LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 76th Regular Session Revision 1 April 16, 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), Committee Report 1st House, Substituted ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Fundsfor * * SB341, Committee Report 1st House, Substituted: a negative impact * * of $(22,045,000) through the biennium ending August 31, 2001, if * * the effective date is July 1, 1999; and a negative impact of * * $(19,673,000) through the biennium ending August 31, 2001, if the * * effective date is October 1, 1999. * ************************************************************************** The following fiscal implications assume an effective date of July 1, 1999. All Funds, Five-Year Impact: *************************************************************************** *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 * * 1999 $(719,000) $0 $0 $0 * * 2000 (9,919,000) (1,557,000) (611,000) (189,000) * * 2001 (11,407,000) (1,990,000) (781,000) (241,000) * * 2002 (13,118,000) (2,288,000) (898,000) (277,000) * * 2003 (15,085,000) (2,631,000) (1,033,000) (319,000) * * 2004 (17,348,000) (3,026,000) (1,188,000) (366,000) * *************************************************************************** The following fiscal implications assume an effective date of October 1, 1999. *************************************************************************** *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 (15,085,000) (2,631,000) (1,033,000) (319,000) * * 2004 (17,348,000) (3,026,000) (1,188,000) (366,000) * *************************************************************************** Fiscal Analysis The bill would amend the Tax Code to specifically include Internet access as a taxable service under the sales tax. The bill would define Internet access services and exempt from taxation the first $25 of monthly charges. "Internet access" would not include existing taxable services, unless the taxable service was provided in conjunction with (and merely incidental to) the provision of Internet access service. The exemption would apply without regard to whether the access was bundled with another service, including any of those services currently taxed under the sales tax; and it would apply without regard to the billing period used by the service provider. The exemption would apply to the total sales price for Internet access, whether charged in a lump-sum or separately billed for each user. Methodology An estimate of state sales tax remitted on Internet access service was developed using external sources of consumer data and Comptroller tax files. The resulting figure was adjusted to reflect Internet access tax revenues stemming from monthly charges not exceeding $25 and extrapolated through fiscal 2004. Fiscal 1999 and 2000 were adjusted for effective date, as appropriate. 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: 304 Comptroller of Public Accounts LBB Staff: JK, BB, BR, SM