COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. No.:         0761-01

Bill No.:          HB 444

Subject:           Elderly; Revenue Dept.; Taxation and Revenue - General; Taxation and Revenue - Income

Type:              Original

Date:               January 29, 2007

Bill Summary:            Would exempt Social Security from state income tax for taxpayers 65 years of age or older.

FISCAL SUMMARY

Numbers within parentheses: ( ) indicate costs or losses.

This fiscal note contains 6 pages.

☐ Estimated Total Net Effect on All funds expected to exceed $100,000 savings or (cost).

☒ Estimated Net Effect on General Revenue Fund expected to exceed $100,000 (cost).

FISCAL ANALYSIS

ASSUMPTION

Officials from the Department of Revenue (DOR) assume this proposal would add subdivision (j) to subsection 3 of Section 143.121 RSMO allowing a deduction of social security benefits included in the Federal Adjusted Gross Income of a taxpayer. This deduction would require Taxation to add a line to the Form MO-A.

Personal Tax would require 2 Temporary Tax Employee for key-entry, 1 Tax Processing Tech I for every 19,000 returns to be verified by Quality Review, and 1 Tax Processing Tech I for every 2,400 pieces of correspondence. They will also require 2 Temporary Tax Employees for key-entry of 1040P & PTC forms, and 1 Tax Processing Tech I for every additional 5,000 verified returns plus correspondence on the 1040P/PTC forms.

Customer Services would require 1 Tax Collection Technician I for every 15,000 calls a year on the income tax hot line due to lack of documentation and 1 Tax Collection Technician I for every 24,000 calls a year to delinquency/collections due to lack of documentation. They will also need 1 Tax Processing Technician I for every additional 4,800 contacts in the field offices. DOR anticipates most customers will contact the department via phone, therefore, will only request 1 FTE for each of the larger field offices including Kansas City, St. Louis, and Springfield.

In summary, DOR submitted a cost estimate for eight FTE additional staff, and related equipment and expense with a total of $337,796 for FY 2008, $361,811 for FY 2009, and $370,91 for FY 2010. The DOR estimate for a similar proposal in the previous session included only three new FTE. In response to a similar proposal in the previous session (HB 1941, LR 4411-03), DOR assumed the need for three additional FTE Tax Processing Tech I plus four tax season temporary employees.

Oversight will use the previous DOR assumption, and will further assume that DOR would be able to implement the proposal with existing IT staff. If multiple provisions are enacted requiring additional staffing or if unanticipated costs are incurred, DOR could request resources through the budget process.

ASSUMPTION (continued)

Oversight has, for fiscal note purposes only, changed the starting salary for the additional staff 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. In addition, Oversight has reduced certain equipment and expense items in accordance with Office of Administration budget guidelines. Oversight assumes that the relatively small number of additional staff can be located in existing office space.

Officials from the University of Missouri, Economic and Policy Analysis Research Center (EPARC) assume the proposal would permit senior citizens to deduct social security benefits from their taxable income. More precisely, an individual income tax payer who is 65 years or older to deduct social security benefits included in federal adjusted gross income from their federal adjusted gross income in the Missouri tax form. The proposal further specifies that the provisions will sunset in six years. EPARC estimated that net general revenue collections would be reduced by $100 million if the proposal was implemented.

Oversight will utilize the EPARC estimate for the initial reduction in annual tax collections. Oversight has analyzed cost of living increases for social security benefits; over the past five years benefits have increased an average 2.72 percent. Therefore, Oversight will assume a 2.72% annual increase in lost revenues due to anticipated Social Security cost of living increases.

Oversight is not able to estimate the potential for revenue reductions as a result of additional taxpayers filing returns who would not have filed a tax return under existing conditions, and Oversight is not able to determine the potential for revenue reductions due to the impact of this proposal on the existing Circuit Breaker and Homestead Exemption provisions.

Although they did not respond to our request for information, officials from the Office of Administration, Division of Budget and Planning (BAP) assumed a similar proposal would add no cost to their organization; and they assumed the proposal would reduce general and total state revenues by $100 million annually beginning in Fiscal Year 2008.

This proposal would reduce Total State Revenue.

FISCAL IMPACT - Small Business

No direct fiscal impact to small businesses would be expected as a result of this proposal.

FISCAL DESCRIPTION

The proposal would exempt Social Security benefits from state income taxes for taxpayers 65 years or older.

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

University of Missouri

            Economic Policy and Research Center

NOT RESPONDING

Office of Administration

            Division of Budget and Planning

                                                                                                Mickey Wilson, CPA

                                                                                                Director

                                                                                                January 29, 2007