of this bill would result in a loss of up to $5.0 million to the General Revenue Fund in FY2022 and thereafter.
Additional administrative costs incurred by the State Tax Department would be $35,000 in FY2022 and $10,000 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 |
10,000 |
| Personal Services |
0 |
0 |
10,000 |
| 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 |
-5,000,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, this bill would create a tax credit for eligible taxpayers creating high wage jobs in coordination with the State Development Office and the State Tax Department. The maximum credit allotment is $5.0 million per fiscal year, and the total amount of credit that may be awarded or used by an eligible taxpayer in any taxable year would not exceed 10 percent of the salaries for the new direct jobs. The tax credit benefit limitation would be higher than the maximum 6.5 percent tax rate imposed on employee salaries. Most high wage jobs in West Virginia would likely fall under the professional services category with medical services leading the way. The proposed tax credit is available for ten years; however, any unused credit can be carried forward to future years. Excess credit can also be claimed as a refundable credit, not to exceed $100,000 per taxpayer, including owners and their controlled group, if applicable. This bill defines a new high-wage jobs as a new job created in West Virginia by an eligible employer on or after July 1, 2020. The employee would have to work for at least 48 weeks and the wages paid to the employee would be at least 2.25 times the state median salary. The bill defines eligible employer as a person who is an owner or operator of a project facility registered to do business in West Virginia, offering health benefits to all its full-time eligible employees and certifies that it pays at least 50 percent of their health care premiums. Excluding the bill’s reference to the Business Franchise Tax, which was terminated on January 1, 2015, this proposed tax credit would be first applied to the eligible taxpayer’s Corporation Net Income Tax liability and then to their Personal Income Tax liability.
A new high-wage job that was created by another employer for which an application for the proposed tax credit was received by the State Development Office and is under review by the Tax Department prior to the time of the business merger or acquisition or other change in business organization would remain eligible for the proposed high-wage growth business tax credit for the remainder of the consecutive qualifying periods. This bill defines qualifying period as the period of 12 months beginning on the day an eligible employee begins working in a new high-wage job or the period of 12 months beginning on the anniversary of the day an eligible employee began working in a new high-wage job. However, a new high-wage job is not eligible for this proposed tax credit if the new job created is due to an eligible employer entering into a contract or becoming a subcontractor to a contract with a governmental entity that replaces one or more entities performing functionally equivalent services for the governmental entity. The exception to this provision arises if the job created is a new high-wage job that is not being performed by an employee of the replaced entity. Passage of this bill would result in a loss of up to $5.0 million to the General Revenue Fund in FY2022 and thereafter.
Additional administrative costs incurred by the State Tax Department would be $35,000 in FY2022 and $10,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to create the West Virginia Works – High Wage Business Tax Credit Act.
Although this bill does accomplish its stated purpose, it is difficult to administer as written. The title is inadequate and does not briefly state the parameters of the proposed tax credit or the basis of the credit. The title also does not set out the provision that if an individual willfully submits a false, incorrect or fraudulent certification, the individual is subject to penalties set out in Articles 9 and 10 of Chapter 11 of the West Virginia Code. However, the penalty is based on the total amount of credit requested.
It appears the word “not” is erroneously placed subsection 4(m)(9) of this bill. It states that the credits may not be transferred, sold or assigned, but then states that by filing a notarized endorsement of the transfer with the Tax Division, the names of the transferee, the amount of tax credit transferred, and the value received for the credit, the credit is transferred.
This bill does not have a claw back provision. If the taxpayer ceases business, the Tax Department may not grant additional credit and would eliminate any credit amount for the taxpayer that has not already been claimed.
Where a taxpayer loses eligibility, the taxpayer may not submit a new application to the State Development Office for a minimum of two calendar years. This appears to contradict the new job provision requirement if the taxpayer subsequently applies for this proposed tax credit.
It is not entirely clear how an employer qualifies for a tax credit and how to calculate this proposed credit once they qualify. It appears that it will be left to the State Development Office to calculate this credit.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov