Colorado Legislative Council Staff

STATE

REVISED FISCAL IMPACT

(replaces fiscal impact dated January 12, 1999)

TITLE:            CONCERNING THE REDUCTION OF THE STATE INCOME TAX RATE.

Summary of Legislation

            Under current law, Colorado imposes an income tax on individuals, estates, trusts, and corporations at the rate of five percent of federal taxable income, after certain adjustments have been made. This bill, as amended in the House Finance Committee, permanently lowers the state income tax rate to 4.5 percent for income tax years commencing on or after January 1, 2000.

State Revenues

            A 0.5 percent income tax rate reduction from 5.00 percent to 4.5 percent for individuals, estates, trusts, and corporations would reduce total income tax collections by ten percent. The reduction in General Fund revenues on an accrual accounting basis is projected to be $188.38 million in FY 1999-00, and $413.19 million in FY 2000-01. Table 1 identifies the annual reductions for individuals and fiduciaries, and for corporations.

Table 1. Projected General Fund Revenue Reduction

Based on Changing the State Income Tax Rate

 from 5.0 Percent to 4.5 Percent (millions of dollars)

            Any reduction in individual income tax withholding will also affect revenues from General Fund interest earnings.

State Expenditures

            The Department of Revenue will require a one-time General Fund expenditure of $117,612 in FY 2000-01 to implement the provisions of the bill. While no personal services are required, operating expenses for the Cash & Document Processing Division include postage and printing related expenses for the additional refund checks that will need to be processed and mailed. In addition, $36,000 will be necessary for printing withholding booklets to be sent to employers to reflect changes in income tax withholding for the new income tax rate.

Other State Impacts

            The reduced state income tax 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. This will trigger a reduction in SB 97-1 diversions to the Highway User Tax Fund. Table 2 summarizes the net impact of this bill on these state obligations. The changes in Table 2 are changes from a base that includes continuing capital construction projects. A reduction in the state income tax rate will also increase federal income taxes paid by Colorado taxpayers.

Table 2. Additional Impact of HB 99-1008 (millions of dollars)

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

            Legislative Council Staff        Revenue