LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session May 11, 2001 TO: Honorable Rene Oliveira, Chair, House Committee on Ways & Means FROM: John Keel, Director, Legislative Budget Board IN RE: SB248 by Carona (Relating to the exemption from ad valorem taxation of motor vehicles leased for personal use.), Committee Report 2nd House, as amended ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * SB248, Committee Report 2nd House, as amended: positive impact of * * $15,656,000 through the biennium ending August 31, 2003. * ************************************************************************** The bill would amend Chapter 11 of the Tax Code to provide an ad valorem tax exemption for motor vehicles leased for personal use. The exemption would not apply in a municipality if the governing body adopted an ordinance before January 1, 2002 providing for the continued taxation of leased motor vehicles. This bill would take effect January 1, 2002, and it would apply only to ad valorem taxes imposed on a motor vehicle subject to a lease entered into on or after January 2, 2001. If not continued in effect by the Legislature, the exemption would expire December 31, 2003. General Revenue-Related Funds, Five-Year Impact: **************************************************** * Fiscal Year Probable Net Positive/(Negative) * * Impact to General Revenue Related * * Funds * * 2002 $7,698,000 * * 2003 7,958,000 * * 2004 (20,520,000) * * 2005 (16,875,000) * * 2006 17,380,000 * **************************************************** All Funds, Five-Year Impact: *************************************************************************** *Fiscal Probable Net Probable Probable Probable * * Year Revenue Revenue Revenue Revenue * * Gain/(Loss) to Gain/(Loss) to Gain/(Loss) to Gain/(Loss) to * * General Revenue School Districts Cities Counties * * Fund * * 0001 * * 2002 $7,698,000 $0 $0 $0 * * 2003 7,958,000 (20,520,000) (5,596,000) (5,063,000) * * 2004 (20,520,000) (18,274,000) (10,580,000) (9,573,000) * * 2005 (16,875,000) 38,794,000 0 0 * * 2006 17,380,000 0 0 0 * *************************************************************************** Fiscal Analysis Data on leased motor vehicles were obtained through a Comptroller's Office survey of county appraisal districts. The survey identified approximately 250,000 personal use leases 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 2004. Methodology The following analysis was done by the Comptroller of Public Accounts. The Texas percentage of personal lease vehicles to new motor vehicles sold is about 17 percent (somewhat below the national average). To arrive at the estimated fiscal impact, it was assumed that, as a behavioral response to the property tax reduction, the ratio of personal use leases to new vehicle sales would increase to the national average of approximately 23 percent. In addition, leased autos are "turned around," or disposed of by the lessee, on average about every 42 months, while purchased autos are "turned around" on average about every 53 months. Therefore, an anticipated secondary effect of this bill would be to generate an increase in motor vehicle sales and use tax collections. This increase would appear immediately after the effective date of the bill (and before the first property tax losses would occur), and it would continue as a reflection of the increased turn-over in the Texas motor vehicle fleet. The unusual pattern of fiscal effects in 2005-2006 is for motor vehicle sales tax related to the final "echo" of leased vehicles being resold when compared with current law. Behavioral responses regarding leasing were assumed to cease during the summer of 2003. 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 bill's effective dates and school finance provisions. Local Government Impact The impact on local taxing units is reflected in the above table. Note: For the purposes of this fiscal note, it was assumed that all cities would grant the exemption. Source Agencies: 304 Comptroller of Public Accounts LBB Staff: JK, SD, WP, BR