This Fiscal Note is not an official copy and should not be quoted or cited.
This Fiscal Note is not an official copy and should not be quoted or cited.
Fiscal Note - SB 0911 - Allows various tax credits for encouraging small businesses in distressed communities
COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. NO. 3877-01
BILL NO. SB 911
SUBJECT: Tax Credits for Distressed Communities
TYPE: Original
FISCAL SUMMARY
ESTIMATED NET EFFECT ON STATE FUNDS (Unknown) (Unknown) (Unknown) Net Effect on All State Funds * to (Unknown)* to (Unknown)* to (Unknown)* The loss, while unknown, is expected to be sizable, in excess of $18 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
$0 to
$0 to
$0 to
General Revenue
($133,806)
($136,710)
($140,290) Total Estimated
($133,806)
($136,710)
($140,290)
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 | $0 | (Unknown) | (Unknown) |
Numbers within parentheses: ( ) indicate costs or losses
This fiscal note contains 6 pages.
FISCAL ANALYSIS
ASSUMPTION
The Department of Revenue (DOR) assumes the number of taxpayers eligible for this tax credit is unknown. Therefor the resources needed by the DOR are unknown. However, for every 3,680 credits received, one Tax Processing Technician would be needed to pre-edit and verify the credit. For every 20,000 errors generated from this credit on individual tax returns, and every 12,000 errors generated on corporate income tax returns one Tax Processing Technician would be needed. The modifications to the income and corporate tax systems and to the forms and reports will be completed by the Information Systems Division with existing staff and resources.
The Department of Insurance (INS) assumes this proposal would result in fiscal impact in the event that insurance companies make investments in Missouri small businesses in distressed communities. The INS assumes the fiscal impact would range from $0 to $4 million, this amount would be divided equally between general revenue and the county insurance funds.
The Department of Economic Development (DED) assume new tax credits and increased tax credits would be available. The Capital Tax Credit would be expanded. The DED assumes the use of this credit is unpredictable.
The Certified Capital Company credit cap for investment in a Certified Capital Company is increased by $4 million per year and 25% of the investments are required to be in distressed communities. The DED is uncertain if the increase in the cap will generate additional use of the credits. The DED assumes the transportation system tax credits are not refundable but can be carried forward, transferred, or sold.
The DED assumes there is a new credit for relocation of a business from outside Missouri or outside a distressed community to inside a distressed community of 25% of income for the first three years of operation in the distressed community. The business can take a credit of 25% of investment in specific equipment, up to $35,000 in lieu of this credit. The DED assumes the location of out of state businesses to distressed communities will create additional state revenue. The DED assumes the impact on Total State Revenue can not be determined.
The bill allows a 50% tax credit to taxpayers making a qualified investment in transportation development projects which are approved by a municipality and the appropriate local transit agency.
The DED assumes there are a few cities that have a development plan for transportation projects and at the same time have a local transit agency. The DED assumes they must review the investments as they relate to the approved plans and certify the tax credit, if appropriate. The
ASSUMPTION (continued)
DED assumes they have no means to determine the fiscal impact of this proposal. However, the DED assumes they require one Economic Development Incentive Specialist for every 1,000 tax credit applications. The DED also assumes they would receive at least 500 applications in the initial years of this program. Therefore, DED assumes they would request a half-time Economic Development Incentive Specialist to design forms, field questions, answer correspondence, review applications, answer telephone inquiries and preform other administrative duties necessary to approve the credit applications.
The DED assumes they would request three additional FTE to administer the new and expanded credits. The DED would request two Economic Development Specialists for the business relocation credits; and one Economic Development Specialist for the increased use of the Capital Tax credit and investments in Certified Capital Companies. The employees would review and
approve credits, promote the program, answer inquiries, telephone calls, and correspondence, and complete all other administrative functions.
Oversight assumes the various tax credits in this proposal can be taken against income, franchise, financial institution, and insurance premium taxes. The actual tax credits claimed would depend on future participation by the affected taxpayers. This proposal raises the caps on limit on existing credits by a total of $8 million. It also establishes a new credit with a cap of $10 million. This proposal also creates new tax credits for which there is no limit on the amount of the tax credits that can be certified. Therefore, Oversight assumes the total fiscal impact of this proposal is unknown but would be sizable. The fiscal impact would range from $0 to an unknown amount.
Since there are currently only a few cities that have a development plan for transportation projects and at the same time have a local transit agency, Oversight assumes it would probably be some time before the DED began receiving a significant number of applications. Oversight assumes this program could be administered by existing DED staff who administer several other tax credit programs. As additional applications are received, the DED can request additional resources through the normal budget process.
| FISCAL IMPACT - State Government | FY 1999 | FY 2000 | FY 2001 |
| (10 Mo.) | |||
| (10 Mo.) | |||
| VARIOUS STATE FUNDS | |||
| Costs | $0 to | $0 to | $0 to |
| New and expanded tax credits | (Unknown) | (Unknown) | (Unknown) |
| FISCAL IMPACT - State Government | FY 1999 | FY 2000 | FY 2001 |
| (continued) | (10 Mo.) | ||
| GENERAL REVENUE FUND | |||
| Costs - DED | |||
| Personal Service - (3 FTE) | ($66,250) | ($81,520) | ($83,558) |
| Fringe Benefits | (18,570) | (22,850) | (23,421) |
| Expense and Equipment | (48,986) | (32,340) | (33,311) |
| Estimated Net Effect on | |||
| GENERAL REVENUE FUND | ($133,806) | ($136,710) | ($136,710) |
| FISCAL IMPACT - Local Government | FY 1999 | FY 2000 | FY 2001 |
| (10 Mo.) | |||
| CITIES AND COUNTIES | |||
| Loss | |||
| Reduced distributions due to new | |||
| and expanded tax credits | $0 | (Unknown) | (Unknown) |
FISCAL IMPACT - Small Business
This proposal creates new and expanded tax credits which could impact small businesses.
DESCRIPTION
This act provides various tax relief measures for economically distressed communities in the state. The act contains the following provisions:
Section 100.840 - Increases the amount of certificates which can be sold by the Missouri Development Finance Board under the Business Use Incentives for Large-Scale Development (BUILD) from $75 million to $100 million. At least 25% of the new maximum amount is earmarked for distressed communities as defined in new section 135.530 of the act.
DESCRIPTION (continued)
Section 135.403 - Expands the tax credit for investments in small businesses to include a Missouri small business in a distressed community. The total amount of credits for Missouri small businesses is increased from $5 million to $9 million, with the additional $4 million
earmarked for investment in small businesses in distressed communities; the aggregate amount of credits, including those for investment in community banks, is increased from the current $11 million to $15 million.
Section 135.405 - Exempts investments in Missouri small businesses in distressed communities from the current limit of $1,500-$100,000 per taxpayer per business.
Section 135.503 - Increases the aggregate amount of credits under the CAPCO (Certified Capital Company) program from the current $10 million to $14 million; at least 25% of the maximum is allocated for CAPCO contributions in Missouri small businesses in distressed communities.
Section 135.530 - Defines "distressed community" as a Missouri municipality with median household income under 70% of median household income for either metropolitan or nonmetropolitan areas.
Section 135.535 - Allows a tax credit for qualified corporations, LLCs, partnerships or sole proprietorships with less than 100 employees to get a 25% credit against income taxes owed for income generated by a facility which relocates to or locates in a distressed community. The section also allows an employee of such a company to take an income tax credit equal to 1.5% of the employee's gross salary at the facility. In lieu of the employer 25% tax credit, an employer may take a credit in the amount of 25% of funds expended for various high tech equipment at the facility, up to $35,000 per year per entity for the first 3 years. Total credits are limited to $10 million.
Section 135.545 - Allows income tax credit in the amount of 50% of qualified investment in certain transportation equipment located in a distressed community, if the investment is part of a development plan approved by the municipality and the local transit agency.
Section 215.030 - Expands powers of the Missouri Housing Development Commission to make or purchase mortgage loans for residential housing, for sale or rent, in distressed communities.
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
Department of Insurance
Jeanne Jarrett, CPA
Director
February 22, 1998