FISCAL NOTE

Date Requested: February 10, 2016
Time Requested: 01:37 PM
Agency: Tax Department, State
CBD Number: Version: Bill Number: Resolution Number:
1814 Introduced SB570
CBD Subject: Taxation


FUND(S):

General Revenue Fund, local governments

Sources of Revenue:

General Fund,Other Fund local governments

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 allow local units of government to lower personal property taxes by imposing local sales taxes; set forth a purpose; to not require an agreement among local levying bodies; to set the amount of sales tax permitted; determine levy setoff, and implementation to provide a trigger for prohibiting the collection of future personal property taxes by any unit of state government; and to provide for the sunset of the article under certain conditions. From a global perspective, County Commissions imposed more than $150.7 million in property taxes on personal property in TY2015. School Boards imposed a total of more than $383.0 million in property taxes on personal property in TY2015, including roughly $217.0 million in excess levies and bond levies. Municipal governments imposed roughly $31.6 million in personal property taxes in TY2015. The municipal share of total taxes imposed on personal property is roughly 5.5 percent while the municipal share of total property taxes imposed is closer to 7.0 percent. The relatively lower municipal share of personal property tax is attributable to a greater than average share of industrial activity, including both mining and manufacturing located outside of incorporated municipalities. In addition to other small sources, personal property taxes generally include tax imposed on certain mobile homes, automobiles, machinery, equipment, inventory and active natural gas well valuations. The bill allows three different government types to levy a sales tax: county boards of education, county commissions, and municipalities. The combined increase in the sales tax rate within a county may be two percent. Should every county pursue the full increase in sales tax rate, the combined revenue for local governments would be approximately $400 million. The revenue collection distribution would be highly unequal. Counties with high concentrations of retail and service activity, mostly urbanized areas, will receive the majority of the collections. Each levying body must then reduce its personal property tax levy rate “by an amount equal to eighty percent of the amount of money generated by the sales tax.” Urbanized areas may also lose less property tax revenue than rural areas with significant industrial personal property, including natural gas properties and mining equipment. The bill further states that after the effective date of this article, any future personal property tax collection by any unit of state government is prohibited. This would essentially end all personal property tax collections. In TY2015, personal property tax collections for all governments including those for the state were around $600 million. The full revenue impact will be a loss of around $200 million statewide, unevenly distributed across governing units. Estimated costs to the Tax Department will be $388,200 in the current fiscal year and $158,600 in each subsequent year.



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 388,200 158,600 158,600
Personal Services 158,600 158,600 158,600
Current Expenses 192,000 0 0
Repairs and Alterations 0 0 0
Assets 20,000 0 0
Other 17,000 0 0
2. Estimated Total Revenues 0 0 0


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


From a global perspective, County Commissions imposed more than $150.7 million in property taxes on personal property in TY2015. School Boards imposed a total of more than $383.0 million in property taxes on personal property in TY2015, including roughly $217.0 million in excess levies and bond levies. Municipal governments imposed roughly $31.6 million in personal property taxes in TY2015. The municipal share of total taxes imposed on personal property is roughly 5.5 percent while the municipal share of total property taxes imposed is closer to 7.0 percent. The relatively lower municipal share of personal property tax is attributable to a greater than average share of industrial activity, including both mining and manufacturing located outside of incorporated municipalities. In addition to other small sources, personal property taxes generally include tax imposed on certain mobile homes, automobiles, machinery, equipment, inventory and active natural gas well valuations. The bill allows three different government types to levy a sales tax: county boards of education, county commissions, and municipalities. The combined increase in the sales tax rate within a county may be two percent. Should every county pursue the full increase in sales tax rate, the combined revenue for local governments would be approximately $400 million. The revenue collection distribution would be highly unequal. Counties with high concentrations of retail and service activity, mostly urbanized areas, will receive the majority of the collections. Each levying body must then reduce its personal property tax levy rate “by an amount equal to eighty percent of the amount of money generated by the sales tax.” Urbanized areas may also lose less property tax revenue than rural areas with significant industrial personal property, including natural gas properties and mining equipment. The bill further states that after the effective date of this article, any future personal property tax collection by any unit of state government is prohibited. This would essentially end all personal property tax collections. In TY2015, personal property tax collections for all governments including those for the state were around $600 million. The full revenue impact will be a loss of around $200 million statewide, unevenly distributed across governing units. Estimated costs to the Tax Department will be $388,200 in the current fiscal year and $158,600 in each subsequent year.



Memorandum


The stated purpose of this bill is to allow local units of government to lower personal property taxes by imposing local sales taxes; set forth a purpose; to not require an agreement among local levying bodies; to set the amount of sales tax permitted; determine levy setoff, and implementation to provide a trigger for prohibiting the collection of future personal property taxes by any unit of state government; and to provide for the sunset of the article under certain conditions. All municipalities under home rule already have a one percent local sales tax. It is unclear whether this bill would supersede home rule provisions allowing a one percent sales tax or would force municipalities to cut their sales tax in half. The bill does not make clear whether or not only “local units of government” that have current authority to levy a personal property tax will have authority under this bill to impose a sales tax. While the bill authorizes imposition of a sales tax, there is no mention of what the tax base would be. The bill also fails to make any provision for who would collect the tax, who would administer the tax or who would enforce the tax. There is no provision that gives the Tax Commissioner authority to promulgate rules regarding collection, administration or enforcement of the proposed sales tax. The bill imposes a number of mandates on the Tax Commissioner that require analysis and reporting over unspecified time periods from undefined individuals. The bill establishes maximum sales tax rates that may be imposed by each of the three named levying bodies. If a county has more than one municipality, there exists the possibility that multiple levying bodies may be blocked from participating in the benefits of the bill due to other levying bodies in the county imposing a sales tax earlier. There is no certain effective date for the article. The provisions of the new article do not take effect unless “five or more county commissions or county boards of education” elect to exercise the option. The bill is unclear whether the “five or more” may be a combination of county commissions and county boards of education, and the bill does not include municipalities among the entities that can make up the five. The uncertain effective date renders the sunset provision ineffective. The sunset provision provides that the article will be void if no county commission, county board of education or municipality exercises the option “by the tenth year following the effective date;” but there is no “effective date” in the first place unless five or more entities first elect the option. There is no direction on how to handle rate changes for bonds or for tax increment finance (TIF) districts. Property TIF districts depend on base property taxes, and increases in property taxes above those bases go to pay for projects in the TIF districts. There is no indication of how this revenue source will be affected. There is no direction on how excess levies imposed by counties or municipalities to pay for multiple projects are affected. If all future property tax collection is prohibited, many areas that depend on excess levies for revenue may find themselves with no funds. There is no direction on how this will affect the School Aid Formula, which is determined in part by property tax collections. This bill would reduce taxes on some mobile homes that are treated as personal property. This will create an imbalance in payment for living spaces, as real property would still be taxed. The bill may also violate the 4R Act as it may create discrimination towards railroad property.



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