LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 77th Regular Session
April 17, 2001
TO: Honorable Rene Oliveira, Chair, House Committee on Ways &
Means
FROM: John Keel, Director, Legislative Budget Board
IN RE: HB3594 by Oliveira (Relating to exempting certain
machinery and equipment used to provide broadband
services.), As Introduced
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* Estimated Two-year Net Impact to General Revenue Related Funds for *
* HB3594, As Introduced: a negative impact of $(156,405,000) through *
* the biennium ending August 31, 2003, if the effective date of the *
* bill is July 1, 2001; and a negative impact of $(145,609,000) *
* through the biennium ending August 31, 2003, if the effective date *
* of the bill is September 1, 2001. *
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The following table is based on an effective date of July 1, 2001.
All Funds, Five-Year Impact:
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*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 *
* 2001 $(5,178,000) $0 $0 $0 *
* 2002 (70,926,000) (12,581,000) (4,940,000) (1,523,000) *
* 2003 (80,301,000) (14,318,000) (5,622,000) (1,734,000) *
* 2004 (123,447,000) (17,128,000) (8,834,000) (2,074,000) *
* 2005 (180,751,000) (20,282,000) (13,008,000) (2,456,000) *
* 2006 (358,511,000) (22,716,000) (25,685,000) (2,751,000) *
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The following table is based on an effective date of September 1, 2001.
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*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 $(65,079,000) $(9,436,000) $(3,705,000) $(1,143,000) *
* 2003 (80,530,000) (14,318,000) (5,622,000) (1,734,000) *
* 2004 (125,067,000) (17,128,000) (8,834,000) (2,074,000) *
* 2005 (183,293,000) (20,282,000) (13,008,000) (2,456,000) *
* 2006 (364,862,000) (22,716,000) (25,685,000) (2,751,000) *
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Fiscal Analysis
The bill would amend Chapter 151 of the Tax Code to define "broadband
service," "broadband service provider," "qualifying equipment,"
"subscriber," "downstream rate," and "strategic investment area."
Certain machinery and equipment used to provide broadband service would
be exempted from the state sales and use tax.
Qualifying equipment sold, leased, or rented to, or used or consumed by a
broadband service provider or its subsidiary, affiliate, or partner
would be exempt from the state sales and use tax if the equipment were
placed in service in a strategic investment area and used to provide
broadband service.
Beginning in 2004, a broadband service provider and its affiliates would
be entitled to a limited refund of state sales and use taxes paid on
qualifying equipment put into service in non-strategic investment areas
in the previous year. The refund amount would be for 25 percent of the
state sales and use taxes paid in 2003. The refund would increase in 25
percent increments annually through 2005. Qualifying equipment purchased
on or after January 1, 2006 would be fully exempt from the state sales
and use tax.
The bill would amend Chapter 321 and Chapter 323 of the Tax Code to state
that qualifying broadband service equipment placed in service in a
non-strategic investment area would not be exempt from taxes under the
Local Sales and Use Tax Act and the County Sales and Use Tax.
The bill would take effect immediately upon enactment, assuming that it
received the requisite two-thirds majority votes in both houses of the
Legislature. Otherwise, it would take effect September 1, 2001.
Methodology
Data on the expenditures for qualifying equipment by broadband service
providers were gathered from public and private sources, including the U.
S. Census Bureau. Expenditures were adjusted for placement in strategic
investment areas, multiplied by the state sales tax rate and/or
appropriate refund percentage, and extrapolated through 2006. The fiscal
implications on units of local government were estimated proportionally.
Once the static fiscal impact was estimated, the dynamic fiscal impact
was calculated using a Texas-specific general equilibrium model to
distribute among the state's economic sectors the savings that otherwise
would have been paid in taxes by consumers. The revenue feedback
calculation was based on the historical relationship between state tax
revenues and associated economic factors. The estimated fiscal
implications to general revenue reflect estimated dynamic tax feedback
effects created by the reduction in industry tax burdens. The dynamic
tax feedback effects are shown only with respect to the losses incurred
by the General Revenue Fund 0001.
Local Government Impact
Local units of government would have a corresponding fiscal impact from
sales tax revenues, as indicated in the tables above.
Note: The proposed changes to Chapter 321 and Chapter 323 of the Tax
Code, refer to Section 151.3235(b)(2) of the Tax Code; this bill would
create (b), but not (b)(2). This analysis assumes that equipment placed
in service in non-strategic investment areas would remain subject to
municipal and county sales and use taxes but would be exempt from
transit authority sales and use taxes.
Source Agencies: 304 Comptroller of Public Accounts
LBB Staff: JK, SD, WP, SM