FISCAL NOTE
Date Requested: January 20, 2023
Time Requested: 08:17 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2265 |
Introduced |
HB2831 |
|
|---|
| 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 establish that first $20,000 of taxable income not subject to personal income tax but income in excess of that amount be subject to a fixed three percent.
According to our interpretation, the bill would reduce the personal income tax rate to a flat three percent on taxable income over $20,000. The number of graduated personal income tax brackets would be reduced from five to two with taxable income at or below $20,000 subject to a 0 percent tax rate and taxable income over $20,000 subject to a 3 percent tax rate. Currently, tax brackets are adjusted by one-half for married individuals filing separate returns. This bill would apply the same brackets to all taxpayers creating a tax preference for most married taxpayers filing separately. The legislation would be effective for all taxable years beginning after December 31, 2022.
Based on our interpretation and current filing trends, the proposed legislation would decrease General Revenue Fund collections by roughly $310 million in FY2023, $1.89 billion in FY2024, $1.67 billion in FY2025, and by increasing amounts in subsequent fiscal years. Currently only a small portion of married taxpayers file separately. The decrease in collections will be significantly higher if a larger percentage of married taxpayers chose to file separately to take advantage of the potential tax advantage. If both spouses have at least $20,000 of taxable income, they would save $600 in tax each year by filing separately.
The changes for Tax Year 2023 will be retroactive to January 1, 2023. Due to the retroactive aspect of the bill, current higher tax rates would be used to calculate withholding and estimated taxes prior to enactment of the reduced rates. The delayed implementation of revised tax tables will move a significant portion of the impact which should have occurred in FY2023 into FY2024. The estimate for FY2024 is inclusive of roughly $1.58 billion in direct impact and $310 million due to the retroactive portion of the bill.
Additional administrative costs incurred by the State Tax Department would be $128,000 in FY2023, $100,000 in FY2024, and $90,000 in subsequent fiscal years.
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 |
128,000 |
100,000 |
90,000 |
| Personal Services |
90,000 |
90,000 |
90,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
3,000 |
0 |
0 |
| Other |
35,000 |
10,000 |
0 |
| 2. Estimated Total Revenues |
-310,000,000 |
-1,889,000,000 |
-1,655,000,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the bill would reduce the personal income tax rate to a flat three percent on taxable income over $20,000. The number of graduated personal income tax brackets would be reduced from five to two with taxable income at or below $20,000 subject to a 0 percent tax rate and taxable income over $20,000 subject to a 3 percent tax rate. Currently, tax brackets are adjusted by one-half for married individuals filing separate returns. This bill would apply the same brackets to all taxpayers creating a tax preference for most married taxpayers filing separately. The legislation would be effective for all taxable years beginning after December 31, 2022.
Based on our interpretation and current filing trends, the proposed legislation would decrease General Revenue Fund collections by roughly $310 million in FY2023, $1.89 billion in FY2024, $1.67 billion in FY2025, and by increasing amounts in subsequent fiscal years. Currently only a small portion of married taxpayers file separately. The decrease in collections will be significantly higher if a larger percentage of married taxpayers chose to file separately to take advantage of the potential tax advantage. If both spouses have at least $20,000 of taxable income, they would save $600 in tax each year by filing separately.
The changes for Tax Year 2023 will be retroactive to January 1, 2023. Due to the retroactive aspect of the bill, current higher tax rates would be used to calculate withholding and estimated taxes prior to enactment of the reduced rates. The delayed implementation of revised tax tables will move a significant portion of the impact which should have occurred in FY2023 into FY2024. The estimate for FY2024 is inclusive of roughly $1.58 billion in direct impact and $310 million due to the retroactive portion of the bill.
The Federal American Rescue Plan Act (ARPA) contains provisions providing for some potential claw back of federal ARPA funds if enacted State level tax cuts result in actual total State revenues (i.e., both tax and non-tax revenues from own sources) falling below an inflation adjusted Fiscal Year 2019 baseline. The guideline applies to actual revenues for both CY2023 and CY2024. There is some risk that the proposed income tax cuts could result in actual revenues falling below the ARPA target in CY2024. We note that the U.S. Court of Appeals for the 11th Circuit issued an opinion on January 20, 2023, that the U.S Treasury Department could not prohibit states from cutting their taxes if they received direct federal aid from the 2021 American Rescue Plan Act (ARPA).
Additional administrative costs incurred by the State Tax Department would be $128,000 in FY2023, $100,000 in FY2024, and $90,000 in subsequent fiscal years.
Memorandum
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov