LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 76th Regular Session March 4, 1999 TO: Honorable Florence Shapiro, Chair, Senate Committee on State Affairs FROM: John Keel, Director, Legislative Budget Board IN RE: SB729 by Shapiro (Relating to reports and other business filings made with the secretary of state; providing penalties.), As Introduced Estimated Two-year Net Impact to General Revenue Related Funds for SB729, As Introduced: positive impact of $3,283,272 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 2001 $3,283,272 2002 4,783,420 2003 4,783,420 2004 4,783,420 2005 4,783,420 All Funds, Five-Year Impact: Fiscal Year Probable Savings/(Cost) from Probable Revenue Gain/(Loss) from General Revenue Fund General Revenue Fund 0001 0001 2001 $ (1,390,304) $ 4,673,576 2002 (2,223,440) 7,006,860 2003 (2,223,440) 7,006,860 2004 (2,223,440) 7,006,860 2005 (2,223,440) 7,006,860 Fiscal Analysis The bill would repeal a statute within the Tax Code which requires corporations subject to the franchise tax to file an annual report upon paying the tax. The reports are currently received by the Comptroller of Public Accounts and transferred to the Office of the Secretary of State. In lieu of the current procedure, the bill would require corporations, limited liability companies and professional corporations to file a similar annual report with the Secretary of State. The reports would have to be filed no sooner than 60 days before, and no later than 30 days after the corporation's anniversary of incorporation or a foreign corporation's initial filing with the Secretary of State. The bill would thus distribute the filing of the reports throughout the year, instead of the current process in which reports are filed when the franchise taxes are due. Under the bill, filing fees would be as follows: $5 for filing the report electronically; $15 for filing by any other means (hard copy or fax); $5 per month or part of a month for a late fee, if filed within 120 days after the filing deadline; $25 late filing fee after the involuntary dissolution or revocation of the certificate of authority for failure to file within 120 days after the filing deadline; and $50 filing fee for reinstatement after dissolution or revocation of the certificate of authority. The fees would be used by the Secretary of State to defray the cost of administering the filing requirements. Methodology The Office of the Secretary of State anticipates that the bill will result in revenue of $4.6 million in fiscal year 2001 and over $7 million in each subsequent fiscal year. The projection of revenue is base upon the assumption that there will be 444,000 registered corporations on the effective date of the bill. The agency estimates five percent will file late. Of those which file timely, one percent will file electronically (352 x $5 = $1,758) and 99 percent will file the report on paper (34,799 x $15=$521,978). Of those which file late, the agency estimates half will pay the late fee within 120 days (925 x $20=$18,500 combined filing and late fee) and half of the remaining late filers will pay a reinstatement fee after involuntary dissolution or revocation (463 x $90=$41,670 combined filing fee, late fee and reinstatement fee). From these assumptions, the agency estimates revenue of $583,906 per month or $7 million per year. The estimate for fiscal year 2001 is $4.6 million because the bill takes effect 4 months after the start of that fiscal year. The agency reports that it would be necessary to hire four additional employees to review documents, enter data, review for statutory compliance, handle public inquiries and supervise contract and program personnel. However, the agency also reports that the bill will not result in a significant increase in the number of business organization transactions processed and will not result in an increase in the number of processed requests for information on business organizations. The agency reports that it currently employs contract temporary personnel to enter data derived from annual reports in a database and anticipates that it will continue to require temporary personnel, if the bill were adopted. This fiscal note assumes that one result of the bill would be that corporate filings will be distributed evenly throughout the calendar, resulting in a diminished need for temporary contract personnel and greater efficiency. For these reasons, this fiscal note does not include costs for four additional employees. Local Government Impact No fiscal implication to units of local government is anticipated. Source Agencies: 307 Secretary of State JK, SD, SG LBB Staff: