SB 0013 - Fiscal Note

Fiscal Note - SB 0013 - Excludes any capital gains included in federal adjusted gross income from state income tax

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO.: 0251-01

BILL NO.: SB 13

SUBJECT: Taxation and Revenue - Income; Property - Real and Personal

TYPE: Original

DATE: January 29, 1999

---

FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
General Revenue	($59,383,648)	($237,534,591)	($240,385,006)
Total Estimated Net Effect on All State Funds	($59,383,648)	($237,534,591)	($240,385,006)

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
None
Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
Local Government	$0	$0	$0

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 3 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials from the Department of Revenue (DOR) state the proposal would allow taxpayers to subtract from their federal adjusted gross income any capital gains from the sale or exchange of a capital asset.

ADMINISTRATIVE IMPACT:

The Division of Taxation does not anticipate a significant number of errors created by this subtraction and at this time would not request additional FTE. However, if the number of errors exceeds 25,000, the Division of Taxation would need one Tax Processing Technician and would make the request through the budget process. This proposal would require modifications to the income tax system. The Division of Taxation and Collections estimates these modifications, including programming changes, would require 908 hours of overtime at a cost of $20,808 in FY 2001. Modifications to the income tax return and schedules would be completed with existing resources.

Oversight assumes that modifications to the income tax system would be completed with existing resources. In previous responses to similar proposals, DOR has responded that any modifications would be completed with existing resources.

Officials from the Office of Administration (COA) state they have assumed that this proposal would have an estimated impact of approximately $0 in FY 2000, ($237,534,591) in FY 2001, and ($240,385,006) in FY 2002. COA assumes that taxpayers would not adjust their withholdings in FY 2000 to take advantage of the elimination of income tax on capital gains. The estimate is based on the IRS's calculation of capital gains claimed by Missourians in 1996 as reported in the Spring, 1998 edition of the "Statistics of Income". In calculating the estimate, COA assumes a marginal tax rate of 6% and a growth rate of 12%. COA states that from 1990 to 1996 the average growth rate of capital gains claimed by Missourians was 18.5% and the national growth rate was 15.42%.

Oversight estimates a loss to the General Revenue Fund of $59,383,648 for FY 2000 due to the possibility of reduced withholdings and estimated income tax payments for five months of calendar year 2000. Oversight assumes 25% of Missouri taxpayers would adjust payments, however, it should be noted that this amount could be less depending on taxpayers' awareness of the state tax exemptions on capital gains.

This proposal would result in a decrease in Total State Revenues.

FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
	(6 Mo.)
GENERAL REVENUE FUND
Loss - General Revenue Fund
Elimination of state tax on
capital gains	($59,383,648)	($237,534,591)	($240,385,006)
ESTIMATED NET EFFECT ON
GENERAL REVENUE FUND	($59,383,648)	($237,534,591)	($240,385,006)
FISCAL IMPACT - Local Government	FY 2000	FY 2001	FY 2002
	(6 Mo.)
	$0	$0	$0
FISCAL IMPACT - Small Business
No direct fiscal impact to small businesses would be expected as a result of this proposal.

DESCRIPTION

This proposal would authorize a state income taxpayer to subtract all capital gains from the taxpayer's federal adjusted gross income when calculating Missouri adjusted gross income.

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

Office of Administration

Division of Budget and Planning

Jeanne Jarrett, CPA

Director

January 29, 1999