COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION



FISCAL NOTE



L.R. NO.: 3854-01

BILL NO.: SB 852

SUBJECT: Revenue Dept.; Taxation and Revenue-Income

TYPE: Original

DATE: February 18, 2000




FISCAL SUMMARY



ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED FY 2001 FY 2002 FY 2003
General Revenue ($101,829,034) ($456,194,072) ($510,937,360)
Total Estimated

Net Effect on All

State Funds

($101,829,034) ($456,194,072) ($510,937,360)



ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED FY 2001 FY 2002 FY 2003
Total Estimated

Net Effect on All

Federal Funds

$0 $0 $0



ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED FY 2001 FY 2002 FY 2003
Local Government $0 $0 $0

Numbers within parentheses: ( ) indicate costs or losses.

This fiscal note contains 3 pages.

FISCAL ANALYSIS



ASSUMPTION



Officials from the Department of Revenue (DOR) state the proposal would allow taxpayers to subtract from their federal adjusted gross income any capital gains from the sale or exchange of a capital asset. This legislation also repeals section 135.357, relating to capital gains.



ADMINISTRATIVE IMPACT:



The Division of Taxation does not anticipate a significant number of errors created by this subtraction and at this time would not request additional FTE. However, if the number of errors is substantial, the Division of Taxation would need one Tax Processing Technician for six months for every 30,000 additional errors. This proposal would require modifications to the income tax system. The Division of Taxation and Collections estimates these modifications, including programming changes, would require 908 hours of overtime at a cost of $20,808. Modifications to the income tax return and schedules would be completed with existing resources.



Oversight assumes that modifications to the income tax system would be completed with existing resources.



Officials from the Office of Administration (COA) state they have assumed that this proposal would have an estimated impact of approximately $0 in FY 2001, ($456,194,072) in FY 2002, and ($510,937,360) in FY 2003. COA assumes that taxpayers would not adjust their withholdings in FY 2001 to take advantage of the elimination of income tax on capital gains. The estimate is based on the IRS's calculation of capital gains claimed by Missourians in 1997 as reported in the Spring, 1999 edition of the "Statistics of Income". In calculating the estimate, COA assumes a marginal tax rate of 6% and a growth rate of 12%. COA states that from 1990 to 1997 the average growth rate of capital gains claimed by Missourians was 19.7% and the national growth rate was 19.1%.



Oversight estimates a loss to the General Revenue Fund of $101,829,034 for FY 2001 due to the possibility of reduced withholdings and estimated income tax payments for five months of calendar year 2001. Oversight assumes 25% of Missouri taxpayers would adjust payments, however, it should be noted that this amount could be less depending on taxpayers' awareness of the state tax exemptions on capital gains.



This proposal would result in a decreases in Total State Revenues.

FISCAL IMPACT - State Government FY 2001

(6 Mo.)

FY 2002 FY 2003
GENERAL REVENUE FUND
Loss - General Revenue Fund
Elimination of state tax on capital gains ($101,829,034) ($456,194,072) ($510,937,360)
ESTIMATED NET EFFECT ON
GENERAL REVENUE FUND ($101,829,034) ($456,194,072) ($510,937,360)



FISCAL IMPACT - Local Government FY 2001

(6 Mo.)

FY 2002 FY 2003
$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 exempts capital gains from state taxation, beginning January 1, 2001.

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



Jeanne Jarrett, CPA

Director

February 18, 2000