Colorado Legislative Council Staff

STATE

REVISED FISCAL IMPACT

(replaces fiscal impact dated March 18, 1999)

TITLE:            CONCERNING A STATE INCOME TAX CREDIT FOR LONG-TERM CARE INSURANCE.

Summary of Legislation

            This bill, as amended in the Senate Finance Committee, creates a permanent state income tax credit for individuals who purchase long-term care insurance. The amount of the credit would be 25 percent of the cost of the policy, up to a maximum of $150 per policy. The credit would only be allowed for individuals with federal taxable income of less than $50,000 for the tax year, and for a joint return where two individuals have policies with federal taxable income of less than $100,000 for the tax year. The maximum income level and the value of the credit would be indexed to the Denver-Boulder area Consumer Price Index (CPI). The long-term care insurance credit would be effective for income tax years beginning on or after January 1, 2000. Therefore, there is a six-month state General Fund revenue reduction impact in the current fiscal year, FY 1999-00, on an accrual accounting basis.

State Revenues

            State Income Tax Revenue Reduction. The bill states that the amount of the credit would be 25 percent of the cost of the policy, up to a maximum of $150 per policy. Since the average price of a long-term care insurance policy is approximately $1,900 annually, it is assumed that the state income tax credit will be $150 per qualified individual.

            Based on an analysis prepared by Legislative Council staff, an estimated 58,000 long-term care insurance policies will be issued to Colorado residents during FY 1999-00. This is an increase of 9,300 policies over the number of policies issued during FY 1998-99. Of these policies, 32,900 will be issued to individuals who will qualify for the long-term insurance tax credit. In the short term, the number of new policies issued as a direct result of the bill, however is anticipated to be less than 1,000 annually. Based on an analysis of the expected income levels of policy holders, it is estimated that the state General Fund revenue reduction due to the long-term care insurance income tax credit on an accrual accounting basis will be $2,110,000 in FY 1999-00, and $4,600,000 in FY 2000-01.

            Insurance Premiums Tax Revenue Increase. The insurance premiums tax is imposed on the gross amount of all premiums from insurance policies covering property or risks in the state. The tax applies to all companies and types of businesses that engage in writing insurance policies or contracts, regardless of the type of insurance policy. For companies maintaining a home-office or regional home office in Colorado, the insurance premiums tax rate is 1.0 percent of the premium value. Moneys collected from the tax are credited to the state General Fund.

            Insurance premiums taxes are currently paid on existing long-term care insurance policies. While insurance premiums taxes will increase in the future for new policies that are written, the expected direct impact of the bill, which will add approximately 1,000 new policies annually, will have a minimal impact on insurance premiums tax revenue.

State Expenditures

            The Department of Revenue does not anticipate an expenditure impact as a result of this bill. Since the number of filers to the long-term care insurance tax credit is not expected to be large, the credit would not be separately tracked.

Other State Impacts

            The reduced state revenues will mean a reduction of the amount of future state funds required to be refunded to taxpayers under the terms of TABOR, and less state funds will be available in the General Fund reserve. 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 99-1246 (millions of dollars)

State Appropriations

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

Departments Contacted

            Revenue          Legislative Council Staff