FISCAL NOTE
Date Requested: January 12, 2023
Time Requested: 08:06 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2259 |
Introduced |
SB151 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
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 establish allow pass-through entities to elect to be taxed at the entity level and to provide a refundable tax credit to owners or members of an electing pass-through entity on their individual tax returns.
Based on our interpretation, the legislation, if passed, would allow qualifying Pass-through entities to “elect” to be subject to the Personal Income Tax at the entity level. A “Pass-through entity” is defined as any partnership or other business entity that is not subject to the Corporation Net Income Tax. The rate of tax imposed on an electing pass-through entity would be equal to the top marginal Personal Income Tax rate and it would be imposed on the apportioned West Virginia income of the entity.
In addition, the bill allows for a refundable credit against a taxpayer’s aggregate Personal Income Tax liability for a taxpayer who is an owner of an electing pass-through entity. The credit is equal to the owner’s proportionate share of the tax levied and remitted by the owner’s electing pass-through entity for the taxable year. The credit is claimed in the taxpayer’s taxable year that includes the last day of the electing pass-through entity’s taxable year for which the tax was paid. Credit in excess of the aggregate amount of tax otherwise due shall be refunded to the taxpayer. Per W. Va. Code §11-10-5p, since the bill has no internal effective date, the legislation, if passed, would become effective January 1, 2024.
Per our interpretation, there may be a short-term increase in General Revenue collections due to tax being calculated at the maximum Personal Income Tax rate and without inclusion of a specific Taxpayer’s adjustments, modifications, and other tax credits. However, over the longer-term, the impact of the proposed legislation on General Revenue Fund collections should be revenue neutral.
Additional administrative costs incurred by the State Tax Department would be $15,000 in FY2024.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2023
Increase/Decrease
(use"-") |
2024
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
15,000 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
15,000 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
Based on our interpretation, the legislation, if passed, would allow qualifying Pass-through entities to “elect” to be subject to the Personal Income Tax at the entity level. A “Pass-through entity” is defined as any partnership or other business entity that is not subject to the Corporation Net Income Tax. The rate of tax imposed on an electing pass-through entity would be equal to the top marginal Personal Income Tax rate and it would be imposed on the apportioned West Virginia income of the entity.
In addition, the bill allows for a refundable credit against a taxpayer’s aggregate Personal Income Tax liability for a taxpayer who is an owner of an electing pass-through entity. The credit is equal to the owner’s proportionate share of the tax levied and remitted by the owner’s electing pass-through entity for the taxable year. The credit is claimed in the taxpayer’s taxable year that includes the last day of the electing pass-through entity’s taxable year for which the tax was paid. Credit in excess of the aggregate amount of tax otherwise due shall be refunded to the taxpayer. Per W. Va. Code §11-10-5p, since the bill has no internal effective date, the legislation, if passed, would become effective January 1, 2024.
Per our interpretation, there may be a short-term increase in General Revenue collections due to tax being calculated at the maximum Personal Income Tax rate and without inclusion of a specific Taxpayer’s adjustments, modifications, and other tax credits. However, over the longer-term, the impact of the proposed legislation on General Revenue Fund collections should be revenue neutral.
Additional administrative costs incurred by the State Tax Department would be $15,000 in FY2024.
Memorandum
The stated purpose of this bill is to establish allow pass-through entities to elect to be taxed at the entity level and to provide a refundable tax credit to owners or members of an electing pass-through entity on their individual tax returns.
New subsection §11-21-3a(b) refers to “§11-24-51” as it pertains to “deadlines” for filing returns. As no such section exists, it is likely a reference to “§11-21-51.”
The bill contains no internal effective date.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov