Colorado Legislative Council Staff

STATE

REVISED FISCAL NOTE

(Replaces Revised Fiscal Note dated March 17, 1998)

TABOR Refund Impact

General Fund Revenue and Expenditure Impact

TITLE:            CONCERNING A CHANGE IN STATE INCOME TAX POLICY PERTAINING TO EXPENSES RELATED TO CHILD CARE, AND MAKING AN APPROPRIATION IN CONNECTION THEREWITH. 

Summary of Legislation

            Under current law, a resident individual who claims a credit for child care expenses on the individual’s federal tax return is allowed a graduated child care expenses credit against Colorado individual income tax if the individual’s federal adjusted gross income (AGI) is less than $60,000. Effective for income tax years beginning on or after January 1, 1998, this bill, as amended in the Senate Appropriations Committee (Senate Journal, April 7, 1998, pp. 723 - 724) would increase the current state child care expenses income tax credit for individuals whose federal adjusted gross income is less than $60,000 so that it would be equivalent to 50 percent of the amount of the federal child care expenses credit. The bill would require that the amount of the credit claimed as a state credit that is not used to offset state income tax be refundable to the taxpayer.

            In addition, for income tax years beginning on or after January 1, 1998, the amended bill allows that if a resident individual with federal AGI under $60,000 claims a child tax credit for one or more qualifying children, the individual would be allowed a child tax credit of $200 for each child who is five years of age or under at the end of the taxable year for which the credit is claimed.

            The amended bill stipulates that the increase in the child care expenses credit and the credit for children under the age of six would only be authorized for income tax years beginning on or after January 1, 1998 if state revenues for the immediately preceding fiscal year exceed the limitation on state fiscal year spending imposed by Section 20 (7) (a) of Article X of the State Constitution, and the voters did not authorize the state to retain and spend all of the excess state revenues.

            The bill would reduce state General Fund revenues. Therefore, the bill is assessed as having state fiscal impact. The bill would become effective upon signature of the Governor.

State Revenues

            The amended bill stipulates that the increase in the child care expenses credit and the credit for children under the age of six would only be authorized for income tax years beginning on or after January 1, 1998 if state revenues for the immediately preceding fiscal year exceed the limitation on state fiscal year spending imposed by Section 20 (7) (a) of Article X of the State Constitution (TABOR), and the voters did not authorize the state to retain and spend all of the excess state revenues. Based on the March 1998 economic and revenue forecast prepared by Legislative Council staff, projected state revenues will exceed the TABOR spending limit by $365.9 million in FY 1997-98, $339.9 million in FY 1999-00, and $321.3 million in FY 1999-00.

            For the 1998 income tax year, the Department of Revenue estimates that the value of the current Colorado child care expenses credit will be $5.73 million claimed by 60,500 taxpayers. Colorado taxpayers whose federal adjusted gross income is under $60,000 will qualify for $20.68 million from the federal child care expenses credit in 1998. In the case of married taxpayers filing jointly, the credit is based on the income of the spouse with the lowest amount of wage income. The estimated increased value of the Colorado child care expenses credit based on making the credit equivalent to 50 percent of the amount of the federal credit is identified in Table 1.

Table 1. SB 98-158 Estimated Increased Child Care Expenses Credit Impact

            The bill would also allow a $200 child tax credit for each child who is five years of age or under at the end of the taxable year for resident individuals with federal AGI under $60,000, regardless of whether both spouses were working. Based on estimates using 1990 census data and the combined state-federal income tax database for income tax year 1994, 98,431 state income tax returns will be eligible for all or part of the $200 child tax credit for income tax year 1998. It is assumed that on average, qualified returns will be eligible for a credit for 1.5 children under the age of six. Since the value of the credit cannot exceed the taxpayer liability, some taxpayers will not be able to claim the full value of the credit. Table 2 identifies the estimated value of the child tax credit.

Table 2. SB 98-158

 Estimated Increased Child Tax Credit Impact

            The combined value of the two credits is estimated to be $31,237,728 in FY 1998-99, $30,936,868 in FY 1999-00, and $29,540,058 in FY 2000-01.

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

            Adding the $200 child tax credit for children under the age of six will require the capture of additional data on the state income tax form for affected taxpayers. It is estimated that the cost of data entry will be $1,619 in FY 1998-99, and $1,590 in FY 1999-00. Based on an agreement with the Joint Budget Committee, Legislative Council Fiscal Note Staff, and the Department of Revenue, the Department of Revenue will absorb the costs of approximately 520 hours of contract programming time necessary to make the changes with the Information Technology Division. Other expenses related to the bill are minimal, and will also be absorbed within existing resources of the Department of Revenue.

Spending Authority

            The fiscal note would imply that the Department of Revenue will require an additional General Fund appropriation in the amount of $1,619 in FY 1998-99 in order to implement the provisions of the bill.

Departments Contacted

            Revenue