LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session May 10, 2001 TO: Honorable Rodney Ellis, Chair, Senate Committee on Finance FROM: John Keel, Director, Legislative Budget Board IN RE: HB1694 by Hamric (Relating to the exemption from ad valorem taxation of motor vehicles leased for personal use.), As Engrossed ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * HB1694, As Engrossed: positive impact of $6,774,000 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 $0 * * 2003 6,774,000 * * 2004 7,095,000 * * 2005 (10,816,000) * * 2006 (14,421,000) * **************************************************** All Funds, Five-Year Impact: *************************************************************************** *Fiscal Probable Probable Probable Probable * * Year Revenue Revenue Revenue Revenue * * NetGain/(Loss) Gain/(Loss) to Gain/(Loss) to Gain/(Loss) to * * to General School Districts Cities Counties * * Revenue Fund * * 0001 * * 2002 $0 $0 $0 $0 * * 2003 6,774,000 0 0 0 * * 2004 7,095,000 (18,238,000) (4,974,000) (4,500,000) * * 2005 (10,816,000) (16,242,000) (9,404,000) (8,508,000) * * 2006 (14,421,000) (13,703,000) (13,141,000) (11,889,000) * *************************************************************************** Fiscal Analysis The bill would amend the Tax Code to exempt from ad valorem taxation motor vehicles leased for personal use only. The bill would entitle a lessor to an exemption from ad valorem taxation of a leased vehicle if a lessee did not hold a leased vehicle for the production of income, and the leased vehicle was used only for activities that did not involve the production of income. The bill would take effect January 1, 2002; it would apply only to ad valorem taxes imposed on a motor vehicle subject to a lease entered into on or after that date. Methodology Data on leased motor vehicles were obtained through a Comptroller's Office survey of county appraisal districts. It was estimated that approximately 220,000 vehicles would meet the "personal use only" criterion, with an average value of approximately $15,000. Under current law, leased motor vehicles are rendered for property taxation to independent school districts, cities, counties, and special districts. This bill would reduce revenues to these taxing districts. Under the school finance formula, the state would reimburse school districts for their losses after a one-year lag, beginning in fiscal 2005. The Texas percentage of personal use only lease vehicles to new motor vehicles sold is approximately 17 percent. The estimated fiscal impact assumes that leased auto "turnover," or disposed of by a lessee, occurs on average every 42 months, whereas purchased auto "turnover" occurs on average every 53 months. This effect, combined with the assumption that lease cars typically cost 5 percent to 8 percent more than purchased cars would generate an increase in motor vehicle sales and use tax collections. This increase would begin to appear with the effective date of the bill (and before the first property tax losses would occur), and it would continue as a reflection of the turn-over in the Texas motor vehicle fleet. The first losses to units of local government reflect a one-year lag, and a two-year lag in state reimbursement to independent school districts, given the mechanics of property taxation and school finance provisions. Note: The fiscal impact of any proportional property tax due on a leased vehicle for a period not covered by an exemption was not considered significant; as such, no estimate was included for this effect. Local Government Impact The tax revenue losses to local units of government are reflected in the above tables. Source Agencies: 304 Comptroller of Public Accounts LBB Staff: JK, SD, BR