LEGISLATIVE BUDGET BOARD
                              Austin, Texas
                                     
                    FISCAL NOTE, 76th Regular Session
  
                              March 2, 1999
  
  
          TO:  Honorable Bill Ratliff, Chair, Senate Committee on Finance
  
        FROM:  John Keel, Director, Legislative Budget Board
  
       IN RE:  SB441 by Ellis, Rodney (relating to exemptions from the
               sales tax), As Introduced
  
**************************************************************************
*  Estimated Two-year Net Impact to General Revenue Related Funds for    *
*  SB441, As Introduced:  negative impact of $(464,804,000) 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                       $(185,058,000)  *
          *       2001                        (279,746,000)  *
          *       2002                        (307,957,000)  *
          *       2003                        (364,442,000)  *
          *       2004                        (465,160,000)  *
          ****************************************************
  
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                                                       *
*  2000    $(185,058,000)   $(26,122,000)   $(10,258,000)    $(3,163,000) *
*  2001     (279,746,000)    (48,401,000)    (19,005,000)     (5,860,000) *
*  2002     (307,957,000)    (53,156,000)    (20,873,000)     (6,436,000) *
*  2003     (364,442,000)    (62,084,000)    (24,378,000)     (7,517,000) *
*  2004     (465,160,000)    (77,963,000)    (30,614,000)     (9,440,000) *
***************************************************************************
  

  
Fiscal Analysis
  
The bill would amend the Tax Code to exempt non-prescription medicines,
diapers, and certain medical devices and appliances from the sales tax.
Access to the internet would also be exempt from taxation.

The bill also would exempt articles of clothing and footwear purchased
during August for persons younger than 13 years of age and costing less
than $500 per article.  Clothing and footwear primarily designed for
athletic activity or protective use (and that would not normally be worn
except for use in those activities) and accessories (e.g., handbags,
jewelry, and wallets) would continue to be taxable.
  
  
Methodology
  
Data on the sale of non-prescription medicines, medical devices and
appliances, diapers, internet access, and clothing were gathered from a
variety of public and private sources, including the U.S. Census Bureau
and Comptroller tax files.  Sales data (other than for internet access)
were multiplied by the state sales tax rate.  Clothing and footwear sales
data were adjusted for the appropriate age group, price range, and time
period.

Although a negligible amount of bundling in the internet access market is
occurring currently, it is anticipated that the degree to which internet
access and other services (e.g., telecommunications, cable TV, and so
forth) are bundled together will increase.  The total amount of state
sales tax remitted on internet access services was computed using
external data and tax information.  Similarly, the amount of state sales
tax currently collected on services that might be bundled with internet
access was estimated and adjusted to reflect the percentage that might be
lost because of bundling, taking into account an expected increase in
that practice over fiscal 2000-2004.

The resulting total for all items was extrapolated through fiscal 2004
and adjusted for an assumed effective date of October 1, 1999.  Fiscal
impacts on units of local government were estimated proportionally and
adjusted for the current non-taxability of interstate long-distance
telephone service by local governments.
  
  
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, SM