Colorado Legislative Council Staff



Drafting Number:

Prime Sponsor(s):

LLS 99-0763

Rep. Swenson

Sen. Lacy


Bill Status:

Fiscal Analyst:

March 1, 1999

House Finance

Harry Zeid (303-866-4753)



Fiscal Impact Summary

FY 1999/2000

FY 2000/2001

State Revenues

General Fund - Refund of Excess Tabor Revenues



State Expenditures

General Fund



FTE Position Change

0.0 FTE

0.0 FTE

Other State Impact: None

Effective Date: Upon signature of the Governor; effective from October 1 through June 30 in years when excess TABOR revenues must be refunded.

Appropriation Summary for FY 1999-2000: None

Local Government Impact: Sales tax revenue will be reduced for statutory cities and counties and certain special districts where purchases of tangible personal property to be used for biotechnological purposes occur.

Summary of Legislation

            This bill exempts all sales of tangible personal property purchased by any company to be used in Colorado directly and predominately in research and development of biotechnology from the state sales and use tax. The exemption would take effect for the period from October 1 through June 30 in years when the state will be required to refund revenues in excess of the constitutional limitation (the TABOR Amendment) from the prior state fiscal year.

            The bill defines "biotechnology" to mean the application of technologies to produce or modify products, to develop microorganisms for specific uses, to identify targets for small molecule pharmaceutical development, or to transform biological systems into useful processes or products; and the potential endpoints of the resulting products; processes, microorganisms, or targets are for improving human or animal health care outcomes. The sales tax exemption would apply to capital equipment, instruments, apparatus, and supplies used in laboratories, including microscopes, machines, glassware, chemical reagents, computers, computer software, and technical books and manuals.

            The bill would refund excess TABOR revenues in years in which the exemption is in effect, and would have a similar effect on local governments whose sales and use tax is collected by the state Department of Revenue. Therefore, the bill is assessed as having state and local fiscal impact.

State Revenues

            Assuming that the state will be in a position to refund state revenues in excess of the constitutional limitation during each of the next two fiscal years, the bill will provide for the sales tax exemption of tangible personal property used for biotechnological purposes that are purchases between October 1 and June 30, annually. This fiscal note cannot predict human buying behavior, and assumes that the reduction in state sales tax revenue for the October through June period will be three-quarters of the total sales tax revenue loss estimated for the full fiscal year. However, it is possible that some purchases would be delayed during the time that the tax is in effect to the time when it is not. If this is the case, more than three-quarters of the total fiscal revenue loss would occur. It is projected that for a full year, the state sales taxes collected on items that would be exempted by the bill would be $907,120 in FY 1999-00, and by $935,241 in FY 2000-01. On this basis, the estimated state sales tax revenue reduction as a result of the bill will be $680,340 in FY 1999-00 and $701,431 in FY 2000-01.          

            Background. Based on “New Directions 98 - The Twelfth Biotechnology Industry Annual Report”, a total of $7.9 billion is spent annually on research and development in the biotechnology industry. With 118,000 employees in the industry, this amounts to approximately $67,000 per employee. A Colorado Association of Commerce and Industry (CACI) report has identified 26 Colorado companies with 1,344 employees, based on the definition of biotechnology for improving human health care outcomes. As a double-check, the Colorado Advanced Technology Institute (CATI) estimates approximately 24 firms in the state with 1,364 employees, based on the publication “Colorado Biomedical Buyer - Supplier Guide”. An additional 30 companies concentrate on agricultural, plant, or other research not involved in human health care. The definition of biotechnology in the bill as amended, that would also include biotechnology for animal health care outcomes, would add an additional ten companies, employing 496 people to the sales tax exemption.

            Excluding wages and salaries, it is assumed that $17,000 per employee is spent by biomedical companies in Colorado on expenditures that would be exempt by the bill. Therefore, a total of $31,280,000 in research and development expenditures would be affected by the bill ($17,000 R&D per employee x 1,840 employees = $31,280,000). The state sales tax rate of 3.0 percent would yield $938,400 in sales tax paid on these purchases. After deduction of the sales tax vendors’ discount (3.33 percent of taxable retail sales), the actual annual state General Fund revenue reduction as a result of the exemption is estimated to be $907,120. Of course, as the industry grows in Colorado, and additional biotechnology companies enter the state, the value of the sales tax exemption would increase accordingly.

State Expenditures

            State expenditures will be unaffected by the bill.

Local Government Impact

            The Department of Revenue collects the sales tax for statutory cities and counties throughout the state, as well as for the Regional Transportation District, the Scientific and Cultural Facilities District, and Denver Metropolitan Major League Baseball Stadium District. The same exemptions that apply at the state level would also apply to the collection of local sales taxes for these local governments. No estimate has been made regarding the amount of sales tax revenue losses to these local governments.

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          Legislative Council Staff