FISCAL NOTE
Date Requested: February 10, 2021
Time Requested: 04:26 PM |
| Agency: |
Tax & Revenue Department, WV State |
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| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1450 |
Introduced |
HB2123 |
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| CBD Subject: |
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FUND(S):
General Revenue Fund, Personal Income Tax Reduction Fund
Sources of Revenue:
General Fund Personal Income Tax Reduction Fund
Legislation creates:
Decreases Existing Revenue, Increases Existing Expenses, Creates New Fund: Personal Income Tax Reduction Fund
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to reduce personal income tax rates when personal income tax reduction fund is funded at a certain threshold from funds derived from sales and use taxes, certain lottery games that utilize an electronic computer and a video screen, racetrack table games, lottery games that are derived from limited video lottery operations, derived from sports wagering at a secondary location of a licensed racetrack, and derived from interactive gaming at a primary or secondary location of a licensed racetrack, and further reducing those rates when that threshold is reached again. The bill establishes a personal income tax reduction fund and provides for deposits into the personal income tax reduction fund. The bill specifies rate reductions and provides for deposits from the personal income tax reduction fund into the general revenue fund. The bill imposes duties on the State Tax Commissioner and other state agencies officers; and provides for investment and disposition of fund.
This fiscal note only addresses the impact on State General Revenue Fund taxes. A separate fiscal note from the Lottery Commission will address changes to lottery-related provisions.
The proposed bill would establish a new Personal Income Tax Reduction Fund. This fund will have deposits made into it on and after January 1, 2021 from various sources including sales and use collections on certain sales made through the internet, several revenue sources generated from the State Lottery Commission, and 25 percent of surplus revenues. At the end of any fiscal year, if the Personal Income Tax Reduction Fund is funded at an amount equal to or exceeding 2.5 times the total net reduction in personal income tax revenue collections that would have been received in that fiscal year if the income tax rates for that fiscal year had been reduced by 0.25 percent, the Secretary of Revenue shall certify the fund to the State Tax Commissioner on or before the next ensuing July 31. Upon certification, for all taxable years beginning on or after the next ensuing January 1, the personal income tax rate decreases by 0.25 percent in each tax bracket for all taxpayers. In addition, upon certification, on the next ensuing July 1, the Secretary of Revenue shall transfer the above calculated minimum funding amount from the Personal Income Tax Reduction Fund to the General Revenue Fund of the state.
The proposed bill would direct up to $3 million annually of certain state sales and use collections made on and after January 1, 2022. The collections would be limited to those received from sales in which the internet was used to order, ship, or buy a product, on-line, but only where the sale was made by an out of state vendor that registered with the State Tax Division for the first time on or after January 1, 2022 to collect and remit state sales and uses taxes. Per this interpretation, the reduction in General Revenue Fund collections would be roughly $1.2 million in FY2022 and $3.0 million in subsequent fiscal years.
According to the provisions of the bill, the Personal Income Tax rate is reduced in the following calendar year after the Personal Income Tax Reduction Fund is equal to or exceeds 2.5 times the total net reduction in personal income tax revenue collections that would have been received in the fiscal year if the income tax rates for that fiscal year had been reduced by 0.25 percent. The Personal Income Tax rate would be reduced by 0.25 percent in each tax bracket for all taxpayers when this occurs. The earliest year that the rate reduction could be applicable would be Tax Year 2023 which would affect Fiscal Year 2024 General Revenue Fund collections. If this Personal Income Tax rate reduction were to occur, General Revenue Fund collections would decrease by roughly $110 million in FY2024. This bill has the potential to diminish the Personal Income Tax rates nearly every calendar year when the Personal Income Tax Reduction Fund meets the funding requirements in the prior fiscal year, to the point of effectively abolishing the Personal Income Tax.
Additional administrative costs incurred by the State Tax Department would be $35,000 in FY2021, $20,000 in FY2022 and $100,000 in each fiscal year thereafter.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2021
Increase/Decrease
(use"-") |
2022
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
35,000 |
20,000 |
100,000 |
| Personal Services |
0 |
20,000 |
20,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
35,000 |
0 |
80,000 |
| 2. Estimated Total Revenues |
0 |
-1,200,000 |
-3,000,000 |
Explanation of above estimates (including long-range effect):
This fiscal note only addresses the impact on State General Revenue Fund taxes. A separate fiscal note from the Lottery Commission will address changes to lottery-related provisions.
The proposed bill would establish a new Personal Income Tax Reduction Fund. This fund will have deposits made into it on and after January 1, 2021 from various sources including sales and use collections on certain sales made through the internet, several revenue sources generated from the State Lottery Commission, and 25 percent of surplus revenues. At the end of any fiscal year, if the Personal Income Tax Reduction Fund is funded at an amount equal to or exceeding 2.5 times the total net reduction in personal income tax revenue collections that would have been received in that fiscal year if the income tax rates for that fiscal year had been reduced by 0.25 percent, the Secretary of Revenue shall certify the fund to the State Tax Commissioner on or before the next ensuing July 31. Upon certification, for all taxable years beginning on or after the next ensuing January 1, the personal income tax rate decreases by 0.25 percent in each tax bracket for all taxpayers. In addition, upon certification, on the next ensuing July 1, the Secretary of Revenue shall transfer the above calculated minimum funding amount from the Personal Income Tax Reduction Fund to the General Revenue Fund of the state.
The proposed bill would direct up to $3 million annually of certain state sales and use collections made on and after January 1, 2022. The collections would be limited to those received from sales in which the internet was used to order, ship, or buy a product, on-line, but only where the sale was made by an out of state vendor that registered with the State Tax Division for the first time on or after January 1, 2022 to collect and remit state sales and uses taxes. Per this interpretation, the reduction in General Revenue Fund collections would be roughly $1.2 million in FY2022 and $3.0 million in subsequent fiscal years.
According to the provisions of the bill, the Personal Income Tax rate is reduced in the following calendar year after the Personal Income Tax Reduction Fund is equal to or exceeds 2.5 times the total net reduction in personal income tax revenue collections that would have been received in the fiscal year if the income tax rates for that fiscal year had been reduced by 0.25 percent. The Personal Income Tax rate would be reduced by 0.25 percent in each tax bracket for all taxpayers when this occurs. The earliest year that the rate reduction could be applicable would be Tax Year 2023 which would affect Fiscal Year 2024 General Revenue Fund collections. If this Personal Income Tax rate reduction were to occur, General Revenue Fund collections would decrease by roughly $110 million in FY2024. This bill has the potential to diminish the Personal Income Tax rates nearly every calendar year when the Personal Income Tax Reduction Fund meets the funding requirements in the prior fiscal year, to the point of effectively abolishing the Personal Income Tax.
Additional administrative costs incurred by the State Tax Department would be $35,000 in FY2021, $20,000 in FY2022 and $100,000 in each fiscal year thereafter.
Memorandum
The stated purpose of this bill is to reduce personal income tax rates when personal income tax reduction fund is funded at a certain threshold from funds derived from sales and use taxes, certain lottery games that utilize an electronic computer and a video screen, racetrack table games, lottery games that are derived from limited video lottery operations, derived from sports wagering at a secondary location of a licensed racetrack, and derived from interactive gaming at a primary or secondary location of a licensed racetrack, and further reducing those rates when that threshold is reached again. The bill establishes a personal income tax reduction fund and provides for deposits into the personal income tax reduction fund. The bill specifies rate reductions and provides for deposits from the personal income tax reduction fund into the general revenue fund. The bill imposes duties on the State Tax Commissioner and other state agencies officers; and provides for investment and disposition of fund.
According to the provisions of the bill, for taxable years after December 31, 2021, Personal Income Tax rates shall be determined pursuant to 11B-2-33, which is in the article establishing the Budget Office. It is not appropriate for Personal Income Tax rates to be determined in any article other than Chapter 11, Article 21. The bill creates the Personal Income Tax Reduction fund in 11B-2-33(a) and uses vague language that the fund will be funded continuously and on a revolving basis as well as vague references to other provisions of the code.
Subdivisions (2) through (7) reference revenue administered by the Lottery Commissioner. Subdivision (8) states: “After depositing the amounts into the Revenue Shortfall Reserve Fund as required under §11B-2-20 of this code, 25 percent of all surplus revenues described in that section”. The meaning is unclear, and it appears that this may require amendment of §11B-2-20, which establishes the Revenue Shortfall Reserve Fund. Other amendments addressing appropriations of other designated revenue streams also may be necessary for this bill to accomplish its purpose.
Subsection (c) provides that, if the fund reaches “an amount equal to or exceeding 2.5 times the total net reduction in personal income tax revenue collections that would have been received in that fiscal year if the income tax rates for that fiscal year had been reduced by 0.25 percent,” then the Secretary of Revenue shall certify this information to the State Tax Commissioner on or before the next July 31. This standard is extremely vague, subject to misinterpretation, and the amount will change yearly. The bill is silent regarding who makes the calculation. Once certified, this section will determine the Personal Income Tax rates, which may be reduced 0.25 percent. After the certification, on the next ensuing July 1, the Secretary of Revenue shall transfer the sum of the multiplication described above from the Personal Income Tax Reduction Fund to the General Revenue Fund.
Subsection (e) provides that the Tax Commissioner shall issue Administrative Notices informing the taxpaying public what the rates will be. This is not sufficient notice to employers, pass-through entities, and banks, all of whom have withholding requirements, and taxpayers who may be required to make estimated income tax payments.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov