FISCAL NOTE

Date Requested: January 12, 2022
Time Requested: 03:54 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1143 Introduced SB27
CBD Subject:


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 establish a West Virginia business growth in low-income communities tax credit. According to our interpretation of the proposed bill, a tax credit is given to a qualified community development entity that makes a qualified equity investment or to a subsequent holder of the qualified equity investment. The Insurance Commissioner would begin accepting applications from qualified community development entities on July 1, 2022. This credit is calculated annually by multiplying the purchase price paid to the qualified community development entity for the qualified equity investment by the applicable percentage for the credit allowance date, which is 0 percent for the first three credit allowance dates and 15 percent for the next four credit allowance dates. The annual credit allowance may be used to offset the entity’s state insurance premium tax liability for tax periods on or after the credit allowance date. The bill defines opportunity zones in West Virginia as low-income census tracts receiving such designation from the U.S Treasury Department. This proposed program would generally piggyback on the federal New Markets Tax Credit intended to increase capital for businesses and low-income communities by providing a tax incentive to investors. The current federal tax credit is set to expire at the end of 2025 with carry-over through 2030. The federal credit is intended to provide private investors with a federal tax credit for investments made in business or economic development projects located in ‘distressed’ communities in specified census tracks. The tax against which this credit applies is administered by the Insurance Commission, not the State Tax Department. From a revenue perspective, the proposed bill would ultimately reduce General Revenue Fund collections by up to $36 million over a period of several years based on the $60 million qualified equity investment limits within the proposed legislation while insurance premium tax collections dedicated to volunteer fire departments and municipal pensions would be held harmless. The projected fiscal impact depends on the ability of the venture capital company to transfer available tax credits to insurance companies subject to the West Virginia Insurance Premium Tax. No additional administrative costs would be incurred by the State Tax Department.



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 0 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 0 -9,000,000


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


According to our interpretation of the proposed bill, a tax credit is given to a qualified community development entity that makes a qualified equity investment or to a subsequent holder of the qualified equity investment. The Insurance Commissioner would begin accepting applications from qualified community development entities on July 1, 2022. This credit is calculated annually by multiplying the purchase price paid to the qualified community development entity for the qualified equity investment by the applicable percentage for the credit allowance date, which is 0 percent for the first three credit allowance dates and 15 percent for the next four credit allowance dates. The annual credit allowance may be used to offset the entity’s state insurance premium tax liability for tax periods on or after the credit allowance date. The bill defines opportunity zones in West Virginia as low-income census tracts receiving such designation from the U.S Treasury Department. This proposed program would generally piggyback on the federal New Markets Tax Credit intended to increase capital for businesses and low-income communities by providing a tax incentive to investors. The current federal tax credit is set to expire at the end of 2025 with carry-over through 2030. The federal credit is intended to provide private investors with a federal tax credit for investments made in business or economic development projects located in ‘distressed’ communities in specified census tracks. The tax against which this credit applies is administered by the Insurance Commission, not the State Tax Department. From a revenue perspective, the proposed bill would ultimately reduce General Revenue Fund collections by up to $36 million over a period of several years based on the $60 million qualified equity investment limits within the proposed legislation while insurance premium tax collections dedicated to volunteer fire departments and municipal pensions would be held harmless. The projected fiscal impact depends on the ability of the venture capital company to transfer available tax credits to insurance companies subject to the West Virginia Insurance Premium Tax. No additional administrative costs would be incurred by the State Tax Department.



Memorandum


The stated purpose of this bill is to establish a West Virginia business growth in low-income communities tax credit. The Insurance Commissioner should be consulted on this bill since it affects the Insurance Premium Tax. Likewise, the State Economic Development Authority should be consulted as they administer this proposed tax credit.



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