Colorado Legislative Council Staff

STATE

REVISED FISCAL IMPACT

(replaces fiscal impact dated January 16, 1999)

Drafting Number:

Prime Sponsor(s):

LLS 99-0006

Rep. McElhany

Sen. Arnold

Date:

Bill Status:

Fiscal Analyst

February 11, 1999

House Appropriations

Harry Zeid (303 866-4753)

 

TITLE:            CONCERNING THE ELIMINATION OF THE STATE INCOME TAX MARRIAGE PENALTY.



Fiscal Impact Summary

FY 1999/2000

FY 2000/2001

State Revenues

General Fund


-$10,123,557


-$20,568,144

State Expenditures

General Fund


 


$67,290

FTE Position Change

0.0 FTE

0.0 FTE

Other State Impact: TABOR Impact

Effective Date: 90 days after adjournment; effective for income tax years beginning on or after January 1, 2000.

Appropriation Summary for FY 1999-2000: None

Local Government Impact: None



Summary of Legislation


            This fiscal note has been revised to reflect updated information. This bill is designed to eliminate the state income tax “marriage penalty” for income tax years beginning on or after January 1, 2000:

 

               for taxpayers claiming the basic standard deduction on a joint federal income tax return, the bill reduces Colorado taxable income by the difference between an amount equal to twice the federal basic standard deduction for an individual who is not the head of a household and the amount of the federal basic standard deduction for joint filers; and

 

               for taxpayers claiming itemized deductions on a joint federal income tax return, the bill reduces Colorado taxable income by the difference between an amount equal to twice the federal basic standard deduction for an individual who is not the head of a household and the amount of the itemized deductions claimed.


            Since the bill is effective for income tax years beginning on or after January 1, 2000, there is a six-month state General Fund revenue reduction impact in FY 1999-00 on an accrual accounting basis. State expenditures will occur beginning in FY 2000-01.



State Revenues


            Elimination of the state income tax “marriage penalty” for income tax years beginning on or after January 1, 2000, will reduce state income tax collections. The reduction in state General Fund revenues on an accrual accounting basis is projected to be $10,123,557 in FY 1999-00, and $20,568,144 in FY 2000-01. A total of 370,216 full-year income tax returns are projected to be affected by the income modification in FY 1999-00.



State Expenditures


            The bill will require a new modification line on the income tax return to record the information. In order to track the information provided regarding the amount of interest, dividends, and capital gains claimed as an income modification, the department estimates the need for 900 hours of computer programming time to make the necessary changes to the current income tax system models. At the rate of $68 per hour, the Information Technology Division will require an additional General Fund expenditure of $61,200 in FY 2000-01 to make these changes. The time necessary for the Tax Audit and Compliance Division to modify their audit programs will be absorbed within existing resources.


            The Cash and Document Processing Division will experience an increased workload to data capture the information on the income tax return about the income modification. Based on 370,216 returns with additional information, it is projected that $6,090 in additional General Fund expenditures will be necessary annually beginning in FY 2000-01.


            The bill will not require a state expenditure in FY 1999-00. Total state General Fund expenditures in FY 2000-01 are estimated to be $67,290.



Other State Impacts


            The reduced state revenues will mean a reduction of the amount of state funds required to be refunded to taxpayers under the terms of TABOR, and less state funds will be available for capital construction needs. Table 1 summarizes the net impact of this bill on these state obligations. The changes in Table 1 are changes from a base that includes continuing capital construction projects. A reduction in the state income tax liability will also increase federal income taxes paid by Colorado taxpayers.


Table 1. Additional Impact of HB 99-1003 (millions of dollars)


 

FY 1999-00

FY 2000-01

General Fund Revenue

-$10.12

-$20.57

General Fund Appropriations

SB 97-1 Diversion

0.00

0.00

0.00

0.00

Controlled Maintenance Trust Fund Appropriations

Excess General Fund Reserve

0.00

-10.12

0.00

-20.57

Federal Income Taxes Paid by Colorado Taxpayers

Additional Money Available for New Capital or Rebates

2.04

-21.74

4.05

0.00

TABOR Refund (from prior year)

0.00

-10.12



State Appropriations


            The fiscal note implies that no new state appropriations or spending authority are required to implement the provisions of the bill in FY 1999-00.



Departments Contacted

 

            Revenue          Legislative Council Staff