COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. No.:         1217-07

Bill No.:          Truly Agreed To and Finally Passed SS for SCS for HCS for HB 327

Subject:           Business and Commerce; Economic Development; Insurance Department; Taxation and Revenue

Type:              Original

Date:               June 5, 2007

Bill Summary:            This proposal modifies provisions of certain Department of Economic Development programs.

FISCAL SUMMARY

* The fiscal impact could be divided between the General Revenue Fund and the County Foreign Insurance Fund (which ultimately goes to local school districts) if some of the tax credits are utilized against insurance premium taxes.

Numbers within parentheses: ( ) indicate costs or losses.

This fiscal note contains 41 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).

* The fiscal impact could be divided between the General Revenue Fund and the County Foreign Insurance Fund (which ultimately goes to local school districts) if some of the tax credits are utilized against insurance premium taxes.

FISCAL ANALYSIS

ASSUMPTION

Officials from the Office of Administration - Budget and Planning (BAP) state the proposal modifies various sections pertaining to tax increment financing. For municipalities within the East-West Gateway, they must create a TIF commission through which all recommendations for proposed redevelopment must first be approved. The proposal prohibits any new TIF projects in one hundred year flood plains as well as Greenfield areas within the East-West Gateway region. (99.820 - 99.841)

The proposal modifies several definitions to include charitable organizations that are exempt from federal income tax in the list of companies and/or individual taxpayers who are eligible for a variety of tax credit programs. This would open up these programs to a new section of eligible participants. This increase would not necessarily increase the cost of the programs, simply the pool from which those programs can award benefits.

The proposal creates the Distressed Areas Land Assemblage Tax Credit program. The program provides for a 50% tax credit on acquisition costs and 100% on interest costs incurred on an eligible parcel of land for a period of five years. The tax credits may be carried forward for six consecutive years or until the credit is fully used, whichever occurs first. The total aggregate amount of tax credits authorized under this program shall not exceed $100 million dollars and the

ASSUMPTION (continued)

proposal sets an annual cap of $12 million dollars for the program. This proposal could therefore lower general and state revenues by that amount. This program may stimulate other economic activity, but Budget and Planning does not have data to estimate the induced revenues. The Department of Economic Development may have such an estimate. (99.1200)

The proposal modifies the tax credits available for small businesses. The proposal provides credit for up to thirty percent of an investment made for such business in distressed and/or rural communities. The amount of tax credits currently available for this program is $13 million annually with at least $4 million for investments in distressed communities. The legislation reduces that annual cap to $10 million. The proposal could therefore increase general and state revenues by $3 million, assuming the program is fully utilized. This program may stimulate other economic activity, but Budget and Planning does not have the data to estimate the induced revenues, the Department of Economic Development may have such an estimate. (135.403)

The proposal creates a tax credit program that allows credit for individuals who make their homes accessible for disabled persons living with them. The annual cap for the credits is $100,000. The credits are available only in the event that there are credits remaining under the $10 million dollar cap for similar programs. This proposal could therefore lower general and total state revenues by that amount, assuming the unused portion of the other credit has not been included in estimated decreases to general and total state revenues. (135.562)

The proposal creates a tax credit program for contributing to the preservation of civil war sites. The credit shall be allowed in an amount equal to fifty percent of the contribution, it is transferable, sellable and assignable and may be carried forward for five years until fully claimed. The annual cap for the credit is set at $100,000 and thus, could lower general and state revenue by that amount. This program may stimulate other economic activity, but Budget and Planning does not have the data to estimate the induced revenues, the Department of Natural Resources and the Department of Economic Development may have such an estimate. (135.571)

The proposal increases the tax credit for contributions to maternity homes; the current annual cap is set at $2 million, this proposal raises that limit to $3 million. The proposal could therefore lower general and state revenues by $1 million. (135.600)

The proposal creates the Qualified Beef Tax Credit which allows credits for qualifying sales of qualifying beef animals. The proposal includes a carry back provision for three years as well as a carry forward provision for five years. The annual cap for the program is set at $10 million with an aggregate cap not exceeding $30 million; therefore this proposal could lower general and state revenue by that amount. (135.660)

ASSUMPTION (continued)

The proposal creates a state program similar to the federal New Markets Tax Credit Program which authorizes tax credits to any investor who makes investments in low income communities. This legislation could have a negative impact on general revenue up to $15 million dollars in any fiscal year. The credit may be taken against any state tax liability - income tax except withholding, corporate franchise tax, financial institution tax, public utility tax, or insurance retaliatory tax. Budget and Planning defers to the departments of Economic Development and Insurance for more specific estimates on the impact of these tax credits. (135.662)

The proposal creates an income tax, corporate franchise tax or financial institutions tax credit up to $20,000 or 20% of the costs, whichever is less, of developing a qualified alternative fuel vehicle refueling property using qualified Missouri contractors and materials. This program is capped at $3 million in 2008, $2 million in 2009, and $1 million in 2010. This proposal could therefore lower general and state revenues by those amounts each year. (135.710)

The proposal expands on the tax credits awarded for investment in film production. Beginning January 1, 2008, tax credits issued under this program shall not exceed $10,500,000 per year. This proposal could therefore lower general and state revenues by $9 million. This program may stimulate other economic activity, but Budget and Planning does not have data to estimate the induced revenues. The Department of Economic Development may have such an estimate. (135.750)

The proposal modifies the enhanced enterprise zone program by increasing the annual cap of tax credits available from $7 million dollars to $25 million dollars. This proposal could therefore lower general and state revenues by $18 million. This program may stimulate other economic activity, but Budget and Planning does not have data to estimate the induced revenues. The Department of Economic Development may have such an estimate. (135.967)

The proposal modifies the reporting requirements of the Department of Revenue with regard to the Homestead Preservation Tax Credit. The Department of Revenue would be required to report to the General Assembly and the Budget and Planning office the amount required to offset any increase in property taxes for eligible taxpayers. This proposal would have no direct impact on general and total state revenues. But, the General Assembly could choose to appropriate, and the Governor could approve, the extra spending required for this proposal. Budget and Planning defers to the Department of Revenue and the State Tax Commission for an estimate of the extra spending. Further, because fewer seniors may choose to utilize the Senior Property Tax Credit, general and total state revenues could actually increase. Therefore, the net fiscal impact of this proposal is unknown. (137.106)

ASSUMPTION (continued)

The proposal exempts motor fuel sold for use in operating public transportation systems and school buses from the state motor fuel tax. The proposal could therefore lower motor fuel tax revenues by an unknown amount. Budget and Planning does not have data to estimate the potential loss of revenues, the Department of Revenue may have such an estimate. (142.815 and 142.817)

The proposal provides a deduction from Missouri adjusted gross income of $1,500 or 10% of the purchase price, whichever is less, for the purchase of a qualifying hybrid vehicle. According to a 5/4/2006 article published on the Auto Channel website , 199,148 new hybrids were registered in 2005, more than double the amount in 2004. However, Missouri was not among the Top Ten states for registration, which accounted for 62% of total registrations. Budget and Planning estimates Missouri had 0.9% of the registrations, or roughly 1,800 registrations. At $1,500 for each, this would reduce Missouri AGI by $2,700,000 and reduce general and total state revenues by $162,000 (at the 6% tax rate). It is likely sales of these cars will climb as their popularity increases. (143.114)

The proposal provides an income tax credit of up to $500 per taxpayer, but no less than $50, for the purchase of E-85, biodiesel, or biodiesel blended gasoline. The aggregate amount of tax credits which may be redeemed in any fiscal year shall not exceed $500,000. This proposal could therefore lower general and total state revenues by that amount. (143.128)

The proposal authorizes a sales tax exemption for personal property and utilities used in the research and development of agricultural, biotechnology and plant genomics products as well as certain diesel-powered motor vehicles. Budget and Planning does not have the data to estimate the loss of revenues resulting from these exemptions, the Department of Revenue may have such an estimate. (144.030)

The proposal authorizes an exemption from state and local sales and use tax for the cost of certain materials used in the manufacturing, processing, compounding, mining, or production of a product. Data from the US Department of Energy, Energy Information Administration (EIA) indicates that in 2005, total revenues including sales taxes from sales of electricity to end users in Missouri in the industrial sector amounted to $766 million. This translates to sales of $720 million, at state and average local taxes of 6.45 percent. The resulting estimated loss of state and local sales taxes in the industrial sector would therefore be $46 million assuming similar electricity usage in 2007.

ASSUMPTION (continued)

($) millions                                                                                         2005

Industry Sales                                                                                     720

Sales Tax Rate                                                                                    6.45%

Industry Revenues                                                                              766

State and Local Sales Taxes from Industrial electricity sales             46

Budget and Planning has no means to determine other loss of revenue from other utilities, chemicals, machinery equipment and materials used in industry (in addition to losses to local transportation districts), but notes that such loss could be substantial. (144.054)

The proposal provides a sales tax exemption for E-85 vehicles for FY 08. The proposal could therefore lower general and state revenues by an unknown amount. Budget and Planning does not have data to estimate the potential loss of revenues, the Department of Revenue may have such an estimate. (144.061)

The proposal provides a sales tax exemption for aviation fuel used in a transoceanic flight. The proposal could therefore lower general and state revenues by an unknown amount. Budget and Planning does not have data to estimate the potential loss of revenues, the Department of Revenue may have such an estimate. (144.806)

The proposal allows the creation of vocational school districts within certain counties. (178.715)

The proposed legislation extends the date for the Missouri Community College Job Training program until 2028 and the date for community college districts to sell certificates until 2018. (178.895 and 178.896)

The proposal modifies the amount that may be spent on administrative costs for the Family Development Account Program; it decreases the amount that may be spent for such purposes in the first two years of the program to 15% (from 20% currently) and to 10% for subsequent years (from 15% currently). (208.755)

The proposal modifies various provisions pertaining to transportation districts and creates the Regional Railroad Authorities Act. (238.202 - 238.275 and 388.700 - 388.745)

The proposal removes outdated language pertaining to the Missouri Training and Employment Council and adds Workforce Investment Board language. (620.504 - 620.509 and 620.521 - 620.529)

ASSUMPTION (continued)

The proposal modifies the Missouri Quality Jobs Program by increasing the annual cap of tax credits available from $12 million dollars to $30 million dollars. This proposal could therefore lower general and state revenues by $18 million. This program may stimulate other economic activity, but Budget and Planning does not have data to estimate the induced revenues. The Department of Economic Development may have such an estimate. (620.1881)

The proposal creates a tax credit program for small business retention and flood survivor relief. The limit for tax credits per company, per year is set at $250,000 per year but may be increased to $500,000 if approved by the quality jobs advisory task force. The aggregate cap for all such tax credits is $500,000 per year. This proposal could therefore lower general and state revenues by that amount. (620.1881)

The proposal modifies the Quality Jobs program by offering tuition reimbursement programs and creates a tax credit program for companies who pay a portion of an employee's tuition (50% of the expenses related to that tuition). The annual cap for the program is $250,000, and there is a limit of $5000 per employee and $25,000 per company. (620.1881)

The proposal creates the Small Business and Entrepreneurial Growth Act which mirrors the provisions of the Missouri Quality Jobs act but is aimed at small businesses that are not eligible for that program. Provided the qualifications are met, companies are allowed to retain withholding taxes for a period of one year; this proposal could therefore lower general and state revenues by an unknown amount every year. This program may stimulate other economic activity, but Budget and Planning does not have data to estimate the induced revenues. The Department of Economic Development may have such an estimate. (620.1892)

The proposal prohibits any person, firm, LLC or corporation to purchase more than twenty tickets at one time except those purchased through a group sales office and deletes language making scalping illegal. (Section 1 and 578.395)

The proposal modifies provisions of income, sales and use and corporate franchise tax statutes to exclude certain business contacts from consideration in the determination of whether or not nexus exists for tax purposes. This proposal will reduce general and total state revenues by an unknown, perhaps significant, amount.

Also note that, in several sections the following language is added "Notwithstanding any other law to the contrary, any tax credits granted under this section may be assigned, transferred, sold, or otherwise conveyed without consent or approval". This will likely ensure that a greater percentage of the tax credits issued will be redeemed. To the extent the amounts currently redeemed are less than 100% of the allowable amounts, this proposal will reduce general and

ASSUMPTION (continued)

total state revenue.

Officials from the Department of Economic Development (DED) assume the change to the Missouri Quality Jobs (MQJ), Enhanced Enterprise Zone (EEZ), and New Jobs Training (NJTC) programs will create positive direct net economic benefit to Missouri. DED assumes the EEZ will create new jobs directly and for every 10 new jobs created, an additional 7 jobs will be created indirectly from the impact of the credit. The MQJ will create 8 new indirect jobs for each 10 jobs create by the direct impact of the credit. As an example: 4,200 direct and indirect jobs would in place at the end of 10 years if $12 million in new MQJ credits were issued over 5 years. If $18 million in EEZ credits were issued for five years, this would result in 3,800 new jobs at the end of 10 years. DED assumes the NJTC would create an estimated 1600 new jobs per year and an estimated $8 million in direct economic benefits plus $4 million in indirect benefits per year. Future NJTC benefits would begin to decline in FY 2009 if the program is not extended.

DED assumes the need for four employees plus E & E to administer the Distressed Areas Land Assemblage Tax Credit , Disability Access Tax Credit, Qualified Equity Investment tax credit, and the increase in the Film Production tax credit cap. DED assumes all changes will make the over all impact unknown. DED also assumes the need for one person to administer the Small Business Entrepreneurial Growth Act and one to administer the Small Business Tax Credit plus $5,000 in expenses for the Small Business Tax Credit review committee. While the over all cost is shown as unknown, the administrative costs would be in the $500,000 range. DED assumes the numerous other changes to this version will not change our impact statement.                

Sections 135.535 & 135.562 - Since this proposal utilizes unused Rebuilding Communities tax credits for another program, this will result in an increased utilization of the tax credits. This program could result in an additional $100,000 in tax credits being used for persons that modify a home for a disabled person. However, since Oversight has already reflected the potential loss of the Rebuilding Communities tax credit program of up to annual limit, Oversight will assume this proposal does not increase the annual limit (of $8 million), and therefore, the fiscal impact of the proposal has already been reflected in a prior fiscal note. Therefore, even though this proposal will increase utilization of the tax credit program, Oversight will not reflect an additional loss of revenue to the General Revenue Fund.

Section 135.750 - Film tax credits - Oversight assumes the increase in the cap is for tax years beginning January 1, 2008, therefore, Oversight will show the fiscal impact of this change starting in FY 2009.

ASSUMPTION (continued)

Section 142.817 - Sales tax exemption for motor fuel for Public Mass Transportation;

In response to a similar proposal from this year (SB 501), officials at the Missouri Department of Transportation (MoDOT) assumed this legislation exempts motor fuel used for certain public transportation purposes from motor fuel tax.

MoDOT calculated that in Fiscal Year 2006 that transit authorities consumed an estimated 9,943,211 gallons of gasoline at the State Gas Tax Rate of $.17 per gallon for a total of $1,690,346 in gas tax being paid. MoDOT then calculated the loss of that money for the state, cities and counties.

In response to a similar proposal from this year (SB 501), officials at the Department of Revenue (DOR) assumed no fiscal impact to the DOR from this proposal. DOR assumes this legislation establishes an exemption. Exemptions reduce state tax due, therefore it will reduce state revenues.

The excise tax section anticipates additional refunds to process due to this exemption. This may impede process time. DOR currently does not track fuel usage, therefore, cannot determine the loss of fuel tax revenues the state will experience due to this exemption. Due to the Statewide Information Technology Consolidation, the department's response to a proposal will now also reflect the cost estimates prepared by OA-IT for impact to the various systems. Office of Administration Information Technology (ITSD DOR) estimates the IT portion of this request can be accomplished within existing resources, however; if priorities shift, additional FTE/overtime would be needed to implement. Office of Administration Information Technology (ITSD DOR) estimates that this legislation could be implemented utilizing 1 existing CIT III for 1 month at a rate of $4,186

In response to a similar proposal from this year (SB 501), officials at the City of Kansas City stated this bill applies to a city transportation authority. The City of Kansas City does not operate a transportation authority, those mass transit services are provided by the Kansas City Area Transportation Authority, which is partially funded by Kansas City. Any savings enjoyed by the KC ATA may be indirectly enjoyed by the City of Kansas City through greater services for the money now spent for transportation services if the KC ATA has additional funds available.

Oversight assumes the motor fuel tax exemption will be a loss to the Road Fund.

ASSUMPTION (continued)

Sections 143.006, 144.605 & 147.010 - Nexus;

Officials from the Department of Revenue state sections 143.006, 144.605 & 147.010 would allow corporations and individuals to not have nexus in Missouri, for income tax purposes if they:

Is a related taxpayer within the meaning of the definition found in subdivision (9) of section 135.100, RSMo, in regard to either a distribution facility in this state or a data storage facility in this state;

(a)       Utilizes such distribution facility;

(b)       Utilizes property at such distribution facility that is used at, or distributed from, that facility;

(c)       Sells property shipped or distributed from such distribution facility;

Oversight assumes if certain companies are considered to not have nexus as a result of this proposal, this would decrease tax collections by an unknown amount.

Section 144.030 - Sales tax exemption on Railroad rolling stock;

In response to a similar proposal from this year, officials from the Department of Transportation state this part of the proposal would expand the current sales tax exemption of commercial motor vehicles licensed for a gross weight of 24,000 pounds or more or trailers used by motor carriers solely in the transportation of person or property in interstate commerce. The proposal would delete the word "solely" and "in interstate commerce", resulting in expansion of the sales tax exemption for those commercial motor vehicles purchased by any motor carrier who transports persons or property, whether in interstate or intrastate commerce. MODOT has no basis for estimating the negative impact therefore, there is a negative unknown fiscal impact from this proposal.

Section 144.054 - Sales tax exemption on materials used in manufacturing;

Section 144.054 creates a sales tax exemption for energy used in the manufacturing of a product. Officials from the Department of Revenue stated there currently is an exemption under Section 144.030.2 (12), which companies have to qualify for. DOR assumes this new section in statutes

would expand this exemption and make it easier to qualify for. DOR could not provide an estimate of the loss of revenue from this section of the proposal. Since some of the energy used in the manufacturing of a product is already exempt from sales tax, Oversight will not be able to utilize the estimate provided by BAP or calculate an estimate based on information provided by

ASSUMPTION (continued)

the Statistical Abstract of the United States. Therefore, Oversight must simply assume an unknown amount of loss in revenue to the state and local political subdivisions from this section.

Section 178.715;

Officials from the Department of Higher Education (DHE) state the impact of this legislation on their agency is unknown, but it may be significant. Section 178.715 allows for the establishment of at least one vocational school district, which is a new category of post-secondary institution, in one or more specific counties in Missouri. It is not clear whether one institution is to serve all of the counties listed in the legislation or if each county could establish its own institution. Three of the counties listed in this amendment overlap with an existing community college district. This may cause conflict if the same types of programs are offered in both districts.

If a vocational school district or multiple vocational school districts are established, the DHE would be required to establish standards for organization of the district(s), conduct a study to determine if the standards were met , and monitor the establishment of the vocational school district(s). Program approval may be required by the DHE and the availability of state aid for these districts may need to be considered. Considering the scope of this legislation, 1.0 FTE would be necessary to develop, administer, and monitor the standards for establishment of this new type of institution.

Based on the requirements contained in this legislation, the DHE has projected that 1.0 FTE at the Research Associate level, currently estimated at $49,593 in salary plus benefits and associated expense and equipment, would be necessary to implement the provisions of this legislation. This represents costs for the first year (FY 2008) with corresponding anticipating increases for FY 2009 and FY 2010.

Sections 178.895 & 178.896 - Community College Job Training program;

Oversight assumes extending the sunset date in which community colleges may sell certificates for the Community College New Jobs Training program from 2008 to 2018 will have a negative fiscal impact to the state, but would be in fiscal years beyond the scope of this fiscal note.

Sections 620.1878 - 620.1881- Quality Jobs Program;

Oversight assumes the new Small business job retention and flood survivor relief within the Quality Jobs program (620.1881.3 (5)) will be using existing credits under the new $30 million cap. Therefore, Oversight will not reflect a potential fiscal impact of $250,000 or $500,000

ASSUMPTION (continued)

annually from this program.

Officials from the Department of Revenue state section 620.1881 requires a tax clearance prior to the issuance of any tax credits. Customer Assistance anticipates an increase in contacts on the delinquency phone lines. Therefore, Customer Assistance would require 2 Tax Collection Technician I (1 for Quality Jobs and 1 for Enhanced Enterprise) for every additional 15,000 contacts. Customer Assistance also anticipates additional contacts in the field offices and would require 1 Tax Processing Technician I for every additional 4,800 contacts in the field. Customer Assistance expects most customers to contact our offices by phone, therefore, believe the field contacts could be handled with existing staff.

Officials from the Office of Administration Information Technology (ITSD DOR) estimates the IT portion of this request can be accomplished within existing resources, however; if priorities shift, additional FTE/overtime would be needed to implement. Office of Administration Information Technology (ITSD DOR) estimates that this legislation could be implemented utilizing 4 existing CIT III for 8 months, 2 CIT III for 1 month, and an additional 3 CIT III for 2 months at a rate of $159,068.

Officials from the Department of Insurance, Financial Institutions and Professional Registration (DIFP) state it is unknown how many insurance companies will choose to participate in these program and take advantage of these tax credits. The department can not estimate how much would be lost in premium tax revenue as a result of tax credits. Credits cannot exceed total tax liability (both Premium tax and Retaliatory tax). Premium/Retaliatory tax revenue is split 50/50 between General Revenue and County Foreign Insurance Fund except for domestic Stock Property and Casualty Companies who pay premium tax to the County Stock Fund. The County Foreign Insurance Fund is later distributed to school districts through out the state. County Stock Funds are later distributed to the school district and county treasurer of the county in which the principal office of the insurer is located. It is unknown how each of these funds may be impacted by these tax credits each year.

In 620.1881.2 it states that DOR can issue a refundable tax credit. The department has not dealt with refundable tax credits through Premium Tax before and assumes any refundable credit will be paid from General Revenue and not the County School Funds.

The department will require minimal contract computer programming to add these new tax credits to the premium tax database and should be able to do so under existing appropriation. However, should multiple bills pass that would require additional updates to the premium tax database, the department may need to request more expense and equipment appropriation through the budget process.

ASSUMPTION (continued)

Officials from the Office of the Secretary of State - Administrative Rules (SOS) assume many bills considered by the General Assembly include provisions allowing or requiring agencies to submit rules and regulations to implement the act. The Secretary of State’s office is provided with core funding to handle a certain amount of normal activity resulting from each year’s legislative session. The fiscal impact for this fiscal note to Secretary of State’s office for Administrative Rules is less than $2,500. The Secretary of State’s office recognizes that this is a small amount and does not expect that additional funding would be required to meet these costs. However, we also recognize that many such bills may be passed by the General Assembly in a given year and that collectively the costs may be in excess of what our office can sustain with our core budget. Therefore, we reserve the right to request funding for the cost of supporting administrative rules requirements should the need arise based on a review of the finally approved bills signed by the governor.

Section 137.106;

Officials from the Department of Revenue state their Taxation section cannot provide an administrative impact, as the intent of this legislation is unknown. The language states DOR is to provide the levels of appropriation...but it does not appear the legislature is required to appropriate any funds. If the intent was known, DOR could provide a better explanation of the anticipated outcome.

Oversight assumes the amendment only requires information to be calculated and provided by the DOR. Oversight assumes the amendment would not have a fiscal impact.

Sections 135.710, 143.114, 143.128, 144.030, 144.061;

Officials from the Department of Revenue (DOR) state for section 135.710, Personal Tax would require 1 Tax Processing Technician I for every 6,000 credits claimed. Personal Tax would also require 1 Tax Processing Technician I for every 2,000 credits claimed due to the equal apportionment among all applicants.

Corporate Tax would require 1 Tax Processing Technician 1 for tracking, processing, and corresponding.

However, based on information received in the FY06 session, there are approximately 800

taxpayer's who qualify for this tax credit; therefore, Taxation anticipates, being able to handle this new credit, with existing staff.

ASSUMPTION (continued)

DOR states section 143.114 Personal Tax would require Taxation to add a line to the Form MO-A. Personal Tax will require 2 Temporary Tax Employee for key-entry, 1 Tax Processing Tech I for every 19,000 returns to be verified, 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 and PTC forms, and 1 Tax Processing Tech I for every additional 5,000 returns to be verified on the 1040P/PTC forms.

DOR states section 143.128 - Personal Tax would require 1 Tax Processing Technician for every 4,000 credits claimed.

Officials from the Department of Transportation (MoDOT) state Section 144.030 (40) creates various sales tax incentives for certain energy uses, particularly all new motor vehicles that can operate on E85 fuel. We assume this legislation will likely encourage consumers to purchase E85 vehicles instead of gasoline-only vehicles on those models which have that substitute. We also assume E85 and sister model sales will remain constant over time. The minimum loss of sales tax revenue to the road fund due to exempting sales tax on the purchase of any new motor vehicle that can operate on E85 fuel would be $2,983,502 in FY 2008. MoDOT assumes the loss of sales tax revenue for other funds would be $426,215 to General Revenue, $568,286 to School Fund, $142,072 to Conservation Fund, $113,567 to Parks and Soils Fund, and $568,286 to Cities and Counties.                                                                                                                           

Officials from the Department of Natural Resources (DNR) state regarding the Tax Credits - Alternative Fuel Facilities, DNR may be requested to provide information regarding eligible "Qualified alternative fuel vehicle refueling property".

Regarding the Hybrid Motor Vehicles: Income Tax Deduction, DNR may also be asked to provide information regarding eligible "Qualified hybrid motor vehicles".

DNR states the would not anticipate a significant direct fiscal impact from this amendment.

Officials from the Department of Agriculture assume no fiscal impact from this amendment.

 Section 143.114: Purchase of hybrid vehicle

Officials at the Department of Revenue (DOR) assume this legislation allows any taxpayer who purchases a qualified hybrid vehicle, a subtraction from the Missouri Adjusted Gross Income of

up to $1,500 or 10% of the purchase price (whichever is less) of the qualified vehicle, for the tax year in which the purchase was made. This deduction will begin on or after January 1, 2008.

ASSUMPTION (continued)

DOR is to establish procedures by which the deduction may be claimed.

DOR's Personal Tax - would require Taxation to add a line to the Form MO-A. Personal Tax will require 2 Temporary Tax Employee for key-entry, 1 Tax Processing Tech I for every 19,000 returns to be verified, 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 and PTC forms, and 1 Tax Processing Tech I for every additional 5,000 returns to be verified on the 1040P/PTC forms..

Officials from the Office of Administration - Budget and Planning (BAP) stated this amendment creates several tax incentives for the use of alternative fuels - tax credits for the installation of equipment needed to provide such fuel (the cap for this program is set at three million dollars and decreases by one million each year after until it is phased out completely), tax deductions for the purchase of a hybrid vehicle, and a tax credit for any individual who purchases alternative fuel (the annual cap for the program is set at five hundred thousand dollars). The proposal also exempts sales of E85 vehicles from state sales tax. The proposal could therefore lower general and state revenues by an unknown amount. Budget and Planning does not have the data to estimate the loss, the Department of Revenue may have such an estimate.

In response to a similar proposal from this year, SB 40, BAP assumed the legislation provides a deduction from Missouri adjusted gross income, up to $1,500, for the purchase of a qualifying hybrid vehicle. According to a 5/4/2006 article published on the Auto Channel website, 199,148 new hybrids were registered in 2005, more than double the amount in 2004. However, Missouri was not among the Top Ten states for registration, which accounted for 62% of total registrations. BAP estimates Missouri had 0.9% of the registrations, or roughly 1,800 registrations. At $1,500 dollars for each, this would reduce Missouri AGI by $2,700,00, and reduce general and total state revenues by $162,000 (at the 6% tax rate). It is likely sales of these cars will climb as their popularity increases.

Oversight researched the number of hybrids sold in the United States in 2006 and found it was 252,636. Oversight recognizes that it is difficult to determine the number of those hybrids that are sold in Missouri since the figures are not tracked. Oversight used 2% of all hybrids sold as the number sold in Missouri. For the purpose of this note it was determined 5,053 hybrids were sold in Missouri and assumed each taxpayer would take the maximum reduction of $1,500 for a total reduction to taxpayers AGR of $7,579,500. Oversight recognizes that since the number of hybrids being sold is increasing, the loss to state revenue "could exceed" $341,078 assuming a 4.5% marginal tax rate starting in Fiscal Year 2009.

ASSUMPTION (continued)

Section 99.812;

Officials from the Department of Conservation assume this amendment would not fiscally impact their agency.

Section 144.806;

Officials from the Department of Transportation state this creates a sales and use tax exemption for purchases of aviation fuel for transoceanic flights in the Aviation Trust Fund. In FY 2006, we received an estimated $400,000 in jet fuel sales tax in to the fund. It would be difficult to estimate what percentage of this figure came from transoceanic flights.

Oversight assumes that currently there are no transoceanic flights originating from Missouri, and therefore, assume this amendment would have no fiscal impact at the current time.

Sections 388.700 - 388.745;

Officials for the State Tax Commission (TAX) state this proposal appears to allow a railroad authority to be organized and operated as a political subdivision. TAX assumed that only property acquired by a railroad authority to expand their services would be exempt from property taxes. TAX assumes that all property currently owned by the railroad would still be subject to property taxes.

Officials from the Department of Transportation did not respond to our request for fiscal impact regarding this part of the bill.

Oversight will assume this part of the bill is permissive to every municipality and county in the state (to form a regional railroad authority). Therefore, Oversight will assume this part of the bill will have no direct fiscal impact on local political subdivisions, unless they choose to create such an authority. It is also permissive to the state of Missouri to transfer or cause to be transferred any property to such authority.

Section 135.600;

Officials from the Department of Social Services did not respond to our request for fiscal impact.

Oversight assumes raising the annual limit on the Maternity Homes tax credit could reduce total state revenues by up to $1 million annually.

ASSUMPTION (continued)

Section 135.571;

Officials from the Department of Revenue assume section 135.571 Personal Tax would require 1 Tax Processing Technician for every 6,000 credits claimed.

Similar to the funding for the tax credit in Section 135.562, since this proposal utilizes unused Neighborhood Assistance Program credits for another program, this will result in an increased utilization of the tax credits. This program could result in an additional $100,000 in tax credits being used for persons who contribute to an organization for the preservation of Missouri’s Civil War Sites. However, since Oversight has already reflected the potential loss of the Neighborhood Assistance Program tax credit program of up to annual limit, Oversight will assume this proposal does not increase the annual limit, and therefore, the fiscal impact of the proposal has already been reflected in a prior fiscal note. Therefore, even though this proposal will increase utilization of the tax credit program, Oversight will not reflect an additional loss of

revenue to the General Revenue Fund.

Sections 620.504 - 620.509;

Officials from the Department of Labor and Industrial Relations assume this would not fiscally impact their agency.

Oversight could not find legislation previously filed that would be similar to this. Oversight assumes the board will incur some meeting and travel reimbursement expenses under the Department of Economic Development; however, Oversight assumes this amount will be minimal and will not reflect a fiscal impact from this part of the bill.

Section 135.400;

Officials from the Department of Economic Development stated this creates the Small Business Tax Credit Review Committee in DED. DED anticipates meeting and travel costs below those usually projected because some of the 5 member committee are DED employees. However, DED will be providing support for this new $10 million per year tax credit program. DED anticipates the need for one Economic Development Incentive Specialist III and associated costs. Committee support costs are projected to be a flat $5,000 per year.

This section states that $10 million of credits each fiscal year shall be available effective August 28, 2007; therefore, Oversight will assume these credits could be redeemed in fiscal year 2008. Oversight will range the fiscal impact of the tax credits from $0 (no credits being redeemed in a given year) to the annual limit of $10,000,000.

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Section 578.395;

Officials from the Department of Public Safety and the Office of the State Courts Administer each assume the proposal would not fiscally impact their respective agencies.

Section 142.815; 

Officials from the Department of Agriculture assume this amendment would not fiscally

impact their agency.

Officials from the Department of Transportation (MoDOT) state according to DESE they expect a 1.03% bus travel growth annually. The total bus miles traveled during the 2004-05 school year was 126,067,918. The average school bus gets 7 miles per gallon. Total gallons used (126,067,918/7 = 18,009,702.57). That would be an income loss of $3,061,649.44.

Adding the 1% growth rate the impact would be $2,577,000 for FY 08 - partial year, $3,122,000 for FY 09, and $3,154,000 for FY 2010. MODOT provided the following allocation of lost revenues (rounded):

                                                                                                                                                Officials from the Department of Elementary and Secondary Education (DESE) assume this proposal would create a savings to school districts and a loss to the state. DESE calculates that total miles traveled by school district owned and contracted buses were 126,067,918 for the 2005-2006 school year. By dividing total miles by an average of 7 miles per gallon, this yields 18,009,703 gallons of fuel used annually. Multiplying gallons of fuel used by 17 cents per gallon (the current Missouri fuel tax) results in an estimated annual fuel tax exemption for school districts of $3,061,650.

The above estimate assumes that school bus contractors have arrangements or can make arrangements so that the Missouri fuel tax will not be paid by the school bus contractors thereby reducing the cost of bus transportation to school districts. For example, it is a practice by some

ASSUMPTION (continued)

school districts to purchase fuel used by contractors.                                                              

In response to a similar proposal from this year (SB 421), officials from the Parkway School District assumed this proposal would result in a savings of approximately $50,000 per year to their organization. No other school districts responded to our request for information.

Oversight assumes the school districts would realize the full savings from the proposal, and that administrative costs to the state and the school districts would be minimal.

Section 135.660;

Officials from the Office of the State Treasurer assume this amendment would not fiscally

impact their agency.

Officials from the Department of Agriculture (MDA) assume this proposal will give an incentive to Missouri's cattle industry to retain ownership and background and/or finish cattle in this state. The growth in the cattle industry as a result of this legislation should have a positive economic impact on the state.

We estimate that about 1.65 million head of beef animals are marketed each year in Missouri. The legislation does require that the "qualifying beef animals" be raised and backgrounded or finished in the state. A generally accepted definition of backgrounding is that the calves would be weaned for a minimum of 45 days. Backgrounding could include those weaned up to an estimated 800 lbs which would then go to a feedlot for finishing.

Assuming:

45% of the 1.65 million are currently sold as weaned calves and also assuming that with this program 20% of those would be backgrounded and would put on an additional 300 lbs. (1.65m x 45% x 20% x 300lbs x $.10 = $4,455,000).

50% of the 1.65 million are currently sold as weaned calves and also assuming that with this program 5% of those backgrounded calves would be finished and would put on an additional 400 lbs (1.65m x 50% x 5% x 400lbs x $.10 = $1,650,000).

Total tax credit cost $6,105,000.

This tax credit is for tax years beginning on or after January 1, 2009. Therefore, Oversight assumes the earliest a credit could be utilized on a tax return would be in fiscal year 2010. Oversight will reflect the potential loss of income from this amendment of up to $10 million,

ASSUMPTION (continued)

which is the annual cap on the program.

Officials from the Department of Revenue assume Personal Tax would require 1 Tax Processing Technician I for every 6,000 credits claimed for verification/processing purposes.

Oversight assumes the many changes made to the various programs (including opening up the programs to charitable organizations or adding language making credits sellable or transferable) may increase the utilization of the programs and therefore increase the issuances of the tax credits. However, the fiscal notes from when these programs were created or last updated, reflected the potential loss of income to the state of $0 up to the annual limits. Therefore, while these changes may result in increased utilization of the programs, Oversight will not reflect additional fiscal impact.

In summary, the Department of Economic Development assumes the need for four employees plus E & E to administer the Distressed Areas Land Assemblage Tax Credit , Disability Access Tax Credit, Qualified Equity Investment tax credit, and the increase in the Film Production tax credit cap. DED assumes all changes will make the over all impact unknown. DED also assumes the need for one person to administer the Small Business Entrepreneurial Growth Act and one to administer the Small Business Tax Credit plus $5,000 in expenses for the Small Business Tax Credit review committee. While the over all cost is shown as unknown, the administrative costs would be in the $500,000 range.

In summary, the Department of Revenue assumes the need for 14 full time equivalents plus 8 temporary employees. DOR assumes the cost of these additional FTE to be roughly $650,000 per year.

Oversight compared the total tax credit issuances relative to the total tax credit redemptions for the previous three years in order to determine a relationship between the two. Oversight discovered that the annual redemptions ranged from 79 percent to 86 percent of the annual issuances. Depending on the program, the redeemed credits may have been issued several years prior and carried forward to the years studied; however, Oversight will utilize an estimated redemption total of 83 percent of tax credits issued.

Oversight will range the fiscal impact of the new program and the expansion of the existing programs from $0 (no additional tax credits will be issued) to the annual limit on the new program or the change in annual limits on the existing programs.

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Oversight assumes there would be some positive economic benefit to the state as a result of the changes in this proposal, however, Oversight considers these benefits to be indirect and therefore, have not reflected them in the fiscal note.                                                               

 This proposal could reduce Total State Revenues.