TITLE: CONCERNING FINANCIAL INCENTIVES FOR THE DEVELOPMENT OF BIOTECHNOLOGICAL ACTIVITY IN COLORADO, AND, IN CONNECTION THEREWITH, REFUNDING STATE REVENUES IN EXCESS OF THE CONSTITUTIONAL LIMITATION ON STATE FISCAL YEAR SPENDING BY MEANS OF A REFUND OF STATE SALES AND USE TAX PAID IN CONNECTION WITH TANGIBLE PERSONAL PROPERTY TO BE USED IN COLORADO FOR BIOTECHNOLOGICAL PURPOSES.

Fiscal Impact Summary	FY 1999/2000	FY 2000/2001
State Revenues General Fund	-$952,945	-$982,486
State Expenditures General Fund
FTE Position Change	0.0 FTE	0.0 FTE
Other State Impact: None
Effective Date: Upon signature of the Governor
Appropriation Summary for FY 1999-2000: None
Local Government Impact: None

This bill provides a permanent mechanism for rebating all state sales and use tax paid by qualified taxpayers on tangible personal property that is to be used in Colorado directly and predominately in research and development of biotechnology. The rebate would apply to purchases made for the calendar year commencing January 1, 1999, and for each calendar year thereafter.

In order to claim the refund, a qualified taxpayer would submit a refund application to the Department of Revenue on a form provided by the Department. The application would have to be submitted between January 1 and April 1 of the calendar year following the calendar year for which the refund is being claimed.

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 state sales and use tax refund 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 will provide for the rebate of state sales and use tax paid on tangible personal property used for biotechnological purposes. It is projected that the amount of state sales and use taxes that would be rebated by the bill will be $952,945 in FY 1999-00, and $982,486 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) in FY 1998-99. The state sales tax rate of 3.0 percent would yield $938,400 in state sales and use tax paid on these purchases in FY 1998-99 that would be refunded in FY 1999-00, and $967,490 in sales and use tax paid in FY 1999-00 that would be refunded in FY 2000-01 (based on an annual sales increases of 3.1 percent). 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.

The Department of Revenue assumes that less than 60 businesses will apply for the refund of sales and use tax paid on qualified tangible personal property that is authorized by the bill. These numbers are so small that the Department anticipates allowing the claims on forms that are already in place. The Taxpayer Services Division would track the refund on a spreadsheet program, therefore no additional expenses would be incurred. Therefore, the limited expenditure impact to the Department of Revenue would be absorbed within existing resources.

Since the bill provides for a refund of state sales and use taxes paid after the fact, local government sales and use tax revenues would be unaffected by the bill.

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