LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session April 4, 2001 TO: Honorable Rene Oliveira, Chair, House Committee on Ways & Means FROM: John Keel, Director, Legislative Budget Board IN RE: HB3650 by Thompson (Relating to the taxation of tobacco products other than cigars and cigarettes.), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * HB3650, As Introduced: positive impact of $30,402,700 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 $10,805,700 * * 2003 19,597,000 * * 2004 19,532,000 * * 2005 19,495,000 * * 2006 19,436,000 * **************************************************** All Funds, Five-Year Impact: ***************************************************** * Fiscal Year Probable Revenue Gain/(Loss) from * * General Revenue Fund * * 0001 * * 2002 $10,805,700 * * 2003 19,597,000 * * 2004 19,532,000 * * 2005 19,495,000 * * 2006 19,436,000 * ***************************************************** Fiscal Analysis The bill would increase the tax rate for tobacco products other than cigars to 40 percent from 35.213 percent. Further, the bill would amend Chapter 155 of the Tax Code (Cigars and Tobacco Products Tax) by adding a definition for the "purchase price" of the tobacco products covered by this chapter, and by changing the taxable base for tobacco products other than cigars (currently "manufacturer's list price, exclusive of any trade discount, special discount, or deal") to "purchase price" as defined by this bill. In addition, the bill would change the point at which the tax on tobacco products other than cigars is due. Under current law, the tax is due when a "permit holder receives" these tobacco products for the purpose of making a first sale in this state. Under this bill, the tax would be due when a "distributor in this state receives or possesses" the tobacco products for the purpose of making a first sale in this state. Since there is no effective date in the bill, it is assumed that the effective date would be 90 days after the end of the 77th regular legislative session. Methodology The change in the taxable base, from manufacturer's list price to the narrower "purchase price," as defined by this bill, would reduce tax collections to a limited degree. However, this change would in effect obviate the tax collection challenges that stem from the use of the term, "manufacturer's list price" in the current Tax Code. The change from "permit holder" to "distributor in this state" would be expected to result in the loss of taxes paid by distributors located outside Texas who sell these products to Texas retailers. There currently are 46 such distributors permitted with the state. The fiscal impact of the tax rate increase is relative to the revenue as anticipated by the 2002-2003 Biennial Revenue Estimate, with adjustments made for potential taxpayer compliance problems and collection lags. Local Government Impact No fiscal implication to units of local government is anticipated. Source Agencies: 304 Comptroller of Public Accounts LBB Staff: JK, SD, WP