SB 0006 - Fiscal Note

Fiscal Note - SB 0006 - Authorizes taxpayers to subtract amount of social security benefits in determining state income tax

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO.: 0174-01

BILL NO.: SB 6

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

TYPE: Original

DATE: February 2, 1999

---

FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
General Revenue	($22,055,517)	($88,222,069)	($97,044,276)
Total Estimated Net Effect on All State Funds	($22,055,517)	($88,222,069)	($97,044,276)

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
None
Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
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 the proposal would allow taxpayers to subtract from their federal adjusted gross income any social security benefits included in their federal gross income.

ADMINISTRATIVE IMPACT:

The IRS in its Spring 1998 Statistics of Income Bulletin reports that there were 149,279 federal returns filed by Missouri taxpayers reporting over $1 billion in social security benefits. The Division of Taxation and Revenue does not anticipate a significant number of errors resulting from the proposal. However, for every 20,000 additional errors generated from this deduction, one Tax Processing Technician I would be needed for six months (at a cost of $8,340) and would be requested through the budget process.

This proposal would require modifications to the income tax system. The Division of Taxation and Collections estimates these modifications, including programming changes, would require 822 hours of overtime at a cost of $20,808. Modifications to the income tax return and schedules would be completed with existing resources. State Data Center charges would increase due to the additional storage and fields to be captured. Funding in the amount of $5,560 would be requested.

Oversight assumes no additional costs for modifications and/or charges for the income tax system. These additional costs would be requested through normal budgetary procedures.

Officials of the Office of Administration (COA) state the Spring 1998 Statistics of Income report that Social Security benefits in Missouri adjusted gross income for 1996 were $1,004,281,000. COA states this is the first year that Social Security benefits have been reported by state. COA also states that national Social Security benefits have been growing at about 18% annually since 1994. A 10% growth rate is used for this estimate. A 6% marginal tax rate is then used to determine the amount of individual income tax revenue lost to the state. COA assumes that taxpayers would not adjust their withholdings in FY 1999 to take advantage of this proposal, causing the revenue impact not to be felt until FY 2000.

Oversight estimates a loss to the General Revenue Fund of $22,055,517 for FY 2000 due to the possibility of reduced withholding and estimated income tax payments for five months of calendar year 2000. Oversight assumes 25% of Missouri taxpayers would adjust payments, however it should be noted that this amount could be less depending on taxpayer's awareness of the deductibility of Social Security benefits in determining state income tax and their desire to adjust withholdings or estimated payments.

ASSUMPTION (continued)

This proposal would result in a decrease in Total State Revenues since the Individual Income tax collections are included in the calculation of Total State Revenue.

FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
	(6 Mo.)
GENERAL REVENUE FUND
Loss - General Revenue Fund
Deduction of Social Security benefits	($22,055,517)	($88,222,069)	($97,044,276)
ESTIMATED NET EFFECT ON
GENERAL REVENUE FUND	($22,055,517)	($88,222,069)	($97,044,276)
FISCAL IMPACT - Local Government	FY 2000	FY 2001	FY 2002
	(6 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 proposal would authorize the subtraction from a taxpayer's federal adjusted gross income, in determining Missouri adjusted gross income, of any amounts of social security benefits. The proposal has an effective date of January 1, 2000, and applies to all taxable years beginning on or after December 31, 1999.

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

Division of Budget and Planning

Jeanne Jarrett, CPA

Director

February 2, 1999