TITLE: CONCERNING AN EXCLUSION OF CERTAIN EARNED INCOME FROM COLORADO TAXABLE INCOME, AND, IN CONNECTION THEREWITH, EXCLUDING CERTAIN WAGE AND BUSINESS INCOME FROM THE COLORADO INCOME TAX IMPOSED ON INDIVIDUALS, ESTATES, AND TRUSTS WHEN STATE REVENUES FOR THE PREVIOUS FISCAL YEAR EXCEEDED THE CONSTITUTIONAL LIMITATION ON FISCAL YEAR SPENDING AND ARE REQUIRED TO BE REFUNDED.

Fiscal Impact Summary	FY 1999/2000	FY 2000/2001
State Revenues General Fund	-$150,000,000	-$300,000,000
State Expenditures General Fund		$65,444
FTE Position Change	0.0 FTE	0.0 FTE
Other State Impact: TABOR
Effective Date: Upon signature of the Governor.
Appropriation Summary for FY 1999-2000: none in FY 1999-00.
Local Government Impact: None

The bill provides an income modification for Colorado taxpayers for income tax years when state revenues for the prior fiscal year, that the voters have not authorized the state to retain and spend all or a portion of the excess state revenues, are in excess of the constitutional limitation on state fiscal year spending, as provided for in the TABOR Amendment (Section 20 (7)(A) of Article X of the State Constitution).

For income tax years commencing on or after January 1, 2000, the bill provides for an income modification equal to the lesser of $300 million, or the amount of excess state revenues for the prior state fiscal year that are required to be refunded. The Executive Director of the Department of Revenue would calculate the percentage of gross income from wages and business sources, not otherwise subtracted from federal taxable income, that would be used as an income modification to equal a total of $300 million. The maximum amount of wage and business income subject to the percentage set by the Executive Director shall not exceed $60,000 in any taxable year for single filers, and $120,000 for a joint or surviving spouse income tax return (see the Omissions and Technical or Mechanical Defects section of this fiscal note).

The bill will reduce state General Fund revenues beginning with the last half of FY 1999-00, and will require state expenditures to administer the income modification beginning in FY 2000-01. Therefore, the bill is assessed as having state fiscal impact.

The bill provides a method of reducing state income tax revenues for individuals with wage or business income for income tax years commencing on or after January 1, 2000. The bill authorizes an income modification equal to the lesser of $300 million, or the amount of excess state revenues for the prior state fiscal year that are required to be refunded. Based on the updated Department of Revenue database from income tax year 1995, it is estimated that for income tax year 2000, the specified percentage of wage and business income that should be targeted is 8.5 percent of wage income. This will result in an income modification equal to $306.2 million. Based on projected growth in wage income and population, the targeted percentage of 8.0 percent in income tax year 2001 will result in a state revenue reduction of $304.8 million.

Any reduction in state income tax liability will increase the amount of federal income tax liability for Colorado taxpayers who itemize their federal income tax return. The bill is projected to increase federal income taxes paid by Colorado taxpayers by $33.69 million in FY 1999-00, and $65.53 million in FY 2000-01.

The Department of Revenue will have additional General Fund expenditures totaling $65,444 in FY 2000-01 to implement the bill. No expenditures will be required in FY 1999-00. An estimated 1,439,887 taxable Colorado income tax returns report wage income or schedule C business income.

Department of Revenue expenditures for FY 2000-01, and each year thereafter, include $38,877 for postage, $4,320 for printing and additional envelopes, and $5,760 for GSS mail service to send out additional refund checks caused by the income modification. There will be a partial savings offset of $7,199 for the remittance processing section. In addition, the recording of information on the new modification line on the income tax return will require $23,686 in additional data entry costs.

A new modification line will be added to the state income tax return in FY 1999-00. This line will allow income tax filers to subtract the percentage of wage and business income from their federal taxable income. 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 cost for contract programming time necessary to add modification lines to the state income tax return 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.

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

Section 39-22-104 (b)(II) of the bill on page 3, lines 7 and 8, should read “the aggregate amount subject to the specified percentage pursuant to subparagraph (1)...”, rather than “the aggregate amount subtracted from federal taxable income pursuant to subparagraph (1)...”