COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. No.:         5319-01

Bill No.:          HB 2333

Subject:           Revenue Dept.; Taxation and Revenue - Income

Type:              Original

Date:               March 10, 2008

Bill Summary:            Would exempt 2008 federal tax rebates from state income tax.

FISCAL SUMMARY

Numbers within parentheses: ( ) indicate costs or losses.

This fiscal note contains 5 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 Office of Administration, Division of Budget and Planning (BAP) assume this proposal would not result in additional cost or savings no added cost to their organization.

This proposal would exclude from Missouri taxable income any advance refund amount received as a result of 2008 federal stimulus package. The CBO estimates the total federal cost of the individual rebates to be $115,400M. Assuming 1.75% of these rebates are received by Missouri taxpayers, and assuming these rebates are deemed taxable, Missouri taxable income could increase by $2,020M. At a 4.5% effective tax rate, this proposal could lead to foregone general and total state revenues of $91M.

Officials from the Department of Revenue (DOR) assume this proposal would have no fiscal impact on their organization.

Officials from the University of Missouri, Economic and Policy Analysis Research Center (EPARC) assumed a similar proposal (SB 1069 LR 4819-01) would exempt federal tax rebates paid in 2008 from state income tax. While the Missouri filer would identify income from a variety of earning sources, the rebate does not constitute an income source that would have been expected. Nor does the rebate affect the federal tax base. In the absence of any change to the tax base, the rebate neither adds nor subtracts to Missouri taxable income. Accordingly, EPARC assumes the fiscal impact of this bill is zero.

Oversight has estimated the potential fiscal impact of this proposal. According to the federal Internal Revenue Service, there were 2.6 million tax returns filed for 2005, of which 1.5 million were single filers and 1.1 million were joint filers. There were a total of 5.2 million exemptions claimed on these returns. The federal program would provide rebates of $600 for single filers and $1,200 for joint filers, $300 for dependents, and $300 for Social Security recipients and disabled veterans if they earned at least $3,000 in benefits in 2007. Oversight assumes that all of the rebates would be received by Missouri filers in the second half of 2008 and all of the fiscal impact would be in FY 2009.

ASSUMPTION (continued)

                        Total exemptions                                                                     5,200,000

                        Joint filers (1,100,000 filers x 2 exemptions)                         -2,200,000

                        Single filers (1,500,000 x 1 exemption)                                 -1,500,000

                        Estimated remaining exemptions                                            1,500,000

                        Single filer rebates - (1,500,000 x $600)                     $900,000,000

                        Joint filer rebates - (1,100,000 x $1,200)        $1,320,000,000

                        Rebates for dependents and others (1,500,000 x $300) $450,000,000

                        Estimated total rebates                                                $2,670,000,000 

                        Maximum Missouri income tax on rebates

                                    ($2,670,000,000 x 6%)                                    $160,200,000

Oversight assumes the reduction in potential state income tax revenue would be significantly less than the maximum of $167.4 million due to several factors.

            *          The federal rebates would be reduced for individuals with incomes over $75,000 and joint filers with incomes over $150,000.

            *          Many Missouri filers would be taxed on the federal rebates because their federal tax deduction exceeds the existing statutory limits.

            *          Many federal rebate recipients would not owe Missouri income tax since they have no Missouri taxable income.

Oversight is not able to estimate the impact of these exceptions and will indicate a fiscal impact less than $167.4 million for FY 2009 for this fiscal note.

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 federal economic stimulus tax rebates from Missouri tax.

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

                                                                                                March 10, 2008