COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. No.: 1980-01

Bill No.: HB 600

Subject: Taxation and Revenue - General, Sales and Use

Type: Original

Date: March 11, 2003

FISCAL SUMMARY

*Assumes Unknown revenues exceed Unknown costs.

Numbers within parentheses: ( ) indicate costs or losses.

This fiscal note contains 11 pages.

ASSUMPTION

Officials of the Missouri Gaming Commission, Missouri House of Representatives, and the Missouri Ethics Commission assume this legislation makes several changes to the sections relating to taxation. These agencies assume this legislation would not fiscally impact their respective agencies.

Officials of the Office of Administration (COA), Division of Budget and Planning and the Division of Purchasing assume this bill changes a variety of tax laws. The revenue impacts are best estimated by the Department of Revenue and other agencies directly affected. The provision of the bill that requires each state department to ensure all employees are in compliance with all state tax laws could result in some cost to the COA.

COA requests one additional FTE - a Buyer III position to handle the additional workload created by this proposal.

Oversight has, for fiscal note purposes only, changed the starting salary for the Buyer III position to correspond to the second step above minimum for comparable positions in the state's merit system pay grid. This decision reflects a study of actual starting salaries for new state

employees for a six month period and the policy of the Oversight Subcommittee of the Joint Committee on Legislative Research.

ASSUMPTION (continued)

State Treasurer (STO) officials assume this proposal makes various changes relating to taxation:

• •Makes lottery and gaming winnings in the state part of Missouri adjusted gross income for tax purposes.



• •Allows Office of the State Courts Administrator to participate in the debt offset program on behalf of the court of a political subdivision.



• •Creates an escrow account within the treasury (Section 488.5028.5) for the deposit of income tax refunds intercepted. The STO assumes this is the debt offset escrow fund already established within the treasury.



• •Adds language that business licenses and permits may not be renewed unless verification from DOR is received that state tax returns have been filed and all state taxes, interest and penalties have been paid.



• •Requires that all employees of the state, and state contractors file state tax returns and pay all taxes owed.



• •Requires that the tax status of all employees of the state, all members of the general assembly, all elected officials, every elected or appointed member of the judicial branch have their tax status reviewed annually to ensure they have filed state tax returns and paid all taxes owed.



• •Requires that no professional license or permit pursuant to Chapter 324 - 326 be renewed without verification from DOR that state tax returns have been filed and all state taxes have been paid.

No impact to the STO.

Officials from the Department of Conservation (MDC) state this proposal makes several changes to several sections relating to taxation. This proposal could have a fiscal impact on MDC because of administrative costs in complying. MDC assumes the impact would be minimal.

ASSUMPTION (continued)

Officials from the Department of Transportation (MoDOT) assume this legislation requires every vendor or affiliate of a vendor seeking to contract to provide goods and services to the State of Missouri to collect and pay all sales and use taxes, modifies items used to calculate the Missouri nonresident adjusted gross income, specifies that articles used as trade-in to offset sales tax must have had sales tax paid or been exempted from tax, allows the state courts administer to reduce an individuals income tax refund by any outstanding court debts greater that $25, states that a business license or permit cannot be issued or renewed unless the applicant has filed all state tax returns and all taxes paid, states that State of Missouri employees must file and pay all state taxes as a condition of employment, and states that no person shall receive or renew professional licenses unless all state tax returns have been filed and all state income taxes paid.

MoDOT assumes no fiscal impact for Section 34.040 related to vendor or affiliates of a vendor required to be current on all payments of sales and use taxes, Section 143.181 related to the adjusted gross income calculations, and Section 488.5028 related to outstanding court debts.

Section 144.025 would create a positive fiscal impact to revenue from the increased sales and use tax; however, MoDOT is unable to provide an estimate for this section. Therefore, MoDOT must rely upon the Department of Revenue's response.

Additionally, Sections 1, 2, and 3 may cause additional workloads to existing staff to verify if employees and license/permit applicants are current in the filing of their Missouri tax forms and all taxes are paid. However, at this time, MoDOT is assuming that this workload can be absorbed by existing staff due to the Department of Revenue's new database (in Section 2.2). However, if the number of professional/business permits/licenses requests is too large, additional staff may be required. This is dependent on which licenses and permits are covered by Section 1 and Section 3.

Officials from the Missouri Lottery Commission (LOT) assume this proposed legislation does not have a fiscal impact on the LOT. The LOT currently withholds Missouri state taxes from winnings over $599 from out-of-state residents.

Officials from the State Courts Administrator (CTS) state there are currently $23.4 million unpaid fines, fees and costs on criminal cases. However, CTS has no way of knowing how many fines, fees and costs will be collected as a result of refund offsets. CTS assumes since the interest earned on the funds realized is to be used to pay the offset administrative costs of this proposal, then no costs would be incurred by CTS for this proposal.

ASSUMPTION (continued)

Officials from the Attorney General's Office (AGO) assume this proposal would prohibit the Office of Administration from entering into contracts with businesses that do not collect taxes pursuant to Chapter 144. AGO assumes the Office of Administration and the Department of Revenue would adjust contracts and monitor compliance appropriately, but that the proposal would result in additional litigation from those seeking to do business with the state. The proposal also effectively requires agencies to terminate employees for non-payment of taxes. AGO assumes this would result in additional employment litigation. The proposal also prohibits the professional boards from issuing or renewing licenses to individuals with unpaid taxes. Again, AGO assumes this would result in additional licensing litigation. Finally, various provisions of the bill could result in additional collection litigation on behalf of DOR. Based on the assumption that the vast majority of contractors, state employees and licensees pay their taxes, AGO assumes costs could be absorbed with existing resources; but because a significant increase in activity in any of these areas would require additional staffing, cost of this proposal is UNKNOWN (potentially in excess of $100,000).

Officials of the Department of Revenue (DOR) state this legislation makes the following changes:

Section 34.040 (Tax Clearances) - Requires every vendor or affiliate of a vendor seeking to contract to provide goods and services to the State of Missouri to collect and properly pay all sales and use taxes;

Section 143.181 (Gambling Winnings) - Requires all lottery and other gaming winnings to be included in Missouri nonresident adjusted gross income when the winnings are from a Missouri source;

Section 144.025 (Ag for Autos) - Specifies that an article used in a trade-in to offset sales tax must have had tax paid or been exempted from tax. Articles used for trade-in must be owned by the person trading them in;

Section 488.5028.1 - Authorizes debt offsets of income tax refunds for delinquencies in excess of $25 to the Office of State Court Administrators;

Section 1 (Tax Clearances) - Requires a tax clearance from the Department of Revenue prior to the issuance or renewal of any local government business license;

ASSUMPTION (continued)

Section 2 (Tax Clearances) - Requires as a condition of employment with the executive branch of state government that all state taxes due be filed and paid by the employee; and

Section 3 (Tax Clearances) - Requires a tax clearance from the Department of Revenue prior to the issuance or renewal of any professional license granted by the state.

Administrative Impact:

Section 34.040 (Tax Clearances) - For several years, DOR has provided lists to the Office of Administration of noncompliant vendors. Therefore, this will have no additional impact to DOR.

Section 143.181 (Gambling Winnings) - This legislation will have no additional impact to DOR.

Section 144.025 (Ag for Autos) - No administrative impact.

Section 488.5028.1 (Debt Offsets) - MINITS programming will be needed to allow for the electronic match of the tapes and for the production of the letters. DOR estimates that 346 hours of programming will be needed at a cost of $11,543. DOR will need postage for the mailing of the letters, but the costs are UNKNOWN.

Sections 1-3 (Tax Clearances) - This legislation will require a tax clearance from DOR. DOR intends to work with the other state agencies in order to provide a list of delinquent employees, business license applicants or professional licenses applicants through a tape match. DOR assumes the other state departments will provide DOR with a list of names and social security numbers of individuals, and DOR will run those names against the income tax system in order to provide a list of delinquent taxpayers. However, for new employees or professional license applicants, DOR intends on providing a new internet based system that will allow other agencies and local governments to verify quickly that an applicant has complied with all state tax filings and payments. DOR estimates this system will include a MINITS Interface (3 programmers for 3 months or $51,942) and a WEB-Based Application (5 weeks of programming or 200 hours - $6,672).

Revenue Impact:

Section 34.040 (Tax Clearances) - DOR anticipates an UNKNOWN increase in revenues.

ASSUMPTION (continued)

Section 143.181 (Gambling Winnings) - According to the gaming commission, there is $110 million of nonresident casino winnings paid out in Missouri. Therefore, with a 6% tax rate, the increase in revenues totals $6.6 million. DOR also assumes an UNKNOWN increase in revenues from nonresident lottery winnings.

Section 144.025 (Ag for Autos) - DOR anticipates an UNKNOWN increase in revenues.

Section 488.5028.1 (Debt Offsets) - DOR assumes the State Court Administrators Office will supply the revenue impact.

Section 1 (Tax Clearances) - DOR anticipates an UNKNOWN increase in revenues.

Section 2 (Tax Clearances) - DOR anticipates an UNKNOWN increase in revenues.

Section 3 (Tax Clearances) - Michigan, who issues 700,000 professional licenses, began requiring compliance with professional licenses and reportedly brought in $20 million. DOR assumes that because Missouri issues half of the licenses Michigan does (approximately 350,000), then Missouri would generate approximately half of the revenue ($10 million).

Officials from the Department of Economic Development, Division of Professional Registration, Department of Agriculture, Missouri State Senate and the Office of the Governor did not respond to our fiscal note request.

This legislation will increase Total State Revenue.

FISCAL IMPACT - Small Business

Small businesses not in compliance with Missouri tax law could be impacted as a result of this proposal.

DESCRIPTION

This proposal makes various changes related to taxation. The bill:

(1) Requires every vendor or affiliate of a vendor seeking to contract to provide goods and services to the State of Missouri to collect and properly pay all sales and use taxes;

(2) Requires all lottery and other gaming winnings to be included in Missouri nonresident adjusted gross income when the winnings are from a Missouri source;

(3) Includes court costs in excess of $25 related to the State Supreme Court, Court of Appeals, or any circuit court of Missouri as amounts that can be offset against a refund of taxes owed to a taxpayer;

DESCRIPTION (continued)

(4) Adds additional requirements on any article being traded-in for the purpose of receiving a sales or use tax credit against a new article being purchased. The article being traded-in must have originally had sales or use tax paid on it or have been specifically exempted from sales and use taxes by law. In the case of motor vehicles, trailers, boats, or outboard motors the same will only be allowed as a trade-in. Grain and livestock raised or produced by a purchaser may be traded-in on a motor vehicle or trailer used primarily for agricultural use by the purchaser;

(5) Requires a tax clearance from the Department of Revenue prior to the issuance or renewal of any local government business license;

(6) Requires as a condition of employment with the state government that all state taxes due be filed and paid by the employee;

(7) Requires all state taxes due to be paid by members of the General Assembly, statewide elected officials, and members of the judiciary; and

(8) Requires a tax clearance from the Department of Revenue prior to the issuance or renewal of any professional license granted by the state.

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

Division of Purchasing

State Treasurer

Department of Conservation

Department of Transportation

Missouri Gaming Commission

Missouri Lottery Commission

State Courts Administrator

Missouri House of Representatives

Attorney General's Office

Missouri Ethics Commission

SOURCES OF INFORMATION (continued)

NOT RESPONDING:

Department of Agriculture

Missouri State Senate

Office of the Governor

Department of Economic Development

Division of Professional Registration

Mickey Wilson, CPA

Director

March 11, 2003