LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE
75th Regular Session
April 6, 1997
TO: Honorable Bill Ratliff, Chair IN RE: Senate Bill No. 1424
Committee on Finance By: Ratliff
Senate
Austin, Texas
FROM: John Keel, Director
In response to your request for a Fiscal Note on SB1424 ( Relating
to the qualification for sales and use tax exemption of certain
property used in manufacturing.) this office has detemined the
following:
Biennial Net Impact to General Revenue Funds by SB1424-As Introduced
Implementing the provisions of the bill would result in a net
positive impact of $165,188,000 to General Revenue Related Funds
through the biennium ending August 31, 1999.
Fiscal Analysis
The bill would amend Section 151.318 of the Tax Code, relating
to the sales tax exemption for certain property used in manufacturing.
The bill would limit the exemption in subsection (a)(2) by
specifying that in order to qualify for exemption from sales
taxes, tangible personal property must be directly used or consumed
in the actual manufacturing process and must directly make or
cause a chemical or physical change to the product being manufactured.
The bill would specify that intraplant transportation equipment,
already excluded from the exemption under current law, would
be defined to include those items of intraplant transportation
equipment used to move a product or raw material in connection
with the manufacturing process. Piping and conveyor systems
would be identified specifically as intraplant transportation
equipment that would not qualify for the exemption.
Machinery
and equipment or supplies used to manufacture, maintain, repair,
or remodel items that would not be sold would be defined as
not qualifying for exemption, as would machinery and equipment
or supplies used to maintain or store tangible personal property.
The
bill would require any taxpayer claiming an exemption under
this section of the Tax Code to maintain proof that purchases
of taxable services and tangible personal property would be
exempt under this section and not excluded from exemption.
The
bill would take effect September 1, 1997.
Methodolgy
The bill would effectively reverse two recent court decisions,
Tyler Pipe v. Sharp and Chevron Chemical v. Sharp, that resulted
in a dramatic expansion of the sales tax exemption for manufacturing
equipment, as compared to long-standing Comptroller policy prior
to those decisions. The bill would have the effect of restoring
to the revenue estimate those amounts that had been withheld
as a result of those two cases. The fiscal impact to state
and local revenues, however, would consist only of the prospective
gain to the tax base; the State of Texas would still be liable
for refunds of taxes previously paid on the types of items addressed
by the Tyler Pipe and Chevron cases for the periods preceding
the effective date of the bill.
The probable fiscal implications of implementing the provisions
of the bill during each of the first five years following passage
is estimated as follows:
Five Year Impact:
Fiscal Year Probable Revenue Probable Revenue Probable Revenue Probable Revenue
Gain/(Loss) to Gain/(Loss) to Gain/(Loss) to Gain/(Loss) to
General Revenue Cities Transit Counties and
Fund Authorities
Special
Districts
0001 LCL-CITY LCL-TRANSIT LCL-COUNTY
1998 $76,501,000 $10,451,000 $4,443,000 $1,204,000
1998 88,687,000 14,394,000 6,119,000 1,658,000
2000 103,026,000 16,721,000 7,109,000 1,927,000
2001 106,476,000 17,281,000 7,347,000 1,991,000
2002 110,042,000 17,860,000 7,593,000 2,058,000
Net Impact on General Revenue Related Funds:
The probable fiscal implication to General Revenue related funds
during each of the first five years is estimated as follows:
Fiscal Year Probable Net Postive/(Negative)
General Revenue Related Funds
Funds
1998 $76,501,000
1999 88,687,000
2000 103,026,000
2001 106,476,000
2002 110,042,000
Similar annual fiscal implications would continue as long as
the provisions of the bill are in effect.
Source: Agencies: 304 Comptroller of Public Accounts
LBB Staff: JK ,RR ,SM