FISCAL NOTE

Date Requested: February 12, 2019
Time Requested: 01:01 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
3241 Introduced HB3050
CBD Subject: Taxation


FUND(S):

General Revenue Fund

Sources of Revenue:

General Fund

Legislation creates:

Decreases Existing Revenue, Increases Existing Expenses



Fiscal Note Summary


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


The stated purpose of this bill is to establish the West Virginia Municipal Broadband Expansion Act to encourage new investment in broadband capabilities in this state. According to our interpretation, the West Virginia Broadband Enhancement Council would select applicants in Class I, Class II, Class III and Class IV municipalities by their minimum qualifying broadband Internet speed to determine eligibility of Sales and Use Tax exemptions. The bill allows Class III and Class IV municipalities with less than 10,000 residents to have a minimum qualifying Internet download speed of 1 gigabit per second and larger Class I and Class II municipalities of excess of 10,000 residents to have a minimum Internet download speed of 10 gigabits per second. Headend, terminal, and interconnection equipment owned, maintained or leased by the West Virginia Broadband Enhancement Council would be valued at the salvage value equivalent to five percent of the original cost of the equipment. There is no Sales and Use Tax on broadband Internet Service. The federal Internet Tax Freedom Act prevents states from taxing internet access. The Internet Tax Freedom Act prevents federal, state and local governments from taxing Internet access and from imposing discriminatory Internet-only taxes, such as bit taxes, bandwidth taxes and e-mail taxes. Bundled services including cable television would be subject to sales tax, but Internet access charges would not be subject to sales tax. The State Tax Department does not have sufficient data to estimate the potential revenue impact of this proposed credit given that the service is already exempt from sales tax, or the proposed Property Tax valuation. Additional administrative costs to the State Tax Department or local governments as a result of the Property Tax change would be minimal. There would be no other administrative costs incurred by the State Tax Department.



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 0 0 0
Personal Services 0 0 0
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 West Virginia Broadband Enhancement Council would select applicants in Class I, Class II, Class III and Class IV municipalities by their minimum qualifying broadband Internet speed to determine eligibility of Sales and Use Tax exemptions. The bill allows Class III and Class IV municipalities with less than 10,000 residents to have a minimum qualifying Internet download speed of 1 gigabit per second and larger Class I and Class II municipalities of excess of 10,000 residents to have a minimum Internet download speed of 10 gigabits per second. Headend, terminal, and interconnection equipment owned, maintained or leased by the West Virginia Broadband Enhancement Council would be valued at the salvage value equivalent to five percent of the original cost of the equipment. There is no Sales and Use Tax on broadband Internet Service. The federal Internet Tax Freedom Act prevents states from taxing internet access. The Internet Tax Freedom Act prevents federal, state and local governments from taxing Internet access and from imposing discriminatory Internet-only taxes, such as bit taxes, bandwidth taxes and e-mail taxes. Bundled services including cable television would be subject to sales tax, but Internet access charges would not be subject to sales tax. The State Tax Department does not have sufficient data to estimate the potential revenue impact of this proposed credit given that the service is already exempt from sales tax, or the proposed Property Tax valuation. The State Tax Department does not have sufficient data to estimate the potential revenue impact of this proposed credit or the proposed Property Tax valuation. Additional administrative costs to the State Tax Department or local governments as a result of the Property Tax change would be minimal. There would be no other administrative costs incurred by the State Tax Department.



Memorandum


The stated purpose of this bill is to establish the West Virginia Municipal Broadband Expansion Act to encourage new investment in broadband capabilities in this state. This bill does not accomplish its purpose as there is no Sales and Use Tax on broadband internet service. The federal Internet Tax Freedom Act prohibits states from taxing internet access. Therefore, it is unclear how a rebate or tax credit related on Sales and Use Taxes paid on these services would work. There are problems with this bill concerning broadband Internet connection equipment as it does not define what specifically this type of equipment is. The bill refers to salvage value of the Internet access equipment but makes no reference to ad valorem personal property tax valuation. There are State Constitutional concerns related to taxing some broadband Internet service provider’s equipment at salvage value, while others do not receive preferential treatment. This type of discriminatory tax would also violate the State’s equal protection clause per Article III Section 10. It is also unclear when this special valuation or the Sales Tax rebates would begin. The broadband provider must be chosen by the West Virginia Broadband Enhancement Council. The Council must develop Legislative Rules to determine an application procedure and criteria. Therefore, it is unclear when the actual valuation would begin under the bill.



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