FISCAL NOTE
Date Requested: March 24, 2021
Time Requested: 09:46 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3480 |
Originating |
HB3300 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
Special Fund
Legislation creates:
Decreases Existing Revenue, Creates New Expense, Increases Existing Expenses, Creates New Fund: 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 incrementally reduce and eliminate the personal income taxes.
According to our interpretation, the proposed bill would reduce Personal Income tax rates for tax year 2022 and continue reducing the rates annually until the Personal Income Tax is eliminated. The bill also establishes the “Income Tax Reduction Fund” which is to be funded through deposits from various revenue sources.
The bill sets reduced Personal Income tax rates for tax year 2022. For tax years 2023 and after, the Tax Commissioner is to use general revenue collections received by the state during calendar year 2021 and calculate a reduction in personal income tax rates that would reduce those collections by $150 million. The calculation of the reduction of percentages shall be as uniform as possible, but where uniformity cannot be achieved, the reductions shall be scaled to reduce the rates of lower income taxpayers at a more accelerated rate of reduction. The Tax Commissioner is to begin the calculation annually after December 31st and publish the new rates no later than March 1st by administrative notice. If in any year the Revenue Secretary deposits funds into the General Revenue Fund from the Income Tax Reduction Fund, which is created under this bill, then, in that calendar year, the Tax Commissioner is to calculate a rate reduction that reduces the collections by $300 million, rather than $150 million. This procedure is to be repeated each year until the Personal Income Tax is eliminated.
According to our interpretation, if at the end of any fiscal year, the Income Tax Reduction Fund is funded at an amount equal to or exceeding $400 million, the Secretary of Revenue shall certify the same to the State Tax Commissioner on or before the next ensuing July 31. No later than 60 days following the certification, the Secretary of Revenue shall transfer the sum of $100 million from the Income Tax Reduction Fund to the General Revenue Fund of the state.
The Income Tax Reduction Fund will have deposits made into it on and after January 1, 2021 or January 1, 2022 from various sources including sales and use collections on certain sales made through the internet, several revenue sources generated from the State Lottery Commission, specific amounts from seven specified taxes, 50 percent of surplus revenues, and one-half of one percent of certain special funds. The provisions of the bill do not appear to provide for a cessation of these deposits after the Personal Income Tax has been eliminated.
The proposed bill would redirect up to $25 million annually of certain state sales and use collections made on and after January 1, 2022 to the Income Tax Reduction Fund. 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, 2021 to collect and remit state sales and uses taxes. Per this interpretation, the reduction in General Revenue Fund collections from this provision would be roughly $0.6 million in FY2022, $3.5 million in FY2023, $10.9 million in FY2024, $25 million in FY2025 and in subsequent fiscal years. These amounts may more rapidly approach the $25 million cap in the event of a merger or restructuring of a pre-existing e-commerce entity into a new entity.
The bill also redirects specified amounts from Personal Income Tax, Consumer Sales and Service and Use Tax, Business and Occupation Tax, Tobacco Products Tax, Corporation Net Income Tax, Severance Tax, and Insurance Premium Tax to the Income Tax Reduction Fund. Per our interpretation, the reduction in General Revenue Fund collections from these provisions would be $24.6 million in FY2022, and $36.9 million in subsequent fiscal years.
According to our interpretation, the bill would also redirect revenues from lottery games that utilize an electronic computer and a video screen, terminal income from limited video lottery and additional limited video lottery terminals, and revenues derived from sports wagering or interactive gaming at a licensed racetrack to the Income Tax Reduction Fund. The General Revenue Fund receives a transfer from the Excess Lottery Fund annually.
Per our interpretation, the Income Tax Reduction Fund will exceed the funding level required to trigger the $100 million transfer at the end of FY2023 and in all subsequent fiscal years. The provisions of the bill do not provide for cessation of the transfer after the Personal Income Tax is eliminated. There are several timing issues in the provisions of the bill which will cause a lag between when the first transfer is received and the calendar year in which the Personal Income Tax reduction is increased to $300 million from $150 million. Per our interpretation, the first $100 million transfer should occur in September of FY2024 and the Personal Income Tax reduction will be increased to $300 million for tax year 2025 and for all subsequent tax years until the Personal Income Tax is eliminated. Per our interpretation, the net reduction in General Revenue Fund collections attributable to Personal Income tax from these provisions would be $50 million in FY2022, $205 million in FY2023, $255 million in FY2024, $450 million in FY2025, $760 million in FY2026 and by increasing amounts in subsequent fiscal years. It is estimated that the Personal Income Tax would be virtually eliminated in approximately eleven to twelve years.
According to our interpretation of the provisions of the bill, the combined net loss to General Revenue Fund collections, due to both Personal Income tax rate reductions and net transfers to and from the Income Tax Reduction Fund, would be $75 million in FY2022, $245 million in FY2023, $303 million in FY2024, $502 million in FY2025, $822 million in FY2026 and by increasing amounts in subsequent fiscal years.
Additional administrative costs incurred by the State Tax Department would be $126,500 in FY2022 and $65,000 in FY2023 and 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 |
126,500 |
65,000 |
| Personal Services |
0 |
45,000 |
45,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
1,500 |
0 |
| Other |
0 |
80,000 |
20,000 |
| 2. Estimated Total Revenues |
0 |
-75,000,000 |
-3,100,000,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the proposed bill would reduce Personal Income tax rates for tax year 2022 and continue reducing the rates annually until the Personal Income Tax is eliminated. The bill also establishes the “Income Tax Reduction Fund” which is to be funded through deposits from various revenue sources.
The bill sets reduced Personal Income tax rates for tax year 2022. For tax years 2023 and after, the Tax Commissioner is to use general revenue collections received by the state during calendar year 2021 and calculate a reduction in personal income tax rates that would reduce those collections by $150 million. The calculation of the reduction of percentages shall be as uniform as possible, but where uniformity cannot be achieved, the reductions shall be scaled to reduce the rates of lower income taxpayers at a more accelerated rate of reduction. The Tax Commissioner is to begin the calculation annually after December 31st and publish the new rates no later than March 1st by administrative notice. If in any year the Revenue Secretary deposits funds into the General Revenue Fund from the Income Tax Reduction Fund, which is created under this bill, then, in that calendar year, the Tax Commissioner is to calculate a rate reduction that reduces the collections by $300 million, rather than $150 million. This procedure is to be repeated each year until the Personal Income Tax is eliminated.
According to our interpretation, if at the end of any fiscal year, the Income Tax Reduction Fund is funded at an amount equal to or exceeding $400 million, the Secretary of Revenue shall certify the same to the State Tax Commissioner on or before the next ensuing July 31. No later than 60 days following the certification, the Secretary of Revenue shall transfer the sum of $100 million from the Income Tax Reduction Fund to the General Revenue Fund of the state.
The Income Tax Reduction Fund will have deposits made into it on and after January 1, 2021 or January 1, 2022 from various sources including sales and use collections on certain sales made through the internet, several revenue sources generated from the State Lottery Commission, specific amounts from seven specified taxes, 50 percent of surplus revenues, and one-half of one percent of certain special funds. The provisions of the bill do not appear to provide for a cessation of these deposits after the Personal Income Tax has been eliminated.
The proposed bill would redirect up to $25 million annually of certain state sales and use collections made on and after January 1, 2022 to the Income Tax Reduction Fund. 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, 2021 to collect and remit state sales and uses taxes. Per this interpretation, the reduction in General Revenue Fund collections from this provision would be roughly $0.6 million in FY2022, $3.5 million in FY2023, $10.9 million in FY2024, $25 million in FY2025 and in subsequent fiscal years. These amounts may more rapidly approach the $25 million cap in the event of a merger or restructuring of a pre-existing e-commerce entity into a new entity.
The bill also redirects specified amounts from Personal Income Tax, Consumer Sales and Service and Use Tax, Business and Occupation Tax, Tobacco Products Tax, Corporation Net Income Tax, Severance Tax, and Insurance Premium Tax to the Income Tax Reduction Fund. Per our interpretation, the reduction in General Revenue Fund collections from these provisions would be $24.6 million in FY2022, and $36.9 million in subsequent fiscal years.
According to our interpretation, the bill would also redirect revenues from lottery games that utilize an electronic computer and a video screen, terminal income from limited video lottery and additional limited video lottery terminals, and revenues derived from sports wagering or interactive gaming at a licensed racetrack to the Income Tax Reduction Fund. The General Revenue Fund receives a transfer from the Excess Lottery Fund annually.
Per our interpretation, the Income Tax Reduction Fund will exceed the funding level required to trigger the $100 million transfer at the end of FY2023 and in all subsequent fiscal years. The provisions of the bill do not provide for cessation of the transfer after the Personal Income Tax is eliminated. There are several timing issues in the provisions of the bill which will cause a lag between when the first transfer is received and the calendar year in which the Personal Income Tax reduction is increased to $300 million from $150 million. Per our interpretation, the first $100 million transfer should occur in September of FY2024 and the Personal Income Tax reduction will be increased to $300 million for tax year 2025 and for all subsequent tax years until the Personal Income Tax is eliminated. Per our interpretation, the net reduction in General Revenue Fund collections attributable to Personal Income tax from these provisions would be $50 million in FY2022, $205 million in FY2023, $255 million in FY2024, $450 million in FY2025, $760 million in FY2026 and by increasing amounts in subsequent fiscal years. It is estimated that the Personal Income Tax would be virtually eliminated in approximately eleven to twelve years.
According to our interpretation of the provisions of the bill, the combined net loss to General Revenue Fund collections, due to both Personal Income tax rate reductions and net transfers to and from the Income Tax Reduction Fund, would be $75 million in FY2022, $245 million in FY2023, $303 million in FY2024, $502 million in FY2025, $822 million in FY2026 and by increasing amounts in subsequent fiscal years.
Additional administrative costs incurred by the State Tax Department would be $126,500 in FY2022 and $65,000 in FY2023 and in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to incrementally reduce and eliminate the personal income taxes.
The bill title does not mention that the reduction in rates depends on the amount in the Income Tax Reduction Fund, that Administrative Notice is required or that it has internal effective dates.
The bill is unclear on whether rate reductions after tax year 2023 would be based upon the most recent tax year’s collections or if they would always be based upon collections of tax year 2021. Also, if the Secretary of Revenue certifies a transfer of funds from the Income Tax Reduction Fund to General Revenue, the Tax Commissioner is supposed to reduce the rates that calendar year and announce the rates by March 1. However, the certification is based upon a fiscal year, and the Secretary of Revenue is required to certify the same to the State Tax Commissioner on or before the next ensuing July 31. The timing set forth in the bill is confusing.
The bill will be difficult to administer because the tax rates will change every year. The Tax Commissioner is to determine the general revenue collections received by the State, but the Tax Commissioner does not administer or collect all revenues. It is unclear how the Tax Commissioner is to accomplish this in the time frame permitted.
The bill does not address the situation where a rate reduction does not reduce collections by the requisite amount, and what the consequences of that are. The bill creates at least a $150 million reduction in revenue every year until the Personal Income Tax is eliminated. However, the bill does not consider whether at some point the reductions will cause a deficiency in a fiscal year. In addition, the bill leaves a number of things up to the Tax Commissioner’s interpretation, including how to calculate the deduction and determine personal income tax rates. This raises Constitutional concerns and may be an unconstitutional delegation of Legislative powers.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov