FISCAL NOTE
Date Requested: January 28, 2016
Time Requested: 03:19 PM |
| Agency: |
Tax Department, State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1921 |
Introduced |
SB418 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Neither Program nor Fund
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to place a sales tax on the sale of food. The bill dedicates the revenue generated by the sales tax on food to the Public Employees Insurance Agency. The bill creates the West Virginia Earned Income Tax Credit. The bill authorizes a refundable tax credit based upon the federal earned income tax credit. The bill determines eligibility for the credit. The bill determines the amount of the credit.
Based on our interpretation, reenacting the consumers sales tax on the sale of food at 3 percent would result in a revenue gain of approximately $77.8 million in the General Revenue Fund in FY2017 and $84.9 million annually for each year thereafter. This revenue would be dedicated to the Public Employees Insurance Agency and does not include any estimation of additional municipal sales tax collections.
The bill also proposes the creation of a state Earned Income Tax Credit (EITC) equal to 25 percent of the federal credit plus additional credit allowances for taxpayers without children who do not qualify for the federal Earned Income Tax Credit. Based on our interpretation, a West Virginia EITC would result in an annual loss to the General Revenue Fund of approximately $121.6 million in FY2017. Combined, both components of the proposed bill would result in a net revenue loss of approximately $43.8 million in FY2017 and $36.7 million for each subsequent year if passed.
Additional administrative costs incurred by the State Tax Department are expected to be $121,250 in FY2017 and $80,250 for each year thereafter. There are no anticipated costs for the remainder of FY2016.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2016
Increase/Decrease
(use"-") |
2017
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
121,250 |
80,250 |
| Personal Services |
0 |
80,250 |
80,250 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
21,000 |
0 |
| Other |
0 |
20,000 |
0 |
| 2. Estimated Total Revenues |
0 |
-43,800,000 |
-36,700,000 |
Explanation of above estimates (including long-range effect):
Based on our interpretation, reenacting the consumers sales tax on the sale of food at 3 percent would result in a revenue gain of approximately $77.8 million in the General Revenue Fund in FY2017 and $84.9 million annually for each year thereafter. This revenue would be dedicated to the Public Employees Insurance Agency and does not include any estimation of additional municipal sales tax collections.
The bill also proposes the creation of a state Earned Income Tax Credit (EITC) equal to 25 percent of the federal credit plus additional credit allowances for taxpayers without children who do not qualify for the federal Earned Income Tax Credit. Based on our interpretation, a West Virginia EITC would result in an annual loss to the General Revenue Fund of approximately $121.6 million in FY2017. Combined, both components of the proposed bill would result in a net revenue loss of approximately $43.8 million in FY2017 and $36.7 million for each subsequent year if passed.
Additional administrative costs incurred by the State Tax Department are expected to be $121,250 in FY2017 and $80,250 for each year thereafter. There are no anticipated costs for the remainder of FY2016.
Memorandum
The stated purpose of this bill is to place a sales tax on the sale of food. The bill dedicates the revenue generated by the sales tax on food to the Public Employees Insurance Agency. The bill creates the West Virginia Earned Income Tax Credit. The bill authorizes a refundable tax credit based upon the federal earned income tax credit. The bill determines eligibility for the credit. The bill determines the amount of the credit.
There is likely a title defect with the proposed bill. While the title states that both the imposition of the consumers sales and service tax on food and the creation of a West Virginia Earned Income Tax Credit (EITC) relate to “taxation,” that is a broad category that can encompass a wide variety of proposed measures is a concern. Also, dates for the reinstatement of the sales tax on food effective after June 30, 2016 and the availability of a state EITC for tax years beginning after December 31, 2015 should be reflected in the title.
With respect to the sales tax, the proposed bill does not create a fund for collections; state how revenues are to be paid to PEIA; specify who is to make the deposits; or how frequently these deposits are to be made. Further concern could arise if refunds are needed or errors need to be corrected; if the transfer of funds has already occurred this could impose a burden on the General Revenue Fund. The proposed bill could also create a gap as it deletes the section of Code stating the sales tax is currently terminated and imposes the sales tax on food effective after June 30, 2016, leaving the question of whether the tax would be active or inactive should the bill become effective prior to this date.
With respect to the state EITC, the proposed bill fails to strike the current language of West Virginia Code §11-21-22b and, instead, only provides new language. The language surrounding eligibility for the state EITC without a qualifying child is vague, as federal EITC law allows for taxpayers filing either individually or married, filing jointly, below certain income thresholds to be eligible for the credit. Further, this language in the proposed bill is unclear whether, for example, a taxpayer within the amount of federal adjusted gross income for three qualifying children, who has only two qualifying children, would be able to take the West Virginia credit because they are only one qualifying child short of being eligible for the federal credit.
The proposed bill allows taxpayers who are not eligible for the federal credit to potentially take the West Virginia credit. This could introduce complications for the State Tax Department to administer the credit. In this case, the Tax Department will have to determine what a taxpayer would have been entitled to from the federal government if the taxpayer had more qualifying children. With respect to the provision that the Tax Commissioner make an effort each year to inform taxpayers who may be eligible to receive the credit, it is unclear what this would entail or how the Tax Department could know this information prior to the taxpayer filing returns.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov