FISCAL NOTE

Date Requested: February 08, 2018
Time Requested: 01:43 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
2477 Introduced HB4471
CBD Subject: Taxation


FUND(S):

Public Employees Insurace Agency

Sources of Revenue:

Other Fund Public Employees Insurance Agency

Legislation creates:

Increases Revenue From Existing Sources, 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 establish a one per cent tax on food for five years. The bill requires the tax proceeds to be used to fund the Public Employees Insurance Agency. The bill permitting the tax to end sooner if other funding sources are utilized. The bill prohibits municipalities from imposing a sales tax on food.
    
    According to our interpretation, the proposed bill would implement a temporary 1 percent State sales tax on food for home consumption to the benefit of the Public Employees Insurance Agency (PEIA). The tax would go into effect July 1, 2018 and would cease for sales on and after July 1, 2023 or “if revenue from other sources have increased to an amount equal to revenue generated from the one percent tax.” As guidance as to what revenue from other sources may be eligible to cease the proposed food tax prior to July 1, 2023, this fiscal note does not attempt to determine whether the temporary tax may cease early.
    
    On an annualized basis, a 1 percent sales tax on food for home consumption would yield roughly $27 million per year. As the effective date is July 1, 2018, the proposed bill would result in 11 months of collections in FY2019 of roughly $25 million. A single month of collections resulting from activity in June 2023 of approximately $2 million would be expected in July 2024.
    Of the total estimated revenue yield, roughly $24.5 million would be collected at the State level in FY2019 and $26.5 million per year beginning in FY2020. The balance of roughly $0.5 million per year would be collected in a remitted to Sales Tax Increment Financing (STIF) Districts. We note the bill would prohibit municipalities from imposing an additional tax on sales of food for home consumption.
    
    Additional administrative costs incurred by the State Tax Department would be $90,000 in FY2018 and $20,000 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 20,000 20,000
Personal Services 0 20,000 20,000
Current Expenses 50,000 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 40,000 0 0
2. Estimated Total Revenues 0 24,500,000 26,500,000


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


    According to our interpretation, the proposed bill would implement a temporary 1 percent State sales tax on food for home consumption to the benefit of the Public Employees Insurance Agency (PEIA). The tax would go into effect July 1, 2018 and would cease for sales on and after July 1, 2023 or “if revenue from other sources have increased to an amount equal to revenue generated from the one percent tax.” As guidance as to what revenue from other sources may be eligible to cease the proposed food tax prior to July 1, 2023, this fiscal note does not attempt to determine whether the temporary tax may cease early.
    
    On an annualized basis, a 1 percent sales tax on food for home consumption would yield roughly $27 million per year. As the effective date is July 1, 2018, the proposed bill would result in 11 months of collections in FY2019 of roughly $25 million. A single month of collections resulting from activity in June 2023 of approximately $2 million would be expected in July 2024.
    
    Of the total estimated revenue yield, roughly $24.5 million would be collected at the State level in FY2019 and $26.5 million per year beginning in FY2020. The balance of roughly $0.5 million per year would be collected in a remitted to Sales Tax Increment Financing (STIF) Districts. We note the bill would prohibit municipalities from imposing an additional tax on sales of food for home consumption.
    
    Additional administrative costs incurred by the State Tax Department would be $90,000 in FY2018 and $20,000 per year for each year thereafter. 
    



Memorandum


    The stated purpose of this bill is to establish a one per cent tax on food for five years. The bill requires the tax proceeds to be used to fund the Public Employees Insurance Agency. The bill permitting the tax to end sooner if other funding sources are utilized. The bill prohibits municipalities from imposing a sales tax on food.
    
    The proposed bill prohibits municipalities from adding an additional tax on sales, purchases, and uses of food and food ingredients, which results in the state sales and use tax having a different tax base than local sales and use taxes. This is in violation of W. Va. Code §§11-15B-34 and 8-13C-4 and the Streamlined Sales and Use Tax Agreement (SSUTA), of which West Virginia is a member state, requiring uniformity in state and local sales and use tax bases.
    
    As written, the proposed bill does not create a fund, state who is to make deposits into the fund, or how frequently deposits are to be made. A temporary holding account or clearing account would be beneficial to delay distributions to the Public Employees Insurance Agency (PEIA), in the event that sales tax refunds need to be issued or errors corrected. Without these provisions, the proposed bill could impose burdens on State General Revenues.
    
    The proposed bill is silent as to how PEIA is to use the additional revenue obtained through this temporary tax. Without guidance, PEIA could use these monies for a variety of purposes.
    



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