FISCAL NOTE

Date Requested: January 11, 2023
Time Requested: 08:26 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1239 Introduced HB2050
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 create the West Virginia Economic Diversification Act. The bill stimulates economic growth in manufacturing industries by amending the definition of manufacturing for purposes of a special method for appraising qualified capital additions to manufacturing facilities for property tax purposes. The bill amends the formula for calculating the credit allowed for manufacturing investment to include tire manufacturing, sport fishing equipment manufacturing, bow, quiver, broadhead, and point manufacturing, arrow shaft manufacturing, vaccine manufacturing, feed stock manufacturing, or fuel refinery manufacturing facility. The bill provides for its administration and enforcement of the tax credit. Finally, the bill exempts certain taxes. The provisions of this bill would amend the special method for appraising qualified capital additions to manufacturing facilities by lowering the minimum amount of new investment required to be added from $50 million to $1 million for capital additions for certain types of manufacturing activity as follows: NAICS Code Business Type 441230 Tire dealers 326211 Tire Manufacturing 326212 Tire Retreading 314994 Rope, Cordage, Twine, Tire Cord and Tire Fabric Mills 423130 Tire and Tube Merchant Wholesalers 339920 Sports and Athletic Goods Manufacturing 325414 Biological Product (except Diagnostic) Manufacturing 311119 Other Animal Food Manufacturing 324110 Petroleum Refiners. The bill also adds establishments primarily engaged in retailing or wholesaling new and used tires in combination with automotive repair services to the definition of “manufacturing” for purposes of the property tax break. Qualified additions of more than $1 million would be valued at salvage value for local property taxation. Over time, local governments could experience significant erosion of their tax base as greater amounts of real property, including land improvements and buildings, are taxed at salvage value along with tangible personal property. The bill also adds the above-listed businesses to the manufacturing types to the qualified investment provisions of the current Manufacturing Investment Tax Credit. On January 1, 2023, the bill would add the above NAICS codes to the Manufacturing Investment Tax Credit provisions of the West Virginia Code. Establishments engaged primarily in retailing or wholesaling new and used tires in combination with automotive repair services would now qualify for the Manufacturing Investment Tax Credit. In addition, effective July 1, 2023, taxpayers would also be eligible for a tax credit equivalent to the amount of federal excise tax attributable to their qualified investment in a new or expanded manufacturing facility related to tire manufacturing, sport fishing equipment manufacturing, bow, quiver, broadhead, point manufacturing, arrow shaft manufacturing, vaccine manufacturing, feed stock manufacturing, or fuel refinery manufacturing. The State Treasury would pay the federal excise tax on behalf of an eligible taxpayer through the proposed tax credit as long as the taxpayer had the minimum amount of qualified investment of $2 million. This proposed credit would offset both Personal Income Tax and Corporation Net Income Tax. This proposed credit is for 10 years; however, the unused credit amount can be carried over for an additional 10 years. There are no carryback provisions to this proposed tax credit. We are unable to accurately calculate the future revenue losses associated with this provision. Additionally, this bill exempts sales of tires, sports fishing equipment, and archery equipment from the Consumer Sales and Use Tax. The Consumer Sales and Use Tax exemptions alone would reduce General Revenue collections by $17.4 million per year. Additional administrative costs to the State Tax Department related to the credit provision would be $60,000 in FY2023 and $5,000 per year in subsequent fiscal years. There would also be an additional one-time cost of roughly $100,000 for restructuring the data system to allow for the special appraisal method for this property. Other additional costs to the State Tax Department and local governments for administering the Property Tax provisions cannot be determined.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2023
Increase/Decrease
(use"-")
2024
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 60,000 5,000
Personal Services 0 15,000 5,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 45,000 0
2. Estimated Total Revenues 0 0 0


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


The provisions of this bill would amend the special method for appraising qualified capital additions to manufacturing facilities by lowering the minimum amount of new investment required to be added from $50 million to $1 million for capital additions for certain types of manufacturing activity as follows: NAICS Code Business Type 441230 Tire dealers 326211 Tire Manufacturing 326212 Tire Retreading 314994 Rope, Cordage, Twine, Tire Cord and Tire Fabric Mills 423130 Tire and Tube Merchant Wholesalers 339920 Sports and Athletic Goods Manufacturing 325414 Biological Product (except Diagnostic) Manufacturing 311119 Other Animal Food Manufacturing 324110 Petroleum Refiners. The bill also adds establishments primarily engaged in retailing or wholesaling new and used tires in combination with automotive repair services to the definition of “manufacturing” for purposes of the property tax break. Qualified additions of more than $1 million would be valued at salvage value for local property taxation. Over time, local governments could experience significant erosion of their tax base as greater amounts of real property, including land improvements and buildings, are taxed at salvage value along with tangible personal property. The bill also adds the above-listed businesses to the manufacturing types to the qualified investment provisions of the current Manufacturing Investment Tax Credit. On January 1, 2023, the bill would add the above NAICS codes to the Manufacturing Investment Tax Credit provisions of the West Virginia Code. Establishments engaged primarily in retailing or wholesaling new and used tires in combination with automotive repair services would now qualify for the Manufacturing Investment Tax Credit. In addition, effective July 1, 2023, taxpayers would also be eligible for a tax credit equivalent to the amount of federal excise tax attributable to their qualified investment in a new or expanded manufacturing facility related to tire manufacturing, sport fishing equipment manufacturing, bow, quiver, broadhead, point manufacturing, arrow shaft manufacturing, vaccine manufacturing, feed stock manufacturing, or fuel refinery manufacturing. The State Treasury would pay the federal excise tax on behalf of an eligible taxpayer through the proposed tax credit as long as the taxpayer had the minimum amount of qualified investment of $2 million. This proposed credit would offset both Personal Income Tax and Corporation Net Income Tax. This proposed credit is for 10 years; however, the unused credit amount can be carried over for an additional 10 years. There are no carryback provisions to this proposed tax credit. We are unable to accurately calculate the future revenue losses associated with this provision. Additionally, this bill exempts sales of tires, sports fishing equipment, and archery equipment from the Consumer Sales and Use Tax. The Consumer Sales and Use Tax exemptions alone would reduce General Revenue collections by $17.4 million per year. Additional administrative costs to the State Tax Department related to the credit provision would be $60,000 in FY2023 and $5,000 per year in subsequent fiscal years. There would also be an additional one-time cost of roughly $100,000 for restructuring the data system to allow for the special appraisal method for this property. Other additional costs to the State Tax Department and local governments for administering the Property Tax provisions cannot be determined.



Memorandum


The stated purpose of this bill is to create the West Virginia Economic Diversification Act. The bill stimulates economic growth in manufacturing industries by amending the definition of manufacturing for purposes of a special method for appraising qualified capital additions to manufacturing facilities for property tax purposes. The bill amends the formula for calculating the credit allowed for manufacturing investment to include tire manufacturing, sport fishing equipment manufacturing, bow, quiver, broadhead, and point manufacturing, arrow shaft manufacturing, vaccine manufacturing, feed stock manufacturing, or fuel refinery manufacturing facility. The bill provides for its administration and enforcement of the tax credit. Finally, the bill exempts certain taxes. It is difficult to determine whether the amount of federal excise tax paid for the first year is the amount of the proposed credit taken over ten years, or whether the amount of federal excise tax paid every year for the ten-year claim is the credit if the investment is maintained. Further, it does not appear that the investment needs to be a capital investment. The income tax credit is applied against the amount of state taxes attributable to the qualified investment, but there is no formula to determine this figure. There is no formula for determining the amount of excise tax attributable to the qualified investment. It appears that only Corporation Net Income Tax attributable to the qualified investment qualifies, and it is only remainder credit that is applied against Personal Income Tax. The amount of credit is the federal excise tax attributable to the qualified investment, which can only be applied against the amount of Corporation Net Income Tax attributable to the qualified investment; no method is given to calculate what amount is attributable. Internal Revenue Code §4071 imposes an excise tax against the sale of tires so this income tax credit would have very limited application. Since there is already a federal excise tax against the sale of tires, this proposed credit would possibly have very limited application.



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