LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session Revision 2 April 5, 2001 TO: Honorable Kip Averitt, Chair, House Committee on Financial Institutions FROM: John Keel, Director, Legislative Budget Board IN RE: HB1809 by Deshotel (Relating to certain transactions subject to regulation as loans.), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * HB1809, As Introduced: negative impact of $(14,378,000) 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 $(7,183,000) * * 2003 (7,195,000) * * 2004 (7,337,000) * * 2005 (7,631,000) * * 2006 (7,936,000) * **************************************************** 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 Cities Transit Counties/SPDs * * Fund Authorities * * 0001 * * 2002 $(7,183,000) $(936,000) $(361,000) $(111,000) * * 2003 (7,195,000) (1,274,000) (492,000) (151,000) * * 2004 (7,337,000) (1,325,000) (511,000) (157,000) * * 2005 (7,631,000) (1,378,000) (532,000) (163,000) * * 2006 (7,936,000) (1,433,000) (553,000) (170,000) * *************************************************************************** Fiscal Analysis The bill would amend Chapter 342 of the Finance Code, concerning certain transactions subject to regulation as loans. A transaction would be defined as a loan if a cash advance were made in exchange for a check and there was an agreement to delay deposit of the check for a period of time. The bill would define the "charge" or amount received by the lender in excess of the cash advance amount as "interest." Certain sales of personal or household personal property - where the buyer agrees to lease the property back to the seller (sometimes referred to as a "sale-leaseback") - would be classified as a loan, provided that certain requirements were met. The amount received by the buyer exceeding the amount paid for the property by the buyer would be defined as interest. Sale-leaseback arrangements for property used for business, commercial, investment, agricultural, or similar purposes would not be affected by this bill. The bill would take effect September 1, 2001. Methodology Under current law, pursuant to a sale-leaseback transaction, payments related to certain lease arrangements known as "operating leases" are subject to the sales tax. ("Operating leases" are instances where lease payments are made, but payment does not lead to ownership.) If, at the end of a lease term, an item were repurchased, that sale would be subject to the sales tax as well. The bill would redefine such transactions as loans, thus making such lease payments/repurchases exempt from the sales tax. Similar sale-leaseback arrangements involving automobiles currently generate motor vehicle sales taxes when automobiles are sold, leased, and subsequently resold to the original owner. Generally speaking, and for periods of less than six months, there is no tax due on the sale portion of the sale-leaseback. The subsequent rental payments are subject to motor vehicle rental tax. A resale, following the cessation of rental payments, is subject to the motor vehicle sales tax. The bill would, as above, delineate these activities as a loan. Neither the rental payments nor the resale would be subject to tax. Any sales of tangible personal property or of automobiles - outside of a sale-leaseback transaction - would continue to be taxable in the present manner. 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: 449 Finance Commission of Texas, 466 Office of Consumer Credit Commissioner, 304 Comptroller of Public Accounts LBB Staff: JK, WP, SM, SD, JO, DE