Colorado Legislative Council Staff

STATE and LOCAL

REVISED FISCAL NOTE

(Replaces Fiscal Note dated January 4, 1998)

TABOR Refund Impact

General Fund Revenue Impact

Local Revenue Impact


Drafting Number:

Prime Sponsor(s):

LLS 98-119

Rep. K. Alexander

Sen. Ament

Date:

Bill Status:

Fiscal Analyst:

February 18, 1998

House 2nd Reading

Harry Zeid (866-4753)

 

TITLE:            CONCERNING THE EXEMPTION OF FARM EQUIPMENT FROM STATE SALES AND USE TAX.



Summary of Legislation


STATE FISCAL IMPACT SUMMARY

FY 1998/99

FY 1999/2000

State Revenues

General Fund - (reduction)

Cash Fund


($4,049,809)


($4,203,701)

State Expenditures

General Fund

Other Fund


 


 

FTE Position Change

None

None

Local Government Impact — Statutory cities, counties and special districts where the local sales tax is collected by the state would be allowed to exempt farm equipment through adoption of a resolution or amendment to local sales tax ordinances.


            This bill, as amended in the House Finance Committee (House Journal, February 13, 1998, pp. 520 - 523), would create a state sales and use tax exemption for farm equipment purchased and sold on or after July 1, 1998. Farm equipment would be defined to mean tangible personal property used primarily and directly in any farming operation, and having a purchase price of at least $1,000. A farming operation would be defined as a farming business operated for profit, including a business providing farming work for hire. The bill also provides that, under certain circumstances, the right to continuous possession or use for more than three years of any farm equipment under lease or contract shall be exempt from state sales and use tax. The bill would reduce the revenues of the state. As amended, statutory cities, counties and special districts where the local sales tax is collected by the state would be allowed to exempt farm equipment through adoption of a resolution or amendment to local sales tax ordinances, but the exemption would not be automatic. Therefore, the bill is assessed as having state and local fiscal impact. The bill would become effective upon signature of the Governor.



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 repeal the state sales and use tax on sales and purchases of farm equipment, effective July 1, 1998, thereby reducing the projected state revenue excess by $4.05 million.


            The Standard Industrial Classification (SIC) is the statistical classification standard underlying all establishment-based Federal economic statistics classified by industry. SIC Code 5083, Farm and Garden Machinery and Equipment, is the category used for establishments primarily engaged in the wholesale distribution of agricultural machinery and equipment for use in the preparation and maintenance of the soil, the planting and harvesting of crops, and other operations and processes pertaining to work on the farm or lawn or garden, as well as dairy and other livestock equipment. Based on reported net taxable sales for this industry classification, the sales and use tax collected in FY 1996-97 from retail establishments in this SIC category in Colorado was $3,784,196.


            Including industry growth and inflation, it is projected that state sales tax revenue reductions that would occur by exempting farm equipment from the imposition of state sales and use tax will be $4.05 million in FY 1998-99, and $4.20 million in FY 1999-00.



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.



Local Government Impact


            Sales tax exemptions authorized at the state level also apply to statutory cities, counties and special districts, since their sales tax is collected by the state. Home rule cities collect their own sales and use tax, and may determine their own sales tax base. As amended, statutory cities, counties and special districts where the local sales tax is collected by the state would be allowed to exempt farm equipment through adoption of a resolution or amendment to local sales tax ordinances, but the exemption would not be automatic. No estimate has been made regarding the potential amount of sales tax revenue losses to local governments.


Spending Authority


            The fiscal note would imply that no new spending authority or appropriations are required for FY 1998-99 to implement the provisions of the bill.



Departments Contacted


            Revenue