FISCAL NOTE

Date Requested: February 19, 2018
Time Requested: 01:26 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
2721 Introduced SB601
CBD Subject: Taxation


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 alleviate double taxation on foreign income at the state level under the personal income tax.
    
    According to our interpretation, the proposed bill would allow a tax credit against the Personal Income Tax for both state and national foreign income taxes paid. There is a similar tax credit allowed at the federal level. IRS data indicate that in Tax Year 2015 more than 20,000 West Virginia taxpayers claimed the federal credit at a total cost of roughly $5.3 million. Passage of the bill would cause a loss to General Revenue Fund collections of roughly $2.0 million per year. As there is no internal effective date, this tax credit would first be allowable in the 2019 tax year and would affect revenues beginning in FY2020.
    
    This analysis addresses the introduced version of this bill. We note there is a committee substitute, the most pertinent change of which is a sunset provision of July 1, 2068.
    
    Additional administrative costs incurred by the Tax Department would be $20,000 in FY2020 and $10,000 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 0 0 10,000
Personal Services 0 0 10,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 0 -2,000,000


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


    According to our interpretation, the proposed bill would allow a tax credit against the Personal Income Tax for both state and national foreign income taxes paid. There is a similar tax credit allowed at the federal level. IRS data indicate that in Tax Year 2015 more than 20,000 West Virginia taxpayers claimed the federal credit at a total cost of roughly $5.3 million. Passage of the bill would cause a loss to General Revenue Fund collections of roughly $2.0 million per year. As there is no internal effective date, this tax credit would first be allowable in the 2019 tax year and would affect revenues beginning in FY2020.
    
    This analysis addresses the introduced version of this bill. We note there is a committee substitute, the most pertinent change of which is a sunset provision of July 1, 2068.
    
    Additional administrative costs incurred by the Tax Department would be $20,000 in FY2020 and $10,000 per year in subsequent fiscal years.
    
    



Memorandum


    The stated purpose of this bill is to alleviate double taxation on foreign income at the state level under the personal income tax.
    
    West Virginia has entered into Memorandums of Understanding with other state taxing jurisdictions in order to carry out the provisions of W.Va. Code §11-21-20. It is not possible for the Tax Department to enter into Memorandums of Understanding with every foreign jurisdiction to which a West Virginia resident might travel and earn income.
    
    Foreign income is included in federal adjusted gross income which is the starting point to determine West Virginia taxable income. Although foreign income is generally subject to federal taxation, the federal Foreign Earned Income Exclusion establishes an amount of foreign earned income that is excluded from federal income taxation and thus West Virginia income taxation.
    
    Since the federal exclusion is substantial, it is unclear how many taxpayers in West Virginia would benefit from the credit. The burden of providing proof of taxes paid to a foreign jurisdiction could be challenging and the time required to review the additional documentation would be significant.
    
    The bill’s section title has not been amended.
    



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