Honorable Harvey Hilderbran, Chair, House Committee on Ways & Means
FROM:
John S O'Brien, Director, Legislative Budget Board
IN RE:
HB817 by Hughes (Relating to the computation of taxable margin for purposes of the franchise tax by certain taxable entities.), As Introduced
Estimated Two-year Net Impact to General Revenue Related Funds for HB817, As Introduced: an impact of $0 through the biennium ending August 31, 2013.
The bill will have a direct impact of a revenue loss of ($279,618,000) from the Property Tax Relief Fund during the 2012-13 biennium. The loss would be required to be made up with an equal amount of General Revenue to fund the Foundation School Program.
Fiscal Year
Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2012
$0
2013
$0
2014
$0
2015
$0
2016
$0
Fiscal Year
Probable Revenue (Loss) from Property Tax Relief Fund 304
2012
($137,838,000)
2013
($141,780,000)
2014
($144,762,000)
2015
($145,063,000)
2016
($146,252,000)
Fiscal Analysis
This bill would amend Chapter 171 of the Tax Code, regarding the franchise tax.
The bill would add a new section providing that a taxable entity electing to subtract compensation from total revenue to compute taxable margin could include as wages and cash compensation any compensation paid to an independent contractor as reported on Internal Revenue Service (IRS) Form 1099.
This bill would take effect January 1, 2012, and apply to franchise tax reports due on or after that date.
Methodology
There are numerous 1099 forms used to report income to a recipient, including cancellation of debt, broker and barter exchange transactions, dividends, interest, miscellaneous income, rental income, taxable distributions from cooperatives and distributions from pensions and IRAs. Without limiting the subtraction allowed to the nonemployee compensation box on the 1099 Misc form or defining "compensation" or "independent contractor," the income reported on the various 1099 forms could be allowed in the compensation deduction. The estimated fiscal impact reflects the potential use of all 1099 payments.
Local Government Impact
No significant fiscal implication to units of local government is anticipated.