LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session February 12, 2001 TO: Honorable Rene Oliveira, Chair, House Committee on Ways & Means FROM: John Keel, Director, Legislative Budget Board IN RE: HB1025 by Isett (Relating to an exemption from the sales and use tax for certain assessments and fees related to telecommunications services.), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * HB1025, As Introduced: negative impact of $(158,077,000) through * * the biennium ending August 31, 2003. * ************************************************************************** General Revenue-Related Funds, Five-Year Impact: **************************************************** * Fiscal Year Probable Net Positive/(Negative) * * Impact to General Revenue Related * * Funds * * 2002 $(73,569,000) * * 2003 (84,508,000) * * 2004 (75,555,000) * * 2005 (71,844,000) * * 2006 (73,658,000) * **************************************************** 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 Telecommunicat- Cities Transit * * Fund ions Authorities * * 0001 Infrastructure * * Fund * * 0345 * * 2002 $(73,569,000) $(12,028,000) $(10,868,000) $(2,656,000) * * 2003 (84,508,000) (13,673,000) (13,733,000) (3,356,000) * * 2004 (75,555,000) 0 (12,278,000) (3,000,000) * * 2005 (71,844,000) 0 (11,675,000) (2,853,000) * * 2006 (73,658,000) 0 (11,970,000) (2,925,000) * *************************************************************************** ***************************************************** * Fiscal Year Probable Revenue Gain/(Loss) to * * Counties/SPDs * * 2002 $(400,000) * * 2003 (505,000) * * 2004 (452,000) * * 2005 (430,000) * * 2006 (441,000) * ***************************************************** Fiscal Analysis The bill would amend Section 151.007 of the Tax Code to exempt from the limited sales and use tax certain telecommunications assessments and fees that are passed through to purchasers. The bill would exclude from the sales price of telecommunications services the following assessments and fees: (1) the utility gross receipts assessment imposed under Subchapter A, Chapter 16, Utilities Code, (2) the state universal service fund assessment imposed under Subchapter B, Chapter 56, Utilities Code, (3) the federal universal service fund charge, (4) the Telecommunications Infrastructure Fund (TIF) assessment imposed under Subchapter C, Chapter 57, Utilities Code, and (5) municipal franchise fees or right-of-way fees authorized under Chapter 283, Local Government Code. The bill would take effect on September 1, 2001. Methodology Telecommunications services are taxable by the state and units of local government under Chapter 151 and Chapters 321 through 323 of the Tax Code. Telecommunications services taxed under Chapter 151 of Tax Code also are subject to the TIF assessment under Section 57.043 of the Utilities Code. Under current law, the Public Utility assessment, state and federal universal service charges, the TIF assessment, and municipal franchise fees are included in the sales price of telecommunications services and are subject to state and local sales tax. These assessments and fees are an expense to the company and are presumably recovered from purchasers either through separate line-item charges on bills or through inclusion in the price of the service. The bill would negatively affect state and local sales tax collections and TIF assessment revenues by excluding these assessments and fees from the taxable sales price of telecommunications services. The total amount of fees and assessments that would be excluded was determined using Comptroller tax files and data provided by the Public Utility Commission and the Federal Communications Commission. Assuming an implementation date of September 1, 2001, the estimated losses were extrapolated through fiscal 2006. The fiscal impacts on units of local government were estimated proportionally. A revenue loss to Fund 0345 in the 2002-03 biennium would occur because the TIF assessment base also would be reduced if the Public Utility assessment, state and federal universal service charges, and municipal franchise fees were excluded from the sales price of telecommunications services. After 2003, the loss to Fund 0345 would drop to zero because the TIF assessment is expected to end sometime in 2004. The assessment rate would be adjusted that year to generate the amount of revenue necessary to reach the statutory cap of $1.5 billion. 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, SD, SM