FISCAL NOTE
Date Requested: January 19, 2022
Time Requested: 03:30 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1321 |
Introduced |
HB4265 |
|
|---|
| 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 exempt from the consumer sales tax sales of administrative services of performing employee administration tasks on behalf of an employer.
According to our interpretation, the proposed bill would create an exemption from Consumer Sales and Use Tax for the sale of administrative services of performing employee administration tasks, including but not limited to, employee payroll and benefits administration, on behalf of an employer. We assume that the proposed exemption is only intended for a subset of taxpayers with North American Industrial Classification System (NAICS) Code 5613 which falls under employment services. Taxpayers who would qualify for this proposed Consumer Sales and Use Tax exemption would include employment placement agencies, executive search services, and payroll companies that perform third party tasks on behalf of an employer. Absent an internal effective date, this bill would go into effect on January 1, 2023. Passage of this bill would reduce General Revenue Fund collections by roughly $830,000 in FY2023 and $2.0 million in subsequent fiscal years.
Additional administrative costs incurred by the State Tax Department would be $5,000 in FY2023.
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 |
5,000 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
5,000 |
0 |
| 2. Estimated Total Revenues |
0 |
-830,000 |
-2,000,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the proposed bill would create an exemption from Consumer Sales and Use Tax for the sale of administrative services of performing employee administration tasks, including but not limited to, employee payroll and benefits administration, on behalf of an employer. We assume that the proposed exemption is only intended for a subset of taxpayers with North American Industrial Classification System (NAICS) Code 5613 which falls under employment services. Taxpayers who would qualify for this proposed Consumer Sales and Use Tax exemption would include employment placement agencies, executive search services, and payroll companies that perform third party tasks on behalf of an employer. Absent an internal effective date, this bill would go into effect on January 1, 2023. Passage of this bill would reduce General Revenue Fund collections by roughly $830,000 in FY2023 and $2.0 million in subsequent fiscal years.
Additional administrative costs incurred by the State Tax Department would be $5,000 in FY2023.
Memorandum
The stated purpose of this bill is to exempt from the consumer sales tax sales of administrative services of performing employee administration tasks on behalf of an employer.
The proposed language related to the consumer sales tax exemption of employee administration tasks is not clear and needs some further explanation. Although not explicitly stated in the bill’s language, it could be presumed that the proposed exemption applies only to services provided by third parties who are not employees of the person purchasing the services since such services are already exempt under W.Va. Code §11-15-2(b)(18).
Administration tasks may need to be specified as they can range from unskilled tasks including filing and greeting clients to skilled tasks including bookkeeping, researching, and drafting letters. This bill, as written, could exempt the sale of more administration tasks from a third party than originally anticipated by the sponsor of the bill, and result in a greater loss of revenue from the State’s General Revenue Fund than originally intended.
The bill does not contain an internal effective date. The proposed consumer sales tax exemption would be “per se” and not require the person having a right or claim to the exemption to first pay the vendor and then apply to the State Tax Department for a refund.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov