SB 0250 - Fiscal Note

Fiscal Note - SB 0250 - Establishes tax credits for persons paying for or providing child care

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO.: 0719-01

BILL NO.: SB 250

SUBJECT: Taxation and Revenue - Income: Children and Minors

TYPE: Original

DATE: February 22, 1999

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
General Revenue	$0	($431,715,833)	($434,255,981)
Tobacco Settlement Trust	$0	$172,800,000	$172,800,000
Total Estimated Net Effect on All State Funds	$0	($258,915,833)	($261,455,981)

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 6 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials from the Department of Health and the Department of Social Services assume this proposal would not fiscally impact their agencies.

SECTION 1

The Department of Revenue (DOR) states, that in a similar proposal, the Office of Administration estimated there would be 2,875 taxpayers eligible to take this credit. The Division of Taxation and Collection indicates they would need one Tax Processing Technician I for every 1,840 credits claimed. Therefore, DOR is requesting one FTE to process these credits.

Officials from the Office of Administration (COA) assume this tax credit would only be applicable to individual and corporate income taxes. As a result, the loss to General Revenue would not occur until FY 2001. According to the 1995 Statistical Abstract of the United States, 2% of employers with less than 100 employees and 7% of employers with 100 or more employees provide child care services. According to Missouri County Business Patterns there were 133,176 employers with less than 100 employees and 3,025 employers with 100 or more employees. Applying the child care percentages to these figures would result in 2,875 employers who could qualify for the tax credit. The average cost per employer for providing child care services in 1992 was $84,475. A credit of up to 10% or $8,447 per employer could be received. An annual inflation rate of 3% was assumed.

In a similar proposal COA staff assumed that 50% to 100% of the eligible employers would participate and receive a tax credit. For purposes of this fiscal note, Oversight has ranged the potential loss to General Revenue.

Oversight assumes the tax credit would be applicable to individual and corporate income taxes only. However, if this proposal were applicable to withholding taxes, which are also in

chapter 143, a loss would be experienced in the last half of FY 2000 as well.

SECTION 2

DOR states, that in a similar proposal, the Office of Administration estimated there would be 116,000 taxpayers eligible to take this credit. Therefore, the Division of Taxation and Collection would be able to process this credit with existing staff and resources. However, if the number of additional errors generated from this proposal would exceed 20,000, then one Tax Processing Technician I would be needed. This FTE would be requested through the normal budget process.

ASSUMPTION (continued)

COA states that according to the Spring 1998 Statistics of Income, Table 2, Missourians received federal child care tax credits of $49,172,000 in tax year 1996. COA assumes a three percent growth rate.

SECTION 3

DOR states, that in a similar proposal, the Office of Administration estimated there would be 67,886 taxpayers eligible to take this credit. Therefore, the Division of Taxation and Collection would be able to process this credit with existing staff and resources. However, if the number of additional errors generated from this proposal would exceed 20,000, then one Tax Processing Technician I would be needed. This FTE would be requested through the normal budget process.

COA states that according to data from the 1997 Missouri Current Population Survey there are 67,886 spouses who are not employed that have children under the age of six and receive no public assistance. COA states a tax credit of $400 would yield a fiscal impact of ($27,154,400) annually. COA assumes no growth factor.

SECTION 4

COA states that this section provides that the tax credit in section 3 be funded from the Tobacco Settlement Trust Fund. COA assumes the earliest the state would receive any tobacco settlement funds would be FY 2000. COA assumes the amount of the tax credit funded from the Tobacco Settlement Trust Fund would not reduce Total State Revenues because there would not be any settlement monies received in FY 2000 and because the tobacco settlement money is a cost recovery and not an addition to Total State Revenues.

SECTION 5

DOR states the Division of Taxation and Collection would need one temporary tax season employee for every 120,000 returns with this credit. DOR requests one FTE at this time.

DOR states the proposal would require modifications to the income tax system. The Division of Taxation and Collections estimates the modifications, including programming changes, would require 1,038 hours of overtime at a cost of $31,213. Modifications to the income tax return and schedules would be completed with existing resources. State Data Center charges would increase due to the additional storage and fields to be captured. Funding in the amount of $6,755 would be requested.

ASSUMPTION (continued)

Oversight assumes no additional rental space would be needed.

COA states that the 1998 Statistical Abstract table shows that approximately fifty percent of children under the age of six are in daycare that must be paid for. COA states that according to the State Demographer there are 215,302 children under three years of age and 151,418 children who are three or four years of age in Missouri.

The Office of State Treasurer and the Office of Attorney General did not respond to our fiscal impact request.

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
Various tax credits	$0	($231,600,000)	($234,200,000)
Transfer Out - General Revenue Fund
Tobacco Settlement Trust Fund	$0	($200,000,000)	($200,000,000)
Cost - Department of Revenue
Personal service (2 FTE)	$0	($72,590)	($42,412)
Fringe benefits	$0	($21,697)	($12,677)
Expense and equipment	$0	($21,546)	($892)
Total Cost - Department of Revenue	$0	($115,833)	($55,981)
ESTIMATED NET EFFECT ON
GENERAL REVENUE FUND	$0	($431,715,833)	($434,255,981)
TOBACCO SETTLEMENT TRUST FUND
Transfer In -Tobacco Settlement Trust Fund
General Revenue Fund	$0	$200,000,000	$200,000,000
Loss - Tobacco Settlement Trust Fund
Child care tax credit	$0	($27,200,000)	($27,200,000)
FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
	(6 Mo.)
ESTIMATED NET EFFECT ON
TOBACCO SETTLEMENT TRUST FUND	$0	$172,800,000	$172,800,000
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 deal with tax relief for child care payments. After January 1, 2000, it allows taxpayers to take a tax credit of ten percent of the amount spent by the taxpayer in making child care services available to children of the taxpayer's employees. No tax credit would be allowed if the employer fails to provide subsidized child care services on a sliding scale, based on need, to at least twenty-five percent of the children served. Tax credits would also not be allowed if the employer discriminates among his or her employees or does not license the child care facility.

This proposal would also allow taxpayers to take a tax credit of $400 if the taxpayer receives no public assistance and the taxpayer's qualified spouse cares for their child or the spouse's child. A taxpayer may also take a tax credit in specific amounts if the taxpayer makes qualified child care

service payments. Receipts would be filed with the taxpayer's income tax return. If the amount of tax credit taken exceeds the taxpayer's liability, the difference would not be refunded or carried over. The Director of the Department of Revenue would be responsible for developing rules and regulations to administer the provisions of this section.

In addition, this proposal would create the "Tobacco Settlement Trust Fund," in which all moneys received by the state as the result of any award or settlement relating to tobacco products would be deposited. All moneys in the trust fund would be expended only for the purpose of funding the income tax credit for child care. The provisions of this section would expire on December 31, 2023.

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 Social Services

Office of Administration

Division o f Budget and Planning

Department of Health

NOT RESPONDING: Office of State Treasurer and Office of Attorney General

Jeanne Jarrett, CPA

Director

February 22, 1999