COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. No.: 4042-01
Bill No.: HB 1551
Subject: Corporations; Taxation and Revenue - Income
Type: Original
Date: January 28, 2008
Bill Summary: Would authorize a gradual reduction in the annual corporate income tax rate.
FISCAL SUMMARY
ESTIMATED NET EFFECT ON GENERAL REVENUE FUND |
|||
FUND AFFECTED |
FY 2009 |
FY 2010 |
FY 2011 |
General Revenue |
$0 |
($78,000,000 to $110,780,000) |
($156,000,000 to $221,560,000) |
|
|
|
|
Total Estimated Net Effect on General Revenue Fund |
$0 |
($78,000,000 to $110,780,000) |
($156,000,000 to $221,560,000) |
ESTIMATED NET EFFECT ON OTHER STATE FUNDS |
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FUND AFFECTED |
FY 2009 |
FY 2010 |
FY 2011 |
|
|
|
|
|
|
|
|
Total Estimated Net Effect on Other State Funds |
$0 |
$0 |
$0 |
Numbers within parentheses: ( ) indicate costs or losses.
This fiscal note contains 6 pages.
ESTIMATED NET EFFECT ON FEDERAL FUNDS |
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FUND AFFECTED |
FY 2009 |
FY 2010 |
FY 2011 |
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|
|
|
|
|
|
|
Total Estimated Net Effect on All Federal Funds |
$0 |
$0 |
$0 |
ESTIMATED NET EFFECT ON FULL TIME EQUIVALENT (FTE) |
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FUND AFFECTED |
FY 2009 |
FY 2010 |
FY 2011 |
|
|
|
|
|
|
|
|
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 |
FISCAL ANALYSIS
ASSUMPTION
Officials from the Office of Administration, Division of Budget and Planning (BAP) assume this proposal would not result in additional costs or savings to their organization.
BAP officials stated that this proposal would phase out the corporate income tax in Missouri, beginning in FY10. The proposed tax rates, and estimated losses to general and total state revenues, are presented below.
|
Corporate Tax Rate |
Projected Net Collections (millions) |
Revenue Reduction (millions) |
FY 09 |
6.25% |
$390 |
$0 |
FY 10 |
5.00% |
$312 |
$78 |
FY 11 |
3.75% |
$234 |
$156 |
FY 12 |
2.50% |
$156 |
$234 |
FY 13 |
1.25% |
$78 |
$312 |
FY 14 |
0.00% |
$0 |
$390 |
Officials from the Department of Revenue (DOR) assume this proposal would have no fiscal impact on their organization. DOR officials provided this estimate of the IT cost to implement this proposal.
The Office of Administration, Information Technology Services Division (ITSD/DOR) assumes the IT portion of this request could be accomplished within existing resources, however; if priorities shift, additional FTE/overtime would be needed to implement this proposal. ITSD/DOR estimates that this legislation could be implemented utilizing 1 existing CIT III for 2 months for modifications to COINS at a total estimated cost of $8,372.
DOR officials also provided total net corporate income tax collections for FY 2007 of $553.9 million and for FY 2006 of $528.8 million.
ASSUMPTION (continued)
Oversight assumes there would be a reduction of FTE and related expenditures in the Department of Revenue when the corporation income tax is no longer imposed. That cost reduction would be after FY 2013 and will not be shown in this fiscal note.
Officials from the University of Missouri, Economic and Policy Analysis Research Center (EPARC) assume this proposal would reduce the corporate income tax rate over the next five years. More specifically, for tax year 2009, the corporate tax rate would be 5%, down from the current 6.25% rate. The rate would gradually decline, dropping to 3.75% in 2010, to 2.5% in 2011, to 1.25% in 2012, and 0% in 2013.
EPARC officials stated that they have reliable information for 2002; the taxable corporate income total was $4.5 billion and total FY 2003 collections were $355.4 million. EPARC provided a chart and narrative for projected corporate income tax collections from 2009 through 2013.
Year |
Tax Rate |
Tax revenues |
Revenue reduction |
2008 (based on 2002) |
6.25% |
$355.4 million |
$0 |
2009 |
5.00% |
$226.2 million |
$129.2 million |
2010 |
3.75% |
$169.7 million |
$185.7 million |
2011 |
2.50% |
$113.1 million |
$242.3 million |
2012 |
1.25% |
$56.6 million |
$298.8 million |
2013 |
0.00% |
$0 |
$355.4 million |
ASSUMPTION (continued)
Oversight will use the DOR reported corporate tax revenue amount for FY 2007 as the base for computing revenue reductions for the purposes of preparing this fiscal note, and will use the BAP assumption of a percentage-based reduction in tax revenues since this proposal reduces the tax rate by 1.25% each year. Oversight will provide a range for the estimated impact of this proposal using the BAP and Oversight calculations.
Year |
Fiscal Year |
Estimated Revenue (millions) |
Rate Reduction |
Estimated Revenue Reduction (millions) |
2008 |
FY 2009 |
$553.9 |
0 |
0 |
2009 |
FY 2010 |
$443.1 |
20% |
$110.78 |
2010 |
FY 2011 |
$332.3 |
40% |
$221.56 |
2011 |
FY 2012 |
$221.6 |
60% |
$332.34 |
2012 |
FY 2013 |
$110.8 |
80% |
$443.12 |
2013 |
FY 2014 |
$0.0 |
100% |
$553.90 |
This proposal could reduce Total State Revenue.
FISCAL IMPACT - State Government |
FY 2009 (10 Mo.) |
FY 2010 |
FY 2011 |
GENERAL REVENUE |
|
|
|
|
|
|
|
Revenue reduction - corporate income tax rate reduction |
$0 |
($78,000,000 to $110,780,000) |
($156,000,000 to $221,560,000) |
|
|
|
|
ESTIMATED NET EFFECT ON GENERAL REVENUE FUND |
$0 |
($78,000,000 to $110,780,000) |
($156,000,000 to $221,560,000) |
FISCAL IMPACT - Local Government |
FY 2009 (10 Mo.) |
FY 2010 |
FY 2011 |
|
|
|
|
|
$0 |
$0 |
$0 |
FISCAL IMPACT - Small Business
This proposal would have a fiscal impact on small businesses which are incorporated.
FISCAL DESCRIPTION
This proposal would authorize a gradual reduction in the corporate income tax rate.
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
Office of Administration
Division of Budget and Planning
Department of Revenue
University of Missouri
Economic and Policy Analysis Research Center
Mickey Wilson, CPA
Director
January 28, 2008