SB 0058 - Fiscal Note

Fiscal Note - SB 0058 - Phases in full deductibility of federal income taxes for corporations

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO.: 0478-01

BILL NO.: SB 58

SUBJECT: Corporations; Revenue Department; Taxation and Revenue - General; Taxation and Revenue - Income

TYPE: Original

DATE: February 12, 1999

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
General Revenue	$0	$0	$0
Outstanding Schools Trust	($8,800,000)	($15,800,000)	($24,800,000)
Total Estimated Net Effect on All State Funds	($8,800,000)	($15,800,000)	($24,800,000)

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	(UNKNOWN)	(UNKNOWN)	(UNKNOWN)

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 3 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials from the Department of Revenue assume this proposal would not fiscally impact their agency. All modifications to the income tax system would be completed by the Division of Taxation using existing staff and resources.

Office of Administration (COA) officials state the estimates are from the FY 2000 Consensus Revenue Forecast and COA's Corporate Income Tax Simulator. COA states the revenue deductions from this proposal would require an equivalent amount of general revenue in order to fully fund the Foundation Formula. COA assumes that taxpayers would not adjust their withholdings in FY 1999 to take advantage of this deduction.

Oversight will reflect the impact of this proposal as a loss to the Outstanding Schools Trust Fund.

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

FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
	(10 Mo.)
GENERAL REVENUE FUND
Loss - General Revenue Fund
Increase in federal income tax deduction	($8,800,000)	($15,800,000)	($24,800,000)
Savings - General Revenue Fund
Reduction in funds transferred to
Outstanding Schools Trust Fund	$8,800,000	$15,800,000	$24,800,000
ESTIMATED NET EFFECT ON
GENERAL REVENUE FUND	$0	$0	$0
OUTSTANDING SCHOOLS TRUST FUND
Loss - Outstanding Schools Trust Fund
Reduction in funds transferred from
Outstanding Schools Trust Fund	($8,800,000)	($15,800,000)	($24,800,000)
ESTIMATED NET EFFECT ON
OUTSTANDING SCHOOLS
TRUST FUND	($8,800,000)	($15,800,000)	($24,8000,000)
FISCAL IMPACT - Local Government	FY 2000	FY 2001	FY 2002
	(10 Mo.)
LOCAL SCHOOL DISTRICTS
Loss - Local School Districts
Reduction in funds transferred from the
Outstanding Schools Trust Fund	(Unknown)	(Unknown)	(Unknown)
ESTIMATED NET EFFECT ON
LOCAL SCHOOL DISTRICTS	(UNKNOWN)	(UNKNOWN)	(UNKNOWN)
FISCAL IMPACT - Small Business
Small businesses would be expected to be fiscally impacted to the extent that they pay income taxes. The increase in the federal income tax deduction would cause small businesses to pay less state income tax.

DESCRIPTION

Current law limits the amount of federal income tax a corporation can deduct from its state income tax to 50% of its federal income tax liability for that taxable year. This proposal would phase in full deductibility of federal income taxes paid by corporations as follows: for tax year 1999, the limit would be increased to 67%; for tax year 2000, the limit would be increased to 83%; and for tax years 2001 and thereafter, a full deduction would be allowed.

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

February 12, 1999