Colorado Legislative Council Staff

STATE and LOCAL

FISCAL NOTE

TABOR Refund Impact

General Fund Revenue and Expenditure Impact

Local Government Revenue Impact


Drafting Number:

Prime Sponsor(s):

LLS 98-431

Rep. G. Berry

Date:

Bill Status:

Fiscal Analyst:

January 17, 1998

House Finance

Harry Zeid (866-4753)

 

TITLE:            CONCERNING THE USE OF A DIRECT PAYMENT PERMIT NUMBER BY A QUALIFIED PURCHASER TO A VENDOR OR RETAILER IN CONNECTION WITH SALES THAT ARE SUBJECT TO SALES AND USE TAX.



Summary of Legislation


STATE FISCAL IMPACT SUMMARY

FY 1998/99

FY 1999/2000

State Revenues

General Fund

Other Fund


Additional Sales Tax and Fee Revenue

State Expenditures

General Fund

Other Fund


$53,945


$3,945

FTE Position Change

None

None

Local Government Impact — Statutory cities and counties and other special districts whose sales tax is collected by the state would experience a revenue increase equal to the vendor’s discount that would no longer be retained by the retailer in cases where a direct payment to the Department of Revenue is used for the remittence of the sales tax.


            The bill would authorize the Executive Director of the Department of Revenue to issue a sales and use tax direct payment permit number to qualified persons who have purchased at least $1 million of commodities, services, or tangible personal property that are subject to sales and use tax. An application fee would be established for the direct payment permit, however, the amount of the fee has not been determined, and is not identified in the bill.


            The direct payment permit would allow the qualified purchaser to be responsible for submitting the sales and use tax directly to the Department of Revenue, rather than to a retailer. The qualified purchaser would not be entitled to withhold the amount of the vendor’s discount that the retailer would otherwise be entitled to retain to cover the expenses of collecting and remitting the sales tax. The direct payment permit number would also be authorized for use by statutory counties and cities, and the sales tax levied by special districts or local improvement districts.


            The bill would increase General Fund revenues and local government revenues by the amount of the vendor’s discount that would not be retained by retailers. General Fund revenues would also be increased by the amount of application fees collected. In addition, a General Fund expenditure would be required to implement the direct payment permit system. Therefore, the bill is assessed as having state and local fiscal impact. The bill will become effective at 12:01 a.m. on the day following the ninety-day period after adjournment sine die of the General Assembly, or on the date of the official declaration of the vote of the people as proclaimed by the Governor, if a referendum petition is filed pursuant to Article V, Section 1 (3) of the State Constitution.



State Revenues


            Legislative Council staff has projected the state’s revenues that will be in excess of the state fiscal year spending limitation for the 1998-99 fiscal year, as required by Section 20 of Article X of the State Constitution to be $286.10 million. This bill would increase sales tax revenues collected by the state by the amount of the vendor’s discount that would no longer be retained by the retailer in cases where a direct payment to the Department of Revenue is used for the remittence of the sales tax, and by the amount of the application fees collected, thereby increasing the projected state revenue excess.


            The vendor’s discount that would otherwise be retained by the retailer would be included in the sales and use tax payment that would be remitted to the Department of Revenue. This would increase General Fund sales tax revenues by $30,000 for each $1 million in taxable sales purchased with a direct payment permit number. However, the amount of retail sales that would occur under the program is unknown. A similar revenue impact would occur for statutory counties, cities, and special districts.


            The number of direct payment permits that would be issued by the Department of Revenue and the permit application fee that would be charged is not known. Therefore, fee revenue has not been projected.


 

TABOR Refund Impact


            Section 20 of Article X of the Colorado Constitution, limits the maximum annual percentage increase in state fiscal year spending. Once total state revenue from all sources that are not specifically excluded from fiscal year spending exceeds these limits for the fiscal year, the state constitution requires that the excess shall be refunded in the next fiscal year unless voters approve a revenue change as an offset. Based on the current Legislative Council economic forecast, it is projected that the state will be in a TABOR refund position during each of the next five fiscal years. Any increase or decrease in state revenue from changes in fees, fines, licenses, or other revenue sources will affect the amount of the state revenue to be refunded.



State Expenditures


            The Department of Revenue indicates that the number of applicants for a direct payment permit number is unknown, but the number could be significant. The actual cost to be Department will depend, in part, on the number of permit applications. Current sales tax vendors will continue to remit their sales tax returns, and in addition, will be required to remit an addendum to their sales tax return identifying the amount of sales that were made to qualified purchasers with a direct payment permit.


            Costs for the Department of Revenue to establish a direct payment permit plan includes an estimated $50,000 for the Information Technology Division (1,000 hours of contract programming at $50 per hour) to design a new sub-system to track the qualified purchasers, the sales tax that they remit directly to the Department, and the distribution of those taxes to statutory cities and counties, and other special districts. Other costs would include the cost to create several new forms by the Cash & Document Processing Division; $3,000 per 5,000 applications for mailing costs of applications, permits, and forms; $475 per 5,000 for printing of the forms, and $470 per 5,000 returns for data entry of completed sales tax forms by qualified purchasers. Other costs, such as an addendum form for current vendors, application processing and permit issuance, and costs of the Taxpayer Services Division, would be absorbed within the existing resources of the Department.


            For purposes of this fiscal note, it is estimated that the Department of Revenue will require, at a minimum, $53,945 during FY 1998-99, and $3,945 for FY 1999-00 and each fiscal year thereafter, in order to implement the provisions of the bill.



Fee Impact on Individuals, Families or Business


            Pursuant to Section 2-2-322, C.R.S., which requires legislative service agency review of legislative measures which include the creation or increase of any fee collected by a state agency, the following analysis is provided. The bill will create a new application fee for direct payment permit numbers. The amount of the fee is not identified in the bill, and the number of permit applications has not been estimated. However, it is anticipated that the fee structure established will be at a level sufficient to cover the administrative costs of the program.



Local Government Impact


            Statutory cities and counties and other special districts whose sales tax is collected by the state would experience a revenue increase equal to the vendor’s discount that would no longer be retained by the retailer in cases where a direct payment to the Department of Revenue is used for the remittence of the sales tax.



Spending Authority


            The fiscal note would imply that the Department of Revenue would require a General Fund appropriation in the amount of $53,945 during FY 1998-99 in order to implement the provisions of the bill.



Departments Contacted


            Revenue