SB 0590 - Fiscal Note

Fiscal Note - SB 0590 - Restores full federal income tax deductibility for individuals and corporations

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO. 2404-01

BILL NO. SB 590

SUBJECT: Taxation and Revenue-General; Taxation and Revenue-Income

TYPE: Original

DATE: January 29, 1998

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
General Revenue	$0	$0	$0
Outstanding Schools Trust	($84,468,854)	($327,100,000)	($345,200,000)
Total Estimated Net Effect on All State Funds	($84,468,854)	($327,100,000)	($345,200,000)

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	(unknown)	(unknown)	(unknown)

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 4 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials of the Department of Revenue (DOR) state this proposal increases the federal income tax deduction on the Missouri Individual and Corporate tax returns to pre-SB 380 of 1993 levels. The modifications to the Individual and Corporate systems would be accomplished with existing staff and resources.

Officials of the Office of Administration (COA) state this proposal restores full deductibility for federal income tax paid for individuals and corporations. The individual income tax portion of this proposal would be $0 for FY99, ($289.1 mil) in FY2000 and ($306.4 mil) for FY2001. These estimates come directly from the FY99 Consensus Revenue Forecast. The corporate income tax portion of this proposal would be $0 in FY99, ($38.0 mil) in FY2000 and ($38.8 mil) in FY2001. These estimates are from the FY99 Consensus Revenue Forecast and Budget and Planning's Corporate Income Tax Simulator. The revenue reductions from this proposal would require an equivalent amount of General Revenue in order to fully fund the Foundation Formula. COA staff assume that taxpayers would not adjust their withholdings in FY99 to take advantage of this deduction.

Oversight will reflect the impact of this proposal as a loss to the Outstanding Schools Trust Fund.

Oversight estimates a loss to General Revenue and the Outstanding Schools Trust Fund of $84,468,854 for FY99 due to the possibility of reduced withholding and estimated income tax payments for five months of the calendar year 1999 for individuals and nine months of the fiscal year for corporations. Oversight assumes 25% of the individuals eligible and 50% of the corporations eligible would adjust payments, however, it should be noted that this amount could be less, depending on taxpayers' awareness of the increase in the federal income tax deduction and their desire to adjust tax withholdings or estimated payments.

This proposal would result in a decrease in Total State Revenues.

FISCAL IMPACT - State Government	FY 1999	FY 2000	FY 2001
	(10 Mo.)
GENERAL REVENUE FUND
Loss to General Revenue Fund
Increase in Federal Income Tax Deduction	($84,468,854)	($327,100,000)	($345,200,000)
Savings to General Revenue Fund
Reduction in funds transferred to
Outstanding Schools Trust Fund	$84,468,854	$327,100,000	$345,200,000
ESTIMATED NET EFFECT TO
GENERAL REVENUE FUND	$0	$0	$0
OUTSTANDING SCHOOLS TRUST FUND
Loss to Outstanding Schools Trust Fund
Increase in Federal Income Tax Deduction	($84,468,854)	($327,100,000)	($345,200,000)
ESTIMATED NET EFFECT TO OUTSTANDING
SCHOOLS TRUST FUND	($84,468,854)	($327,100,000)	($345,200,000)
FISCAL IMPACT - Local Government	FY 1999	FY 2000	FY 2001
	(10 Mo.)
Loss to Local School Districts
Reduction in funds transferred from
the Outstanding Schools Trust Fund	(unknown)	(unknown)	(unknown)
FISCAL IMPACT - Small Business

Small businesses would be expected to be fiscally impacted to the extent that they pay income taxes. The increase in the federal income tax deduction would cause small businesses to pay less income tax.

DESCRIPTION

Current law limits the deduction for federal income taxes paid by individuals to $5,000 for single filers ($10,000 for people filing a combined return); the deduction for corporations is limited to 50% of the federal income taxes paid. This act removes those limitations and allows full deductibility of federal income taxes for individuals beginning January 1, 1999, and for corporate taxpayers beginning September 1, 1998.

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

January 29, 1998