LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 76th Regular Session
March 1, 1999
TO: Honorable Bill Ratliff, Chair, Senate Committee on Finance
FROM: John Keel, Director, Legislative Budget Board
IN RE: SB341 by Ogden (relating to taxing the sale, use, or
consumption of Internet access service), As Introduced
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* Estimated Two-year Net Impact to General Revenue Related Funds for *
* SB341, As Introduced: negative impact of $(19,673,000) through *
* the biennium ending August 31, 2001. *
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General Revenue-Related Funds, Five-Year Impact:
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* Fiscal Year Probable Net Positive/(Negative) *
* Impact to General Revenue Related *
* Funds *
* 2000 $(8,266,000) *
* 2001 (11,407,000) *
* 2002 (13,118,000) *
* 2003 (1,257,000) *
* 2004 0 *
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All Funds, Five-Year Impact:
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*Fiscal Probable Probable Probable Probable *
* Year Revenue Revenue Revenue Revenue *
* Gain/(Loss) to Gain/(Loss) to Gain/(Loss) to Gain/(Loss) to *
* General Revenue Cities Transit Counties/SPDs *
* Fund Authorities *
* 0001 *
* 2000 $(8,266,000) $(1,298,000) $(510,000) $(157,000) *
* 2001 (11,407,000) (1,990,000) (781,000) (241,000) *
* 2002 (13,118,000) (2,288,000) (898,000) (277,000) *
* 2003 (1,257,000) (438,000) (172,000) (53,000) *
* 2004 0 0 0 0 *
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Fiscal Analysis
The bill would amend the Tax Code to exempt on-ramp internet access from
the sales tax. The bill would provide that internet access, other than
internet on-ramp access services, would be a taxable service.
On-ramp access would not include, and the exemption would not extend to,
internet access to proprietary information or sites not freely
accessible, data processing services, information services,
telecommunications services, and cable television services.
A provider of exempt on-ramp internet access services would have the
burden of demonstrating that none of the services specifically excluded
as on-ramp services were provided or bundled with the on-ramp service.
In situations where the excluded (taxable) service was bundled with
on-ramp services, the bill would allow the provider to select among three
methods to determine the value of the taxable services.
The exemption from sales tax for on-ramp access service would not apply
to the amount by which the value of on-ramp service exceeded $25 per
month.
Methodology
To estimate the fiscal implications of the bill, public and private data
sources, including Comptroller tax files, were utilized. Because a
negligible amount of bundling in the internet access market is currently
occurring, the total amount of state sales tax being remitted on internet
access services was computed using external data and tax information.
The resulting figure was adjusted to reflect internet access tax revenues
stemming from monthly charges not exceeding $25 and then extrapolated
through fiscal 2003.
As the exemption for on-ramp internet access would expire on September 1,
2002, the bill would have some fiscal impact for fiscal 2003, but none
in fiscal 2004. The fiscal impact for fiscal 2000 was adjusted for an
assumed effective date of October 1, 1999. The impact on units of local
government was estimated proportionally.
Local Government Impact
Local units of government would have a corresponding fiscal impact from
sales tax revenues, as indicated in the table above.
Source Agencies:
LBB Staff: JK, BB, BR, SM