FISCAL NOTE
Date Requested: January 14, 2016
Time Requested: 01:22 PM |
| Agency: |
Tax Department, State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1333 |
Introduced |
HB4023 |
|
|---|
| CBD Subject: |
Insurance, Tax |
|---|
|
FUND(S):
General Revenue Fund, Public Employees Insurance Agency Special Fund
Sources of Revenue:
General Fund,Special Fund
Legislation creates:
A New Fund
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to raise an additional $120 million in revenue. The bill increases the excise tax on cigarettes and other tobacco products. The bill proposes an increase in the tax on intoxicating liquors. The bill requires that the $120 million be used solely to reduce public employee and retiree health insurance premiums. The bill creates a new fund.
The bill is unclear about the mechanism for raising the tax on intoxicating liquors. The bill proposes that the Alcohol Beverage Control Commissioner cooperate with the Tax Commissioner “to raise an additional $120 million from the sales of alcohol beverages subject to the provisions of this chapter and tobacco products.” It is unclear whether the additional $120 million needs to be raised in addition to the revenue gained from increasing tobacco product taxes or as an addition only if tobacco product tax revenues do not reach $120 million.
The bill dedicates the revenue collected “in excess” of the current rates for tobacco products to the PEIA Special Fund. Therefore, the revenue split between the General Revenue Fund and the PEIA Special Fund is based upon the tax rate. Collections associated with these higher taxes and fees would begin with some lag in FY2017. Less than a full-year of revenue enhancement would be realized in FY2017 due to a lag in the timing of tax receipts and the lapse of the tax on other tobacco products for the first half of FY2017. Higher than normal tax receipts would occur prior to the rate change and lower than usual activity would occur immediately after the rate change due to taxpayer behavior shifting purchases to a period prior to the tax rate increases. Taxpayer behavior will also create a surge in consumption during the lapse in the tax on other tobacco products created by this bill, followed by a decline in consumption when the rate is reestablished and increased.
The following revenue estimates reflect a full year revenue effect that might not fully be realized until FY2018 (the Net Gain amounts include the increase in revenue attributable to the change in the tax rate and the reduction in the Consumers Sales and Service Tax caused by declines in consumption attributable to higher prices for the indicated commodities).
Tax Type Net Gain
Cigarettes $115 Million
Other Tobacco $ 14 Million
Net Change $129 Million
Tax Type General Revenue
Cigarettes - $22 Million
Other Tobacco - $ 5 Million
Net Change - $27 Million
Tax Type PEIA Special Fund
Cigarettes $137 Million
Other Tobacco $ 19 Million
Net Change $156 Million
The tax increases would initially generate roughly $156 million for the PEIA Special Fund. In addition, the State General Revenue Fund would decrease by roughly $27 million due to reductions in base excise tax collections and sales tax collections associated with tax induced reductions in consumption levels of cigarettes and tobacco products. Local municipal governments currently imposing local sales taxes may also experience some decrease in local sales tax collections, especially in areas bordering the State of Ohio. Excise tax revenues, especially cigarette excise tax collections, tend to decrease slightly over time with changes in taxpayer behavior and demographics.
Administrative costs to the Tax Department would be $8,000 in the current fiscal year and in FY2017.
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 |
8,000 |
8,000 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
8,000 |
8,000 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
The bill is unclear about the mechanism for raising the tax on intoxicating liquors. The bill proposes that the Alcohol Beverage Control Commissioner cooperate with the Tax Commissioner “to raise an additional $120 million from the sales of alcohol beverages subject to the provisions of this chapter and tobacco products.” It is unclear whether the additional $120 million needs to be raised in addition to the revenue gained from increasing tobacco product taxes or as an addition only if tobacco product tax revenues do not reach $120 million.
The bill dedicates the revenue collected “in excess” of the current rates for tobacco products to the PEIA Special Fund. Therefore, the revenue split between the General Revenue Fund and the PEIA Special Fund is based upon the tax rate. Collections associated with these higher taxes and fees would begin with some lag in FY2017. Less than a full-year of revenue enhancement would be realized in FY2017 due to a lag in the timing of tax receipts and the lapse of the tax on other tobacco products for the first half of FY2017. Higher than normal tax receipts would occur prior to the rate change and lower than usual activity would occur immediately after the rate change due to taxpayer behavior shifting purchases to a period prior to the tax rate increases. Taxpayer behavior will also create a surge in consumption during the lapse in the tax on other tobacco products created by this bill, followed by a decline in consumption when the rate is reestablished and increased.
The following revenue estimates reflect a full year revenue effect that might not fully be realized until FY2018 (the Net Gain amounts include the increase in revenue attributable to the change in the tax rate and the reduction in the Consumers Sales and Service Tax caused by declines in consumption attributable to higher prices for the indicated commodities).
Tax Type Net Gain
Cigarettes $115 Million
Other Tobacco $ 14 Million
Net Change $129 Million
Tax Type General Revenue
Cigarettes - $22 Million
Other Tobacco - $ 5 Million
Net Change - $27 Million
Tax Type PEIA Special Fund
Cigarettes $137 Million
Other Tobacco $ 19 Million
Net Change $156 Million
The tax increases would initially generate roughly $156 million for the PEIA Special Fund. In addition, the State General Revenue Fund would decrease by roughly $27 million due to reductions in base excise tax collections and sales tax collections associated with tax induced reductions in consumption levels of cigarettes and tobacco products. Local municipal governments currently imposing local sales taxes may also experience some decrease in local sales tax collections, especially in areas bordering the State of Ohio. Excise tax revenues, especially cigarette excise tax collections, tend to decrease slightly over time with changes in taxpayer behavior and demographics.
Administrative costs to the Tax Department would be $8,000 in the current fiscal year and in FY2017.
Memorandum
The stated purpose of this bill is to raise an additional $120 million in revenue. The bill increases the excise tax on cigarettes and other tobacco products. The bill proposes an increase in the tax on intoxicating liquors. The bill requires that the $120 million be used solely to reduce public employee and retiree health insurance premiums. The bill creates a new fund.
The tax on other tobacco products is effective January 1, 2017. The drafters eliminated the former effective date and rate of tax, making it appear that the tax first became effective January 1, 2017. There is no explicit effective date for the increased tax on cigarettes. It is not apparent when changes set by the ABCC would become effective.
The bill does not contain a provision for when the amount collected falls below $120 million.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov