LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 76th Regular Session
Revision 1
May 3, 1999
TO: Honorable Bill Ratliff, Chair, Senate Committee on Finance
FROM: John Keel, Director, Legislative Budget Board
IN RE: HB1837 by Brimer (relating to certain insurance taxes),
As Engrossed
**************************************************************************
* Estimated Two-year Net Impact to General Revenue Related Fundsfor *
* HB1837, As Engrossed: negative impact of $(127,070,000) through *
* the biennium ending August 31, 2001. *
* *
* The bill would make no appropriation but could provide the legal *
* basis for an appropriation of funds to implement the provisions of *
* the bill. *
**************************************************************************
General Revenue-Related Funds, Five-Year Impact:
****************************************************
* Fiscal Year Probable Net Positive/(Negative) *
* Impact to General Revenue Related *
* Funds *
* 2000 $(120,695,000) *
* 2001 (6,375,000) *
* 2002 (4,250,000) *
* 2003 (2,125,000) *
* 2004 0 *
****************************************************
All Funds, Five-Year Impact:
*****************************************************
* Fiscal Year Probable Revenue Gain/(Loss) from *
* General Revenue Fund *
* 0001 *
* 2000 $(120,695,000) *
* 2001 (6,375,000) *
* 2002 (4,250,000) *
* 2003 (2,125,000) *
* 2004 0 *
*****************************************************
Fiscal Analysis
The bill would amend the Insurance Code to simplify and revise the rate
structure for certain types of insurance subject to the insurance premium
tax, by establishing a flat tax rate for property and casualty insurance
of 1.6 percent and a flat tax rate of 1.35 percent for title insurance
The bill would also clarify existing law in two other sections of the
code by adding language to reinstate a definition of "premium" for the
purposes of unauthorized insurance taxation that had been removed in
previous legislation, and by adding language to clarify the application
of the state's retaliatory tax.
The changes in tax rates and investment criteria would apply to a premium
tax imposed beginning January 1, 2000. The bill would take effect
immediately upon enactment, assuming that it received the requisite
two-thirds majority votes in both houses of the Legislature. Otherwise,
it would take effect 90 days after adjournment.
Methodology
The "revenue-neutral" tax rates proposed in this bill were calculated
using a two-step process. First, a series of potential flat tax rates
were applied to the insurance premium base for tax (calendar) year 1997
(the last year in which complete information is available by tax rate and
line of insurance) to calculate the potential direct premium tax gains
or losses attributable to each tax rate.
Second, the potential retaliatory tax gains were computed for each flat
rate, based on the calculated spreads between the average effective tax
rate in other states and the average effective tax rate in Texas
corresponding to each flat rate used in the analysis. The series of
comparisons showed that the losses in direct premium taxes would be
compensated for by equal gains in retaliatory tax collections at the flat
tax rates proposed in this bill.
As engrossed, however, the bill would have substantial revenue losses.
Section 4 of the bill, which would simply clarify existing law relating
to retaliatory taxes, could be interpreted as "new" law, effective 90
days following adjournment. This could have a significant fiscal impact
to the extent that it could be used to weaken the state's case in
ongoing litigation concerning the applicability of the state's
retaliatory tax. The estimated losses would include refunds in direct
retaliatory taxes and audit collections paid for tax years 1995 through
1998; foregone direct retaliatory taxes expected to be remitted in
fiscal 2000 for the 1999 tax year; and foregone audit collections in
fiscal 2000 through 2003 for tax years 1996 through 1999.
Local Government Impact
No fiscal implication to units of local government is anticipated.
Source Agencies: 304 Comptroller of Public Accounts
LBB Staff: JK, BB, WP, TH, DP