FISCAL NOTE
Date Requested: February 11, 2022
Time Requested: 04:20 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2007 |
Introduced |
HB4655 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund, local governments
Sources of Revenue:
General Fund local property tax revenue
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 Commercial Opportunity Zone Tax Credit Act. The bill provides for a short title. The bill provides for legislative findings and purpose. The bill creates definitions. The bill establishes the Commercial Opportunity Zone tax credit. The bill provides for restrictions on investment. The bill provides for a penalty. The bill provides for the disclosure of tax credit. The bill provides for tax credit review and accountability. The bill creates rules. Finally, the bill provides for an effective date.
The provisions of this bill vaguely define the creation of commercial opportunity zones to be designated by the Commerce Secretary as geographical areas within each county measured by a factor of 100 acres per 1,000 population. Projects within these zones as certified by the economic development authority would qualify for tax benefits with a minimum investment of $250,000 maintained over a period of 10 years. According to our interpretation, a minimum $250,000 investment that results in the collection of West Virginia sales tax would generate an income tax credit. The amount of sales tax collected would be allowed as a tax credit against the qualified investor’s income tax liability with maximum approved investment of $1 million per year per commercial zone investment company and maximum tax credit per qualified investment at no more than $50,000 per year. However, the provisions of this bill do not readily define qualified investments or the actual relationship between sales tax collected and the income tax credit. The bill also provides that minimum investments of $250,000 or more within a qualified commercial opportunity zone would be taxed as Class II property. A voter approved Constitutional Amendment would be required to tax qualified commercial property under the residential and farm tax rate classification. Due to lack of definitions and other conflicting language within this bill, we are unable to provide any additional analysis beyond noting that the maximum annual income tax credit per Taxpayer may not exceed $50,000 tied somehow to the amount of sales tax collections associated with a qualified investment.
Additional administrative costs incurred by the State Tax Department would be $20,000 in FY2023 and $5,000 in subsequent fiscal years.
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):
The provisions of this bill vaguely define the creation of commercial opportunity zones to be designated by the Commerce Secretary as geographical areas within each county measured by a factor of 100 acres per 1,000 population. Projects within these zones as certified by the economic development authority would qualify for tax benefits with a minimum investment of $250,000 maintained over a period of 10 years. According to our interpretation, a minimum $250,000 investment that results in the collection of West Virginia sales tax would generate an income tax credit. The amount of sales tax collected would be allowed as a tax credit against the qualified investor’s income tax liability with maximum approved investment of $1 million per year per commercial zone investment company and maximum tax credit per qualified investment at no more than $50,000 per year. However, the provisions of this bill do not readily define qualified investments or the actual relationship between sales tax collected and the income tax credit. The bill also provides that minimum investments of $250,000 or more within a qualified commercial opportunity zone would be taxed as Class II property. A voter approved Constitutional Amendment would be required to tax qualified commercial property under the residential and farm tax rate classification. Due to lack of definitions and other conflicting language within this bill, we are unable to provide any additional analysis beyond noting that the maximum annual income tax credit per Taxpayer may not exceed $50,000 tied somehow to the amount of sales tax collections associated with a qualified investment.
Additional administrative costs incurred by the State Tax Department would be $20,000 in FY2023 and $5,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to establish the Commercial Opportunity Zone Tax Credit Act. The bill provides for a short title. The bill provides for legislative findings and purpose. The bill creates definitions. The bill establishes the Commercial Opportunity Zone tax credit. The bill provides for restrictions on investment. The bill provides for a penalty. The bill provides for the disclosure of tax credit. The bill provides for tax credit review and accountability. The bill creates rules. Finally, the bill provides for an effective date.
Defining the “State tax rate” as “the division of taxation into four classes by the state constitution …” is simply incorrect. The classes are taxed at different rates; they are not rates unto themselves.
Section 11-13LL-4 states that a Commercial Opportunity Zone tax credit is allowed but fails to clearly define what the tax credit is and how it is derived.
The “sales tax” reference is confusing. It is clearly speaking of the sales tax “collected by an establishment,” but “establishment” is not defined or otherwise used in the bill. If sales tax is collected, it must be remitted, but it might be used here as a “measure” of their business conducted for which the “qualified taxpayer” gets a “credit” against Personal Income Tax.
Reclassification of Commercial Opportunity Zone property to Class II would contradict the W. Va. Constitution. requires taxation to be equal and uniform throughout the State, property to be taxed in proportion to its value, and no one species of property be taxed higher than any other species of property of equal value. Article X, Section 1 of the W. Va. Constitution states that Class II property is owner-occupied residential property used exclusively for residential purposes and all farmland used for agricultural purposes by its owner or bona fide tenant.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov