FISCAL NOTE

Date Requested: February 08, 2017
Time Requested: 06:38 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1054 Introduced SB38
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 create a tax credit for businesses locating on post-mine sites for the first five years after locating to the site; to define terms; to set eligibility requirements for the credit; to establish the amount of tax credit allowed; and to establish how the credit may be applied. According to our interpretation, passage of this bill would result in a tax credit in the amount of fifty percent of a business entity’s corporation net income tax liability for a period of five years to any business with a “principal location” on a post-mine site and employment of at least 10 full-time employees beginning on or after January 1, 2018. Any unused credit would apply to the qualified taxpayer’s personal income tax liability. We are unable to quantify the revenue loss associated with passage of this bill. However, the potential revenue loss could be of some significance largely because the provisions of this bill lack any Legislative findings and generally lack definitions for various key terms. The term “post-mine site” is defined to mean property that has remained undeveloped for business purposes, subsequent to mining operations on the property. These post-mine sites would presumably include both surface mining and underground mining properties. The bill contains no additional guidance regarding methods for determining geographical boundaries for these post-mine sites or methods to determine the economic status of such properties. Some post-mine sites are currently being developed without state tax preferences and other sites are being developed with some form of State aid including both tax preferences and government financing programs. Those benefiting from alternative State economic development programs would also benefit from this additional tax preference. The provisions of the bill require the employment of 10 full-time employees, but offer no guidance on the rules necessary to determine such employment or even the location of such employment either within West Virginia or elsewhere. It appears that no new employment is required for entitlement to this tax credit. The provisions of the bill do require that the entity’s principal place of business be located on the post-mine site in West Virginia. According to the provision of this bill, “principal place of business” includes (1) the physical location at which the primary executive and administrative headquarters of the entity are located and (2) from which the management of overall operations of the entity is directed. The term, net income, the basis for this tax credit is undefined. The size of the proposed tax credit at 50% of net income is more than 7.5 times the maximum State tax imposed on net income. The tax credit may offset income taxes imposed at a current maximum rate of 6.5%. Additional administrative costs incurred by the State Tax Department would be $23,000 in FY 2018 and $5,000 per years for fiscal years thereafter.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2017
Increase/Decrease
(use"-")
2018
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 23,000 5,000
Personal Services 0 5,000 5,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 18,000 0
2. Estimated Total Revenues 0 0 0


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


According to our interpretation, passage of this bill would result in a tax credit in the amount of fifty percent of a business entity’s corporation net income tax liability for a period of five years to any business with a “principal location” on a post-mine site and employment of at least 10 full-time employees beginning on or after January 1, 2018. Any unused credit would apply to the qualified taxpayer’s personal income tax liability. We are unable to quantify the revenue loss associated with passage of this bill. However, the potential revenue loss could be of some significance largely because the provisions of this bill lack any Legislative findings and generally lack definitions for various key terms. The term “post-mine site” is defined to mean property that has remained undeveloped for business purposes, subsequent to mining operations on the property. These post-mine sites would presumably include both surface mining and underground mining properties. The bill contains no additional guidance regarding methods for determining geographical boundaries for these post-mine sites or methods to determine the economic status of such properties. Some post-mine sites are currently being developed without state tax preferences and other sites are being developed with some form of State aid including both tax preferences and government financing programs. Those benefiting from alternative State economic development programs would also benefit from this additional tax preference. The provisions of the bill require the employment of 10 full-time employees, but offer no guidance on the rules necessary to determine such employment or even the location of such employment either within West Virginia or elsewhere. It appears that no new employment is required for entitlement to this tax credit. The provisions of the bill do require that the entity’s principal place of business be located on the post-mine site in West Virginia. According to the provision of this bill, “principal place of business” includes (1) the physical location at which the primary executive and administrative headquarters of the entity are located and (2) from which the management of overall operations of the entity is directed. The term, net income, the basis for this tax credit is undefined. The size of the proposed tax credit at 50% of net income is more than 7.5 times the maximum State tax imposed on net income. The tax credit may offset income taxes imposed at a current maximum rate of 6.5%. Additional administrative costs incurred by the State Tax Department would be $23,000 in FY 2018 and $5,000 per years for fiscal years thereafter.



Memorandum


The stated purpose of this bill is to create a tax credit for businesses locating on post-mine sites for the first five years after locating to the site; to define terms; to set eligibility requirements for the credit; to establish the amount of tax credit allowed; and to establish how the credit may be applied. It is not clear whether the credit is effective January 1, 2018 or January 1, 2017. For those new businesses that are eligible for this proposed post-mine site tax credit, the duration of employment is not specified. According to the provisions of the bill, a requirement for receiving this tax credit is for the entity’s principle place of business to be located on a post-mine site within the state. It is not clear how the taxpayer would claim this credit. There is no clarity regarding taxpayer records for credit eligibility. The bill does not address whether this credit is refundable, or whether it needs to be re-applied for each of the five years. The bill does not specify whether the credit applies to all mine sites, including gravel, limestone, oil and gas wells.



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