FISCAL NOTE

Date Requested: January 29, 2018
Time Requested: 01:42 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
2106 Introduced HB4344
CBD Subject:


FUND(S):

Medical School Fund, PEIA Stability Fund

Sources of Revenue:

Special Fund

Legislation creates:

Increases Revenue From Existing Sources



Fiscal Note Summary


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


    The stated purpose of this bill is to modify the tax on soft drinks to apply to sodas containing sugar sweeteners. The bill increases the tax to 2 cents per ounce on certain sodas. The bill redistributes revenue to include funding for the Public Employees Insurance Agency and certain schools at West Virginia University. The bill modifies definitions. The bill defines new terms. The bill also rearranges the definitions so that they are in alphabetical order.
    
    According to our interpretation, the proposed bill would modify the current Soft Drinks Tax by imposing a tiered tax per ounce on bottled soft drinks and the prepared equivalent of soft drink syrups and powders based on the grams (g) of sugar contained per eight fluid ounces (oz). For bottled soft drinks with between 10g and 20g of sugars per 8oz, the tax imposed would be 1 cent per ounce. For bottled soft drinks with more than 20g of sugars per 8oz, the tax imposed would be 2 cents per ounce. There would be no tax imposed on bottled soft drinks with less than 10g of sugars per 8oz.
    
    On an annualized basis, the proposed tax is expected to yield roughly $165.5 million. Net of current Soft Drinks Tax collections, which average roughly $14.7 million per year, net yield would be roughly $150.8 million per year. The proposed bill would dedicate the first $18 million of collections to the West Virginia University School of Medicine with remaining revenues of roughly $147.5 million per year dedicated to the Public Employees Insurance Agency Stability Fund. As there is no internal effective date, it is presumed the bill would be made effective 90 days from passage, potentially yielding a small net gain for the remainder of FY2018.
    
    It is important to note that the proposed bill would significantly increase the tax on qualifying beverages relative to current Law, which is likely to shift consumption – particularly in border communities – to areas with lower tax rates. Other jurisdictions that have recently implemented similar per ounce taxes on sugary beverages have experienced significant reductions in sales of such products while surrounding areas have experienced sales increases. This estimate incorporates assumptions of roughly a 35.8 percent decline for bottled beverages and 20.3 percent decline for beverages made from syrups or powders to characterize anticipated consumer behavior shifts. These assumptions, however, may not capture all of the resulting impact. This fiscal note also does not attempt to measure any other fiscal impacts associated with potential unintended consequences related to shifts in consumer behavior resulting from this bill.
    
    Additional administrative costs incurred by the State Tax Department would be $90,000 in the remainder of FY2018, $92,000 in FY2019, and $90,000 per year for each year thereafter.
    



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 90,000 92,000 9,000
Personal Services 0 70,000 70,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 2,000 0
Other 90,000 20,000 20,000
2. Estimated Total Revenues 0 150,800,000 150,800,000


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


    According to our interpretation, the proposed bill would modify the current Soft Drinks Tax by imposing a tiered tax per ounce on bottled soft drinks and the prepared equivalent of soft drink syrups and powders based on the grams (g) of sugar contained per eight fluid ounces (oz). For bottled soft drinks with between 10g and 20g of sugars per 8oz, the tax imposed would be 1 cent per ounce. For bottled soft drinks with more than 20g of sugars per 8oz, the tax imposed would be 2 cents per ounce. There would be no tax imposed on bottled soft drinks with less than 10g of sugars per 8oz.
    
    On an annualized basis, the proposed tax is expected to yield roughly $165.5 million. Net of current Soft Drinks Tax collections, which average roughly $14.7 million per year, net yield would be roughly $150.8 million per year. The proposed bill would dedicate the first $18 million of collections to the West Virginia University School of Medicine with remaining revenues of roughly $147.5 million per year dedicated to the Public Employees Insurance Agency Stability Fund. As there is no internal effective date, it is presumed the bill would be made effective 90 days from passage, potentially yielding a small net gain for the remainder of FY2018.
    
    It is important to note that the proposed bill would significantly increase the tax on qualifying beverages relative to current Law, which is likely to shift consumption – particularly in border communities – to areas with lower tax rates. Other jurisdictions that have recently implemented similar per ounce taxes on sugary beverages have experienced significant reductions in sales of such products while surrounding areas have experienced sales increases. This estimate incorporates assumptions of roughly a 35.8 percent decline for bottled beverages and 20.3 percent decline for beverages made from syrups or powders to characterize anticipated consumer behavior shifts. These assumptions, however, may not capture all of the resulting impact. This fiscal note also does not attempt to measure any other fiscal impacts associated with potential unintended consequences related to shifts in consumer behavior resulting from this bill.
    
    Additional administrative costs incurred by the State Tax Department would be $90,000 in the remainder of FY2018, $92,000 in FY2019, and $90,000 per year for each year thereafter.
    



Memorandum


    The stated purpose of this bill is to modify the tax on soft drinks to apply to sodas containing sugar sweeteners. The bill increases the tax to 2 cents per ounce on certain sodas. The bill redistributes revenue to include funding for the Public Employees Insurance Agency and certain schools at West Virginia University. The bill modifies definitions. The bill defines new terms. The bill also rearranges the definitions so that they are in alphabetical order.
    
    The proposed bill does not provide an internal effective date, thus it is presumed the bill would be made effective 90 days from passage. This may not allow the Tax Department sufficient time to revise reporting forms and notify taxpayers, and additionally may not allow taxpayers sufficient time to make necessary system changes to reflect the new tax.
    
    As written, the bill does not define “noncaloric” sweeteners and does not add “or fraction thereof” to determination of the tax.
    



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