FISCAL NOTE

Date Requested: March 02, 2021
Time Requested: 04:36 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
2252 Introduced SB445
CBD Subject: Taxation


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 restore the film tax credit in West Virginia.

 

According to our interpretation of this bill, the Film Tax Credit that was terminated by prior legislation effective January 26, 2018, would be reinstated and apply to all taxable years beginning after December 31, 2017. This bill is to be applied retroactively to all tax years prior to the enactment of the bill’s amendments. The proposed maximum Film Credit amount has increased from $5 million to $10 million per fiscal year provided that the State Development Office may allocate a greater amount of credit for any feature length film produced with “West Virginia” in the title or if the subject of the film is clearly identified as West Virginia. The proposed bill changes the minimum qualified expenditure amount from $25,000 per project to $50,000 per year. The credit allowance is still 27 percent with an additional four percent increase if 10 or more West Virginia residents are hired on film credit related projects on a full-time basis. Instead of the State Film Office, the State Development Office would be responsible for certification of the film credits. The proposed Film Credit would offset the Corporation Net Income Tax and the Personal Income Tax.

The average cost of the former Film Tax Credit between calendar years 2010 and 2018 was $1.8 million per year with a maximum credit amount during this time of $4.7 million. There is often significant delay between the allotment of tax credits and their utilization on tax returns given that most of these tax credits are sold to third parties. Based on past history and the retroactive application of tax credits back to 2018, passage of this bill would result in a loss to the General Revenue Fund of up to $4.0 million in FY2022 and up to $10.0 million per year thereafter. The minimum expenditure threshold to qualify for tax credits is a cumulative annual total of $50,000 for all projects. This minimum threshold remains low relative to other states offering similar tax incentives.

Additional administrative costs incurred by the State Tax Department would be $20,000 in FY2022 and $5,000 in subsequent fiscal years.





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 20,000 5,000
Personal Services 0 5,000 5,000
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 -4,000,000 -10,000,000


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


According to our interpretation of this bill, the Film Tax Credit that was terminated by prior legislation effective January 26, 2018, would be reinstated and apply to all taxable years beginning after December 31, 2017. This bill is to be applied retroactively to all tax years prior to the enactment of the bill’s amendments. The proposed maximum Film Credit amount has increased from $5 million to $10 million per fiscal year provided that the State Development Office may allocate a greater amount of credit for any feature length film produced with “West Virginia” in the title or if the subject of the film is clearly identified as West Virginia. The proposed bill changes the minimum qualified expenditure amount from $25,000 per project to $50,000 per year. The credit allowance is still 27 percent with an additional four percent increase if 10 or more West Virginia residents are hired on film credit related projects on a full-time basis. Instead of the State Film Office, the State Development Office would be responsible for certification of the film credits. The proposed Film Credit would offset the Corporation Net Income Tax and the Personal Income Tax.

The average cost of the former Film Tax Credit between calendar years 2010 and 2018 was $1.8 million per year with a maximum credit amount during this time of $4.7 million. There is often significant delay between the allotment of tax credits and their utilization on tax returns given that most of these tax credits are sold to third parties. Based on past history and the retroactive application of tax credits back to 2018, passage of this bill would result in a loss to the General Revenue Fund of up to $4.0 million in FY2022 and up to $10.0 million per year thereafter. The minimum expenditure threshold to qualify for tax credits is a cumulative annual total of $50,000 for all projects. This minimum threshold remains low relative to other states offering similar tax incentives.

Additional administrative costs incurred by the State Tax Department would be $20,000 in FY2022 and $5,000 in subsequent fiscal years.





Memorandum


The stated purpose of this bill is to restore the film tax credit in West Virginia.

The language of this bill would be more precise if there was a start date for the proposed reinstated Film Tax Credit. As it is currently written, it can be interpreted that the Film Credit is not being reinstated but rather that the former credit was never terminated. It appears that the bill intends to be retroactive to Tax Year 2018 when the credits had been terminated.

The bill now expands qualified Film Credit projects to included projects that are for in-state or multi-state distribution. Also, while projects that significantly portrayed West Virginia in a derogatory manner were excluded in the past, this bill states that it is the sole discretion of the State Development Office as to whether the project negatively depicts the State. There may be Constitutional concerns regarding this specific rule-making authority by the State Development Office.

This bill states that every agency of the State that contracts for video production of advertising, promotional material, educational programs, or dramatic work is to obtain bids from West Virginia production companies and marketing businesses in the solicitation of vendors for such projects. The bill does not state how the agencies are to accomplish this or what happens if no bids are available from West Virginia production companies or marketing businesses. There may also be Constitutional concerns regarding this provision.





    Person submitting Fiscal Note: Mark Muchow
    Email Address: kerri.r.petry@wv.gov