COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION


FISCAL NOTE

 

L.R. No.:         0363-07

Bill No.:          Perfected SS#2 for SCS for SB Nos. 26, 11 & 31

Subject:           Business and Commerce; Taxation and Revenue - Income

Type:              Original

Date:               March 11, 2013





 

Bill Summary:            This proposal would modify various laws regarding taxation.



FISCAL SUMMARY


ESTIMATED NET EFFECT ON GENERAL REVENUE FUND

FUND AFFECTED

FY 2014

FY 2015

FY 2016




General Revenue *

More than $3,988,491

(More than $167,702,875) or (More than $354,532,408)

(More than $243,911,915) or (More than $430,811,419)

 

 

 

 

Total Estimated

Net Effect on

General Revenue

Fund *

More than $3,988,491

(More than $167,702,875 or $354,532,408)

(More than $243,911,915 or $430,811,419)

*Fully implemented revenue reductions, exclusive of program implementation cost, exceed fully implemented revenue increases by $477,610,109 or $670,012,609.


Numbers within parentheses: ( ) indicate costs or losses.

This fiscal note contains 43 pages.



ESTIMATED NET EFFECT ON OTHER STATE FUNDS

FUND AFFECTED

FY 2014

FY 2015

FY 2016

Conservation Commission

(Up to $1,140,729)

(Up to $1,368,785)

(Up to $1,368,785)

Parks, and Soil and Water

(Up to $912,584)

(Up to $1,095,100)

(Up to $1,095,100)

School District Trust

(Up to $9,125,837)

(Up to $10,951,005)

(Up to $10,951,005)

Road Bond

$2,409,287

$7,227,863

$12,046,438

State Road

$1,758,780

$4,282,340

$8,793,900

Transportation

$48,105

$144,557

$204,388

Total Estimated

Net Effect on Other

State Funds

(Up to $6,962,798)

(Up to $1,760,130)


More than $7,629,836



ESTIMATED NET EFFECT ON FEDERAL FUNDS

FUND AFFECTED

FY 2014

FY 2015

FY 2016

 

 

 

 

 

 

 

 

Total Estimated

Net Effect on All

Federal Funds

$0

$0

$0





ESTIMATED NET EFFECT ON FULL TIME EQUIVALENT (FTE)

FUND AFFECTED

FY 2014

FY 2015

FY 2016

General Revenue

3 FTE

7 FTE

7 FTE

 

 

 

 

Total Estimated

Net Effect on

FTE

3 FTE

7 FTE

7 FTE


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 2014

FY 2015

FY 2016

Local Government

(Up to $34,075,859)

(Up to $39,806,851)

(Up to $38,602,207)



FISCAL ANALYSIS



ASSUMPTION


Section 32.070, etc., RSMo. - Streamlined Sales Tax Program:


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 provided the following analysis of the proposal:


This proposal would require the adoption and implementation of the Streamlined Sales Tax Agreement; the proposal would become effective Jan. 1, 2015.




ASSUMPTION (continued)


Two studies of the state and local revenues that Missouri might gain from collecting sales tax on e-commerce provided an estimated range of $108 million (Eisanach & Litan, Feb. 2010) and $210 million (Bruce, Fox, & Luna, April 2009). Both studies are limited to the gains from e-commerce, and do not attempt to estimate other remote sales.


BAP officials noted that remote sellers would be able to remit sales tax under this agreement and estimated that this proposal would generate at least $10 million in Total State Revenues annually, of which $7 million would be due to the General Revenue Fund. However, the full amount may not be collected during the first year, due to the administrative processes of becoming a full member state of the SSTA.


Oversight has reviewed the studies cited by BAP and we noted that there are significant differences between the two studies in the methodology used to estimate the level of internet and other remote sales, the proportion of remote sales which would be taxable, and the current level of compliance with existing tax provisions.


The Bruce, Fox, and Luna report suggests that approximately 25% of sales taxes due on e-commerce are uncollected, and that sales tax collections on e-commerce were $26.1 billion for the year 2010. This rough estimate of the uncollected sales tax would indicate that $8.7 billion was uncollected for the United States. If 1.8% of the $8.7 billion was due the state of Missouri, the additional revenue would amount to $156.6 million. The Eisenach and Litan report suggests only $3.8 billion in uncollected sales tax on e-commerce; 1.8% of that amount attributable to Missouri would be $70.2 million.


Information reported by the United States Census Bureau indicates that online retail sales grew at an average rate of 20% per year for the years 2000 to 2007, with lower growth rates for 2007 to 2009. A report by marketing and information technology consultants Forrester Research projected a 10% annual growth rate for the years 2009 through 2015, with online sales accounting for 11% of total retail sales (excluding groceries) by 2015.




ASSUMPTION (continued)


Oversight was provided an estimate of Streamlined Sales Tax Program revenue by officials from the Streamlined Sales Tax Governing Board. That estimate was based on comparing population and per capita income information for Missouri with the same information for states currently participating in the Streamlined Sales Tax program. Based on those calculations, Streamlined Sales Tax Governing Board officials estimated that those Missouri state funds which receive sales tax revenues would collect an additional $13.7 million in the first full year of operation.


Streamlined Sales Tax Governing Board officials stated that the program is currently voluntary, and the member states have agreed to simplify their sales tax programs and contract with third-party transaction processors who collect and remit sales taxes to the member states. Participating multistate retailers agree to collect and remit sales taxes to member states, typically in exchange for an amnesty on prior uncollected sales and use taxes.


Oversight assumes the Governing Board estimate is the most reasonable estimate of potential additional revenue under the current voluntary program. Additional revenue could become available in the future if the United States government approves law changes to make state sales tax laws enforceable on interstate sales.


The $13.7 million in additional collected would be due to the following state funds, and Oversight has also provided an estimate of additional revenues to local governments.


Entity

Tax Rate

 

General Revenue Fund

3.000%

$9,738,000

School District Trust Fund

1.000%

$3,246,000

Conservation Commission Fund

0.125%

$324,600

Parks, and Soils Fund

0.100%

$405,800

Local Governments *

Average 3.800%

$12,334,900

Total

NA

$26,049,300

 

* The average rate for local sales and use tax is calculated based on tax revenues reported by the Department of Revenue for the year ended June 30, 2010.




ASSUMPTION (continued)


For fiscal note purposes, Oversight will indicate additional revenue in excess of $100,000 per year for those state funds that receive sales tax revenues, and for local governments.


Sections 144.010, 144.030, and 144.605, RSMo. - Sales and Use Tax


In response to similar provisions in SB 174 LR 1031-01 (2013) officials from the Office of the Secretary of State (SOS) assumed many bills considered by the General Assembly include provisions allowing or requiring agencies to submit rules and regulations to implement the act. The SOS 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 the Secretary of State's Office for Administrative Rules is less than $2,500. The SOS 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.


In response to similar provisions in SB 174 LR 1031-01 (2013) officials from the Office of the Attorney General assumed any potential costs arising from this proposal could be absorbed with existing resources.


In response to similar provisions in SB 174 LR 1031-01 (2013) officials from the Joint Committee on Administrative Rules assumed the proposal would not have a fiscal impact to their organization in excess of existing resources.


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 assume this proposal would expand the definition of "seller" and other related definitions under sales tax law, to include more out-of-state vendors doing business inside the state. BAP officials also noted that various studies have suggested Missouri is losing hundreds of millions of dollars in sales taxes on sales by out-of-state vendors, often via e-commerce. These changes would allow DOR to begin capturing taxes from some vendors that are currently unidentified. It would also make it easier to comply with the Streamlined Sales Tax Agreement.




ASSUMPTION (continued)


BAP estimates this proposal would increase Total State Revenues by $10 million annually, of which $7 million would be deposited in the General Revenue Fund.


In response to similar provisions in SB 174 LR 1031-01 (2013) officials from the Department of Conservation (MDC) assumed the proposal would have an unknown fiscal impact, but greater than $100,000 to their organization. MDC officials noted that Conservation Sales Tax funds are derived from one-eighth of one percent sales and use tax pursuant to the Missouri Constitution and this proposal would expand the definition of "engaging in business" and "maintaining a business" within the state. MDC officials noted that any increase in sales and use tax collected would increase revenue to the Conservation Sales Tax funds, and assume the Department of Revenue would be better able to estimate the fiscal impact for this proposal.


In response to similar provisions in SB 174 LR 1031-01 (2013) officials from the Department of Natural Resources (DNR) assumed the proposal would modify existing provisions relating to Sales Tax and Compensating Use Tax. A presumption would be created that a vendor engages in business activities within this state if any person with a substantial nexus to Missouri performs certain activities in relation to the vendor within this state.


The proposal would void any agreement between the executive branch and any person that would exempt that person from the collection of sales and use tax, unless that agreement is approved by the General Assembly.


DNR officials noted that Parks and Soils Sales Tax Funds are derived from a one-tenth of one percent sales and use tax pursuant to the Missouri Constitution. DNR officials also noted that the proposal appears to expand who is required to collect the sales and use tax, potentially resulting in increased revenue for the Parks and Soils Sales Tax Funds.


DNR officials deferred to the Department of Revenue for an estimate of anticipated fiscal impact for the Parks and Soils Sales Tax Fund.




ASSUMPTION (continued)


In response to similar provisions in SB 174 LR 1031-01 (2013) officials from the Department of Revenue (DOR) assumed the proposal would modify the current definition of “engaging in business” in this state for sales and use tax purposes. This proposal would require approval by the General Assembly for any ruling, agreement, or contract between a person and this state's agencies exempting any person from collecting sales and use tax despite the presence of a warehouse, distribution center, or fulfillment center in this state that is owned or operated by the person or an affiliated person. An "affiliated person" would mean any person that is a member of the same "controlled group of corporations" as defined in Section 1563(a) of the Internal Revenue Code as the vendor.


A vendor would be presumed to "engage in business activities within this state" if any person, other than a common carrier acting in its capacity as such, that has substantial nexus with this state:

            1)        sells a similar line of products as the vendor and does so under the same or a similar business name,

            2)        maintains an office, distribution facility, warehouse, or storage place, or similar place of business in the state to facilitate the delivery of property or services sold by the vendor to the vendor's customers,

            3)        delivers, installs, assembles, or performs maintenance services for the vendor's customers within the state,

            4)        facilitates the vendor's delivery of property to customers in the state by allowing the vendor's customers to pick up property sold by the vendor at an office, distribution facility, warehouse, storage place, or similar place of business maintained by the person in the state; or

            5)        conducts any other activities in the state that are significantly associated with the vendor's ability to establish and maintain a market in the state for the sales.


The proposal would allow for the rebuttal of those presumptions by demonstrating that the person's activities in the state are not significantly associated with the vendor's ability to establish or maintain a market in this state for the vendor's sales.




ASSUMPTION (continued)


A vendor would also be presumed to engage in business in the state if that vendor enters into an agreement with one or more residents of this state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, if the cumulative gross receipts from sales under such arrangements exceed ten thousand dollars during the preceding twelve months. The proposal would allow for the rebuttal of this presumption by submitting

sworn written statements from all of the residents with whom the vendor has such an agreement.


Fiscal impact


DOR officials assumed the proposal would generate increased revenue from sellers located outside the state.


Administrative impact


DOR officials assumed Collections and Tax Assistance (CATA) would require one additional FTE Revenue Processing Technician I (Range 10, Step L) per 8,300 additional registrations / maintenance to business tax accounts in Business Tax Registration; one additional FTE Revenue Processing Technician I (Range 10, Step L) per 24,000 additional contacts annually to the registration phone line, with CARES equipment and agent license; and one additional FTE Revenue Processing Technician I (Range 10, Step L) per 4,800 contacts annually to the field offices, with CARES equipment and agent license.


The DOR response included three additional FTE along with the associated benefits, equipment, and expense, and totaled $123,042 for FY 2014, $122,613 for FY 2015, and $123,903 for FY 2016.


Oversight assumes the DOR estimate of expense and equipment cost for the new FTE could be overstated. If DOR is able to use existing desks, file cabinets, chairs, etc., the estimate for equipment for fiscal year 2014 could be reduced by roughly $6,000 per additional employee.




ASSUMPTION (continued)


Oversight has, for fiscal note purposes only, changed the starting salary for the additional employees 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, and the policy of the Oversight Subcommittee of the Joint Committee on Legislative Research. Oversight has also adjusted the DOR estimate of equipment and expense in accordance with OA budget guidelines. Finally, Oversight assumes a limited number of additional employees could be accommodated in existing office space.


Oversight has not been able to locate any reliable information as to the potential impact of sales and use tax changes in this proposal other than the estimates provided by the Office of Administration - Division of Budget and Planning and the Department of Revenue.

For fiscal note purposes, Oversight will assume that revenues from this proposal would generate more new sales and use tax revenue than would be needed to provide the additional employees requested by the Department of Revenue. If revenues are not adequate to support the costs of collections, Oversight assumes the program would be terminated.


Accordingly, Oversight will indicate additional revenues greater than the DOR costs for the General Revenue Fund. Oversight will indicate revenues greater than $100,000 per year for local governments and unknown additional revenues for the other state funds which receive general sales tax revenues. Oversight assumes the law changes in this proposal would not have an impact on motor vehicle or motor fuel sales and will not include any fiscal impact for transportation funds.


Section 143.011.1 RSMo. - Personal Income Tax:


Officials from the Office of Administration - Division of Budget and Planning (BAP) assume this proposal would not result in any additional costs or savings to their organization.


BAP officials note that this proposal would gradually reduce the top marginal individual income tax rate from 6.0% to 5.0% by 2018. In FY 2012, $4,913.9 million in net income taxes was collected at the 6% rate; based on that estimate, reducing the rate to 5.0% would reduce general and total state revenues by roughly $819 million.




ASSUMPTION (continued)


However, not all taxpayers pay taxes at the highest marginal tax rate. Applying the new tax rates in 2018 to marginal income data from tax year 2011 supplied to BAP by DOR, BAP officials estimated this proposal could reduce General and Total State Revenues by $710 million. BAP officials assume the reductions in the interim years would be proportional, and assume the University of Missouri - Economic and Policy Analysis Research Center (EPARC) may have a more precise estimate.


Also, BAP officials noted that the new tax rates would go into effect beginning 1/1/14, which would ultimately impact payments and refunds for taxes that are due 4/15/15, in FY 2015. However, it is likely that taxpayers (or the DOR) would adjust withholding rates to match the reduced liabilities. Therefore, this proposal could reduce General and Total State Revenues in FY 2014 by an unknown amount. For example, if the full impact of the reduction is $710 million, the first year of the phase-in could reduce General and Total State Revenues by $140 million. If the full amount is realized through reduced withholdings, BAP officials estimate FY 2014 receipts could be reduced by as much as $70 million.


This proposal would also phase in a deduction of business income from individual income tax; increasing from 10% in 2014, to 20% in 2015, to 30% in 2016; to 40% in 2017; and to 50% each year thereafter. Business Income is defined as income greater than zero arising from transactions and activity in the regular course of the taxpayer's trade or business and includes income from tangible property if the acquisition, management, and disposition of the property constitute integral parts of the taxpayer's regular trade or business operations.


BAP does not have data that specifically identifies taxable "business income". The IRS, in its Statistics of Income estimates for Missouri, provided the data in the chart below from tax year 2010. BAP notes it is possible that Capital Gains or Dividend Income, as well as additional forms of income, could be included in business income in certain cases. Therefore, BAP estimates business income would exceed $10.5 billion. At the highest 6% marginal tax rate, the exclusion of 50% of business income could exceed $315.8 million, notwithstanding any inflationary growth. BAP officials provided the following chart showing the potential personal income subject to deduction under the proposal:




ASSUMPTION (continued)


            Information reported by the Internal Revenue Service for Missouri.

            Amounts are in millions of dollars.

 

            Adjusted Gross Income                                              $135,415


            Business Income                                                          $3,960

            Partnership Income                                                      $6,565        

            Sub-total                                                                      $10,525        


            Percent of Adjusted Gross Income                              7.7%

                          

            Ordinary Dividends                                                     $3,295      

            Qualified Dividend                                                      $2,680      

            Net Capital Gain                                                          $3,803      

            Subtotal                                                                       $9,777      


            Percent of Adjusted Gross Income                              7.2%

                          

            Total                                                                            $20,302


            Total Percent of Adjusted Gross Income         15.0%


Oversight notes that the $10.5 billion in business income referred to in the BAP comment includes only the Business Income and Partnership Income in the chart above. If the Ordinary Dividends, Qualified Dividends, and Net Capital Gains in the chart above and referred to in the BAP response would be considered business income subject to deduction under this proposal, the total business income subject to deduction would be $20.3 billion or nearly twice as much as the initial BAP estimate of $10.5 billion, and the revenue reduction resulting from this provision would also be nearly twice as much.


BAP officials also noted that this proposal would make changes to various income tax provisions. BAP officials stated that they provide estimates of the various provisions independently of the others, and that interplay between the provisions could mean the net impact differs from the sum of the various estimates below. These proposals may impact other economic activity, but BAP does not have data to estimate the potential revenue impact.




ASSUMPTION (continued)


BAP officials also noted that this proposal would provide an additional $2,000 personal exemption for taxpayers with less than $20,000 Missouri Adjusted Gross Income (MAGI). BAP officials assume this provision could reduce General and Total State Revenues by an unknown amount.


Officials from the University of Missouri, Economic and Policy Analysis Research Center (EPARC) provided this response for the personal income tax provisions in this proposal:


This proposal would gradually reduce the individual income tax rates by modifying the personal income tax table yearly through 2018. Eventually by 2018 the top two tax brackets would be eliminated, reducing the Missouri personal income tax table to eight brackets. At that time, filers with taxable income over $7,600 would be taxed at a new maximum tax rate of 5.25%.


This proposal would also allow an additional $2,000 personal and spouse income exemption for individuals earning less than $20,000 in Missouri adjusted gross income.


Finally, this proposal would allow a “business income” subtraction from filers’ federal adjusted gross income when deriving their Missouri adjusted gross income; a 10% subtraction for 2014, a 20% subtraction for 2015, a 30% subtraction for 2016, a 40% subtraction for 2017 and a 50% subtraction for 2018 and later years.


EPARC officials noted that their simulation process requires all changes in individual income provisions to be analyzed together.


EPARC officials determined “business income” for the Missouri 1040 by assuming that business income would be reported self-employment income on the filers’ federal form 1040; EPARC then divided each filer’s self-employment tax by the applicable tax rate. The resulting EPARC estimate of aggregate positive “business income” was $7,229,010,965 for 312,226 Missouri filers.


EPARC officials provided a set of simulations for the changes in the proposal including the reduced tax rates, business income deductions, and additional exemptions for low-income filers.




ASSUMPTION (continued)


Oversight will use the EPARC estimates of revenue reduction as compiled in the following chart:






Year


Maximum Personal Income Tax Rate

Income Level at Which New Maximum Rate Applies


Business Income Deduction Rate




Estimated Net Tax Due




Revenue Reduction

Baseline

6.00%

$9,000

0

$4,693,390,000

NA

2014 (FY 2015)

5.85%

$8,700

10 %

$4,490,798,000

$202,592,000

2015 (FY 2016)

5.70%

$8,400

20 %

$4,360,856,000

$332,534,000

2016 (FY 2017)

5.55%

$8,100

30 %

$4,234,019,000

$459,371,000

2017 (FY 2018)

5.40%

$7,900

40%

$4,107,362,000

$586,028,000

2018 (FY 2019)

5.25%

$7,600

50%

$3,991,578,000

$701,812,000


These provisions would become effective as of January 1 and Oversight assumes the tax returns for that year would be filed beginning January 1 of the following year. Although the rate changes and other provisions could lead to taxpayers adjusting their tax withholding or their estimated tax payments, Oversight will assume for fiscal note purposes that the 2014 changes would become effective for FY 2015.


Section 143.011.2 RSMo. - Personal Income Tax:


Oversight also notes that this proposal includes a provision which would further reduce the personal income tax rate by 0.25% upon the passage of a federal law allowing states to apply sales taxes to internet and other remote sales in their state.


EPARC officials provided a set of simulations for the potential additional revenue reduction for this provision. These simulations also included the reduced tax rates, business income deductions, and additional exemptions for low-income filers discussed above.




ASSUMPTION (continued)


Oversight will use the EPARC estimates of revenue reduction and notes that this provision is contingent. For fiscal note purposes, Oversight will indicate a range of revenue reduction of $0 (no federal law) or the impact in the table below (federal law passed).





Year

 Rate Without Federal Law


Net Tax Due Without Federal Law

Rate With Federal Law


Net Tax Due With Federal Law


Additional

Revenue Reduction

Baseline

6.00%

$4,693,390,000

6.00%

NA

NA

2014 (FY 2015)

5.85%

$4,490,798,000

5.60%

$4,318,629,000

$172,169,000

2015 (FY 2016)

5.70%

$4,360,856,000

5.45%

$4,188,617,000

$172,239,000

2016 (FY 2017)

5.55%

$4,234,019,000

5.30%

$4,060,857,000

$173,162,000

2017 (FY 2018)

5.40%

$4,107,362,000

5.15%

$3,936,238,000

$171,124,000

2018 (FY 2019)

5.25%

$3,991,578,000

5.00%

$3,813,840,000

$177,738,000


These provisions would become effective as of January 1, and Oversight assumes the tax returns for that year would be filed beginning January 1 of the following year. Although the rate changes and other provisions could lead to taxpayers adjusting their tax withholding or their estimated tax payments, Oversight will assume for fiscal note purposes that the 2014 changes would become effective for FY 2015.


Section 143.071.3 RSMo. - Corporate Income Tax:


Officials from the Office of Administration - Division of Budget and Planning (BAP) assume this proposal would not result in any additional costs or savings to their organization. BAP officials stated that this proposal would phase in a reduction in corporate tax rates, from 6.25% to 5.25%. General and total state revenues would be reduced as in the table below:




ASSUMPTION (continued)


 

Tax Rate

Collections ($ millions)

Loss ($ millions)

FY 2012

6.25

275.6

 

FY 2015

6.05

266.8

8.8

FY 2016

5.85

258.0

17.6

FY 2017

5.65

249.1

26.5

FY 2018

5.45

240.3

35.3

FY 2019

5.25

231.5

44.1


Officials from the University of Missouri, Economic and Policy Analysis Research Center (EPARC) noted the corporate income tax provisions in this proposal would gradually reduce the corporate income tax rate, and would exempt the first $25,000 of corporate income from taxation.


EPARC officials provided a set of simulations for the changes in the proposal including the reduced tax rates, business income deductions, and additional exemptions for low-income filers.




ASSUMPTION (continued)


Oversight will use the EPARC estimates of revenue reduction as compiled in the following chart:





Year


Corporate

Income Tax Rate

Estimated

Corporate

Income Tax

Liability



Revenue Reduction

Baseline

6.25%

$383,905,000

NA

2014 (FY 2015)

6.10%

$357,717,000

$26,188,000

2015 (FY 2016)

5.95%

$348,920,000

$34,985,000

2016 (FY 2017)

5.80%

$340,124,000

$43,781,000

2017 (FY 2018)

5.65%

$331,328,000

$52,577,000

2018 (FY 2019)

5.50%

$322,531,000

$61,374,000


These provisions would become effective as of January 1, and Oversight assumes the tax returns for that year would be filed beginning January 1 of the following year. Although the rate changes and other provisions could lead to taxpayers adjusting their estimated tax payments, Oversight will assume for fiscal note purposes that the 2014 changes would become effective for FY 2015.


Section 143.071.5 RSMo. - Corporate Income Tax:


Oversight also notes that this proposal includes a provision which would further reduce the corporate income tax rate by 0.25% upon the passage of a federal law allowing states to apply sales taxes to internet and other remote sales in their state.


Oversight has estimated the revenue reduction which would result from the additional corporate tax rate reduction. These estimates also include the reduced corporate income tax rates and

exempt the first $25,000 of corporate income from taxation discussed above.




ASSUMPTION (continued)



Oversight notes that this provision is contingent. For fiscal note purposes, Oversight will indicate a revenue reduction of $0 (no federal law) or the impact in the table below (federal law passed).





Year

Tax Rate Without

Federal Law

Tax Due Without

Federal Law

 

Rate With Federal Law


Tax Due With Federal Law

Additional

Revenue Reduction

Baseline

6.25%

$383,905,000

6.25%

$383,905,000

NA

2014 (FY 2015)

6.10%

$357,717,000

5.85%

$343,056,467

$14,660,533

2015 (FY 2016)

5.95%

$348,920,000

5.70%

$334,259,496

$14,660,504

2016 (FY 2017)

5.80%

$340,124,000

5.55%

$325,463,483

$14,660,517

2017 (FY 2018)

5.65%

$331,328,000

5.40%

$316,667,469

$14,660,531

2018 (FY 2019)

5.50%

$322,531,000

5.25%

$307,870,500

$14,664,500


These provisions would become effective as of January 1 and Oversight assumes the tax returns for that year would be filed beginning January 1 of the following year. Although the rate changes and other provisions could lead to taxpayers adjusting their estimated tax payments, Oversight will assume for fiscal note purposes that the 2014 changes would become effective for FY 2015.


Sections 144.020, 144.021, & 144.440 RSMo. - Sales and Use Tax


Officials from the Office of Administration - Division of Budget and Planning (BAP) assume this proposal would not result in any additional costs or savings to their organization. BAP officials noted that these provisions would increase the state sales tax rate from 4% to 4.5% over a 5-year period. This provision would increase General and Total State Revenues, as well as highway funds.




ASSUMPTION (continued)


The General Revenue Fund portion of the sales tax rate increases from 3 to 3.5% over a 5-year period. The impact on calendar years would be as shown in the chart below; however, BAP officials estimates the increase in FY 2014 would be 5/12 of the estimated increase in calendar year 2014. The increase would be effective 1/14 and in effect for six months, but it would likely be 2/14 before businesses remit taxes at the new rate.


General Revenue Fund


Year


Rate

Collections

($ millions)

Revenue Growth

($ millions)

2012

3.0%

$1,873.3

 

2014

3.1%

$1,935.7

$62.4

2015

3.2%

$1,998.2

$124.9

2016

3.3%

$2,060.6

$187.3

2017

3.4%

$2,123.1

$249.8

2018

3.5%

$2,185.5

$312.2




ASSUMPTION (continued)


BAP officials also noted that the proposal would increase motor vehicle sales tax and highway use tax collections in the same way as GR. Based on information from the 2011 Department of Revenue Annual Report, revenues would increase as shown in the following tables:


Motor Vehicle Sales Tax


Year


Rate

Collections

($ millions)

Revenue Growth

($ millions)

2012

3.0%

$207.3

 

2014

3.1%

$214.2

$6.9

2015

3.2%

$221.1

$13.8

2016

3.3%

$228.0

$20.7

2017

3.4%

$234.9

$27.6

2018

3.5%

$241.9

$34.6


Highway Use Tax


Year


Rate

Collections

($ millions)

Revenue Growth

($ millions)

2012

3.0%

$67.8

 

2014

3.1%

$69.5

$1.7

2015

3.2%

$71.2

$3.4

2016

3.3%

$72.9

$5.1

2017

3.4%

$74.6

$6.8

2018

3.5%

$76.3

$8.5




ASSUMPTION (continued)


Officials from the University of Missouri, Economic and Policy Analysis Research Center (EPARC) provided this response for the sales tax provisions in this proposal:


The current effective sales tax rate for General Revenue Fund collections is 3%, and this proposal would increase that rate by one-tenth of a percent each year from 2014 to 2018. EPARC officials noted that General Revenue Fund Sales Tax Collections for calendar year 2012 were $1,872,741,982 and a General Revenue apportionment of the Motor Vehicle Sales Tax was $1,574,153. Both of these collections would be impacted by an increase in the general sales tax rate.


Combined, these collections equal to $1,874,316,135. If we multiply this amount by one-thirtieth we can estimate the increase in collections generated by a one-tenth increase in the sales tax rate: $62,477,205. Therefore we would expect an increase in sales tax collections of $62,477,205 in 2014, $124,954,409 in 2015, $187,431,614 in 2016, $249,908,818 in 2017, and $312,386,023 in 2018.


Oversight notes that the proposal would specify the following Missouri General Sales Tax Rate:

 

            *          For the 2014 calendar year, four and one-tenth percent;

            *          For the 2015 calendar year, four and one-fifth percent;

            *          For the 2016 calendar year, four and three-tenth percent;

            *          For the 2017 calendar year, four and two-fifth percent; and

            *          For the 2018 and subsequent calendar years, four and one-half percent.


Existing provisions allocate three percent of the current four percent general sales tax to the General Revenue Fund and one percent to the School District Trust Fund. This proposal would increase the sales tax rate as of January 1 each year, and the increase would be deposited into the General Revenue Fund. Each increase would be implemented in the middle of the fiscal year; the revenue increase for any given year would be based on the average of the rate for the prior year and the rate for that year.


The Department of Revenue reported sales tax collections of $1,871,707,753 for the General Revenue Fund for the year ended June 30, 2012. The proposal would change the sales tax as of the first of a calendar year




ASSUMPTION (continued)


Oversight assumes that the additional sales tax revenue to the General Revenue Fund would be estimated as shown in the following chart. The fiscal year impact is estimated based on the increased rate becoming effective each January 1; the effective sales tax rate for a fiscal year would be approximately equal to the average of the current calendar year rate and the prior calendar year rate.


General Revenue Fund



Year


Sales Tax Rate


Sales Tax Revenue

Calendar Year

Additional Revenue

Fiscal Year

Additional Revenue

Baseline (2012)

3.00%

$1,871,707,753

NA

NA

2014

3.10%

$1,934,098,011

$62,390,258

$31,195,129

2015

3.20%

$1,996,488,270

$124,780,517

$93,585,388

2016

3.30%

$2,058,878,528

$187,170,775

$155,975,646

2017

3.40%

$2,121,268,787

$249,561,034

$218,365,905

2018 and

Following Years


3.50%


$2,183,659,045


$311,951,292


$280,756,163




ASSUMPTION (continued)


Oversight notes that the increased sales tax rate would also apply to Highway Funds. The Oversight estimate is based on FY 2012 collections reported by the Department of Revenue.

The fiscal year impact is estimated based on the increased rate becoming effective each

January 1; the effective sales tax rate for a fiscal year would be approximately equal to the average of the current calendar year rate and the prior calendar year rate.


Motor Vehicle Sales Tax



Year


Sales Tax Rate


Sales Tax Revenue

Calendar Year

Additional Revenue

Fiscal Year

Additional Revenue

Baseline (2012)

3.00%

$218,191,710

NA

NA

2014

3.10%

$225,464,767

$7,273,057

$3,636,529

2015

3.20%

$232,737,824

$14,546,114

$10,909,586

2016

3.30%

$240,010,881

$21,819,171

$18,182,643

2017

3.40%

$247,283,938

$29,092,228

$25,455,700

2018 and

Following Years

3.50%

$254,556,995

$36,365,285

$32,728,757




ASSUMPTION (continued)


The additional Motor Vehicle Sales Tax revenue would be allocated as follows:


Motor Vehicle Sales Tax Allocation

Fund or

Entity


Road Bond


State Road

State

Transportation

Cities and Counties

Allocation

50%

36.5%

1%

12.5%

FY 2014

$1,818,264

$1,327,333

$36,365

$454,566

FY 2015

$5,454,793

$2,987,999

$109,096

$1,363,698

FY 2016

$9,091,321

$6,636,665

$181,826

$2,272,830

FY 2017

$12,727,850

$9,291,330

$254,557

$3,181,962

FY 2018 and Following Years

$16,364,378

$11,945,996

$327,288

$4,091,095



Highway Use Tax



Year


Sales Tax Rate


Sales Tax Revenue

Calendar Year

Additional Revenue

Fiscal Year

Additional Revenue

Baseline (2012)

3.00%

$70,922,807

NA

NA

2014

3.10%

$73,286,901

$2,364,094

$1,182,047

2015

3.20%

$75,650,994

$4,728,187

$3,546,140

2016

3.30%

$78,015,088

$7,092,281

$5,910,234

2017

3.40%

$80,379,181

$9,456,374

$8,274,327

2018 and

Following Years

3.50%

$82,743,275

$11,820,468

$10,638,421




ASSUMPTION (continued)


The additional revenue would be allocated as follows:


Highway Use Tax Allocation

Fund or

Entity


Road Bond


State Road

State

Transportation

Cities and Counties

Allocation

50%

36.5%

1%

12.5%

FY 2014

$591,023

$431,447

$11,820

$147,756

FY 2015

$1,773,070

$1,294,341

$35,461

$443,268

FY 2016

$2,955,117

$2,157,235

$59,102

$738,779

FY 2017

$4,137,164

$3,020,130

$82,743

$1,034,291

FY 2018 and Following Years

$5,319,211

$3,883,024

$106,384

$1,329,803


Sales Tax Exemptions


Section 144.020, RSMo. Sales Tax Exemption on Recreation:


Officials from the Joint Committee on Administrative Rules assumed that similar provisions in

HB 149 LR 0533-01 (2013) would not have a fiscal impact to their organization in excess of existing resources.


Officials from the Department of Revenue (DOR) assumed that similar provisions in

HB 149 LR 0533-01 (2013) would exempt amounts paid for admission, seating, accommodations, or fees paid to places of recreation from the state sales tax. Based on taxable sales figures from 2011, DOR officials estimated a reduction in sales tax revenue to the General Revenue Fund of approximately $22.2 million and a reduction in Total State Revenue of $31.2 million.




ASSUMPTION (continued)


Administrative impact


DOR officials assumed Collections and Tax Assistance (CATA) would need to send letters to all "recreation" businesses to determine if they have sales that are still taxable. Also, CATA would see an increase in phone calls, file maintenance, and bond refunds based on this legislation.


DOR officials also assumed CATA would require one additional FTE Revenue Processing Technician I (Range 10, Step L) per 24,000 additional contacts annually to the registration section, with CARES equipment and agent license; and one additional FTE Revenue Processing Technician I (Range 10, Step L) per 4,800 additional contacts annually to the tax assistance offices, with CARES equipment and agent license. In addition, the Legal Services Division would require one additional FTE Legal Counsel to cover additional sales tax litigation.


The DOR estimate of fiscal impact for this proposal included three additional employees; with benefits, equipment, and expense, the DOR estimate totaled $147,618 for FY 214, $159,096 for FY 215, and $160,736 for FY 2016.


Oversight notes that DOR officials assumed a similar proposal in a previous session (SB 288 LR 1587-01, 2011) would have no fiscal impact on their organization, and will not include any DOR costs in the fiscal impact for this proposal. Oversight assumes that notification costs to potentially exempt sellers would be provided in regular DOR communications to sales tax licensees.


Officials from the City of Kansas City assumed in response to similar provisions in

HB 149 LR 0533-01 (2013) that exempting from local sales tax amounts paid for admission or fees to places of recreation would result in the following annual revenue losses to their organization, assuming an effective date for the legislation at the end of August, 2013:


Fiscal year ending April 30, 2014: $866,667 revenue loss (8 months loss)

Fiscal year ending April 30, 2015:    $1,300,000 revenue loss

Fiscal year ending April 30, 2016:     $1,300,000 revenue loss


Officials from St. Louis County assumed similar provisions in HB 149 LR 0533-01 (2013) would result in a small but unknown loss to their organization.




ASSUMPTION (continued)


Officials from the Office of Administration, Division of Budget and Planning (BAP) assumed similar provisions in HB 149 LR 0533-01 (2013) would not result in additional costs or savings to their organization.


BAP officials stated the proposal would create a state and local sales tax exemption for the amount paid for admission and seating accommodations, or fees paid to, or in, any place of recreation. BAP officials noted that "recreation" is not defined in statute.


BAP officials provided information from the Department of Revenue (DOR) for taxable sales from SIC Code 79, Amusement and Recreation Services, in 2011, and noted that sales taxes may be reduced by the amounts below. BAP officials noted that these sales may include sales of tangible goods, which would not be exempt under this proposal. Also, additional sellers not classified in SIC 79 could also be classified as "recreation", which would increase the revenue loss.


Reported Sales

 

            SIC     DESCRIPTION                                                                      SALES TOTAL

            791      DANCE HALLS, STUDIOS, AND SCHOOLS                    $4,936,920.82

            792      PRODUCERS, ORCHESTRAS, ENTERTAINERS             $54,026,838.31

            793      BOWLING BILLARD ESTABLISHMENTS                       $72,623,115.43

            794      COMMERCIAL SPORTS                                                     $339,909,520.89

            798      RIVERBOATS - NO GAMBLING                                       $124,954,004.45

            799      MISC. AMUSEMENT AND RECREATION                       $633,845,781.00

79AMUSEMENT/RECREATION SERVICES $1,230,296,180.90

 

Sales Tax Revenue

 

                        General Revenue Fund                                                            $36,908,885

                        School District Trust Fund                                                      $12,302,962

                        Conservation Commission Fund                                             $1,537,870

                        Parks, and Soils and Water Fund                                             $1,230,296



ASSUMPTION (continued)


Oversight will use the BAP / DOR estimate of sales tax revenue and will assume that Local governments would have a revenue reduction of ($1,230,296,181 X 3.8 % average rate) = $46,751,255. Oversight calculated the 3.8 % average local sales tax rate based on DOR reported collections of local sales tax. For fiscal note purposes, Oversight will include losses as follows:



Revenue Reductions from Recreation Sales Tax Exemption

 

 

FY 2014

(10 months)

FY 2015

Full year

FY 2016

Full year

 

General Revenue

$30,757,404

$36,908,885

$36,908,885

 

School District Trust

$10,252,468

$12,302,962

$12,302,962

 

Conservation Commission

$1,281,558

$1,537,870

$1,537,870

 

Parks, and Soil and Water

$1,025,247

$1,230,296

$1,230,296

 

Local governments

$38,959,379

$46,751,255

$46,751,255

 


Oversight will not include an annual increase in the revenue reduction for the General Revenue Fund, since the exemption would presumably become effective before the phased in increase in the sales tax rate would become effective.


Officials from the Office of the Secretary of State assume this proposal would have no fiscal impact on their organization.



ASSUMPTION (continued)


Section 144.517, RSMo. Sales Tax Exemption on Textbooks


Oversight notes that Section 144.517 RSMo, which allowed the exemption, was repealed in this proposal and the exemption was not included in the replacement provisions.


Officials from the University of Missouri, Economic and Policy Analysis Research Center (EPARC) provided this response for the sales tax provisions in this proposal:


This proposal repealed the current sales tax exemption for textbooks. EPARC officials stated that their data indicated textbook sales during the 2012 calendar year amounted to $135,195,748. At an effective three and one-tenth percent sales tax rate EPARC officials estimated the repeal of the textbook exemption would increase sales tax collections by $4,191,068 in 2014. At an effective three and one-fifth percent sales tax rate the repeal of the exemption would increase sales tax collections by $4,326,263 in 2015. At an effective three and three-tenths percent sales the repeal of the exemption would increase sales tax collections by $4,461,560 in 2016. At an effective three and two-fifths percent sales tax rate the repeal of the exemption would increase sales tax collections by $4,596,655 in 2017. At an effective three and one-half percent sales tax rate the repeal of the exemption would increase sales tax collections by $4,731,851 in 2018.




ASSUMPTION (continued)


Oversight will use the EPARC estimate of additional revenue and has calculated the fiscal year impact of this provision based on the increased rate becoming effective each January 1; the effective sales tax rate for a fiscal year would be approximately equal to the average of the current calendar year rate and the prior calendar year rate.


General Revenue Fund Textbook Sales Tax



Year



Sales Tax Rate

Additional

Calendar Year

Sales Tax Revenue

Additional

Fiscal Year

Sales Tax Revenue

Baseline (2012)

3.00%

$4,191,068

 

2014

3.10%

$4,330,770

$4,260,919

2015

3.20%

$4,470,473

$4,400,622

2016

3.30%

$4,610,175

$4,540,324

2017

3.40%

$4,749,877

$4,680,026

2018 and

Following Years

3.50%

$4,889,579

$4,819,728

 

 

 

 


Oversight also notes that this provision could become effective as of the end of August, 2013 (FY 2014); therefore Oversight will include ten months of revenue ($4,260,919 x 10/12) = $3,550,766 for FY 2014.




ASSUMPTION (continued)


Oversight notes that other state fund which receive sales tax revenues, and local governments would have additional revenue due to the repeal of the exemption.



Fund or entity



Sales Tax Rate


Additional

Annual Revenue

FY 2014 Additional Revenue

(10 months)

Conservation Commission

0.125%

$168,995

$140,829

Parks, and Soil and Water

0.100%

$135,196

$112,663

School Districts

1.000%

$1,351,957

$1,126,631

Local governments

3.800%

$5,137,438

$4,281,198





FISCAL IMPACT - State Government

FY 2014

(10 Mo.)

FY 2015

FY 2016

GENERAL REVENUE FUND

 

 

 

 

 

 

 

Additional revenue - DOR

Streamlined sales tax

Sections 32.070, etc.


More than $100,000


More than $100,000


More than $100,000

 

 

 

 

Additional revenue - DOR

Sales and use tax nexus

Sections 140.010, 144.030, and 144.605


More than $112,424


More than $107,294


More than $108,497

 

 

 

 

Additional Revenue - DOR

Repeal textbook sales tax exemption

Section 144.517



$3,550,766



$4,400,622



$4,540,324

* Fully implemented revenue increase for 2018 is $4,819,728.

 

 

 

 

Additional Revenue - DOR

Increased sales tax rate

Section 144.020, 144.21, 144.440 *



$31,195,129



$93,585,388



$155,975,646

* Fully implemented revenue increase for 2018 is $280,756,163.

 

 

 

 

Cost - DOR

Streamlined sales tax program

Sections 32.070, etc.


(More than $100,000)


(More than $100,000)


(More than $100,000)

 

 

 

 

Cost - DOR

Sales and use tax nexus

Sections 144.010, 144.030, and 144.605

 

 

 

     Salaries and wages (3 FTE)

($57,840)

($69,408)

($70,102)

     Benefits

($29,351)

($35,221)

($35,573)

     Equipment and expense

($25,233)

($2,665)

($2,732)

          Total costs - DOR

($112,424)

($107,294)

($108,407)

          FTE change - DOR

3 FTE

3 FTE

3 FTE

 

 

 

 

 

 

 

 

Cost - DOR

Personal income tax

Section 143.011

 

 

 

     Salaries

$0

($46,735)

($109,383)

     Temporary employees

$0

($7,800)

($15,756)

     Benefits

$0

($27,649)

($55,506)

     Equipment and expense

$0

($38,511)

($3,614)

Total

$0

($120,695)

($184,259)

     FTE Change - DOR

 

4 FTE

4 FTE

 

 

 

 

Revenue reduction - DOR

Personal income tax

Section 143.011.1 *



$0



($202,592,000)



($332,534,000)

* Fully implemented cost for FY 2019 is $701,812,000.

 

 

 

 

Revenue reduction - DOR

Personal income tax

Marketplace Fairness Act contingency

Section 143.011.1 *




$0



$0 or ($172,169,000)



$0 or ($172,239,000

* Fully implemented cost for FY 2019 is $0 or $177,738,000.

 

 

 

 

Revenue reduction - DOR

Corporate income tax

Section 143.071.3 *



$0



($26,188,000)



($34,985,000)

* Fully implemented cost for FY 2019 is $61,374,000.

 

 

 

 

Revenue reduction - DOR

Corporate income tax

Marketplace Fairness Act contingency

Section 143.071.5 *



$0



$0 or

($14,660,533)



$0 or

($14,660,504)

* Fully implemented cost for FY 2019 is $0 or $14,664,500.

 

 

 

 

Revenue reduction - DOR

Recreation sales tax exemption

Section 144.020



($30,757,404)



($36,908,885)



($36,908,885)

 

 

 

 

ESTIMATED NET EFFECT ON GENERAL REVENUE FUND


More than $3,988,491

(More than $167,702,875 or $354,532,408)

(More than $243,911,915 or $430,811,419)

 

* Fully implemented revenue reductions, exclusive of program implementation cost, exceed fully implemented revenue increases by $477,610,109 or $670,012,609 for FY 2019 and later years.

 

Estimated Net FTE Effect on General Revenue Fund


3 FTE


7 FTE


7 FTE

 

 

 

 

CONSERVATION COMMISSION FUND

 

 

 

 

 

 

 

Additional revenue - DOR

Sales and use tax nexus

Sections 140.010, 144.030, and 144.605



Unknown



Unknown



Unknown

 

 

 

 

Additional revenue - DOR

Streamlined sales tax

Sections 32.070, etc.


More than $100,000


More than $100,000


More than $100,000

 

 

 

 

Additional Revenue - DOR

Repeal textbook sales tax exemption

Section 144.517



$140,829



$168,995



$168,995

 

 

 

 

Revenue reduction - DOR

Recreation sales tax exemption

Section 144.020



($1,281,558)



($1,537,870)



($1,537,870)

 

 

 

 

ESTIMATED NET EFFECT ON CONSERVATION COMMISSION FUND


(Up to $1,140,729)


(Up to $1,368,785)


(Up to $1,368,785)

 

 

 

 

 

 

 

 

 

 

 

 

PARKS, AND SOIL AND WATER FUND

 

 

 

 

 

 

 

Additional revenue - DOR

Streamlined sales tax

Sections 32.070, etc.


More than $100,000


More than $100,000


More than $100,000

 

 

 

 

Additional revenue - DOR

Sales and use tax nexus

Sections 140.010, 144.030, and 144.605



Unknown



Unknown



Unknown

 

 

 

 

Additional Revenue - DOR

Repeal textbook sales tax exemption

Section 144.517



$112,663



$135,196



$135,196

 

 

 

 

Revenue reduction - DOR

recreation sales tax exemption

Section 144.020



($1,025,247)



($1,230,296)



($1,230,296)

 

 

 

 

ESTIMATED NET EFFECT ON PARKS, AND SOIL AND WATER FUND


(Up to $912,584)


(Up to $1,095,100)


(Up to $1,095,100)

 

 

 

 

 

 

 

 

 

 

 

 

SCHOOL DISTRICT TRUST FUND

 

 

 

 

 

 

 

Additional revenue - DOR

Sales and use tax nexus

Sections 140.010, 144.030, and 144.605



Unknown



Unknown



Unknown

 

 

 

 

Additional revenue - DOR

Streamlined sales tax

Sections 32.070, etc.


More than $100,000


More than $100,000


More than $100,000

 

 

 

 

Additional Revenue - DOR

Repeal textbook sales tax exemption

Section 144.517



$1,126,631



$1,351,957



$1,351,957

 

 

 

 

Revenue reduction - DOR

Recreation sales tax exemption

Section 144.020



($10,252,468)



($12,302,962)



($12,302,962)

 

 

 

 

ESTIMATED NET EFFECT ON SCHOOL DISTRICT TRUST FUND

(Up to $9,125,837)

(Up to $10,951,005)

(Up to $10,951,005)

 

 

 

 

ROAD BOND FUND

 

 

 

 

 

 

 

Additional Revenue - DOR

Increased sales tax rate on vehicles

Section 144.020, 144.21, 144.440 *



$1,818,264



$5,454,793



$9,091,321

* Fully implemented revenue increase for 2018 is $16,364,378.

 

 

 

 

Additional Revenue - DOR

Increased highway use tax on vehicles

Section 144.020, 144.21, 144.440 *



$591,023



$1,773,070



$2,955,117

* Fully implemented revenue increase for 2018 is $5,319,211.

 

 

 

 

ESTIMATED NET EFFECT ON ROAD BOND FUND


$2,409,287


$7,227,863


$12,046,438

* Fully implemented revenue increase for 2018 is $21,683,589.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STATE ROAD FUND

 

 

 

 

 

 

 

Additional Revenue - DOR

Increased sales tax rate on vehicles

Section 144.020, 144.21, 144.440 *



$1,327,333



$2,987,999



$6,636,665

* Fully implemented revenue increase for 2018 is $11,945,996.

 

 

 

 

Additional Revenue - DOR

Increased highway use tax on vehicles

Section 144.020, 144.21, 144.440 *



$431,447



$1,294,341



$2,157,235

* Fully implemented revenue increase for 2018 is $3,883,024.

 

 

 

 

ESTIMATED NET EFFECT ON STATE ROAD FUND


$1,758,780


$4,282,340


$8,793,900

* Fully implemented revenue increase for 2018 is $15,829,020.

 

 

 

 

STATE TRANSPORTATION FUND

 

 

 

 

 

 

 

Additional Revenue - DOR

Increased sales tax rate on vehicles

Section 144.020, 144.21, 144.440 *



$36,365



$109,096



$181,826

* Fully implemented revenue increase for 2018 is $327,288.

 

 

 

 

 

 

 

 

Additional Revenue - DOR

Increased highway use tax on vehicles

Section 144.020, 144.21, 144.440 *



$11,820



$35,461



$59,102

* Fully implemented revenue increase for 2018 is $106,384.

 

ESTIMATED NET EFFECT ON STATE TRANSPORTATION FUND


$48,105


$144,557


$240,928

* Fully implemented revenue increase for 2018 is $433,672.

 





FISCAL IMPACT - Local Government

FY 2014

(10 Mo.)

FY 2015

FY 2016

LOCAL GOVERNMENTS

 

 

 

 

 

 

 

Additional revenue - DOR

Streamlined sales tax

Sections 32.070, etc.


More than $100,000


More than $100,000


More than $100,000

 

 

 

 

Additional revenue - DOR

Sales and use tax nexus

Sections 140.010, 144.030, and 144.605


More than $100,000


More than $100,000


More than $100,000

 

 

 

 

Additional Revenue - DOR

Increased sales tax rate on vehicles

Section 144.020, 144.21, 144.440 *



$454,566



$1,363,698



$2,272,831

* Fully implemented revenue increase for 2018 is $4,091,095.

 

 

 

 

Additional Revenue - DOR

Increased highway use tax on vehicles

Section 144.020, 144.21, 144.440 *



$147,756



$443,268



$738,779

* Fully implemented revenue increase for 2018 is $1,329,803

 

 

 

 

Additional Revenue - DOR

Repeal textbook sales tax exemption

Section 144.517



$4,281,198



$5,137,438



$5,137,438

 

 

 

 

Revenue reduction - DOR

Recreation sales tax exemption

Section 144.020



($38,959,379)



($46,751,255)



($46,751,255)

 

 

 

 

ESTIMATED NET EFFECT ON LOCAL GOVERNMENTS

(Up to $34,075,859)

(Up to $39,806,851)

(Up to $38,602,207)

 

 

 

 

 




FISCAL IMPACT - Small Business


This proposal would have a direct fiscal impact to small businesses which are subject to tax.


FISCAL DESCRIPTION


The proposed legislation would modify multiple provisions regarding taxation.


Personal Income Tax


This proposal would modify the individual income tax rate table. Beginning with the 2014 tax year, the maximum tax rate on personal income would be reduced by 0.75% over a period of five years. For tax years beginning on or after 2018, the maximum tax rate would be 5.25%. If the federal government implements the Marketplace Fairness Act of 2013 or similar legislation, the maximum rate of tax on personal income would be reduced an additional 0.25%.


This proposal would create an individual income tax deduction for business income, and would phase it in over a five-year period. Taxpayers would be allowed to deduct ten percent of business income for the 2014 tax year and, once fully phased-in, would be allowed a fifty percent deduction for all tax years after the 2018 tax year. Shareholders of S corporations and partners in partnerships would be allowed a proportional deduction based their share of ownership.


Currently, there is a personal exemption amount of $2,100 for personal income taxes. This act increases the exemption amount by $2,000 for individuals with a Missouri adjusted gross income of less than $20,000.


Corporate Income Tax


This proposal would reduce the tax rate on corporate income by 0.75% over a period of five years, beginning with the 2014 tax year. For all tax years beginning on or after January 1, 2018, the tax rate on corporate income would be 5.5%. If the federal government implements the Marketplace Fairness Act of 2013, or similar legislation, the maximum rate of tax on personal income would be reduced an additional 0.25%. The proposal would also exempts the first $25,000 of corporate income from taxation.




FISCAL DESCRIPTION (continued)


Sales and Use Taxes


The current rate for state sales and use tax is 4%. This proposal would raise the rate by 0.1% each year for five years, beginning January 1, 2014. For calendar years beginning on or after January 1, 2018, the state sales and use tax rate would be 4.5%.


Sales Tax Exemption


Currently, a sales tax of four percent is collected on amounts paid for admission and seating and fees paid to places of amusement, entertainment or recreation. This act would provide a sales tax exemption for fees paid to such places. There is currently a sales tax exemption for textbooks; this proposal would repeal that exemption.


Streamlined Sales and Use Tax Agreement


This proposal would require the Department of Revenue to enter into the Streamlined Sales and Use Tax Agreement. Missouri would be represented by three delegates in meetings with other states regarding the Agreements. One delegate would be appointed by the Governor, one delegate would be appointed by mutual agreement between the Speaker of the House of Representatives and the President Pro Tem of the Senate, and the director of the Department of Revenue would be the third delegate. These delegates would report annually to the General Assembly regarding the agreement.


Cities imposing sales taxes would be required to notify the Department of Revenue within 10 days of changing their boundaries. Any sales tax changes due to a boundary change would take affect on the first day of the next calendar quarter, 120 days after the Department receives notice of the change.


When a political subdivision changes its local sales tax rate or taxing boundary, such change would take affect on the first day of the next calendar quarter, 120 days after the Department of Revenue receives notice of the change


The proposal would require all state and local sales taxes to have the same bases by requiring identical exemptions at the state and local level, and uniform sourcing rules to determine what tax rates would apply to certain transactions. Political subdivisions would be prohibited from opting out of a sales tax holiday.




FISCAL DESCRIPTION (continued)


The proposal would require the Department of Revenue to participated in an on-line registration system for sales tax collection, but registration in that system could not be used as a factor to determine nexus with this state. The Department of Revenue would be required to accept electronic payments. Sellers would be allowed to deduct uncollectible bad debts attributable to taxable sales from sales tax remittances.


The Department of Revenue would be required to provide electronic databases for taxing jurisdiction boundary changes, tax rates, and a taxability matrix detailing taxable property and services. Sellers would be relieved from liability if they fail to properly collect tax based on certain information provided by the department. Amnesty would be available for sellers under certain circumstances, following registration with the state.


Monetary allowances equal to two percent of taxes collected would be allowed to sellers and certified service providers for collecting and remitting state and local taxes. Sellers and certified service providers would be prohibited from simultaneously receiving the monetary allowance and the two percent timely filed discount provided under current law. The act sets out requirements for the seller and purchaser for tax exempt sales.


For products that are bundled, with one item being taxable and the other nontaxable, the entire product would be subject to taxation unless the provider can properly identify the nontaxable portion. For products that are bundled items with different tax rates, the highest tax rate would be used for the entire product unless the provider can properly identify the lower taxed item.


The provisions relating to the Streamlined Sales and Use Tax Agreement would have an effective date of January 1, 2015.


Use Tax and Nexus


This proposal would make agreements between the executive branch and any person that exempts them from collection of sales and use tax void unless approved by both chambers of the General Assembly.


The definition of "engages in business activities within this state" would be modified. The use of media to exploit Missouri's market would no longer meet the definition. In addition, common control by the same interests which control a seller engaged in a similar line of business in this state would no longer meet the definition.




FISCAL DESCRIPTION (continued)


Under the Compensating Use Tax Law, a presumption would be created that a vendor “engages in business activities within this state” if a person with a substantial nexus to Missouri performs certain activities in relation to a vendor within the state. The presumption may be rebutted by showing that the person's activities are not significantly associated with the vendor's ability to maintain a market in Missouri.


A presumption would be created that a vendor “engages in business activities within this state” if the vendor enters into an agreement with a resident of Missouri to refer customers to the vendor, and the sales generated by the agreement exceed $10,000 in the preceding twelve months. This presumption may be rebutted by showing that the Missouri resident did not engage in activity within Missouri that was significantly associated with the vendor's market in Missouri in the preceding twelve months.


The definition of "maintains a place of business in this state" would be modified to remove common carriers from its provisions. Currently, there is an exemption from the definition of vendor for vendors whose gross receipts are less than certain amounts, do not maintain a place of business in Missouri, and have no selling agents in Missouri. This proposal would remove that exception.


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 the Secretary of State

Office of the Attorney General

Joint Committee on Administrative Rules

Office of Administration - Division of Budget and Planning

Department of Conservation

department of Natural Resources

Department of Revenue

University of Missouri

            Economic and Policy Analysis Research Center

St. Louis County

City of Kansas City







                                                                                                Ross Strope

                                                                                                Acting Director

                                                                                                March 11, 2013