FISCAL NOTE
Date Requested: February 21, 2020
Time Requested: 09:26 AM |
| Agency: |
Tax & Revenue Department, WV State |
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| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3324 |
Originating |
HB4968 |
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|---|
| CBD Subject: |
|
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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 encourage investments in technologies that will enhance investment and create opportunities to state residencies by creating incentives for investment in technology resources in West Virginia; creating a tax credit for construction fiber optic infrastructure to attach businesses and residents that desire that technology; and creating a tax credit for information and technology companies that create 250 or more jobs in West Virginia.
According to our interpretation, this bill creates two new tax credits. The first credit is for investment in fiber optics projects. A company may be eligible for a non-refundable tax credit equal to as much as 85 percent of actual expenditures related to West Virginia production of a qualified fiber optics project. The bill defines fiber optic infrastructure as technology and medium used in the transmission of data as pulses of light through a strand or fiber made of glass or plastic optical fiber and includes installation and construction of all necessary technology to support its operation and delivery. The proposed tax credit for fiber optics projects would be applied against Corporation Net Income Tax and the Personal Income Tax liabilities. Under the provisions of this bill, expenditures used for calculating the proposed fiber optic tax credit may not be used for claiming the Economic Opportunity Tax Credit or the Manufacturing Investment Tax Credit. The bill does allow the transfer or sale of the tax credits whose proceeds would be exempt from the Consumer Sales and Use Tax, Corporation Net Income Tax and Personal Income Tax. The bill does not allow carryback of credits to a prior taxable year that does not have qualified expenditures for the amount of any unused portion of any annual credit allowance. The amount of this proposed fiber optic tax credit is equivalent to 80 percent of the cost of construction of fiber optics facilities with an additional 5 percent credit if local labor is used in such projects. Nationally, fiber optic infrastructure costs roughly $20,000 per mile. The FCC provides financial assistance to fiber optic providers that agree to invest their own capital and deliver service to underserved census blocks. Roughly 72.9 percent of the State population utilizes broadband internet.
The second credit is for the benefit of any company that brings one hundred or more new information technology jobs to West Virginia. The non-refundable tax credit that is equivalent to fifty percent of tax liability derived from the creation of a new information technology jobs. The term “tax liability” is not defined in the bill. Excess tax credit can be transferred or sold. Proceeds from the transfer or sale of these credits would be exempt for the Sales and Use Tax, Corporation Net Income Tax and Personal Income Tax. This bill defines information technology company as any business that has a primary purpose of manufacturing, operating or participating in information technology which is not regulated as a utility by the Public Service Commission. The State Development Office would certify to the State Tax Division that an eligible company has created 250 or more full-time jobs in West Virginia related to the creation of a new information technology facility in the State.
Because any excess credit may be sold, the proposed tax credits could create significant losses to the General Revenue Fund in future fiscal years. These losses would be difficult to calculate as we do not know how many fiber optic installations would be financed through General Revenue Fund tax credits. We also do not know the clear definition of the tax credit base for the proposed information technology employment tax credit. Both of these credits may be sold to someone with tax liability.
Additional administrative costs incurred by the State Tax Department would be $40,000 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 |
0 |
Explanation of above estimates (including long-range effect):
According to our interpretation, this bill creates two new tax credits. The first credit is for investment in fiber optics projects. A company may be eligible for a non-refundable tax credit equal to as much as 85 percent of actual expenditures related to West Virginia production of a qualified fiber optics project. The bill defines fiber optic infrastructure as technology and medium used in the transmission of data as pulses of light through a strand or fiber made of glass or plastic optical fiber and includes installation and construction of all necessary technology to support its operation and delivery. The proposed tax credit for fiber optics projects would be applied against Corporation Net Income Tax and the Personal Income Tax liabilities. Under the provisions of this bill, expenditures used for calculating the proposed fiber optic tax credit may not be used for claiming the Economic Opportunity Tax Credit or the Manufacturing Investment Tax Credit. The bill does allow the transfer or sale of the tax credits whose proceeds would be exempt from the Consumer Sales and Use Tax, Corporation Net Income Tax and Personal Income Tax. The bill does not allow carryback of credits to a prior taxable year that does not have qualified expenditures for the amount of any unused portion of any annual credit allowance. The amount of this proposed fiber optic tax credit is equivalent to 80 percent of the cost of construction of fiber optics facilities with an additional 5 percent credit if local labor is used in such projects. Nationally, fiber optic infrastructure costs roughly $20,000 per mile. The FCC provides financial assistance to fiber optic providers that agree to invest their own capital and deliver service to underserved census blocks. Roughly 72.9 percent of the State population utilizes broadband internet.
The second credit is for the benefit of any company that brings one hundred or more new information technology jobs to West Virginia. The non-refundable tax credit that is equivalent to fifty percent of tax liability derived from the creation of a new information technology jobs. The term “tax liability” is not defined in the bill. Excess tax credit can be transferred or sold. Proceeds from the transfer or sale of these credits would be exempt for the Sales and Use Tax, Corporation Net Income Tax and Personal Income Tax. This bill defines information technology company as any business that has a primary purpose of manufacturing, operating or participating in information technology which is not regulated as a utility by the Public Service Commission. The State Development Office would certify to the State Tax Division that an eligible company has created 250 or more full-time jobs in West Virginia related to the creation of a new information technology facility in the State.
Because any excess credit may be sold, the proposed tax credits could create significant losses to the General Revenue Fund in future fiscal years. These losses would be difficult to calculate as we do not know how many fiber optic installations would be financed through General Revenue Fund tax credits. We also do not know the clear definition of the tax credit base for the proposed information technology employment tax credit. Both of these credits may be sold to someone with tax liability.
Additional administrative costs incurred by the State Tax Department would be $40,000 in FY2022 and $10,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to encourage investments in technologies that will enhance investment and create opportunities to state residencies by creating incentives for investment in technology resources in West Virginia; creating a tax credit for construction fiber optic infrastructure to attach businesses and residents that desire that technology; and creating a tax credit for information and technology companies that create 250 or more jobs in West Virginia.
The language in this bill is not clear as it applies to “fiber optic facilities” only, but contains no definition, but instead providing a definition of “fiber optic infrastructure”. The credit has a two-year carryover provision. There is also language in the bill allowing sale of the proposed tax credit, but no provision allowing a purchaser to use the credit, so the language is unclear.
The second credit is equal to 50 percent of the tax liability. It is also based on income. It states that expenditures used in calculating the credit cannot be used for another credit. The language related to the calculation provision is not clear. It also is not clear whether the credit applies annually or only in the first year. This second credit also seems to imply that the credit can be sold, but it is unclear what situation would result in a company receiving a credit equivalent to 50 percent of their tax liability, and then selling the credit.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov