FISCAL NOTE

Date Requested: June 13, 2019
Time Requested: 03:18 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
4043 Introduced SB1014
CBD Subject: Governor -- Bills Requested By


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 create a decreasing modification for personal income tax and corporate net income tax for income derived from businesses activity in qualified opportunity zones in West Virginia.
    
    According to our interpretation of this bill, for qualified opportunity zone businesses newly registered on or after January 1, 2019 and before January 1, 2024, which are located in qualified opportunity zones in West Virginia, a taxpayer would be eligible for a decreasing Personal Income Tax modification and a decreasing Corporate Net Income Tax modification. The modification would only apply to the portion of net income, or ordinary income for Corporations, included in federal adjusted gross income which is derived from the business for the first ten years of operation in West Virginia.
    
    Opportunity Zones were created and added to the federal tax code as a provision of the Tax Cuts and Jobs Act of 2017. The Joint Committee on Taxation estimates the federal Qualified Opportunity Zones program will cost $1.6 billion per year between 2018 and 2025 but generate $8.1 billion per year in 2026 and $2.7 billion in 2027 as investors can no longer defer taxes on the capital gains reinvested in Qualified Opportunity Funds. The United States Department of Treasury has certified 55 Opportunity Zones across West Virginia, with 52 of the zones classified as low-income community zones.
    
    It is not possible to accurately predict the number of qualified opportunity zone businesses which will newly register in West Virginia in qualified opportunity zones or the amount of net income which those businesses will generate. The modification terminates for taxable years beginning on and after January 1, 2024; however, eligible taxpayers retain the entitlement for the remainder of the 10-year application period. Per our interpretation, there is no credit cap, therefore the loss to the General Revenue Fund could potentially be significant starting in FY2020.
    
    Additional administrative costs to the State Tax Department would be $65,000 in FY2020 and $40,000 in subsequent years.
    



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 65,000 40,000
Personal Services 0 40,000 40,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 25,000 0
2. Estimated Total Revenues 0 0 0


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


    According to our interpretation of this bill, for qualified opportunity zone businesses newly registered on or after January 1, 2019 and before January 1, 2024, which are located in qualified opportunity zones in West Virginia, a taxpayer would be eligible for a decreasing Personal Income Tax modification and a decreasing Corporate Net Income Tax modification. The modification would only apply to the portion of net income, or ordinary income for Corporations, included in federal adjusted gross income which is derived from the business for the first ten years of operation in West Virginia.
    
    Opportunity Zones were created and added to the federal tax code as a provision of the Tax Cuts and Jobs Act of 2017.The Joint Committee on Taxation estimates the federal Qualified Opportunity Zones program will cost $1.6 billion per year between 2018 and 2025 but generate $8.1 billion per year in 2026 and $2.7 billion in 2027 as investors can no longer defer taxes on the capital gains reinvested in Qualified Opportunity Funds. The United States Department of Treasury has certified 55 Opportunity Zones across West Virginia, with 52 of the zones classified as low-income community zones.
    
    It is not possible to accurately predict the number of qualified opportunity zone businesses which will newly register in West Virginia in qualified opportunity zones or the amount of net income which those businesses will generate. The modification terminates for taxable years beginning on and after January 1, 2024; however, eligible taxpayers retain the entitlement for the remainder of the 10-year application period. Per our interpretation, there is no credit cap, therefore the loss to the General Revenue Fund could potentially be significant starting in FY2020.
    
    Additional administrative costs to the State Tax Department would be $65,000 in FY2020 and $40,000 in subsequent years.
    



Memorandum


    



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