Colorado Legislative Council Staff

STATE and LOCAL

REVISED FISCAL IMPACT

(replaces fiscal impact dated March 5, 1999)

TITLE:            CONCERNING THE EXEMPTION OF PRINTED MATERIALS FROM THE STATE SALES AND USE TAX.

Summary of Legislation

            This bill, as amended in the House Finance Committee, exempts all sales and purchases of magazines and periodicals from the state sales and use tax. The bill reduces the revenues of the state, as well as statutory cities, counties, and certain special districts where the local sales tax is collected by the state. The bill also requires a state expenditure for the Department of Revenue. Therefore, the bill is assessed as having state and local fiscal impact.

            The sales tax exemption would become effective October 1, 1999 (see the Omissions and Technical or Mechanical Defects section of the fiscal note), if the State Controller certifies that the amount of state revenues for the immediately preceding state fiscal year exceeded the limitation on state fiscal year spending imposed by Section 20(7)(a) of Article X of the State Constitution and the voters did not authorize the state to retain and spend all of the excess state revenues for that state fiscal year.

State Revenues

            This bill exempts magazines, periodicals, journals, and other printed materials from the state sales and use tax. According to the 1997 Consumer Expenditure Survey, the average U.S. household spends $36.36 annually on magazines. This includes both subscriptions and non-subscription purchases. Increased for inflation, the estimate of annual expenditures is $39.50 per household for 2000. Assuming 1.633 million Colorado households in 2000, annual magazine purchases are estimated to be $64,503,500 ($39.50 per household x 1,633,000 households = $64,503,500). Since the effective state sales tax rate, net of the vendor's discount is 2.9 percent (3.0 percent sales tax rate minus 3.33 percent vendor's discount = 2.9 percent effective state sales tax rate), the total state sales tax collected on magazines, periodicals, journals, and other printed materials during FY 1999-00 is projected to be $1,870,602.

            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 for all sales and purchases of magazines and periodicals purchased 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.

            Since the bill will become effective October 1, 1999, the estimated state revenue reduction for FY 1999-00 is projected to be 75 percent of the annual estimate, or $1,402,951. The estimated nine-month state General Fund revenue reduction for FY 2000-01 is $1,446,443.

State Expenditures

            Since the bill refunds excess state TABOR revenue, the annual amount of the sales tax exemption will have to be tracked to determine the amount of money that was not collected due to the exemption. The Department of Revenue does not normally track sales tax exemptions individually. A new tracking form will have to be created so that vendors may identify the amount of exempt sales. This form would be remitted along with their normal sales tax return. The tracking form would be data entered by the department. The total annual cost for the Department of Revenue to track a sales tax exemption is $139,027 annually beginning in FY 1999-00. This includes the costs of quarterly postage for notification of all sales and use tax accounts ($81,448), notification letters and envelopes ($9,830), coupon book printing ($26,590), and mailing costs for the coupon books ($17,352), and $3,807 for the additional cost of data entry.

            These standard costs would apply to track any sales tax exemption. The costs are not cumulative. Therefore, if more than one sales tax exemption bill is passed, these costs would be shared.

Local Government Impact

            Except for specific exceptions, sales and use tax exemptions authorized at the state level also apply to statutory cities, counties, and special districts since their sales and use tax is collected by the state. Home rule cities collect their own sales and use tax, and may determine their own tax base. No estimate has been made regarding the amount of sales and use tax revenue losses that will occur at the local level as a result of the bill.

State Appropriations

            The fiscal note implies that the Department of Revenue requires a General Fund appropriation of $139,027 in FY 1999-00 to implement the bill.

Departments Contacted

            Revenue

Omissions and Technical or Mechanical Defects

            •   The date on Page 2, Line 16 of the preamended bill should be July 1, 1998, not July 1, 2000;

            •   Strike Page 5, Lines 7 through 21 of the preamended bill; and

            •   The effective date of the bill on Page 5, Lines 22 and 23 of the preamended bill should be October 1, 1999, not July 1, 2000.