SB 0489 - Fiscal Note

Fiscal Note - SB 0489 - Clarifies reduction in purchase price for trade-in items for sales tax purposes

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO. 2190-05

BILL NO. HCS for SCS for SB 489

SUBJECT: Sales or Use Tax on Trade-In

TYPE: Original

DATE: April 24, 1998

---

FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
Various	(Unknown)	(Unknown)	(Unknown)
Total Estimated Net Effect on All State Funds*	(Unknown)	(Unknown)	(Unknown)

*Revenue losses are unknown but expected to exceed $2,000,000 annually

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
Cities	(Unknown)	(Unknown)	(Unknown)
County Aid Road Trust Fund	(Unknown)	(Unknown)	(Unknown)
Total Estimated Net Effect on Local Funds*	(Unknown)	(Unknown)	(Unknown)

*Revenue losses could not be estimated

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 7 pages.

FISCAL ANALYSIS

ASSUMPTION

The Department of Revenue (DOR) assumes that the net fiscal impact would be unknown. One-time costs of $11,265 would be incurred by the DOR in FY99 for revising and reprinting titling manuals and policies as well as for postage. The amount of increased sales tax cannot be determined because motor vehicle trade-in values are not tracked and many title applicants omit trade-in information from the title application and simply show the amount paid as the purchase price. The DOR assumes that this last reason would result in a substantial gain to all state and local sales tax funds in all regular sales and use transactions involving trade-ins since the trade-in would not be allowed unless proof is maintained. This would apply to gift transactions as well since if an item is given as a gift and later used as a trade-in on a new item, no trade-in credit would be allowed unless the person could prove the giver had paid the sales tax on the original purchase price of the item.

In FY91, total regular retail sales claimed exempt due to trade-ins was $570,400,433 and the number has decreased by 5% per annum over the previous 5 years. Assuming the same shrinkage factor, the projected sales in FY96 would have been $441,364,982; however, the portion of these transactions that would remain exempt would be indeterminable. The transactions in which it can be proven that the original tax was paid would remain exempt.

ASSUMPTION (continued)

The proposal would also make the following changes:

SALES/USE TAX EXEMPTIONS

Replacement Parts

Replacement parts are included in the exemption of materials and supplies used in new plant and plant expansion.

Oversight is unable to determine an appropriate estimate of the revenue loss associated with this exemption but assumes it would be substantial, likely to exceed $1 million annually.

Newspaper Items

Ink, computers, photosensitive paper and film, toner, printing plates and other machinery and equipment, replacement parts and supplies used in producing newspapers are exempted.

Oversight assumes this portion of the proposal would place in statute that which is current practice, with the exception of replacement parts and supplies. Revenue losses would be expected to be minimal, but could exceed $100,000 annually.

EEDP Exemption

Electrical Energy Direct Pay (EEDP) authorization is expanded to include recyclers. The 10% limitation is not a criteria if the raw materials used in processing contain at least 25% recycled materials.

Electrodes

Electrodes are added to the anode exemption when used in manufacturing and when they have a useful life of less than one year.

Oversight was unable to obtain an estimate for expanding the EEDP authorization and for the electrodes exemption.

Adjuvants

The exemption for pesticides is expanded to include adjuvants such as crop oils, surfactants, wetting agents and "other assorted pesticide carriers" used to improve or enhance the effect of pesticides and foam markers used in the application of pesticides.

Based on information obtained from major suppliers, Oversight estimates the revenue loss from the exemption of adjuvants in the proposal to be $130,000 annually.

ASSUMPTION (continued)

Lubricants for Farm Machinery and Equipment

Lubricants used in farm machinery and equipment are added to the replacement parts exemption for farm machinery.

Based on conversation with a major supplier, Oversight assumes the state revenue loss related to this provision would be approximately $600,000 annually.

Electrical Energy and Gas Used in Cellular Glass Manufacture

Electrical energy and gas ultimately consumed in connection with the manufacture of cellular glass products (a packing material) is exempted.

Retreads and Retreading Materials

Retreading and recapping equipment, supplies and materials; tire carcasses; uncured rubber; sales of retreaded or recapped tires to a business that retreads or recaps tires for retail sale and the retreaded or recapped tires themselves are all exempted.

Dog Food for Breeders

Licensed commercial breeders may purchase feed for dogs tax exempt.

Game Birds

Admission charges for hunting and taking of domestically raised pheasant, partridge, qual and ungulates in certain licensed areas to be exempt. Also, sales of feed and equipment used in the production of such birds are exempted.

Coin-Operated Amusement Machines and Parts

Machines and parts used in a commercial, coin-operated amusement and vending business are exempted if the sales tax is paid on the gross receipts from the machines.

Radio and Television Station Equipment

Purchases of equipment by a licensed commercial radio or TV station when the purchase is a result of a federal mandate or technological change.

Pesticides and Herbicides

Exempts pesticides and herbicides used in the production of crops, livestock or poultry. Removes the limitation that the crops, livestock or poultry must be "for food or fiber".

ASSUMPTION (continued)

Sales to Political Subdivisions

Sales to political subdivisions in Missouri and other states would be exempt. Sales are currently exempt in Missouri so, in essence, this would exempt sales to political subdivisions located in other states.

Contractor Materials

Contractors would be able to purchase materials, tax exempt, to fulfill contracts with exempt entities in other states.

Film and Video Productions

Missouri made films and video productions would be tax exempt.

Film Production Companies

Purchases (i.e., film, tapes, etc), made in Missouri would be exempt.

The DOR assumes that the overall net fiscal impact on total state revenues would be negative.

Oversight does not possess data on various components of this proposal which would lead to an estimate of the total fiscal impact to all funds, however total state revenue losses would be expected to exceed $2,000,000 annually.

The Office of Administration (COA)-Division of Budget & Planning does not expect a direct fiscal impact. The impact on total state revenues would be unknown.

FISCAL IMPACT - State Government	FY 1999	FY 2000	FY 2001
	(10 Mo.)
VARIOUS STATE FUNDS
Income
Increased tax
Collections from
restriction on
trade-in allowance	Unknown	Unknown	Unknown
Loss
Sales Tax Exemptions*	(Unknown)*	(Unknown)*	(Unknown)*
NET EFFECT TO ALL
STATE FUNDS*	(Unknown)*	(Unknown)*	(Unknown)*
*Expected to exceed $2,000,000 annually
FISCAL IMPACT - Local Government	FY 1999	FY 2000	FY 2001
	(10 Mo.)
LOCAL
Income-Cities
Increased tax
collections from
restrictions on
trade-in allowance	Unknown	Unknown	Unknown
Loss
Sales Tax Exemptions	(Unknown)	(Unknown)	(Unknown)
Income-County Aid Road Trust Fund
Increased tax
collections from
restrictions on
trade-in allowance	Unknown	Unknown	Unknown
Loss
Sales Tax Exemptions	(Unknown)	(Unknown)	(Unknown)
ESTIMATED NET EFFECT
ON LOCAL FUNDS	(Unknown)	(Unknown)	(Unknown)

FISCAL IMPACT - Small Business

This proposal could potentially have a direct fiscal impact on small businesses since small businesses trading in items on which tax has not been paid would be subject to tax on the full price of the new item.

Additionally, small businesses would be expected to be fiscally impacted to the extent that they pay sales tax on taxable items. The exemptions from state and local sales tax in this proposal would cause small businesses to pay less for such items.

DESCRIPTION

The proposal, for purposes of determining sales or use tax liability, would not allow a deduction from the purchase price of a motor vehicle, trailer, boat or outboard motor the actual allowance of any article other than a motor vehicle, trailer, boat or outboard motor traded or exchanged as a credit or partial payment. The Department of Revenue (DOR) would assume that all sales and use taxes have been paid unless the DOR has reason to believe otherwise.

Specific exemptions are outlined in the proposal. The sales of made-for-hire motion picture firm or video productions produced all or in part in Missouri would be considered the sale of a service and not the sale of tangible personal property. Film production companies doing business in the state would be specifically exempted from various sections.

This legislation is not federally mandated, would not duplicate any other program, would not require additional capital improvements or rental space, but would impact total state revenue.

SOURCES OF INFORMATION

Department of Revenue

Office of Administration

Division of Budget & Finance

Jeanne Jarrett, CPA

Director

April 24, 1998