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