FISCAL NOTE

Date Requested: July 27, 2022
Time Requested: 09:35 AM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
6004 Introduced SB3001
CBD Subject:


FUND(S):

General Revenue Fund

Sources of Revenue:

General Fund

Legislation creates:

Increases Revenue From Existing Sources, Increases Existing Expenses



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


There is no stated purpose noted in this bill. Per our interpretation, the legislation, if passed, would establish a one-time personal income tax credit of up to $8000 based on qualified expenses paid by the taxpayer in the process of an adoption. The tax credit is limited to $8000 per adoption proceeding and it is non-refundable. Though the credit is noted as being a “one-time tax credit’, wording in the legislation indicates that the credit could potentially be used in more than one tax year. The bill defines qualified adoption expenses as reasonable and necessary adoption fees, court costs, attorney fees and other expenses which are directly related to the legal adoption of an eligible child by the taxpayer. Adoptions of a child who is not a citizen or resident of the United States are not eligible for the tax credit. There is no internal effective date; therefore, per §11-10-5p, the amendment would be effective as of January 1, 2023. According to our interpretation, the legislation, if passed, would result in an increase in General Revenue Fund collections of roughly $300,000 in FY2024 and in subsequent fiscal years. The wording of the proposed legislation restricts the ability of taxpayers to fully utilize the credit because the amount of credit is limited to qualified adoption expenses paid by the taxpayer up to $8000. The ability to utilize the credit is further constrained by the amount of tax liability of the taxpayer because the credit would no longer be refundable. Additional administrative costs incurred by the State Tax Department would be $5,000 in FY2024.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2022
Increase/Decrease
(use"-")
2023
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 5,000 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 300,000 300,000


Explanation of above estimates (including long-range effect):


Per our interpretation, the legislation, if passed, would establish a one-time personal income tax credit of up to $8000 based on qualified expenses paid by the taxpayer in the process of an adoption. The tax credit is limited to $8000 per adoption proceeding and it is non-refundable. Though the credit is noted as being a “one-time tax credit’, wording in the legislation indicates that the credit could potentially be used in more than one tax year. The bill defines qualified adoption expenses as reasonable and necessary adoption fees, court costs, attorney fees and other expenses which are directly related to the legal adoption of an eligible child by the taxpayer. Adoptions of a child who is not a citizen or resident of the United States are not eligible for the tax credit. There is no internal effective date; therefore, per §11-10-5p, the amendment would be effective as of January 1, 2023. According to our interpretation, the legislation, if passed, would result in an increase in General Revenue Fund collections of roughly $300,000 in FY2024 and in subsequent fiscal years. The wording of the proposed legislation restricts the ability of taxpayers to fully utilize the credit because the amount of credit is limited to qualified adoption expenses paid by the taxpayer up to $8000. The ability to utilize the credit is further constrained by the amount of tax liability of the taxpayer because the credit would no longer be refundable. Additional administrative costs incurred by the State Tax Department would be $5,000 in FY2024.



Memorandum


There is no stated purpose noted in this bill. This summary is limited to the personal income tax implications of the bill. The proposed legislation limits the tax credit to the higher of $8000 or the amount of “qualified adoption expenses”. The credit does not apply to adoptions of children who are not residents or citizens of the United States; children of spouses; adoptions in violation of state or federal law; surrogate parenting arrangements; adoption of one’s spouse’s child, or adoptions for which expenses are reimbursed by an employer or otherwise. The credit appears to be nonrefundable which may result in differing benefits based on income and there is no provision for the credit to be carried forward. There is no internal effective date in the bill; therefore, the amendment will become effective for tax year 2023. This may cause confusion for taxpayers who earned the credit in tax year 2020 or 2021 and elected to utilize the credit over three tax years. Would that carryforward credit be lost when the new legislation becomes effective? Additionally, the current credit is not connected to adoption expenses paid. Taxpayers who claimed the $4000 credit in 2022, could potentially claim their “qualified adoption expenses” under the new credit law in 2023. The term “adoption proceeding” is not defined and could lead to multiple interpretations. Subsection(b) may also be subject to multiple interpretations. Is the credit only available in the year the adoption is finalized or is it available in any year after the adoption that expenses are incurred or paid? In the case of adoptions involving more than one child, would the tax credit be limited to $8000 in aggregate or $8000 per child?



    Person submitting Fiscal Note: Mark Muchow
    Email Address: brooke.a.oxley@wv.gov