LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session March 30, 2001 TO: Honorable Rodney Ellis, Chair, Senate Committee on Finance FROM: John Keel, Director, Legislative Budget Board IN RE: SB1286 by Carona (Relating to a phased-in and limited exemption for certain purchases of machinery and equipment used for research and development from sales and use taxes.), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * SB1286, As Introduced: negative impact of $(22,727,000) 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 $(9,789,000) * * 2003 (12,938,000) * * 2004 (16,082,000) * * 2005 (19,145,000) * * 2006 (21,062,000) * **************************************************** 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 $(9,789,000) $(1,768,000) $(682,000) $(209,000) * * 2003 (12,938,000) (2,336,000) (901,000) (276,000) * * 2004 (16,082,000) (2,904,000) (1,120,000) (344,000) * * 2005 (19,145,000) (3,457,000) (1,334,000) (409,000) * * 2006 (21,062,000) (3,803,000) (1,467,000) (450,000) * *************************************************************************** Fiscal Analysis The bill would amend Chapter 151 of the Tax Code to exempt machinery, equipment, or replacement parts that are used directly in the research or development of inventions, products, processes, or technology. To qualify for exemption, the item would have to be used by a person primarily engaged either in the manufacturing, processing, or fabrication of tangible personal property for ultimate sale, or in the performance of scientific or technical services for a such a person. In 2002, the exemption would be limited to the first $100,000 of tax on qualifying purchases for each taxpayer. For each following year, the limit would be increased annually by $100,000, until it reached $500,000 per taxpayer in 2006, where it would remain thereafter. The exemption would not apply to office equipment or supplies or to equipment or supplies used in sales, distribution, or transportation activities. The bill would take effect January 1, 2002. Methodology Data on expenditures for research and development were gathered from the National Science Foundation. Expenditures were adjusted to reflect average taxpayer outlays for qualifying machinery and equipment sold in Texas. Qualifying expenditures were then multiplied by the state sales tax rate, extrapolated through 2006, and adjusted to reflect the appropriate annual limit per taxpayer. The fiscal impact on units of local government were estimated proportionally. 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: 304 Comptroller of Public Accounts LBB Staff: JK, SD, SM