LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session February 23, 2001 TO: Honorable Rodney Ellis, Chair, Senate Committee on Finance FROM: John Keel, Director, Legislative Budget Board IN RE: SJR6 by Duncan (Proposing a constitutional amendment to exempt from ad valorem taxation tangible personal property held at certain locations only temporarily for assembling, manufacturing, processing, or other commercial purposes.), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * SJR6, As Introduced: impact of $0 through the biennium ending * * August 31, 2003. * * * * The bill would make no appropriation but could provide the legal * * basis for an appropriation of funds to implement the provisions of * * the bill. * ************************************************************************** General Revenue-Related Funds, Five-Year Impact: **************************************************** * Fiscal Year Probable Net Positive/(Negative) * * Impact to General Revenue Related * * Funds * * 2002 $0 * * 2003 0 * * 2004 (35,888,000) * * 2005 (36,965,000) * * 2006 (38,074,000) * **************************************************** All Funds, Five-Year Impact: *************************************************************************** *Fiscal Probable Net Probable Probable Probable * * Year Savings/(Cost) Revenue Revenue Revenue * * from General Gain/(Loss) to Gain/(Loss) to Gain/(Loss) to * * Revenue Fund School Districts Cities Counties * * 0001 * * 2002 $0 $0 $0 $0 * * 2003 0 (35,888,000) (7,613,000) (10,875,000) * * 2004 (35,888,000) (1,077,000) (7,841,000) (11,201,000) * * 2005 (36,965,000) (1,109,000) (8,076,000) (11,537,000) * * 2006 (38,074,000) (1,142,000) (8,319,134) (11,883,000) * *************************************************************************** Fiscal Analysis Currently, Article VIII, Section 1-j of the Texas Constitution and Section 11.251 of the Tax Code provide for a "freeport exemption." This exemption, which can be granted at the option of each city, county, school district, or junior college district, exempts goods, wares, ores, raw materials and other types of inventory that are brought into or acquired in the state and transported out of the state within 175 days of acquisition. The proposed amendment would provide a similar exemption for property acquired or imported into Texas, stored in the state at a location not owned or under the control of the property owner, and transported to another location, either inside or outside of the state within 270 days. There would be no local option to continue taxing the property. Methodology The taxable value of personal property stored in Texas under the resolution's definition of "goods in transit" was estimated using school district information, data from the U.S. Bureau of the Census, historical trends, and industry estimates. The estimated value losses for school districts, cities, and counties were trended forward from 1997 through 2006. Projected tax rates were then applied to calculate the estimated local levy losses. Special districts would also incur value and levy losses; however, losses to special districts cannot be estimated because of the lack of detailed data. Section 403.302 of the Government Code requires the Comptroller to conduct a property value study to determine the total taxable value for each school district. Total taxable value is an element in the state's school funding formula. The cost to the state was estimated by assuming that the state would reimburse school districts for their total levy losses after a one-year lag. Once the static fiscal impact was calculated, the Comptroller's office calculated a dynamic fiscal impact using a Texas-specific general equilibrium model to distribute the savings that otherwise would have been paid in taxes by businesses among the state's economic sectors. The revenue feedback calculation was based on the historical relationships between state tax revenues and associated economic factors. The effects show up only with respect to the losses incurred by the General Revenue Fund 0001. Based on the dynamic fiscal analyst, the Comptroller's office has estimated a positive offset impact to General Revenue beginning in 2002 at $0.7 million, growing to $3.6 million by 2006. Local Government Impact The tax revenue losses to local units of government are reflected in the above tables. Source Agencies: 307 Secretary of State, 304 Comptroller of Public Accounts LBB Staff: JK, SD, WP, BR