FISCAL NOTE

Date Requested: February 05, 2018
Time Requested: 01:50 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1896 Introduced HB4420
CBD Subject: Municipalities


FUND(S):

Local governments

Sources of Revenue:

Other Fund local governments

Legislation creates:

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 terminate the Municipal Home Rule Pilot Program effective July 1, 2018.
    
    According to our interpretation, the intent of the proposed bill is to terminate the Municipal Home Rule Pilot Program (Home Rule) effective July 1, 2018. We note the language of the bill itself does not specify this termination date. The provisions of the proposed bill could substantially impact municipal government revenues, particularly those that have implemented local sales and use taxes. There exists a separate provision in W.Va. Code §8-13C-1, et seq. that could allow some of these municipalities to convert to the alternative sales and use tax provisions, but this could only occur at the expense of local Business and Occupation Tax revenues or under a plan available to no more than one or two municipalities to dedicate all proceeds to pension debt. In some cases, local Business and Occupation taxes could be increased to partially offset some of the lost sales tax revenue.
    
    Twenty-seven out of the 39 municipalities currently imposing local sales tax rely on Home Rule Authority to impose this tax. These Home Rule municipalities collectively account for roughly 97 percent of more than $73 million in total local sales tax collections.
    
    Additional administrative costs incurred by the State Tax Department would be $80,000 in FY2018 and $150,000 per year for each fiscal year thereafter. Due to lack of economies of scale associated with the smaller municipalities, the State Tax Department may require future General Revenue allocations to partially subsidize administrative costs associated with administration of the local sales tax for the 12 municipalities imposing this tax.
    
    



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 80,000 150,000 150,000
Personal Services 0 150,000 150,000
Current Expenses 60,000 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 20,000 0 0
2. Estimated Total Revenues 0 0 0


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


    According to our interpretation, the intent of the proposed bill is to terminate the Municipal Home Rule Pilot Program (Home Rule) effective July 1, 2018. We note the language of the bill itself does not specify this termination date. The provisions of the proposed bill could substantially impact municipal government revenues, particularly those that have implemented local sales and use taxes. There exists a separate provision in W.Va. Code §8-13C-1, et seq. that could allow some of these municipalities to convert to the alternative sales and use tax provisions, but this could only occur at the expense of local Business and Occupation Tax revenues or under a plan available to no more than one or two municipalities to dedicate all proceeds to pension debt. In some cases, local Business and Occupation taxes could be increased to partially offset some of the lost sales tax revenue.
    
    Twenty-seven out of the 39 municipalities currently imposing local sales tax rely on Home Rule Authority to impose this tax. These Home Rule municipalities collectively account for roughly 97 percent of more than $73 million in total local sales tax collections.
    
    Additional administrative costs incurred by the State Tax Department would be $80,000 in FY2018 and $150,000 per year for each fiscal year thereafter. Due to lack of economies of scale associated with the smaller municipalities, the State Tax Department may require future General Revenue allocations to partially subsidize administrative costs associated with administration of the local sales tax for the 12 municipalities imposing this tax.
    



Memorandum


    The stated purpose of this bill is to terminate the Municipal Home Rule Pilot Program effective July 1, 2018.
    
    As written, the proposed bill title and bill note both state the Municipal Home Rule Pilot Program will terminate on July 1, 2018, but the bill itself does not provide a termination date for the Program. If the proposed bill passes and is made effective immediately or 90 days from passage, this would make the bill title incorrect.
    
    It is unclear what would happen to the ordinances, acts, and resolutions passed under the authority of W.Va. Code §8-1-5a, et seq. and is likely to result in litigation if this section of Code is repealed. It is unlikely that the municipal sales and use taxes imposed under this section would be permitted to continue, and without legislative authority to impose the Home Rule sales and use taxes, municipalities could not impose such a tax on their own. The proposed bill may not provide sufficient notice to meet requirements to notify those affected of tax rate changes.
    
    Former Home Rule municipalities may be able to impose an alternative sales and use tax under the authority still provided under W.Va. Code §8-13C-1, et seq. but this provision requires municipalities cease Business and Occupation (B&O) Tax. It may take time for municipalities to change over to the alternative tax, and many may not want to lose B&O Tax revenues.
    



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