SB 0744 - Fiscal Note

Fiscal Note - SB 0744 - Raises income levels for circuit breaker and allows state income tax credit for property taxes paid

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO. 3260-02

BILL NO. SB 744

SUBJECT: Elderly; Revenue Dept.; Taxation and Revenue-General; Taxation and Revenue-Income; Taxation and Revenue-Property

TYPE: Original

DATE: February 2, 1998

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
General Revenue	($122,319,901)	($124,747,178)	($127,248,009)
Total Estimated Net Effect on All State Funds	($122,319,901)	($124,747,178)	($127,248,009)

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 4 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials of the Department of Revenue (DOR) state this proposal increases the maximum limit and minimum base to qualify for the property tax credit. it also includes a homestead tax credit for all resident taxpayers ($35 for individual returns and $70 for combined returns) who pay property taxes or rent and report less than $100,000 adjusted gross income.

ADMINISTRATIVE IMPACT:

This legislation will increase the number of people eligible for the Property Tax Credit (PTC). According to the Office of Administration, 100,000 additional people will be eligible to claim the credit. However, fit is estimated that only 22%, or 22,000 additional people will file. The Department currently receives 80,000 PTC returns and will need two temporary clerks and one Tax Processing Technician for 6 months for every additional 7,500 PTC returns filed. These temporary employees will assist with opening mail, pre-edit, error correction and financial maintenance during tax season.

Last year, there were approximately 2.5 million Missouri returns filed. The Division of Taxation will require one temporary clerk for every 1 million returns impacted by the homestead credit. The Department is hypothesizing that at least 2 million homestead credits will be taken.

The Information Systems Division estimated an ongoing cost to the State Data Center of $5,407. Modifications to the income tax system, income tax forms and reports will be needed. The Information Systems Division will complete these modifications will existing staff and resources.

Officials of the State Tax Commission state the Homestead Tax Credit portion of this proposal would yield a revenue reduction of approximately $100 million annually.

Officials of the Office of Administration (COA) state this proposal increases the maximum upper limit and the minimum base for the Circuit Breaker Property Tax Credit, and provides a Homestead Tax Credit to resident taxpayers with AGI of $100,000 or less through the income tax.

Circuit Breaker Portion of Proposal

Raises the maximum upper limit to $25,000 and the minimum base to $13,000.

ASSUMPTION (continued)

Methodology

Currently 71,000 households take advantage of the Circuit Breaker Tax Credit. Their average credit is $294. COA staff estimate that the average credit for these taxpayers will increase by $250. This yields a revenue reduction of $17.8 million. Based on demographic data, we estimate that an additional 22,000 newly eligible households will claim of the Circuit Breaker Tax Credit due to the increased upper income limit. We estimate that the average credit for this group would be $100. This yields a revenue reduction of $2.2 million. The total cost of expanding the Circuit Breaker program in FY99 is $20 million. Two percent annual growth is assumed.

Homestead Tax Credit Portion of Proposal

Tax credit through the individual income tax for property tax paid. The credit is $35 for single filers and $70 for joint filers with Missouri AGI of $100,000 or less.

Methodology

Budget and Planning's Individual Income Tax Simulator shows 997,288 single returns and 961,486 joint returns with $100,000 or less of Missouri AGI. This yields a revenue reduction of $102,209,100 in FY99. Two percent annual growth is assumed.

The total revenue reduction for this proposal is $122.2 million in FY99, $124.6 million in FY2000 and $127.1 million in FY2001.

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 circuit breaker
credit claims	($20,000,000)	($20,400,000)	($20,808,000)
Homestead Income Tax Credit	($102,209,100)	($104,253,282)	($106,338,348)
Cost to General Revenue Fund
Department of Revenue (DOR)
Personal Service (4.5 FTE)	($69,966)	($71,715)	($73,508)
Fringe Benefits	($19,590)	($20,080)	($20,582)
Expense and Equipment	($21,245)	($2,101)	($7,571)
FISCAL IMPACT - State Government	FY 1999	FY 2000	FY 2001
(Continued)	(10 Mo.)
Administrative Cost to DOR	($110,801)	($93,896)	($101,661)
ESTIMATED NET EFFECT TO
GENERAL REVENUE FUND	($122,319,901)	($124,747,178)	($127,248,009)
FISCAL IMPACT - Local Government	FY 1999	FY 2000	FY 2001
	(10 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

This act authorizes two different tax relief measures for property taxpayers. The act increases the income levels of taxpayers eligible for the circuit breaker credit by increasing the maximum upper limit from the current $15,000 to $25,000 and the minimum base from the current $5,900 to $13,000 for 1998 and subsequent years. The act also authorizes a state income tax credit for property taxes paid. The credit is limited to $70 for a married couple filing a combined return and to $35 for individuals and other filers. The credit is not allowed if Missouri adjusted gross income exceeds $100,000.

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

State Tax Commission

Jeanne Jarrett, CPA

Director

February 2, 1998