Bill Summary: Would increase the sales factor in corporate income apportionment calculations by three and decrease the corporate income tax rate to 5.5 percent.

ESTIMATED NET EFFECT ON GENERAL REVENUE FUND
FUND AFFECTED	FY 2009	FY 2010	FY 2011
General Revenue	$0	$439,100,000	$483,300,000

Total Estimated Net Effect on General Revenue Fund	$0	$439,100,000	$483,300,000

ESTIMATED NET EFFECT ON OTHER STATE FUNDS
FUND AFFECTED	FY 2009	FY 2010	FY 2011
	$0
Total Estimated Net Effect on Other State Funds	$0	$0	$0

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 2009	FY 2010	FY 2011


Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON FULL TIME EQUIVALENT (FTE)
FUND AFFECTED	FY 2009	FY 2010	FY 2011
General Revenue	0	0	0

Total Estimated Net Effect on FTE	0	0	0

☐ 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).

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 2009	FY 2010	FY 2011
Local Government	$0	$0	$0

Officials from the Department of Revenue (DOR) assume this proposal would have no direct fiscal impact to their organization. DOR officials also provided corporate income tax collections information for FY 2003 through FY 2007.

DOR officials included the Office of Administration Information Technology (ITSD/DOR) estimate that this legislation could be implemented utilizing 3 existing CIT III for 3 months for modifications to DOR systems, at a total cost of $37,674. ITSD/DOR assumes the IT portion of this request could be accomplished with existing resources; however, if priorities shift, additional resources would be needed.

Officials from the University of Missouri, Economic Policy and Analysis Research Center (EPARC) stated that the fiscal impact of this bill would be to reduce net general revenue by $22.7 million. EPARC provided a revenue estimate for a similar proposal. Based on 2002 corporate income tax data, EPARC indicated that corporate income taxes would increase from $370.7 million to $611.1 million (64.85%) if the proposal was enacted.

Officials from the Office of Administration, Division of Budget and Planning assume there would be no added cost to their organization as a result of this proposal.

This proposal would lower the corporate income tax rate from 6.25% to 5.5%. In fiscal year 2007, $381.8 million was collected in net corporate income taxes. This proposal would therefore lower general and total state revenues by (0.75 / 6.25 * 381.8) = $45.8M, beginning in FY 2009.

This proposal would also make changes to the calculation of corporate income using the three-factor formula. This proposal would weight the sales tax portion by a factor of 3. This provision would increase taxable corporate income. According to data supplied by EPARC, an estimated 28% of all corporate filers, and 87% of filers with apportionable income, opted for the three-factor method. BAP defers to EPARC or DOR for an estimate of the impact of this provision.

Oversight notes that the earlier EPARC estimate was for a proposal with a six percent corporate tax rate while this proposal includes a rate reduction to 5.5 percent. Oversight assumes that the change in tax revenues for this proposal would be (5.5 percent/6 percent) = 91.7 percent of the previous EPARC calculation and that the resulting revenue increase would be (64.85 percent x 91.7 percent) = 59.47 percent.

The proposal would become effective August 28, 2008 for corporate tax years beginning on or after September 1, 2008 which would be filed beginning September 1, 2009. Oversight assumes these revenues would be collected in state fiscal year 2010. Oversight used the corporate income tax revenues reported by DOR to calculate an estimated average annual increase of 10.06%. Applying the estimated DOR average annual increase and the EPARC estimate of the proposal's impact on corporate income taxes, Oversight calculated an overall estimated impact as shown below.

Estimated FY 2010 impact of this proposal ($738.4 million x 59.47%) $439.1 million

Estimated FY 2011 impact of this proposal ($812.7 million x 59.47%) $483.3 million

This proposal would have a direct fiscal impact to incorporated small businesses which have operations in more than one state.

The proposed legislation would require corporations with operations in more than one state to multiply the Missouri sales factor by three in the allocation of taxable income to Missouri, and would reduce the corporate income tax rate from six and one-fourth percent to five and one-half percent for tax years beginning on or after September 1, 2008.

This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space.

FISCAL IMPACT - State Government	FY 2009 (10 Mo.)	FY 2010	FY 2011
GENERAL REVENUE FUND

Revenue increase - Department of Revenue - Corporate income tax	$0	$439,100,000	$483,300,000

ESTIMATED NET EFFECT ON GENERAL REVENUE FUND	$0	$439,100,000	$483,300,000