FISCAL NOTE
Date Requested: February 02, 2022
Time Requested: 02:13 PM |
| Agency: |
Tax & Revenue Department, WV State |
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| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2457 |
Introduced |
HB4502 |
|
|---|
| CBD Subject: |
Governor -- Bills Requested By |
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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 establish the BUILD WV Act to provide incentives to promote development of residential housing properties for the betterment and well-being of the people of this State. The Act provides for a consumers sales and service tax and use tax exemption for contractors’ purchases of building materials and services for construction of a certified BUILD WV project, and for purchases of services, materials and tangible personal property for repairs, maintenance and refurbishment of certified BUILD WV project property. The Act provides for a tax credit against income tax based on the value of certified BUILD WV project property. The Act authorizes municipalities to exempt gross receipts derived from rentals of certified BUILD WV housing units from the municipal business and occupation tax by ordinance, at the discretion of the municipality.
This bill would exempt from Consumers Sales and Service Tax and Use Tax purchases of building materials and tangible personal property directly used in the construction and maintenance of certified BUILD WV projects. This bill also provides a property value adjustment tax credit against Corporation Net Income Tax and Personal Income Tax roughly tied to the property taxes payable over a period of up to 10 years on a qualified BUILD WV project. This bill would establish a formula to determine the amount of property value adjustment tax credit allowed to an eligible taxpayer. This bill would provide that any annual pro-rated property value adjustment tax credit in excess of the qualified taxpayer’s annual income tax liability is refundable up to a maximum of $100,000 per project. These tax benefits would be limited to certified projects approved by the Department of Economic Development and located within a certified BUILD WV District. A qualified project must have minimum qualified investment of $3 million with development of a minimum of 6 housing units. The Department of Economic Development will approve a maximum of 12 certified WV BUILD geographic districts. The maximum amount of approved qualified investments to all projects in a single fiscal year is $150 million. This bill would be effective for tax years beginning on and after January 1, 2023, with the proposed program terminating as of December 31, 2032. Additionally, this bill would allow municipalities which impose local business and occupation tax to provide a tax exemption for gross income from rents, royalties, fees, or other remuneration derived by a lessor or landlord from the BUILD WV project.
We cannot estimate the revenue impact of this bill because no information is available on the number of projects or contractors that would be eligible for participation in the BUILD WV program as administered by the Department of Economic Development. We also cannot accurately estimate the demand for housing applicable to the BUILD WV project. Under the assumption that these certified housing development projects would not have occurred absent the proposed tax incentives, tax revenue gains from additional residential households could offset a sizeable portion of the value of the proposed tax incentives.
Additional administrative costs incurred by the State Tax Department would be $20,000 in FY2023 and $5,000 in subsequent fiscal years.
This bill may promote the immediate construction of residential housing and provide an abundant supply of “available” housing overcoming a perceived roadblock to economic development and expansion of select areas of the state.
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 |
20,000 |
5,000 |
| Personal Services |
0 |
0 |
5,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
20,000 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
This bill would exempt from Consumers Sales and Service Tax and Use Tax purchases of building materials and tangible personal property directly used in the construction and maintenance of certified BUILD WV projects. This bill also provides a property value adjustment tax credit against Corporation Net Income Tax and Personal Income Tax roughly tied to the property taxes payable over a period of up to 10 years on a qualified BUILD WV project. This bill would establish a formula to determine the amount of property value adjustment tax credit allowed to an eligible taxpayer. This bill would provide that any annual pro-rated property value adjustment tax credit in excess of the qualified taxpayer’s annual income tax liability is refundable up to a maximum of $100,000 per project. These tax benefits would be limited to certified projects approved by the Department of Economic Development and located within a certified BUILD WV District. A qualified project must have minimum qualified investment of $3 million with development of a minimum of 6 housing units. The Department of Economic Development will approve a maximum of 12 certified WV BUILD geographic districts. The maximum amount of approved qualified investments to all projects in a single fiscal year is $150 million. This bill would be effective for tax years beginning on and after January 1, 2023, with the proposed program terminating as of December 31, 2032. Additionally, this bill would allow municipalities which impose local business and occupation tax to provide a tax exemption for gross income from rents, royalties, fees, or other remuneration derived by a lessor or landlord from the BUILD WV project.
The following is a hypothetical example of the calculation of the value of proposed tax incentives tied to a certified BUILD WV project involving $5 million in qualified investment cost and the construction of 12 housing units. Under the assumption that $2.5 million in qualified costs would normally be subject to State sale tax, the sales tax exemption benefit would equal $150,000 or 6% of sales otherwise subject to tax. If the project is located within a municipality imposing a local sales tax, the savings on the additional local sales tax would be $25,000. The $5 million investment cost would also generate an additional income tax credit equal to $663,000 ($5 million x 60% x 2.21% average Class III property tax rate x 10 years). The income tax credit would apply over a period of up to 10 years at a rate of 10% per year. Therefore, this project would receive a first year income tax credit equal to $66,300.
We cannot estimate the revenue impact of this bill because no information is available on the number of projects or contractors that would be eligible for participation in the BUILD WV program as administered by the Department of Economic Development. We also cannot accurately estimate the demand for housing applicable to the BUILD WV project. Under the assumption that these certified housing development projects would not have occurred absent the proposed tax incentives, tax revenue gains from additional residential households could offset a sizeable portion of the value of the proposed tax incentives.
Additional administrative costs incurred by the State Tax Department would be $20,000 in FY2023 and $5,000 in subsequent fiscal years.
This bill may promote the immediate construction of residential housing and provide an abundant supply of “available” housing overcoming a perceived roadblock to economic development and expansion of select areas of the state.
Memorandum
The stated purpose of this bill is to establish the BUILD WV Act to provide incentives to promote development of residential housing properties for the betterment and well-being of the people of this State. The Act provides for a consumer’s sales and service tax and use tax exemption for contractors’ purchases of building materials and services for construction of a certified BUILD WV project, and for purchases of services, materials and tangible personal property for repairs, maintenance, and refurbishment of certified BUILD WV project property. The Act provides for a tax credit against income tax based on the value of certified BUILD WV project property. The Act authorizes municipalities to exempt gross receipts derived from rentals of certified BUILD WV housing units from the municipal business and occupation tax by ordinance, at the discretion of the municipality.
The language of §5B-2L-11(a) is confusing. The “subsequent” language is at odds with the forfeit date which will seemingly always be the expiration date of the article—December 31, 2032. Yet, that runs afoul of an implied ten-year period during which credits may be taken. It appears that the only way a qualifying taxpayer can take advantage of the property value adjustment tax credit for ten years is to apply for and receive approval for a certified WV BUILD project and then complete the project the first year the bill is effective—2023. Conversely, if a project is completed in 2032, there would be only one year in which to seek the tax credit.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov