FISCAL NOTE

Date Requested: February 15, 2022
Time Requested: 05:38 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
2688 Introduced HB4748
CBD Subject: Taxation


FUND(S):

General Revenue Fund

Sources of Revenue:

General Fund

Legislation creates:

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 provide an exemption for West Virginia public school teachers, administrators, and personnel from paying state income tax. The bill, as written, would exempt income earned by an individual from working as a teacher, administrator or other professional support personnel at a public school in West Virginia. The exemption is only for income from school employment and does not extend to other employment and income derived by administrators, teachers and personnel. The bill had no definition for personnel. If the bill is interpreted to only include pay received by teachers, administrators and professional support personnel as listed by the West Virginia Department of Education for their employment by county boards of education, passage of this bill would result in a loss of revenue to the State General Revenue Fund of roughly $54.0 million per year beginning in FY2024. There could be some revenue decrease in FY2023 due to changes in withholding payments. In the American Rescue Plan Act of 2021, Congress added a maintenance of effort (MOE) requirement for State source revenues for purposes of using State Fiscal Recovery Fund allocations to replace lost revenues. The MOE generally provides for minimum State-source revenue growth of 5.2% per year in comparison with Fiscal Year 2019 baseline revenues. For measurement purposes, actual baseline Fiscal Year 2019 revenue is subject to annual compounded growth of 5.2% to arrive at minimum revenue requirements in future years. If actual revenue growth falls below the MOE required revenue growth, then there is a risk of a claw back of federal funds to the extent such funds were used for revenue replacement, but only if a State enacted a tax reduction after March 3, 2021, of some significance. Any such claw back risk only increases with the size of the actual enacted tax reduction. U.S. Treasury has not yet supplied complete reporting requirements for States regarding this MOE requirement. Additional administrative costs to the State Tax Department would be $66,500 in FY2024 and $45,000 in fiscal years thereafter.



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 45,000
Personal Services 0 0 45,000
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 -54,000,000


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


The bill, as written, would exempt income earned by an individual from working as a teacher, administrator or other professional support personnel at a public school in West Virginia. The exemption is only for income from school employment and does not extend to other employment and income derived by administrators, teachers and personnel. The bill had no definition for personnel. If the bill is interpreted to only include pay received by teachers, administrators and professional support personnel as listed by the West Virginia Department of Education for their employment by county boards of education, passage of this bill would result in a loss of revenue to the State General Revenue Fund of roughly $54.0 million per year beginning in FY2024. There could be some revenue decrease in FY2023 due to changes in withholding payments. In the American Rescue Plan Act of 2021, Congress added a maintenance of effort (MOE) requirement for State source revenues for purposes of using State Fiscal Recovery Fund allocations to replace lost revenues. The MOE generally provides for minimum State-source revenue growth of 5.2% per year in comparison with Fiscal Year 2019 baseline revenues. For measurement purposes, actual baseline Fiscal Year 2019 revenue is subject to annual compounded growth of 5.2% to arrive at minimum revenue requirements in future years. If actual revenue growth falls below the MOE required revenue growth, then there is a risk of a claw back of federal funds to the extent such funds were used for revenue replacement, but only if a State enacted a tax reduction after March 3, 2021, of some significance. Any such claw back risk only increases with the size of the actual enacted tax reduction. U.S. Treasury has not yet supplied complete reporting requirements for States regarding this MOE requirement. Additional administrative costs to the State Tax Department would be $66,500 in FY2024 and $45,000 in fiscal years thereafter.



Memorandum


The stated purpose of this bill is to provide an exemption for West Virginia public school teachers, administrators, and personnel from paying state income tax. The bill may have title defects. Subsection (b) refers to a credit, but the title refers to an exemption. The title also fails to refer to an effective date. The bill is vague in identification of taxpayers eligible for the exemption, the specific documentation necessary to claim the exemption, and whether it applies to nonresidents. The bill does not define “public school,” “administrators,” “teachers,” or “personnel.” The lack of clear definitions for these terms poses a problem as to whether or not the exemption applies to jobs within a school that do not clearly fall within the categories of “teachers” or “personnel,” such as speech pathologists, school nurses, school psychologists, school counselors, coaches, and athletic directors. The bill may arguably violate Section 10 of Article III of the West Virginia Constitution, which is the state’s equal protection clause. The state legislature “may make reasonable classifications in enacting statutes provided the classifications are based on some real and substantial relation to the objects sought to be accomplished by the legislation, and any person who assails any such classification has the burden of showing that it is essentially arbitrary and unreasonable.” Sylb. Pt. 5, United Fuel Gas Co. v. Battle, 153 W. Va. 222, 167 S.E.2d 890 (1969). The bill does not provide a basis for allowing teachers, administrators, and personnel to claim all their income as exempt as opposed to any other type of employee.



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