LEGISLATIVE BUDGET BOARD
                              Austin, Texas
                                     
                    FISCAL NOTE, 76th Regular Session
  
                              March 23, 1999
  
  
          TO:  Honorable Bill Ratliff, Chair, Senate Committee on Finance
  
        FROM:  John Keel, Director, Legislative Budget Board
  
       IN RE:  SB1065 by Fraser (relating to the application of the
               franchise tax to banking corporations and savings and
               loan associations), As Introduced
  
**************************************************************************
*  Estimated Two-Year Net Impact to General Revenue Related Fundsfor     *
*  SB1065, As Introduced:  positive impact of $5,827,000 through the     *
*  biennium ending August 31, 2001.                                      *
**************************************************************************
  
General Revenue-Related Funds, Five-Year Impact:
  
          ****************************************************
          *  Fiscal Year  Probable Net Positive/(Negative)   *
          *               Impact to General Revenue Related  *
          *                             Funds                *
          *       2000                           $2,935,000  *
          *       2001                            2,892,000  *
          *       2002                            3,218,000  *
          *       2003                            3,593,000  *
          *       2004                            3,727,000  *
          ****************************************************
  
All Funds, Five-Year Impact:
  
         *****************************************************
         * Fiscal Year    Probable Revenue Gain/(Loss) from   *
         *                      General Revenue Fund          *
         *                              0001                  *
         *      2000                               $2,935,000 *
         *      2001                                2,892,000 *
         *      2002                                3,218,000 *
         *      2003                                3,593,000 *
         *      2004                                3,727,000 *
         *****************************************************
  
Fiscal Analysis
  
The bill would amend the Tax Code concerning the apportionment for banks
and thrift institutions in regard to their interest and dividend
receipts.  The bill also would revise the franchise tax charter
forfeiture and charter revival provisions related to banks.  This latter
revision would adapt charter forfeiture procedures to better conform
with current branch banking laws.
  
  
Methodology
  
The estimate is based on an analysis done by the Comptroller's Office
using data from the Comptroller's tax files and from the Federal Reserve
System.

Banks and thrift institutions have a special apportionment method
(Section 171.1031 of the Tax Code) for sourcing interest and dividend
receipts to Texas when the financial institution's commercial domicile is
in Texas.  The repeal of this section would allow banks to use the same
interest and dividend sourcing methods used by all other franchise
taxpayers.

Financial institutions commercially domiciled in Texas (i.e., local banks
and thrifts) would generally experience a tax savings because some
interest now sourced to their Texas domicile would be sourced to the
out-of-state legal domicile of some corporate borrowers.  Multi-state
financial institutions with out-of-state headquarters would generally
experience a tax rise because some interest now sourced to their
out-of-state domicile would be sourced to Texas (i.e., for loans to
Texas-incorporated firms).  The tax increases of multi-state banks would
be greater than the tax decreases of local banks.  For this reason, the
bill would lead to a net revenue gain.
  
  
Local Government Impact
  
No fiscal implication to units of local government is anticipated.
  
  
Source Agencies:   
LBB Staff:         JK, BB, BR, CT