FISCAL NOTE
Date Requested: March 11, 2021
Time Requested: 11:28 AM |
| Agency: |
Tax & Revenue Department, WV State |
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| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2489 |
Introduced |
HB3070 |
|
|---|
| 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 create a decreasing modification reducing federal taxable income subject to the corporate income tax for the income of businesses relocating from the People’s Republic of China to this state.
According to our interpretation of this bill, a decreasing modification would be allowed for ordinary income derived from a qualified business relocating from the People’s Republic of China to West Virginia for a ten-year period starting on or after January 1, 2021. The qualified business would need to be a newly registered business in West Virginia registered on or after January 1, 2021 and before January 1, 2026. We are unable to quantify the number of qualified business that would relocate from the People’s Republic of China to West Virginia and therefore would be unable to determine the loss to the General Revenue Fund in FY2022 and thereafter.
Additional administrative costs incurred by the State Tax Department would be $10,000 in FY2022.
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 |
0 |
10,000 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
10,000 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
According to our interpretation of this bill, a decreasing modification would be allowed for ordinary income derived from a qualified business relocating from the People’s Republic of China to West Virginia for a ten-year period starting on or after January 1, 2021. The qualified business would need to be a newly registered business in West Virginia registered on or after January 1, 2021 and before January 1, 2026. We are unable to quantify the number of qualified business that would relocate from the People’s Republic of China to West Virginia and therefore would be unable to determine the loss to the General Revenue Fund in FY2022 and thereafter.
Data from the United States Census Bureau shows that between 2019 and 2020 net exports from West Virginia to China increased by 6.4 percent, while net imports from China to West Virginia declined by 30 percent during this same period. This trend is representative of a stricter approach in recent years to U.S. trade policy with China as well as international trade decline from the COVID-19 pandemic.
Additional administrative costs incurred by the State Tax Department would be $10,000 in FY2022.
Memorandum
The stated purpose of this bill is to create a decreasing modification reducing federal taxable income subject to the corporate income tax for the income of businesses relocating from the People’s Republic of China to this state.
This bill does not accomplish its purpose. The bill title is defective as it does not mention rule making authority or that the modification terminates. It also does not mention that a taxpayer may only take the modification for ten years. There are also Constitutional concerns with this bill.
The language of the bill is ambiguous. It appears that all ordinary income derived from the qualified business will be subtracted if it is included in federal taxable income regardless of where the business activity occurs. However, it is unclear if only the ordinary derived from activity in West Virginia is supposed to be subtracted.
The language of this bill also appears contradictory to other parts of the bill since the eligible taxpayer must have relocated from the People’s Republic of China to West Virginia. These businesses may not be new businesses but businesses that have been previously created. Perhaps the bill should be clarified that the qualified business may not have been previously registered or organized in the United States.
The bill also does not define corporate offices or production facilities. It does not specify how much of its activity must be in West Virginia to be entitled to the modification.
This bill may possibly violate the State’s equal protection clause. The bill does not provide a basis for allowing a tax benefit to businesses that relocate from China as opposed to relocating from any other location. There are potentially other Commerce Clause issues. The Commerce Clause prohibits states from passing legislation that improperly burdens interstate commerce. This bill appears to provide a large tax modification for moving one’s operations in state.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov