Fiscal Note - SB 0406 - Bill Reduces Sales Tax Rate on Food/Exempts Private Pension Inc. & Allows Inc. Tax Credit for Historic Bldg. Reha
L.R. NO. 1667-02
BILL NO. SCS for SB's 406, 418, 339, 12, 7, 110, 156 and 35
SUBJECT: Taxation and Revenue-Income-Sales and Use
TYPE: Original
DATE: March 3, 1997
FISCAL SUMMARY
ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED FY 1998 FY 1999 FY 2000
General Revenue ($305,270,769) to ($310,035,527) to
($243,129,665) ($308,070,769) ($317,035,527)
Total Estimated
Net Effect on All ($305,270,769) to ($310,035,527) to
State Funds ($243,129,665) ($308,070,769) ($317,035,527)
ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED FY 1998 FY 1999 FY 2000
None
Total Estimated
Net Effect on All
Federal Funds $0 $0 $0
ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED FY 1998 FY 1999 FY 2000
Local Government $0 $0 $0
FISCAL ANALYSIS
ASSUMPTION
PRIVATE PENSION EXEMPTION
Officials of the Department of Revenue (DOR) assume that exempting private
pensions from state income tax would affect approximately 200,000 taxpayers
that receive a private retirement benefit. The Division of Taxation would
request 3.5 Tax Processing Technician I's to handle the additional pre-edit,
exception processing, telephone calls, error correction and correspondence
that would be created from this legislation.
Oversight assumes for purposes of this fiscal note that the Division of
Taxation could handle the volume of work created by this proposal with .5 Tax
Processing Technician I to handle the additional pre-edit and exception
processing and .5 Tax Processing Technician I to handle the error correction
and correspondence generated.
Officials of the Office of Administration (COA) assume that this proposal
would have an estimated fiscal impact of $0 in FY 1998, ($70,615,373) in FY
1999 and ($70,791,912) in FY 2000. The estimates are based on State of
Missouri Individual Income Tax and Federal Income Tax data indicating the
amount of pensions and number of returns filed. In calculating the estimate,
COA staff assume a marginal tax rate of 6% and that the number of pensions
increases at the same rate Missouri's over 65 population increases.
Population figures are from the State Demographer. Withholding are assumed
not to be adjusted until the proposal is fully phased in.
Oversight estimates a loss to General Revenue of $26,414,728 for FY 1998 due
to the possibility of reduced withholding and estimated income tax payments
for five months of calendar year 1998.
Oversight has not estimated or included a potential loss to the General
Revenue Fund for the effects of taxpayers' corresponding increase in federal
income taxes which in turn would result in a slight reduction to income taxes
paid to the State of Missouri. Factors which would influence this amount
include the ability of the taxpayer to itemize deductions, the income level
of the taxpayer and the limitation of the federal income tax deduction on the
Missouri return.
EXEMPTION OF FOOD FROM SALES TAX
Officials of the Department of Revenue (DOR) state this proposal would reduce
the sales and use tax rate on food by 3% effective July 1, 1997, by
eliminating the General Revenue portion of the tax. No other sales tax funds
would be impacted by this proposal.
"Food" is defined as products and types of food for which food stamps may be
redeemed under the Federal Food Stamp Program. This definition includes
virtually all food except hot foods ( as would be obtained from a
delicatessen or restaurant), alcoholic beverages, tobacco, and similar items
not able to be purchased with food stamps.
A temporary refund provision is added in subsection 3 to help offset some of
the initial costs that will be incurred by food retailers. Food retailers
will be required to separately account for food purchases and collect
sales/use tax at a tax rate lower than all other items. The refund would be
available upon application by the food retailer and would be equal to 3% of
all state and local sales taxes collected on food between July 1, 1997 and
June 30, 1998. All refund claims must be submitted no later than June 30,
1999. All refunds would be paid from a refund account and reimbursed by the
General Revenue Fund.
The Division of Taxation and Collection states the effective date of the
proposal, July 1, 1997, would require overtime and/or temporary personnel to
promptly implement the proposal. The Division would request the following:
4.5 Tax Processing Technician I for 1 month initially to identify and
register affected accounts (.38 FTE);
6.25 Tax Processing Technician I for all of FY 98 and 9 months of FY 99
to handle taxpayer correspondence, telephone inquiries and refund requests
(assuming 75% of all eligible accounts will request refunds - 3,750 accounts
will file monthly refund requests and 3,750 accounts will file one annual
refund request per year); and,
1 Data Entry Operator I to key the additional locations that will be
required to allow taxpayers to separately account for food sales tax amounts,
assuming 10,000 affected accounts filing sales tax returns containing 20
additional fields per return on a monthly basis (2.4 million additional
fields per year).
Division of Administration:
The Division of Administration would incur additional postage costs to mail
48,750 refunds (estimated 48,750 refunds over 11 months in FY 98 and 7,500 in
FY 99), additional postage to mail full size monthly returns rather than
vouchers (7,500 returns each fiscal year), and postage for the initial
registration mailout to all sales and use tax accounts (120,000 in FY 98).
Information Systems Division:
The Information Systems Division also notes the date of July 1, 1997, will
not allow sufficient time to perform the necessary programming changes
without overtime; therefore, overtime costs have been requested. State Data
Center costs would be requested as shown.
Oversight has allowed the Department of Revenue 7.25 FTE, additional postage,
overtime costs requested and the State Data Center costs.
Oversight assumes that the floor space costs requested by DOR would be
absorbed or requested as a budget decision item.
Officials of the Office of Administration (COA) assume the purpose of this
proposal is to eliminate the general revenue sales tax on food sold for
off-premise consumption. COA staff based their estimates on the following
assumptions:
1. Missouri food consumption based on Department of Commerce estimate
of "Personal Consumption Expenditure" data for U.S. It is assumed
Missouri accounts for about 1.9% of U.S. totals.
2. Food stamp purchases account for 6% of spending.
3. An additional 3% refund for retailers is based on the state and
local sales taxes collected on food between July 1, 1997 and June
30, 1998. (Local average 2 cents)
4. Consumer spending on food is assumed to grow 2% for Fiscal Years
1996 and beyond.
5. Effective date of July 1, 1997 results in one month lag in impact.
This gives eleven months of fiscal impact in FY 98.
Oversight assumes the average local sales tax rate would be 1.5 cents. With
60% of the 1.5 cents going to cities and 40% of the 1.5 cents going to county
government. Therefore the retailer who collects the reduced tax rate on food
would receive a refund equal to 3% of the tax collections at a rate of
2.725%.
TAX CREDIT FOR HISTORIC STRUCTURES
The Department of Revenue (DOR) assumes the proposal would require
modifications to the income tax systems, forms and schedules. The DOR
assumes the additional programming, data entry and state data center expenses
required to implement this legislation could be handled using existing
resources. The DOR anticipates they can process this credit with existing
personnel, however, if the taxpayers claiming this credit exceeds 1,600, a
Tax Processing Technician for six months of each tax processing year would be
requested.
The Department of Natural Resources (DNR) assumes this proposal would provide
a tax credit program to provide an incentive to rehabilitate historic
properties, similar to the federal investment tax credit for rehabilitation
of historic structures established in 1981. Based on federal tax credit
program data from 1981-1995, and assuming a 25% tax credit, the DNR assumes
an average year's tax credit would amount to approximately $14,000,000.
Because this would be a new state program, the DNR estimates during the first
year approximately 20% of the estimated $14,000,000 credits or $2,800,000
would be claimed. The DNR estimates approximately 50%, or $7,000,000 would
be claimed the following year.
DNR assumes they would request one Architect and related equipment and
expenses including rent expenses to administer this program based on 100
applications per year which is the average number of federal projects during
the same 15-year period. It is estimated that each project requires, at a
minimum, an average of 20 hours. Therefore, a minimum of 2,000 hours per
year will be needed to administer the state income tax credit program.
During the initial years, the resources would be directed toward providing
technical assistance to applicants and potential applicants.
The Architect would review applications including architectural plans &
specifications for compliance with guidelines; provide technical assistance
for applicants; conduct on- site meetings with project architects & owners;
monitor project progress; inspect completed projects to determine eligibility
for tax credit; and complete necessary forms to certify the tax credit.
Oversight assumes the actual credits claimed would depend on future
participation of taxpayers' in historic restoration projects and has
therefore ranged the cost of the tax credit to be from zero to the amount
projected by the DNR based on historical federal data.
As DNR has estimated half of the estimated annual credits would be claimed in
the fiscal note period, Oversight assumes a .5 Architect would be sufficient
to accomplish the requirements of the proposal. Oversight assumes the
architect would be located in existing facilities and has not included costs
for rent. Also, DNR expense and equipment costs have been reduced to conform
with OA guidelines.
This proposal would result in a decrease in Total State Revenues since the
Individual Income tax, Sales and Use tax collections are included in the
calculation of Total State Revenue.
FISCAL IMPACT - State Government FY 1998 FY 1999 FY 2000
Cost to General Revenue Fund
Department of Revenue (DOR)
Personal Service (1 FTE) $0 ($8,661) ($17,756)
Fringe Benefits $0 ($2,471) ($5,066)
Expense and Equipment $0 ($3,456) ($446)
Administrative Cost to DOR $0 ($14,588) ($23,268)
Loss to General Revenue Fund
Retirement Benefits Exemption ($26,414,728) ($70,615,373) ($70,791,912)
Cost to General Revenue Fund
Department of Revenue (DOR)
Personal Service (7.25 FTE) ($136,421) ($97,350) ($16,554)
Fringe Benefits ($34,630) ($27,774) ($4,723)
Expense and Equipment ($78,812) ($10,035) ($5,703)
Administrative Cost to DOR ($249,863) ($135,159) ($26,980)
Loss to General Revenue Fund
General Revenue sales tax exemption
on food ($210,722,876) ($234,477,091) ($239,166,633)
Loss to General Revenue Fund
3% One-time Discount
to Retailers ($5,742,198) $0 $0
Loss - reduced tax revenue due to $0 $0
Historic Renovation Tax Credit to to
$0 ($2,800,000) ($7,000,000)
Costs - DNR
Personal Service - .5 FTE $0 ($16,384) ($16,793)
Fringe Benefits 0 (4,674) (4,791)
Expense and Equipment 0 (7,500) (5,105)
Total Costs $0 ($28,558) ($26,734)
ESTIMATED NET EFFECT TO
GENERAL REVENUE FUND ($305,270,769) ($310,035,527)
to to
($243,129,665) ($308,070,769) ($317,035,527)
FISCAL IMPACT - Local Government FY 1998 FY 1999 FY 2000
0 0 0
FISCAL IMPACT - Small Business
The reduction in the state tax rate would cause small businesses to pay less
for such food which would be exempt under this proposal. Small businesses
that sell food and qualify under the food stamp program would incur some
administrative costs due to additional record keeping and filing
requirements. However, any such costs should be offset by refunds of 3% of
tax collections.
Small businesses who elect to take advantage of the tax credit for the
renovation of historic structures would be fiscally impacted.
DESCRIPTION
This portion of the proposal would allow privately funded annuities, pensions
or retirement allowances the pension exemption authorized in section 143.124
and would become effective on January 1, 1998.
This portion of the proposal reduces the state sales tax rate on food which
is authorized under the federal food stamp program to be purchased with food
stamps. The reduction is 3% of taxable sales. This will change the total
state sales tax on qualifying food (including the two constitutional sales
taxes) from 4.225% to 1.225%. All local sales taxes will continue to be
charged on these food items. The proposal also allows any retailer who
collects the reduced tax rate on food to apply for and receive a refund from
the Department of Revenue equal to 3% of the tax collections on qualifying
food for cost of administration. This provision will expire on June 30, 1999.
This portion of the proposal contains an emergency clause and would be in
full force and effect upon the date of its passage and approval or upon the
date of July 1, 1997, whichever date shall occur later.
A person who rehabilitates a historic building in a historic district is
eligible for a tax credit equal to twenty-five percent of the cost if the
cost exceeds fifty percent of the taxpayer's basis in the property
(investment less depreciation as determined under IRS rules) and the
rehabilitation meets the standards of the State Historic Preservation
Officer. The credit may be carried back for three years or forward for ten
years. This portion of the proposal would become effective 1/1/98.
This legislation is not federally mandated, would not duplicate any other
program and would not require additional capital improvements or rental
space.
SOURCES OF INFORMATION
Department of Revenue
Department of Natural Resources
Office of Administration
This Fiscal Note is not an official copy and should not be quoted or cited.