SB 0242 - Fiscal Note

Fiscal Note - SB 0242 - Authorizes state income tax credit for purchase of goods or services from qualified minority business enterprises

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO.: 0728-01

BILL NO.: SB 242

SUBJECT: Taxation and Revenue - Income: Revenue Department

TYPE: Original

DATE: February 15, 1999

---

FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
General Revenue	($10,126,053)	($10,127,471)	($10,130,757)
Total Estimated Net Effect on All State Funds	($10,126,053)	($10,127,471)	($10,130,757)

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 5 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials from the Department of Economic Development (DED) assume that the Missouri Minority Business Advocacy Commission would delegate administration of the tax credit to DED.

DED states the U.S. Census Bureau says there are 15,437 minority businesses in Missouri. If each minority business received an equal share of the $10 million tax credits available that would be $648 each or $6,480 in sales that would qualify for the credit. It is highly likely that the total $10 million in tax credits would be used each year.

DED assumes that the amount of sales authorized for each minority business would be certified to the Department of Revenue (DOR) per the proposal.

DED assumes that certification from the seller of the amount of purchases by taxpayers is essential for DOR to know what taxpayers have authorized credits and qualify for the credit or refund. Certification of the individual credit amount to DOR by DED is required by the proposal. That is why the response requests additional temporary services funds.

DED would request that minority businesses provide a list of names, addresses, social security number etc. of qualified purchases and the amount of the authorized credit. This information would then be certified to DOR. DED assumes that DOR would require that a copy of the paid receipt(s) be submitted with the tax return to receive the credit.

The credit could be claimed for any thing from purchase of bubble gum to houses. Minority business could have as few as one sale each which would amount to 15,437 tax credit claims by individuals to as many as 100 million credits authorized by minority businesses if each sale averaged $1. The minority business that receives authorization to make qualified sales is required to issue the credit to any purchaser. DED states the assumption is made that retail establishments making sales of small amounts may not want to be burdened with paper work (keeping a list of name, address, SSN etc) on each sale. This requirement would, most likely, reduce the amount of qualified sales.

Without any experience in this type of credit, a random assumption is made that 50% of the minority businesses will seek approval and make an average sale of $50.00 for an average of 260 sales each. 100,000,000.00 divided by (15,437 times 50%) would equal $12,956 qualified sales by each minority business divided by $50 for an average of 260 sales each. This would mean 7,719 or (50% of 15,437) reports would be sent by businesses to DED for review with 260 sales listed on each report. The assumption is that the reports would be due once per year on or about January 15. Reports would be processed in 3.22 (see calculation of processing time below) ASSUMPTION (continued)

weeks by the temporaries and certification sent to DOR for use when processing tax returns for the prior year that are due April 15.

DED assumes that it would take One (1) Economic Development Specialist II ($32,628), One (1) Economic Development Specialist I ($26,700), One (1) Clerk Typist II ($19,260), and temporary clerical help from state contract at $8 per hour to open, review, and prepare for certification to DOR at 15 per hour. 7,719 divided by 15 equals 514.6 hours times $8 per hour = $4,155 This would be used to hire 4 people for and average of 3.22 weeks. DED states this is an estimate based on assumptions and personnel/expenses for temporary help could change with actual experience. Related expense and equipment including system furniture, phones, fax, and expenses for travel, communications, office and professional development plus floor space rental.

Oversight assumes no additional rental space would be required.

Officials from the Department of Revenue (DOR) did not respond to our fiscal impact request. However, in responding to a similar proposal last session, DOR stated the number of taxpayers eligible for this credit is unknown at this time. The Division of Taxation and Collection would need one (1) Tax Processing Technician I for every 8,750 credits claimed to process these credits.

DOR also stated the proposal would require modifications to the income tax system, income tax return, and schedules that would be completed with existing resources.

The Office of Administration officials defer to the Department of Economic Development on revenue projections.

FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
	(6 Mo.)
GENERAL REVENUE FUND
Loss - General Revenue Fund
Tax credits on minority purchases	($10,000,000)	($10,000,000)	($10,000,000)
FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
(continued)	(6 Mo.)
Cost - Department of Economic Development
Personal service (3 FTE)	($67,101)	($82,567)	($84,631)
Fringe benefits	($20,506)	($25,232)	($25,863)
Expense and equipment	($38,446)	($19,672)	($20,263)
Total Cost - DED	($126,053)	($127,471)	($130,757)
ESTIMATE NET EFFECT ON
GENERAL REVENUE FUND	($10,126,053)	($10,127,471)	($10,130,757)
FISCAL IMPACT - Local Government	FY 2000	FY 2001	FY 2002
	(6 Mo.)
	$0	$0	$0
FISCAL IMPACT - Small Business
Small businesses would be expected to be fiscally impacted to the extent there would be increased administrative costs due to the record keeping that would be required for the tracking of a small business purchases from a minority business.

DESCRIPTION

This proposal would authorize a state income tax credit equal to ten percent of all purchases of goods or services from a minority business enterprise which has been approved by the Governor's Commission on Minority Business Development. The credit would be limited to one hundred thousand dollars per taxpayer for each taxable year. If the amount of the credit exceeds the taxpayer's tax liability, the difference would be refundable. The total amount of the credit which may be taken during any one taxable year is limited to ten million dollars. Knowingly providing goods and services for qualified payments in excess of the limits established by the Commission would be a Class A misdemeanor.

The proposal has an effective date of January 1, 2000, and applies to all taxable years beginning after December 31, 1999.

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 Economic Development

Office of Administration

Division of Budget and Planning

Jeanne Jarrett, CPA

Director

February 15, 1999