FISCAL NOTE

Date Requested: February 17, 2016
Time Requested: 04:03 PM
Agency: Tax Department, State
CBD Number: Version: Bill Number: Resolution Number:
2693 Introduced HB4596
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 blanket exemption from state business income taxes for a period of five years to any business with a “principle location” on a post-mine site and employment of at least 20 full-time employees beginning on or after January 1, 2017. The tax exemption would be executed by means of a new tax credit equal to 50% of net income. 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 20 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 principle place of business be located on the post-mine site in West Virginia, but do not provide any definition of “principle place of business”. The term, net income, the basis for this tax credit is also 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 to the State Tax Department would be $23,990 in FY2018 and $10,000 per year in FY2019 and thereafter.
    



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 0 19,250 19,250
Personal Services 0 10,000 10,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 9,250 9,250
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 blanket exemption from state business income taxes for a period of five years to any business with a “principle location” on a post-mine site and employment of at least 20 full-time employees beginning on or after January 1, 2017. The tax exemption would be executed by means of a new tax credit equal to 50% of net income. 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 20 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 principle place of business be located on the post-mine site in West Virginia, but do not provide any definition of “principle place of business”. The term, net income, the basis for this tax credit is also 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 to the State Tax Department would be $23,990 in FY2018 and $10,000 per year in FY2019 and 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.
    
    This bill lacks definitions for various key terms necessary to determine both the base of a tax credit and who might be eligible for such tax credit.
    
    Other tax credits have a “Legislative Finding and Purpose” section. These sections help the state administer the credits and can prevent unnecessary litigation. Further, the sections demonstrate why some taxpayers are being given a break while others are not, which provides credibility to the system of taxation. Other sections that would be helpful include a severability clause, interpretation and construction, burden of proof, process for reviewing credits, tax credit review and accountability and transition rules.
    
    Quantification of a post-mine site is another major concern of this bill. It is unclear whether strip, mountaintop removal and deep mine sites all qualify for the credit. It is also not clear about how much of the entity’s property must be on the post-mine site or if the credit is only limited to new businesses that meet the requirements.
    
    The bill does not appear to be numbered correctly. Further, §11-28-1(c) references subsection d, which is non-existent in the bill.
    



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