COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. NO. 3936-08
BILL NO. Truly Agreed to and Finally Passed CCS for HCS for SB 936
SUBJECT: Taxation and Revenue-Sales and Use
TYPE: Original
FISCAL SUMMARY
ESTIMATED NET EFFECT ON STATE FUNDS State Funds* * Actual revenue losses are unknown. Figures represent only a partial estimate. DOR projects total impact to be in
excess of $70 million annually. ESTIMATED NET EFFECT ON FEDERAL FUNDS Net Effect on All Federal Funds Numbers within parentheses: ( ) indicate costs or losses This fiscal note contains 15 pages. ESTIMATED NET EFFECT ON LOCAL FUNDS *Partial impact-substantial unknown revenue losses not included FISCAL ANALYSIS ASSUMPTION ADMINISTRATIVE IMPACT: Department of Revenue Division of Motor Vehicles & Drivers Licensing-The Division would need to reprint the titling manual and revise policies
due to the changes to the motor vehicle sales taxes in this bill. Information Systems Division-The Information Systems Division would complete programming changes to allow
collection of local tax only on textbook sales with existing resources; however, State Data Center costs are requested. REVENUE IMPACT: Actual revenue impact is an unknown loss. Estimates are provided for only certain exemptions based on the assumptions
provided. SECTION 67.1300-Local Sales Tax for Economic Development Oversight assumes this portion of the proposal is permissive. Voter approval is required before any tax can be imposed and
the revenue impact is unknown since it is unknown at what rate the tax would be imposed and the amount of taxable sales
that would be subject to the tax. Any county that would adopt the tax would realize additional tax revenue. SECTION 144.010-Definition of Product This portion of the proposal defines "product which is intended to be sold ultimately for final use or consumption" as
tangible personal property, or any service that is subject to state or local sales or use taxes, or any tax that is substantially
equivalent to sales and use tax in this state or any other state. Officials of the Department of Revenue (DOR) assume that
this definition means that if a service is "subject to state or local sales or use taxes, or any tax that is substantially equivalent
thereto, in this state or any other state", it is a product. This means machinery, equipment and parts purchased to establish
new or expand existing "manufacturing" facilities and any such replacement machinery, equipment and parts, used to
provide such services may be purchased exempt from sales and use tax. ASSUMPTION (continued) SECTIONS 144.025 and 144.027-Extends time period for Vehicle Trade-in tax credit Officials of the Department of Revenue (DOR) state this portion of the proposal changes the length of time allowed for
sales tax trade-in credit and insurance replacement credit for motor vehicles, trailers, boats and outboard motors from 90
days to 180 days before or after the sale of the original article and provides that the trade-in credit applies if the article is
transferred by a properly assigned certificate of ownership. The insurance replacement credit is allowed if the contract to
purchase the subsequent vehicle is completed within the 180-day period. The trade-in credit is allowed for "subsequent"
purchases of vehicles rather than "replacement" purchase of vehicles and credit for sales tax purposes is allowed when any
of the four types of items (motor vehicles, trailers, boats, or outboard motors) are used as a trade-in for any of those four
types of items (boats for cars, outboard motors for boats, etc.). The definition of "motor vehicle" is broadened to include
recreational vehicles and truck-trailer combinations. SECTION 144.030 SALES/USE TAX EXEMPTIONS Replacement Parts The limitation that replacement machinery and equipment must be used for the same purposes or to produce a substantially
similar product is removed and replacement parts are added to the exemption; Replacement parts are added to the
replacement machinery and equipment exemption, the new or expanded plant exemption, and the exemption for recycling
facilities. Manufacturing equipment replacement parts: DOR staff assume that 5% of the value of existing manufacturing equipment represents the annual cost of replacement parts
purchased for those machines. It is also assumed that Missouri has 2% of the number of manufacturers in the nation (7,846
of 381,870), expenditures for replacement parts in Missouri manufacturing operations would be 2% of the national amount
of such expenditures ($18,409,448,242). An annual growth rate of 3% was applied based on the annual increase in
equipment value from 1982 to 1992. These figures do not included amounts expended for machinery that is replacing
machinery for reasons that are currently not allowed under the statute. The amount of revenue loss for this portion of the
exemption is unknown. Oversight assumes that the amount of expenditures for replacement parts purchased for manufacturing equipment cannot be accurately estimated and has shown this amount as unknown, expected to be substantial. Equipment and replacement parts used in service industries: ASSUMPTION (continued) DOR staff assumes all computer hardware and data processing equipment expenditures would be exempt because this bill
provides that all machinery and equipment used in providing a service that is taxable in any state is exempt
($12,735,000,000). DOR staff assumes 50% of repair costs represent the cost of parts ($5,691,500,000). Based on receipts of service establishments and
the number of service establishments in Missouri compared with those receipts and establishments in the United States,
Missouri's percentage of service industry is assumed to be 2% of the national totals. An annual growth rate of 3% was
applied. Newspaper Items Ink, computers, photosensitive paper and film, toner, printing plates and other machinery and equipment, replacement parts
and supplies used in producing newspapers are exempted. Oversight assumes this portion of the proposal would place in statute that which is current practice, with the exception of
replacement parts and supplies. Revenue losses would be expected to be minimal, but could exceed $100,000 annually. EEDP Exemption Electrical Energy Direct Pay (EEDP) authorization is expanded to include recyclers. The 10% limitation is not a criteria if
the raw materials used in processing contain at least 25% recycled materials. Medical Assistive Devices Exempts home respiratory equipment and accessories, hospital beds and accessories and ambulatory aides, wheelchairs,
stairway lifts, braille writers, and electronic braille equipment and, if purchased by or on behalf of a person with one or
more physical or mental disabilities to enable them to function more independently, all sales of scooters, reading machines,
electronic print enlargers and magnifiers, and electronic alternative and augmentative communication devices. Also
exempts the sale of other items when purchased on behalf of a person with disabilities to allow them to function more
independently, including modifications to motor vehicles to permit the use of such motor vehicles by individuals with
disabilities or sales of over-the-counter or non-prescription drugs to individuals with disabilities. DOR staff assume the majority of this portion of the proposal would be included as durable medical equipment
expenditures, except for over-the-counter pharmaceuticals purchased by disabled persons. According to the Health Care
Financing Administration in 1995 there was $1,086,758,000 in durable medical equipment expenditures in the United
States. DOR staff assume 56% ($608,584,480) of those expenditures represent private expenditures. DOR assumes
Missouri's percentage of the national total would be 2% ($12,171,690 taxable sales). A growth rate of 3% was applied. ASSUMPTION (continued) DOR officials state this proposal provides an exemption for over-the-counter (OTC) pharmaceutical purchases by persons
with disabilities. According to figures posted on the Internet by the Governor's Council on Disability, there are approximately 720,000 disabled Missourians. National OTC
drug purchases, according to the Nonprescription Drug manufacturers Association, totaled $16.6 billion in 1997. Dividing
this amount by the total population of the United States (260,341,000 in 1994 according to the Bureau of Census) yields a
per capita expenditure of $63.76 for OTC drug purchases per year. Applying this amount to the number of disabled persons
in Missouri and assuming an annual growth rate of 3% yields taxable sales of $48,704,879 in 1999. Adjuvants The exemption for pesticides is expanded to include adjuvants such as crop oils, surfactants, wetting agents and "other
assorted pesticide carriers" used to improve or enhance the effect of pesticides and foam markers used in the application of
pesticides. Based on information obtained from major suppliers, Oversight estimates the revenue loss from the exemption of adjuvants
in the proposal to be $130,000 annually. Lubricants for Farm Machinery and Equipment Lubricants used in farm machinery and equipment are added to the replacement parts exemption for farm machinery. Based on conversation with a major supplier, Oversight assumes the state revenue loss related to this provision would be
approximately $600,000 annually. Electrical Energy and Gas Used in Cellular Glass Manufacture Electrical energy and gas ultimately consumed in connection with the manufacture of cellular glass products (a packing
material) is exempted. Pesticides and Herbicides The limitation that feed for livestock or poultry only applies to livestock or poultry that is sold ultimately in processed form
or otherwise at retail is removed. DOR staff assumes that this portion of the bill refers to horse feed. There were 64,628
horses in Missouri according to 1992 Bureau of Census estimates. DOR staff assumes an annual feed cost of $300 per year
($25 per month) for each horse. A growth rate of 3% was applied. Aquaculture Pesticides and herbicides used in the production of crops, aquaculture, livestock or poultry are exempted. ASSUMPTION (continued) Items Used in Research and Development of Prescription Pharmaceuticals Tangible personal property purchased for use or consumption directly and exclusively in the research and development of
prescription pharmaceuticals for humans and animals. Grain Bins Exempts sales of grain bins used for storage of grain for resale. Dog Food for Breeders Licensed commercial breeders may purchase feed for dogs tax exempt. Contractor Materials Contractors would be able to purchase materials, tax exempt, to fulfill contracts with exempt entities in other states. Oversight does not possess data on various components of this proposal which would lead to an estimate of the total fiscal
impact to all funds, however total state revenue losses would be expected to exceed $ 30 million annually. SECTION 260.285-Sales tax Credit for Recycling Flexible Cellulose Casing This portion of the proposal extends the sales tax credit for flexible cellulose casings used in meat or poultry sausage. The
credit would have expired on October 1,2001. This is outside of the fiscal note period, but would have a negative revenue
impact in FY2002. SECTION 1-College Textbook Sales Tax Exemption Officials of the Department of Revenue (DOR) state this proposal exempts the sale of textbooks to students of any public
or private university, college or other postsecondary institution of higher learning offering a course of study leading to a
degree in the liberal arts, humanities or sciences or in a professional vocational or technical field. DOR staff state the changes from this proposal will be handled with existing resources. DOR staff state the amount of
revenue impact is unknown. The exemption would cause a revenue loss to all state sales tax funds. Officials of the Coordinating Board for Higher Education (CBHE) state this proposal would remove the state sales tax
on postsecondary textbooks. ASSUMPTION (continued) According to the 1996-97 Statistical Summary of Missouri Higher Education, there are 154,979 full-time, and 120,850 part-time students in Missouri institutions. This estimate assumes $300 per year for textbooks for part-time students, and $600
per year for books for full-time students. Assuming a state sales tax on textbooks of 3%, the total lost of general revenue is: 154,979 x ($600 x .03) = $2,789,622 + 120,850 x ($300 x .03) = $1,087,650 = $3,877,272 Approximately half of this amount ($1,938,636) would be lost in the six remaining months of FY 1999. CBHE has estimated 4% inflation on the cost of textbooks for each year after FY 1999. FY 2000 - $2,901,206 + $1,120,279 = $4,021,485 FY 2001 - $3,017,286 + $1,176,354 = $4,193,640 Officials of the Office of Administration (COA) state that they have conferred with the officials of the Coordinating Board
for Higher Education and would concur with the estimate provided by that agency. Based on the estimate made by the Coordinating Board for Higher Education on the number of students and the expense for
textbooks, Oversight has estimated the revenue loss to all state sales tax funds. Oversight estimates that taxable sales for
FY 1997 would equal $119,491,864. A 4% growth rate was assumed. This proposal would result in a decrease in Total State Revenue. PARTIAL ESTIMATED NET EFFECT PARTIAL ESTIMATED NET EFFECT PARTIAL ESTIMATED NET EFFECT PARTIAL ESTIMATED NET EFFECT PARTIAL ESTIMATED NET EFFECT
FUND AFFECTED
FY 1999
FY 2000
FY 2001 General Revenue
($15,533,018)
($20,809,224)
($21,470,920) Highway
(unknown)
(unknown)
(unknown) School District Trust
($5,168,919)
($6,933,310)
($7,153,876) Conservation
($646,115)
($866,664)
($894,235) Parks and Soils
($516,891)
($693,331)
($715,388) PARTIAL Estimated Net
Effect on All
($21,864,943)
($29,302,529)
($30,234,419)
FUND AFFECTED
FY 1999
FY 2000
FY 2001 None
Total Estimated
$0
$0
$0
FUND AFFECTED
FY 1999
FY 2000
FY 2001 Local Government
($11,514,723)*
($14,233,340)*
($14,661,532)*
FISCAL IMPACT - State
Government
FY 1999
FY 2000
FY 2001
(10 Mo.)
Loss - General Revenue Fund Extended time period for Vehicle trade-in sales tax
credit
(unknown)
(unknown)
(unknown) Loss - General Revenue Fund Manufacturing Equipment Replacement Parts Sales Tax Exemption
(Unknown)
(Unknown)
(Unknown) Loss - General Revenue Fund Equipment & Replacement Parts Used in Service Industries
Exemption
($11,338,956)
($14,014,949)
($14,435,398) Loss - General Revenue Fund Elimination of sales tax on Medical assistive devices
($342,484)
($423,310)
($436,009) Loss to General Revenue Fund Over-the-counter Pharmaceuticals Exemption for the Disabled
($1,217,622)
($1,504,981)
($1,550,130) Loss to General Revenue Fund Adjuvants Sales Tax
Exemption
($72,926)
($87,511)
($87,511) Loss - General Revenue Fund Horse Feed Sales Tax
Exemption
($596,132)
($736,819)
($758,924) Loss - General Revenue Fund Sales tax exemption for
college textbooks
($1,938,636)
($4,032,363)
($4,193,657) Cost to General Revenue Fund Department of Revenue Equipment and Expense
($26,262)
($9,291)
($9,291)
ON GENERAL REVENUE
FUND*
($15,533,018)
($20,809,224)
($21,470,920) *The unknown revenue losses due to the various additional sales and use tax exemptions are not reflected in the
partial net effect to this fund, but would be expected to be substantial. DOR estimates on these exemptions exceed
$35,000,000 annually. FISCAL IMPACT - State
Government
FY 1999
FY 2000
FY 2001 (Continued)
(10 Mo.)
HIGHWAY FUND Loss to Highway Fund Extended time period for Vehicle trade-in sales tax
credit
(unknown)
(unknown)
(unknown) Loss to Highway Fund Elimination of sales tax on Medical assistive devices
(unknown)
(unknown)
(unknown)
SCHOOL DISTRICT TRUST FUND Loss - School District Trust Fund Extended time period for Vehicle trade-in sales tax
credit
(unknown)
(unknown)
(unknown) Loss - School District Trust Fund Manufacturing Equipment Replacement Parts Sales Tax Exemption
(Unknown)
(Unknown)
(Unknown) Loss - School District Trust Fund Equipment & Replacement Parts Used in Service Industries
Exemption
($3,779,652)
($4,671,650)
($4,811,799) Loss - School District Trust Fund Elimination of sales tax on Medical assistive devices
($114,161)
($141,103)
($145,336) Loss to School District Trust Fund Over-the-counter Pharmaceuticals Exemption for the Disabled
($405,874)
($501,660)
($516,710) Loss to School District Trust Fund Adjuvants Sales Tax
Exemption
($24,309)
($29,170)
($29,170) Loss to School District Trust Fund Horse Feed Sales Tax
Exemption
($198,711)
($245,606)
($252,975) FISCAL IMPACT - State
Government
FY 1999
FY 2000
FY 2001 (Continued)
(10 Mo.)
Loss - School District Trust Fund Sales tax exemption for
college textbooks
($646,212)
($1,344,121)
($1,397,886)
ON SCHOOL DISTRICT
TRUST FUND*
($5,168,919)
($6,933,310)
($7,153,876 *The unknown revenue losses due to the various additional sales and use tax exemptions are not reflected in the
partial net effect to this fund, but would be expected to be substantial. CONSERVATION FUND Loss - Conservation Fund Extended time period for Vehicle trade-in sales tax
credit
(unknown)
(unknown)
(unknown) Loss - Conservation Fund Manufacturing Equipment Replacement Parts Sales Tax Exemption
(Unknown)
(Unknown)
(Unknown) Loss - Conservation Fund Equipment & Replacement Parts Used in Service Industries
Exemption
($472,456)
($583,956)
($601,475) Loss - Conservation Fund Elimination of sales tax on Medical assistive devices
($14,270)
($17,638)
($18,167) Loss - Conservation Fund Over-the-counter Pharmaceuticals Exemption for the Disabled
($50,734)
($62,708)
($64,589) Loss to Conservation Fund Adjuvants Sales Tax
Exemption
($3,039)
($3,646)
($3,646) Loss - Conservation Fund Horse Feed Sales Tax
Exemption
($24,839)
($30,701)
($31,622) FISCAL IMPACT - State
Government
FY 1999
FY 2000
FY 2001 (Continued)
(10 Mo.)
Loss - Conservation Fund Sales tax exemption for
college textbooks
($80,777)
($168,015)
($174,736)
ON CONSERVATION
FUND*
($646,115)
($866.664)
($894,235) *The unknown revenue losses due to the various additional sales and use tax exemptions are not reflected in the
partial net effect to this fund, but would be expected to be substantial. PARKS AND SOIL FUND Loss - Parks and Soil Fund Extended time period for Vehicle trade-in sales tax
credit
(unknown)
(unknown)
(unknown) Loss - Parks and Soil Fund Manufacturing Equipment Replacement Parts Sales Tax Exemption
(Unknown)
(Unknown)
(Unknown) Loss - Parks and Soil Fund Equipment & Replacement Parts Used in Service Industries
Exemption
($377,965)
($467,165)
($481,180) Loss - Parks and Soil Fund Elimination of sales tax on Medical assistive devices
($11,416)
($14,110)
($14,534) Loss - Parks and Soil Fund Over-the-counter Pharmaceuticals Exemption for the Disabled
($40,587)
($50,166)
($51,671) Loss to Parks & Soils Fund Adjuvants Sales Tax
Exemption
($2,431)
($2,917)
($2,917) Loss to Parks & Soils Fund Horse Feed Sales Tax
Exemption
($19,871)
($24,561)
($25,297) FISCAL IMPACT - State
Government
FY 1999
FY 2000
FY 2001 (Continued)
(10 Mo.)
Loss - Parks and Soil Fund Sales tax exemption for
college textbooks
($64,621)
($134,412)
($139,789)
ON PARKS AND SOIL
FUND*
($516,891)
($693,331)
($715,388) *The unknown revenue losses due to the various additional sales and use tax exemptions are not reflected in the
partial net effect to this fund, but would be expected to be substantial. FISCAL IMPACT - Local
Government
FY 1999
FY 2000
FY 2001
(10 Mo.)
Loss to Cities Extended time period for Vehicle trade-in sales tax
credit
(unknown)
(unknown)
(unknown) Loss to Counties Extended time period for Vehicle trade-in sales tax
credit
(unknown)
(unknown)
(unknown) Loss to Cities Manufacturing Equipment Replacement Parts Sales Tax Exemption
(Unknown)
(Unknown)
(Unknown) Loss to Counties Manufacturing Equipment Replacement Parts Sales Tax Exemption
($4,730,683)
($5,849,556)
($6,027,547) Loss to Cities Equipment & Replacement Parts Used in Service Industries
Exemption
($3,779,652)
($4,671,650)
($4,811,799) Loss to Counties Equipment & Replacement Parts Used in Service Industries
Exemption
($1,889,826)
($2,335,825)
($2,405,900) Loss to Cities Elimination of sales tax on Medical assistive devices
($114,161)
($141,103)
($145,336) FISCAL IMPACT - Local
Government
FY 1999
FY 2000
FY 2001 (continued)
(10 Mo.)
Loss to Counties Elimination of sales tax on Medical assistive devices
($57,081)
($70,552)
($72,668) Loss to Cities Over-the-counter Pharmaceuticals Exemption for the Disabled
($405,874)
($501,660)
($516,710) Loss to Counties Over-the-counter Pharmaceuticals Exemption for the Disabled
($202,937)
($250,830)
($258,355) Loss to Cities Adjuvants Sales Tax
Exemption
($21,878)
($26,253)
($26,253) Loss to Counties Adjuvants Sales Tax
Exemption
($14,585)
($17,502)
($17,502) Loss to Cities Horse Feed Sales Tax
Exemption
($198,711)
($245,606)
($252,975) Loss to Counties Horse Feed Sales Tax
Exemption
($99,355)
($122,803)
($126,487)
ON LOCAL
GOVERNMENT*
($11,514,723)
($14,233,340)
($14,661,532)
*The unknown revenue losses due to the various additional sales and use tax exemptions are not reflected in the partial net effect to this fund, but would be expected to be substantial.
FISCAL IMPACT - Small Business
Small businesses would be expected to be fiscally impacted to the extent that they pay sales tax on taxable items. The exemptions from state and local sales tax in this proposal would cause small businesses to pay less for such items.
DESCRIPTION
This bill makes various changes to the state and local sales and use tax law. The bill:
(1) Authorizes Randolph and Macon counties to adopt a local option sales tax for the purpose of economic development; (2) Extends the time period allowed for the trade-in sales and use tax credit on motor vehicles, trailers, boats, and motors from 90 days to 180 days and allows a vehicle which has been contracted to purchase to comply with the 180 days; (3) Exempts from state and local sales and use tax certain replacement machinery and parts used in the manufacturing, mining, fabricating, or producing of a product; (4) Exempts from state and local sales and use tax feed for livestock and poultry regardless of whether the livestock or poultry is intended for human consumption; (5) Exempts from state and local sales and use tax electrical energy used at certain material processing plants; (6) Exempts from state and local sales and use tax certain products, devices, electrical equipment, and non-prescription drugs used to help individuals with disabilities; (7) Exempts from state and local sales and use tax home respiratory equipment and accessories, hospital beds and accessories, and ambulatory aides; (8) Exempts from state and local sales and use tax certain pesticides and herbicides used for the production of crops, aquaculture, livestock, or poultry; (9) Exempts from state and local sales and use tax lubricants used exclusively for farm machinery and equipment; (10) Exempts from state and local sales and use tax energy used in the production of cellular glass; (11) Exempts from state and local sales and use tax products and equipment used in research and development of prescription pharmaceuticals consumed by humans or animals; (12) Exempts from state and local sales and use tax grain bins used to store grain for resale; (13) Exempts from state and local sales and use tax pet feed used by commercial breeder; (14) Exempts from state and local sales and use tax purchases by contractors on behalf of exempt entities located in other states;
(15) Extends the sales tax credit for flexible cellulose casings used in meat or poultry sausage. The tax credit would have expired on October 1, 2001; (16) Exempts from state sales tax only purchases of certain textbooks from bookstores located on public and private campuses. All local sales taxes will continue to be collected on these purchases; and (17) Clarifies the definition of "product which is intended to be sold for final use or consumption" to mean tangible personal property, or any service that is subject to state and local sales or use taxes, or any tax that is substantially equivalent thereto, in this state or any other state.
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
Coordinating Board for Higher Education
Office of Administration
Department of Revenue
Jeanne Jarrett, CPA
Director
June 11, 1998