FISCAL NOTE

Date Requested: January 10, 2018
Time Requested: 03:02 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1264 Introduced SB128
CBD Subject: Education (Higher)


FUND(S):

General Revenue Fund

Sources of Revenue:

General Fund

Legislation creates:

Decreases Existing Revenue



Fiscal Note Summary


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


    The stated purpose of the bill is to provide a tax credit for education expenses and to enact an educational savings account program; providing a short title and definitions; qualifying for an educational savings account; amount of the account; responsibilities of the Treasurer; eligibility requirements for participating entities; responsibilities of resident school districts; and legal proceedings
    
    Our interpretation of the proposed legislation suggests taxpayers with dependent children currently enrolled in a public or private educational program—possibly at primary, secondary, or post-secondary levels—may be eligible to claim this credit so long as that child resides in the State and is under 21 years of age. Thus, all educational levels are considered. Estimates reflect the maximum credit claimed for all eligible dependent children and teachers beginning in Tax Year 2017. It is reasonable that the full credit will likely not be claimed for every dependent child or eligible teacher should the proposed bill be enacted; however, determining partial participation if portions of available credits are not claimed is difficult.
    
    With respect to educational expenses incurred by parents for a child under 21 years of age, the resulting revenue impact is estimated to be a loss of $53.7 million annually beginning in FY2018. The tax credit would equal 100 percent of costs up to $500 per year per child. With respect to expenses incurred by teachers for the purchase of supplementary educational materials or professional development costs, if all teachers at public and private primary and secondary institutions in the State were to claim the maximum credit, the estimate revenue impact would be a loss of approximately $20.4 million annually beginning in FY2018. The tax credit equals 100 percent of expenses up to $1,000 per year. Combined, revenue losses are estimated to be up to $74.1 million annually beginning in FY2018.
    
    It should be noted that current law allows a federal and state deduction of similar expenses, up to $250 for each year, for instructors in the State. There were 17,600 claims totaling nearly $4.5 million in TY2015, representing less than full participation from eligible instructors. The proposed bill keeps this deduction and adds an additional credit. The added incentive could likely increase participation, thus increasing the number of deduction claims each year.
    
    In addition, the proposed legislation attempts to enact an educational savings account program. The bill provides all the necessary information for the operation of an educational savings account program, but the bill fails to include language establishing, authorizing, or creating the program. The proposed program may duplicate the existing Section 529 education savings account program offered by the State of West Virginia. Beginning in 2018, federal law permits the use of Section 529 education savings accounts for qualified private elementary and secondary school expenses.
    
    The State Tax Department would incur $175,000 in additional administrative costs in FY2018, $165,000 in FY2019, and $150,000 per year in subsequent fiscal years.
    



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 175,000 165,000 150,000
Personal Services 150,000 150,000 150,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 10,000 0
Other 25,000 5,000 0
2. Estimated Total Revenues -74,100,000 -74,100,000 -74,100,000


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


    Our interpretation of the proposed legislation suggests taxpayers with dependent children currently enrolled in a public or private educational program—possibly at primary, secondary, or postsecondary levels—may be eligible to claim this credit so long as that child resides in the State and is under 21 years of age. Thus, all educational levels are considered. Estimates reflect the maximum credit claimed for all eligible dependent children and teachers beginning in Tax Year 2017. It is reasonable that the full credit will likely not be claimed for every dependent child or eligible teacher should the proposed bill be enacted; however, determining partial participation if portions of available credits are not claimed is difficult.
    
    With respect to educational expenses incurred by parents for a child under 21 years of age, the resulting revenue impact is estimated to be a loss of $53.7 million annually beginning in FY2018. The tax credit would equal 100 percent of costs up to $500 per year per child. With respect to expenses incurred by teachers for the purchase of supplementary educational materials or professional development costs, if all teachers at public and private primary and secondary institutions in the State were to claim the maximum credit, the estimate revenue impact would be a loss of approximately $20.4 million annually beginning in FY2018. The tax credit equals 100 percent of expenses up to $1,000 per year. Combined, revenue losses are estimated to be up to $74.1 million annually beginning in FY2018.
    
    It should be noted that current law allows a federal and state deduction of similar expenses, up to $250 for each year, for instructors in the State. There were 17,600 claims totaling nearly $4.5 million in TY2015, representing less than full participation from eligible instructors. The proposed bill keeps this deduction and adds an additional credit. The added incentive could likely increase participation, thus increasing the number of deduction claims each year.
    
    In addition, the proposed legislation attempts to enact an educational savings account program. The bill provides all the necessary information for the operation of an educational savings account program, but the bill fails to include language establishing, authorizing, or creating the program. The proposed program may duplicate the existing Section 529 education savings account program offered by the State of West Virginia. Beginning in 2018, federal law permits the use of Section 529 education savings accounts for qualified private elementary and secondary school expenses.
    
    The State Tax Department would incur $175,000 in additional administrative costs in FY2018, $165,000 in FY2019, and $150,000 per year in subsequent fiscal years.
    



Memorandum


    The stated purpose of the bill is to provide a tax credit for education expenses and to enact an educational savings account program; providing a short title and definitions; qualifying for an educational savings account; amount of the account; responsibilities of the Treasurer; eligibility requirements for participating entities; responsibilities of resident school districts; and legal proceedings
    
    The proposed bill is unclear as to whether the credit is available for students who are residents of West Virginia but educated out-of-state. The definition of “qualifying expenses” leaves open many possibilities as to what could qualify. Further, the bill fails to define “professional development costs.” The use of the word “child” may be confusing, as a child becomes an adult at the age of 18 but the proposed bill would make the credit available for qualifying expenses incurred on behalf of a student up to the age of 21.
    
    The proposed bill adds a new article to the West Virginia Code, but the purpose of “the Program” or the “education savings account” is not stated.
    



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