Colorado Legislative Council Staff

STATE

FISCAL IMPACT

TITLE:            CONCERNING STATE TAX INCENTIVES THAT ENCOURAGE ENVIRONMENTAL PROTECTION.

Summary of Legislation

            This bill provides state tax incentives that encourage environmental protection. Provisions of the bill include:

            •   on and after April 1, 2001, a sales and use tax exemption for motor vehicles that achieve an average fuel economy of at least 40 miles per gallon;

            •   on and after April 1, 2001, a sales and use tax exemption for renewable energy generators;

            •   for income tax years commencing on or after January 1, 2001, an income tax deduction equal to the taxpayer’s expenses for mass transit tickets, tokens, passes, or fares paid to travel to and return from the taxpayer’s place of employment to the extent that these expenses are included in federal adjusted gross income; and

            •   for income tax years commencing on or after January 1, 2001, an income tax credit for domestic and foreign C corporations that implement flex-time schedules for the corporation’s employees, or allow employees to telecommute. The income tax credit would equal the costs to the taxpayer of implementing a flex-time schedule, up to a maximum tax credit of $500 per corporation.

            Since the bill will reduce state General Fund revenues, the bill is assessed as having state fiscal impact.

State Revenues

            Estimates of the state General Fund revenue reduction that will result from the tax incentives provided in the bill are summarized below:

            Sales and use tax exemption for fuel efficient motor vehicles. For the 1998 model year, four car models met the bill’s criteria of averaging at least 40 miles per gallon. They include the Chevrolet Metro, Suzuki Swift, Honda Civic HX, and Volkswagen Passat (manual, diesel model). Sales of these vehicles represent 4.2 percent of the total domestic vehicle sales volume nationally. Applying these numbers to Colorado motor vehicle purchases would result in a value of the state sales tax exemption on these vehicles of approximately $5.0 million annually. Since the exemption would become effective April 1, 2001, the estimated impact for FY 2000-01 is estimated to be $1,250,000 for the three-month period (April through June) that the sales and use tax exemption would be effective.

            Sales and use tax exemption for renewable energy generators. The number and total value of renewable energy generators sold in Colorado annually is unknown. Therefore, the revenue reduction impact of this sales and use tax exemption cannot be estimated at this time.

            Income modification for transit fare expenses. An analysis of transit fare data conducted by the Department of Revenue indicates that the bill may provide an income tax deduction valued at as much as $53.2 million annually. Assuming that this value of total fares may be credited against taxable income, the value of the tax deduction at the current state individual income tax rate of 5.0 percent equals an annual state General Fund revenue reduction of $2.66 million. The value of the tax deduction for FY 2000-01 would be $1.33 million for the six-month period from January through June, 2001. Currently, the most expensive annual regional pass offered by the Regional Transportation District costs $850. Each pass that costs $850 would result in a state income tax liability reduction of $42.50. Mass transit riders that participate in the federal program where the amount of their mass transit fare is paid for through their employer with pre-tax earned income would not qualify for the income tax credit.

            Credit for implementation of flex-time schedules and telecommuting. The number of corporations that will implement flex-time schedules for employees, and the cost to these corporations to implement the schedules is unknown. Therefore, the revenue reduction impact of this corporate income tax credit cannot be estimated at this time. It should be noted that in FY 1994-95, there were 19,774 domestic and foreign C corporations that had a state tax liability. The bill limits the value of the credit to $500 per corporation.

State Expenditures

            A new modification line will need to be added to the state individual income tax return in FY 2000-01 to allow for the mass transit income tax deduction, and a new line will be necessary on the state corporate income tax return for the flex-time schedule income tax credit. Since neither of these credits will be separately tracked by the Department of Revenue, the lines will require a combined total of 750 hours of contract programming time to complete. 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 programming costs below 900 hours. This includes the cost for contract programming time necessary to add modification lines to the state individual and corporate income tax returns if the new line is not required to be tracked. The information contained on the line required by this bill will not be tracked by the Department of Revenue, and will therefore be absorbed within the existing resources of the Department. State expenditures will not be affected by the sales and use tax exemption provisions of the bill.

Other State Impacts

            Under current law, SB97-1 requires the diversion of 10 percent of sales tax revenues to the Highway User Tax Fund for use on highway projects. This bill will reduce state sales tax revenues beginning in FY 1999-00, and will therefore, reduce the amount of state funds available for the SB 97-1 diversion. Additionally, 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.

Table 1. Additional Impact of HB 99-1120 (millions of dollars)

             *Under current law, the amount of money available for transfer to capital construction or rebates in FY 1999-00 will be limited to $103.26 million based on the FY 2001-02 General Fund excess reserve. This bill would decrease the FY 2001-02 excess reserve by $7.03 million, thus allowing a smaller transfer to capital construction or rebates in FY 1999-00.

Local Government Impact

            The bill exempts local governments from granting the sales and use tax exemptions authorized at the state level. Therefore, no fiscal impact would occur to units of local government.

State Appropriations

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

Departments Contacted

            Revenue          Local Affairs