FISCAL NOTE

Date Requested: January 09, 2019
Time Requested: 04:20 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1644 Introduced HB2101
CBD Subject: Taxation


FUND(S):

Medical School Fund

Sources of Revenue:

Special Fund

Legislation creates:

Increases Revenue From Existing Sources, Increases Existing Expenses



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


The stated purpose of the bill is to change the structure of the tax on bottled soft drinks and soft drink syrups and powders to only cover soft drinks with added caloric sweeteners, increase the rate to two cents per ounce, and to rededicate the proceeds to all three medical schools in the state. According to our interpretation, effective July 1, 2019, the proposed bill would modify the current Soft Drinks Tax by imposing a 2 cents tax per ounce only on bottled soft drinks, syrups and powders containing caloric sweeteners. Caloric sweeteners exclude non-caloric sweeteners such as aspartame, saccharin and sucralose. This bill would exclude soft drinks containing non-caloric sweeteners from taxation. Fifteen years ago, diet soda had a higher rate of consumption compared to traditional sugary soft drinks. As health concerns regarding aspartame and other artificial sweeteners gained momentum, diet soda sales dropped by roughly 6% in volume. Currently, diet sodas and other soft drinks containing non-caloric sweeteners make up 40% of US soft drink sales, with the remaining 60% dedicated to traditional sugary soft drinks. On an annualized basis, the proposed tax is expected to yield roughly $172.3 million. Net of current Soft Drink Tax collections, which average roughly $14.7 million per year, the additional net yield would be roughly $157.6 million per year. The provisions of this bill would raise the current Soft Drinks Tax on a two-liter bottle of soda from 4 cents to $1.35. The magnitude of the tax change is expected to reduce in-state sales of sweetened beverages by up to 40 percent. The fiscal note does not attempt to quantify the impact of costs on bottlers, suppliers, retailers and restaurants operating in this State. In FY2020 and subsequent fiscal years, the proposed bill would dedicate the first $18 million of collections to the West Virginia University School of Medicine with remaining revenues of $5 million to the Marshall University School of Medicine, $3 million to the West Virginia School of Osteopathic Medicine, $55 million from the General Revenue Fund to be directed by supplemental appropriation for teacher pay raises, with the remaining $91.3 million being deposited into the General Revenue Fund. Additional administrative costs incurred by the State Tax Department would be $47,000 in the remainder of FY2019, $153,000 in FY2020, and $150,000 for each fiscal year thereafter.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2019
Increase/Decrease
(use"-")
2020
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 47,000 153,000 150,000
Personal Services 0 150,000 150,000
Current Expenses 0 3,000 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 47,000 0 0
2. Estimated Total Revenues 0 157,600,000 157,600,000


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


According to our interpretation, effective July 1, 2019, the proposed bill would modify the current Soft Drinks Tax by imposing a 2 cents tax per ounce only on bottled soft drinks, syrups and powders containing caloric sweeteners. Caloric sweeteners exclude non-caloric sweeteners such as aspartame, saccharin and sucralose. This bill would exclude soft drinks containing non-caloric sweeteners from taxation. Fifteen years ago, diet soda had a higher rate of consumption compared to traditional sugary soft drinks. As health concerns regarding aspartame and other artificial sweeteners gained momentum, diet soda sales dropped by roughly 6% in volume. Currently, diet sodas and other soft drinks containing non-caloric sweeteners make up 40% of US soft drink sales, with the remaining 60% dedicated to traditional sugary soft drinks. On an annualized basis, the proposed tax is expected to yield roughly $172.3 million. Net of current Soft Drink Tax collections, which average roughly $14.7 million per year, the additional net yield would be roughly $157.6 million per year. The provisions of this bill would raise the current Soft Drinks Tax on a two-liter bottle of soda from 4 cents to $1.35. The magnitude of the tax change is expected to reduce in-state sales of sweetened beverages by up to 40 percent. The fiscal note does not attempt to quantify the impact of costs on bottlers, suppliers, retailers and restaurants operating in this State. In FY2020 and subsequent fiscal years, the proposed bill would dedicate the first $18 million of collections to the West Virginia University School of Medicine with remaining revenues of $5 million to the Marshall University School of Medicine, $3 million to the West Virginia School of Osteopathic Medicine, $55 million from the General Revenue Fund to be directed by supplemental appropriation for teacher pay raises, with the remaining $91.3 million being deposited into the General Revenue Fund. Additional administrative costs incurred by the State Tax Department would be $47,000 in the remainder of FY2019, $153,000 in FY2020, and $150,000 for each fiscal year thereafter.



Memorandum


The stated purpose of the bill is to change the structure of the tax on bottled soft drinks and soft drink syrups and powders to only cover soft drinks with added caloric sweeteners, increase the rate to two cents per ounce, and to rededicate the proceeds to all three medical schools in the state. There are a few concerns with this bill. For example, what is not included in “caloric sweetener” needs to be very clear. Sugar alcohols such as sorbitol, mannitol, xylitol and others have calorie contents of 0 to 3 calories per gram where the sugars listed in the bill have 4 calories per gram. Since sugar alcohols are not addressed, it is unclear whether those with caloric content need to be taxed. If those with caloric content are to be taxed, those sweeteners need to be listed. It is not clear whether “caloric sweetener” includes added fruit juice whose purpose it is to sweeten the soft drink. This definition of “caloric sweetener” also does not address the addition of vitamins to most juices or addition of other ingredients such as flavoring, spices, coloring, or electrolytes. The excess revenue up to $55 million created by this bill would be directed by supplemental appropriation for teacher pay raises and annually distributed with W.Va. Code §18A-4-5c. This code section has been repealed.



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