Colorado Legislative Council Staff

STATE

REVISED FISCAL IMPACT

(replaces fiscal impact dated February 11, 1999)

Drafting Number:

Prime Sponsor(s):

LLS 99-0600

Rep. Pfiffner

Sen. Lamborn

Date:

Bill Status:

Fiscal Analyst:

April 8, 1999

House Appropriations

Harry Zeid (303-866-4753)

 

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


Fiscal Impact Summary

FY 1998/99

FY 1999/2000

FY 2000/2001

State Revenues

General Fund


-$91,600,000


-$205,600,000


-$219,600,000

State Expenditures

General Fund

 


$76,890


 

FTE Position Change

 

0.0 FTE

0.0 FTE

Other State Impact: TABOR Impact

Effective Date: 90 days after adjournment; and applies to income tax years commencing on or after January 1, 1999.

Appropriation Summary for FY 1999-2000: $76,890 General Fund appropriation required for the Department of Revenue.

Local Government Impact: None



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 permanently lowers the state income tax rate to 4.75 percent for income tax years commencing on or after January 1, 1999.



State Revenues


            An 0.25 percent income tax rate reduction from 5.00 percent to 4.75 percent for individuals, estates, trusts, and corporations would reduce total income tax collections by five percent. Based on the March, 1999 Economic & Revenue Forecast prepared by the Colorado Legislative Council staff, the reduction in General Fund revenues on an accrual accounting basis is projected to be $91.6 million in FY 1998-99 (the current fiscal year), $205.6 million in FY 1999-00, and $219.6 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 4.75 Percent (millions of dollars)


 

FY 1998-99

FY 1999-00

FY -2000-01

Individual and Fiduciary

$87.3

$189.8

$203.6

Corporations

4.3

15.8

16.0

Total

$91.6

$205.6

$219.6


            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 $76,890 in FY 1999-00 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. 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 99-1098 (millions of dollars)


 

FY 1998-99

FY 1999-00

FY 2000-01

General Fund Revenue

-$91.60

-$205.60

-$219.60

General Fund Appropriations

SB 97-1 Transfer

0.00

0.00

0.00

0.00

0.00

0.00

Excess General Fund Reserve

-91.60

-205.60

-219.60

Federal Income Taxes Paid by Colorado Taxpayers

19.1

43.71

45.55

TABOR Refund (from prior year)

0.00

-91.60

-205.60




State Appropriations


            The fiscal note implies that the Department of Revenue would require an additional General Fund appropriation in the amount of $76,890 in FY 1999-00 to implement the provisions of the bill.



Departments Contacted

 

            Legislative Council Staff        Revenue