FISCAL NOTE
Date Requested: February 07, 2018
Time Requested: 01:52 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1780 |
Introduced |
HB4452 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
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 newly-established small business tax credit. It provides tax credits against Corporate Income Tax and Personal Income Tax in the amount of certain property taxes paid.
According to our interpretation, the provisions of this bill establish three small business tax credits for newly established small businesses in the State. The first proposed tax credit would be a credit equal to the amount of local personal property taxes paid against Corporation Net Income Tax and Personal Income Tax. This proposed personal property tax credit does not have an expiration date. The other two credits would result in an effective Personal Income Tax rate of one percent and an effective Corporation Net Income Tax rate of one percent for the first five years of state income derived from a newly established small business. The proposed one percent Corporation Net Income Tax rate on West Virginia taxable income would further complicate aspects of combined reporting as the credit only applies to separately determined incomes of combined group members, rather than total income of the combined group.
The number of small businesses that would earn income subject to these proposed tax rates cannot be determined. We cannot estimate the revenue impact of these credits because we do not know how many small businesses would qualify. In many cases, business costs for compliance could exceed the benefits. The bill will become effective for tax years beginning on or after January 1, 2019.
Additional administrative costs incurred by the State Tax Department would be $102,000 in FY2020 and $70,000 per year in fiscal years thereafter.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2018
Increase/Decrease
(use"-") |
2019
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
0 |
70,000 |
| Personal Services |
0 |
0 |
70,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the provisions of this bill establish three small business tax credits for newly established small businesses in the State. The first proposed tax credit would be a credit equal to the amount of local personal property taxes paid against Corporation Net Income Tax and Personal Income Tax. This proposed personal property tax credit does not have an expiration date. The other two credits would result in an effective Personal Income Tax rate of one percent and an effective Corporation Net Income Tax rate of one percent for the first five years of state income derived from a newly established small business. The proposed one percent Corporation Net Income Tax rate on West Virginia taxable income would further complicate aspects of combined reporting as the credit only applies to separately determined incomes of combined group members, rather than total income of the combined group.
The number of small businesses that would earn income subject to these proposed tax rates cannot be determined. We cannot estimate the revenue impact of these credits because we do not know how many small businesses would qualify. In many cases, business costs for compliance could exceed the benefits. The bill will become effective for tax years beginning on or after January 1, 2019.
Additional administrative costs incurred by the State Tax Department would be $102,000 in FY2020 and $70,000 per year in fiscal years thereafter.
Memorandum
The stated purpose of this bill is to create a newly-established small business tax credit. It provides tax credits against Corporate Income Tax and Personal Income Tax in the amount of certain property taxes paid.
Although the purpose of this bill is to provide a new tax credit for small businesses, this bill provides three new tax credits for newly-established small businesses. While the bill relates to tax credits for newly established businesses, because they appear to be separate credits, this bill may be in violation of the one object rule of Section 30, Article VI of the West Virginia Constitution.
The language in the bill as to whether certain employees should be included in the calculation to determine full-time equivalent employees is ambiguous. It is also unclear from the language of this bill whether certain contract employees that are provided by third-party employment agencies could be counted as employees for purposes of this tax credit for two different taxpayers, once by the third-party employer and once by the business using the contract employee’s services.
This bill would be difficult for the Tax Department to administer. A large amount of paperwork would be needed to verify the eligibility of potential qualified taxpayers. Furthermore, the Tax Department does not collect personal property taxes and therefore would need to verify payment.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov