COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. NO. 3600-09
BILL NO. Truly Agreed To and Finally Passed CCS for HS for HCS for SB 827
SUBJECT: New Business Facility Tax Credit
TYPE: Original
FISCAL SUMMARY
ESTIMATED NET EFFECT ON STATE FUNDS Net Effect on All State Funds * to * (Unknown) to * (Unknown) to * (Unknown) * Losses are expected to be significant, in excess of $9 million per year. ESTIMATED NET EFFECT ON FEDERAL FUNDS Net Effect on All Federal Funds
FUND AFFECTED
FY 1999
FY 2000
FY 2001 Various State Funds
(Unknown)
(Unknown)
(Unknown) General Revenue
($92,331)
($91,562)
($93,945) Hazardous Waste Fund
$0
$0
$0 Total Estimated
($92,331)
($91,562)
($93,945)
FUND AFFECTED
FY 1999
FY 2000
FY 2001 None
$0
$0
$0 Total Estimated
$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 9 pages.
FISCAL ANALYSIS
ASSUMPTION
The Department of Agriculture assumes this proposal would have no impact on their agency.
The Department of Insurance assumes this legislation would result in a fiscal impact to the Insurance Dedicated Fund if insurance companies make investments qualifying them for tax credits. The degree to which insurance companies will make investments is unknown, therefore the fiscal impact of this legislation is undeterminable.
The State Tax Commission assumes this proposal would have no impact on their agency. This legislation creates a new subclass of personal property, assessed at 25%, rather than 33 1/3% of value. This change could have a significant impact on some individual taxpaying business, but is so narrowly defined that its overall impact should be minimal. The amount of lost tax revenue is unknown.
The Department of Revenue (DOR) assumes this legislation either expands existing economic development tax credits or establishes new tax credits. The number of credits received each year will increase, however, the DOR is unsure how much, for every 3,600 additional credits received, the Division of Taxation will need one Tax Processing Technician. For every 20,000 additional individual income tax errors generated and/or every 12,000 corporate income tax errors generated, one Tax Processing Technician will be required. The Credit Tracking System will need to be modified for all new credits implemented. The DOR will need three months of overtime for a Computer Information Specialist to make modifications.
The Department of Natural Resources (DNR) assumes this legislation revises part of the abandoned property ("brownfields") law. Privately owned property is eligible for financial assistance under the brownfields program if the city or county approves the project. Therefore, the proposed legislation broadens the universe of projects that will qualify for assistance to include privately held properties. The act clarifies grants can only be made for public capital improvements.
The DNR assumes this substitute allows property developers who pay remediation costs to receive directly any remediation tax credits. The Department of Economic Development is given discretion to provide tax credits of up to 100% of eligible remediation costs, but total state incentives are limited to the net state economic impact of the project or the least amount which enables the project to occur.
ASSUMPTION (continued)
The DNR's Voluntary Cleanup Program (VCP) recovers any costs incurred from the responsible party. The relationship between DED and the VCP is that all of the DED Brownfield Redevelopment Program projects must participate in VCP for oversight of the environmental remediation. This is a statutory requirement which appears in DED's law. According to DED they anticipate an additional 40 to 50 new sites per year participating in their program and therefore, in VCP.
At the present time the VCP project managers are carrying a site load of about 25 sites each. This is the maximum they can handle on a timely basis. With the expected increase in workload as a result of the proposed change in DED's law, the increase in the number of new sites will be more than our current resources could handle. As a result of the increased workload, the DNR would need two environmental specialists to review project remediation plans and approve or disapprove cleanup activities. If the actual number of new sites is greater than our projections, the department would need to request additional resources.
According to the DED, no Brownfield tax credits have been claimed. Additionally, DED does not anticipate increasing the amount of credits certified. Therefore, the tax credits to the potential participants may not be sufficient to entice participation by the projected amount. Accordingly, Oversight has included costs for one environmental specialist. If the number of projects increase, the DNR can request additional resources through the normal budget process. Oversight adjusted DNR costs to bring them in-line with Office of Administration guidelines.
The DNR assumes the changes made to the Historic Preservation Rehabilitation Tax Credits would not have a fiscal impact on the DNR.
The Department of Economic Development (DED) assumes Sections 32.110 and 32.115 of this legislation increases by $6 million the aggregate amount of the tax credits which may be authorized under the neighborhood assistance program. DED feels that these costs should be offset by additional revenue to the state from the increased economic development. This change will require one additional staff to administer.
The DED assumes Section 135.100 adds to the definition of "revenue producing enterprise," for purposes of the new business facility and enterprise zone tax credits, local exchange telecommunications services or training activities by a local exchange telecommunications company. The DED estimates the costs for this section to be $50,000 per year.
The DED assumes Section 135.110 would restrict refunds of tax credits under the business facility tax credit law to certain engineering, architectural and accounting firms.
ASSUMPTION (continued)
The DED assumes the current law could be argued to permit all firms to receive a refund for a new business facility tax credits to the extent such credits exceed the taxpayer's Missouri tax on taxable business income. The DED estimates this interpretation would result in the refund of up to $3 million in tax credits over the amount currently being issued to engineering, architectural and accounting firms. The DED assumes this proposal would keep the state's liability at the current level, resulting in a savings to general revenue in the amount of $3 million.
According to the DED, no business other than an engineering, architectural, or accounting firm that would be eligible under this proposal has claimed this credit yet, therefore, Oversight assumes there would be no actual fiscal impact as a result of this provision.
The DED assumes Section 135.208 requires the DED to designate an enterprise zone in Independence and in Camden County. Additional tax credits and incentives will be available to businesses but DED estimates this should be offset by increased economic development and a corresponding increase in total state revenues.
Section 137.115 reduces to 25% the personal property assessed valuation percentage for tools and equipment used for pollution control and for retooling by any company located in a state enterprise zone and identified by specific standard industrial classification numbers.
Section 253.557 and 253.559 authorizes the historic building rehabilitation tax credits to be taken against financial institutions tax. Not-for-profit entities, including not-for-profit corporations, are not eligible for the credit. Taxpayers entitled to the credit may transfer or assign such credits..
The DED assumes this legislation makes several changes to the "brownfields" program, which authorizes tax credits for remediation of abandoned property. This legislation provides that these tax credits can be taken against corporation franchise tax and financial institution tax. The DED is given discretion to provide tax credits of up to 100% of eligible remediation costs. The DED assumes there will be no administrative impact. The impact on total state revenue can not be predicted but the change could reduce the cost of tax credits since the credits no longer have to be issued at 100%. The DED is unable project the fiscal impact of this provision.
The DED assumes Section 620.1039 requires the director of DED to approve any tax credit for qualified research expenses. The total tax credits to be granted is limited to $10 million per taxable year. The DED estimates the saving as a result of this change to be $1 million per year.
ASSUMPTION (continued)
The DED assumes this legislation authorizes a strategic initiative income tax refund for certain automobile manufacturers or assemblers located within a state enterprise zone. The maximum
amount of refund per company is limited to $2 million per year which makes the projected cost of $10 million. DED anticipates investments will offset this cost.
This legislation also authorizes a credit against income tax and financial institution tax for up to 50% of the amount of investment in production or production related activities by a qualified film production company. Taxpayers claiming the credit must first apply to the DED and document the economic impact from the production company's activities. The tax credit is limited to $500,000 per taxpayer, the total amount of the credit is capped at $1 million per year.
The DED also assumes this legislation authorizes an income tax credit equal to 25% of the purchase price of all new equipment and materials used directly in growing grapes or producing wine within the state. Each grower and producer is required to apply to the DED and specify the total amount of qualified expenditures for the calendar year. The credit is limited to five tax periods. The DED obtained a cost estimate of $300,000 per year from the Grape growers.
To administer the new and expanded tax credits the DED assumes they would require an Economic Development Specialist to authorize and approve tax credits and programs. They would also require one Community Development Representative to review applications for tax credits and traveling to sites to review the sites and monitor progress.
Oversight assumes this legislation creates or expands tax credits program by $9 million. It also creates certain tax credits for which there is no limit. Because this legislation allows tax credits to be taken against franchise and financial institution taxes there would be an unknown loss to various state funds. Oversight also assumes the loss to the various state funds would likely be offset by some of the provisions of this legislation which may contract certain tax credit programs. However, Oversight assumes the losses due to the new or expanded tax credits would be substantial, in excess of $9 million.
Additionally, Oversight assumes there would be an unknown loss to local governments due to reduced distributions.
| FISCAL IMPACT - State Government | FY 1999 | FY 2000 | FY 2001 |
| (10 Mo.) | |||
| VARIOUS STATE FUNDS | |||
| Loss | |||
| due to new and expanded tax | |||
| credits and refunds | (Unknown) | (Unknown) | (Unknown) |
| Income - Repayment of Brownfield | |||
| Tax Credits | Unknown | Unknown | Unknown |
| Estimated Net Effect on | |||
| VARIOUS STATE FUNDS* | (Unknown)* | (Unknown)* | (Unknown)* |
| * Losses are expected to be significant, in excess of $9 million per year. | |||
| GENERAL REVENUE FUND | |||
| Costs - DED | |||
| Personal Service - (2 FTE) | ($46,025) | ($56,633) | ($58,048) |
| Fringe Benefits | (12,901) | (15,874) | (16,271) |
| Expense and Equipment | ($33,405) | ($19,055) | ($19,626) |
| ($92,331) | ($91,562) | ($93,945) | |
| Estimate Net Effect on | |||
| GENERAL REVENUE FUND | ($92,331) | ($91,562) | ($93,945) |
| HAZARDOUS WASTE FUND | |||
| Income - DNR | |||
| Clean-up cost recovery | $0 | $59,434 | $60,972 |
| Costs - DNR - (1 FTE) | |||
| Personal Service | $0 | ($38,377) | ($39,337) |
| Fringe Benefits | $0 | (10,757) | (11,026) |
| Expense and Equipment | $0 | (10,300) | (10,609) |
| $0 | ($59,434) | ($60,972) | |
| Estimated Net Effect on | |||
| HAZARDOUS WASTE FUND | $0 | $0 | $0 |
| FISCAL IMPACT - Local Government | FY 1999 | FY 2000 | FY 2001 |
| (10 Mo.) | |||
| CITIES AND COUNTIES | |||
| Loss | |||
| due to reduced distributions and | |||
| reduced assessments | (Unknown) | (Unknown) | (Unknown) |
FISCAL IMPACT - Small Business
This proposal would impact small businesses.
DESCRIPTION
This bill makes a number of changes to tax credit programs related to economic development. In its main provisions it:
(1) Increases the tax credits available under the Neighborhood Assistance Program by $6 million;
(2) Clarifies that only certain engineering and architectural firms are eligible for tax refunds when the amount of tax credits exceeds tax liability, under the existing New or Expanded Business Facility Tax Credit program;
(3) Establishes an Enterprise Zone in the city of Independence and in Camden County;
(4) Allows, rather than requires that a tax credit be granted to eligible taxpayers under the Qualified Research Expenses program, if the tax credit is approved by the Director of the Department of Economic Development (DED). In addition, tax credits under this program are for an amount up to 6 1/2% of the excess of qualified research expenses, rather than equal to 6 1/2% of these expenses, and are capped at $10 million per year;
(5) Allows certain qualified film production companies to claim a tax credit against income taxes or financial institution taxes, for up to 50% of the amount of investment in film production activities. Applications for the tax credit are submitted to the DED, and must include an economic impact statement showing the local and statewide impact from the production company's activities. These tax credits are limited to $500,000 per taxpayer, and cannot exceed $1 million per year. Taxpayers may sell, assign, or transfer the tax credits;
DESCRIPTION (continued)
(6) Extends eligibility for New or Expanded Business Facility tax credits to local telecommunications companies;
(7) Allows certain fourth class cities in St. Louis County to receive funding for job creation or retention through the Business Extension Service Team program, and authorizes any city receiving funding through this program to use up to 5% of the loan or grant amount for administrative costs;
(8) Reduces the personal property assessed valuation from 33 1/3% to 25% for pollution control tools and equipment and certain retooling equipment used by companies meeting specific standard industrial classifications and which are located in a state enterprise zone;
(9) Removes the sunset date of October 1, 2001, for the tax credits authorized for manufacturers recycling flexible cellulose casings used in food production;
(10) Authorizes a tax credit against state income taxes for grape growers or wine producers equal to 25% of the purchase price of all new equipment and materials directly used in grape or wine production. These tax credits are effective January 1, 1999, and may be received by a grower or producer for only 5 tax periods;
(11) Exempts cooperative marketing associations from certain revenue limits and ownership restrictions which apply to businesses receiving tax credits through the small business tax credit program;
(12) Authorizes the tax credit certified through the Historic Building Rehabilitation program to be applied to financial institutions taxes, in addition to state income taxes. The bill specifies that not-for-profit entities are ineligible for these tax credits; and allows those who are eligible to sell, transfer or assign the tax credits received; and
13) Authorizes a "Strategic Initiative Investment Income Tax refund" for certain automobile manufacturers located in a state enterprise zone, and which have made an investment in facilities or equipment of at least $100 million. Applications for the refund may be approved for no more than five successive years, and he refund is limited to $2 million per year; and
14) Makes a number of changes to the Remediation of Abandoned Property Tax Credit law, including:
DESCRIPTION (continued)
a) Allows certain privately owned property and certain underutilized property to be included in the program. The bill defines the Jefferson City Correctional Center as an underutilized property, and requires approval from the General Assembly for any improvements to the prison, or for the remediation, lease, or sale of the prison property;
(b) Adds demolition as an allowable cost;
(c) Restricts the total amount of state funding, tax credits, or tax exemptions for each project to the projected state economic benefit, as determined by DED;
(d) Provides that if the property is sold within 5 years of the receipt of state assistance, a portion of the assistance must be repaid;
(e) Authorizes the tax credit to offset the corporate franchise tax and tax on financial institutions, in addition to state income taxes;
(f) Provides that no more than 75% of the remediation tax credits may be issued until the Department of Natural Resources issues a "Letter of Completion" or covenant not to sue following completion of the remediation activities.
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 Economic Development
Department of Revenue
State Tax Commission
Department of Natural Resources
Department of Agriculture
Jeanne Jarrett, CPA
Director
June 1, 1998