Colorado Legislative Council Staff

STATE

FISCAL IMPACT

TITLE:            CONCERNING FINANCIAL INCENTIVES FOR CLEAN FUEL VEHICLES, AND, IN CONNECTION THEREWITH, CREATING A STATE SALES AND USE TAX EXEMPTION FOR SPECIFIED MOTOR VEHICLES, POWER SOURCES FOR MOTOR VEHICLES, AND PARTS USED FOR CONVERTING THE POWER SOURCES OF MOTOR VEHICLES THAT ARE CERTIFIED TO MEET SPECIFIED EMISSION STANDARDS AND REMOVING THE PROHIBITION AGAINST A PERSON COVERED BY THE CLEAN FUEL FLEET PROGRAM FROM RECEIVING INCENTIVES FROM THE STATE FOR PURCHASING A CLEAN FUEL VEHICLE.

Summary of Legislation

            Under current law, alternative fuel vehicles certified as a low emitting vehicle (LEV) purchased by an entity covered by the clean fuel fleet program to meet its minimum requirements are not eligible for the alternative fuel tax credit or rebate program. Current law also diverts the sales taxes from purchases of alternative fuel equipment and vehicles to the Alternative Fuels Rebate Fund. This bill would make any purchase of a LEV eligible for the alternative fuels income tax credit or rebate program. In addition, the bill allows a state sales and use tax exemption for vehicles with a gross vehicle weight of 10,000 pounds or more for the purchase of LEV certified vehicles, power source replacements, and parts for conversion vehicles.

State Revenues

            The bill would reduce sales and use tax collections from sales of LEV certified alternative fuel motor vehicles, power source replacements, and parts for conversion vehicles beginning July 1, 1999. The estimated revenue loss is $565,775 in state sales and use taxes to the General Fund (GF) at the effective state sales tax rate of 2.9 percent (net of the vendor discount which is retained by the retailer). The sales taxes from purchases made for these products would be diverted to the Alternative Fuels Rebate Fund under current law. However, the sales tax exemption would eliminate the sales tax revenues on these purchases. These funds would not be diverted from the General Fund to the Alternative Fuels Rebate Fund for the rebate program.

            The bill allows LEV certified vehicles covered under the clean fuel fleet to be eligible for the income tax credits and rebates currently available to alternative fuel vehicles. This would increase the amount of income tax credits given by approximately $210,944 GF. The total estimated tax reduction to the General Fund is estimated to be $776,719 GF ($565,775 sales tax + $210,944 income tax).

Other State Impacts

            This bill would reduce state income tax collections and sales tax revenues beginning in FY 1999-00. Under current law, SB97-1 requires the diversion of 10 percent of sales tax revenues to the Highway User Tax Fund for use on highway projects. SB 97-1 also contains two contingency measures that can reduce the diversion to the Highway Users Tax Fund when General Fund revenues decline. The combined impact of reduced sales tax and income tax collections would mean less state funds would be refunded to taxpayers under the terms of TABOR, less funds would be available for capital construction needs, and there would be a reduction in the amount of state funds available for the SB 97-1 diversion. 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 SB 99-9 (millions of dollars)

Local Government Impacts

            There would be no fiscal impact to local governments as a result of this bill.

State Appropriations

            No additional appropriations would be required.

Departments Contacted

            Revenue