SB 0540 - Fiscal Note

Fiscal Note - SB 0540 - Excludes capital gains from state income tax

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO. 2287-01

BILL NO. SB 540

SUBJECT: Taxation and Revenue-Income: Property-Real and Personal

TYPE: Original

DATE: December 19, 1997

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
General Revenue	($20,109,379)	($208,494,040)	($225,173,563)
Total Estimated Net Effect on All State Funds	($20,109,379)	($208,494,040)	($225,173,563)

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
None
Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
Local Government	$0	$0	$0

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 3 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials of the Department of Revenue (DOR) state this proposal would require modifications to the individual income tax system. Modifications would require restructure of data base records, programs, online screens, additional key entry, testing and implementation. These modifications would be completed with existing resources. The Division of Taxation does not anticipate a significant number of errors from this proposal; however, a Tax Processing Tech I will be requested for every twenty-five thousand additional errors that are generated through the budget process.

Officials of the Office of Administration (COA) state this proposal would eliminate Missouri individual income tax on capital gains. COA staff state that this proposal would have an estimated impact of approximately ($0) in FY99, ($208,494,040) in FY2000 and ($225,173,563) in FY2001. COA staff assume that taxpayers will not adjust their withholdings in FY99 to take advantage of the elimination of income tax on capital gains. The estimate is based on the IRS's calculation of capital gains claimed by Missourians in 1995 as reported in the Spring 1997 edition of Statistics of Income. In calculating the estimate, COA staff assume a marginal tax rate of 6% and a growth rate of 8%. COA staff state that from 1990 to 1995 the average growth rate of capital gains claimed by Missourians was 10.3% and the national growth rate was 8.75%. This is why their estimate reflects a growth rate of 8%.

Oversight estimates a loss to General Revenue of $20,109,379 for FY 1999 due to the possibility of reduced withholding and estimated income tax payments for five months of calendar year 1999. Oversight assumes 25% of Missouri taxpayers would adjust payments, however, it should be noted that this amount could be less, depending on taxpayers' awareness of the elimination of income tax on capital gains and their desire to adjust tax withholdings or estimated payments.

Oversight is unable to determine the amount of revenue loss associated with the current portion of the capital gain which is authorized to be subtracted from the taxpayer's federal adjusted gross income when calculating the Missouri adjusted gross income. The COA staff estimate reflects the elimination of income tax on all capital gains, which includes the current portion of capital gains already authorized. Oversight assumes this amount would be minimal.

This proposal would result in a decrease in Total State Revenues since the Individual Income tax collections are included in the calculation of Total State Revenue.

FISCAL IMPACT - State Government	FY 1999	FY 2000	FY 2001
	(6 Mo.)
Loss to General Revenue Fund
Elimination of Income tax
on Capital Gains	($20,109,379)	($208,494,040)	($225,173,563)
ESTIMATED NET EFFECT ON
GENERAL REVENUE FUNDS	($20,109,379)	($208,494,040)	($225,173,563)
FISCAL IMPACT - Local Government	FY 1999	FY 2000	FY 2001
	(6 Mo.)
	0	0	0

FISCAL IMPACT - Small Business

No direct fiscal impact to small businesses would be expected as a result of this proposal.

DESCRIPTION

Under current law, only a portion of the capital gain that results from the sale of a low-income project which has at least 40% of the units occupied by persons having an income of 60% or less of the median income is authorized to be subtracted from the taxpayer's federal adjusted gross income when calculating Missouri adjusted gross income. This proposal expands the types of allowable capital gains and authorizes a taxpayer to subtract all capital gains from the taxpayer's federal adjusted gross income when calculating Missouri adjusted gross income.

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

Department of Revenue

Office of Administration

Jeanne Jarrett, CPA

Director

December 19, 1997