| TO: | Honorable John Davis, Chair, House Committee on Economic & Small Business Development |
| FROM: | Ursula Parks, Director, Legislative Budget Board |
| IN RE: | HB800 by Murphy (Relating to a sales and use tax exemption and a franchise tax credit related to certain research and development activities. ), Committee Report 1st House, Substituted |
Summary of Elements: HB 800, Committee Report 1st House, Substituted (CSHB 800)
This analysis is for taxes effective in fiscal year 2015.
Revenue Changes
· The bill would create a sales tax exemption for depreciable tangible personal property directly used in qualified research.
· The bill would create a franchise tax credit for qualified research expenses.
· A taxable entity may only use either the franchise tax credit or sales tax exemption during a reporting period, not both.
Dollar Value of Revenue Changes in Fiscal Year 2015
· $18.0 million in franchise tax reduction
· $126.2 million in sales tax reduction
· $144.2 million in net tax reduction
Initial Impact in Fiscal 2015
· A net decrease to business of $144.2 million
· A net decrease to households of $0.0 million
Major Industry Impact in Fiscal 2015
· The largest dollar decrease: $47.9 million to the Manufacturing industry
· The largest percentage decrease: 0.78 percent to the Manufacturing industry
Initial Tax Impact by Industry
HB 800, Committee Report 1st House, Substituted was analyzed using the LBB's multi-tax model to determine the initial impact of the proposed changes relative to current state and local tax law. The results of the analysis are shown in Table 1 below:
Table 1
Comparison of Initial Tax Impact under
Current Law vs. HB 800, Committee Report 1st House, Substituted
Fiscal Year 2015
Comparisons Include Property Tax, Sales and Excise Taxes, and Taxes on Business
|
Current Law Liability |
Percent of Total |
Proposed Law Liability |
Percent of Total |
Change in Liability |
Percent of Total |
Percent Change in Liability | |
|
[$ Million] |
[%] |
[$ Million] |
[%] |
[$ Million] |
[%] |
[%] | |
|
Taxes Paid by Business: |
|
|
|
|
|
| |
|
Agriculture, Forestry, Fishing & |
770.1 |
1.6% |
769.89 |
1.6% |
-0.2 |
0.1% |
-0.02% |
|
Mining |
8,898.6 |
18.3% |
8,890.69 |
18.3% |
-7.9 |
5.5% |
-0.09% |
|
Utilities & Transportation |
5,904.9 |
12.1% |
5,892.86 |
12.2% |
-12.0 |
8.3% |
-0.20% |
|
Construction |
2,266.3 |
4.7% |
2,266.31 |
4.7% |
0.0 |
0.0% |
0.00% |
|
Manufacturing |
6,158.5 |
12.7% |
6,110.54 |
12.6% |
-47.9 |
33.2% |
-0.78% |
|
Wholesale & Retail Trade |
4,466.8 |
9.2% |
4,436.22 |
9.2% |
-30.6 |
21.2% |
-0.68% |
|
Information |
3,052.3 |
6.3% |
3,050.56 |
6.3% |
-1.7 |
1.2% |
-0.06% |
|
Finance, Insurance & Real Estate |
10,817.9 |
22.2% |
10,814.38 |
22.3% |
-3.5 |
2.4% |
-0.03% |
|
All Other Services |
6,291.0 |
12.9% |
6,250.70 |
12.9% |
-40.3 |
27.9% |
-0.64% |
|
Total Taxes on Business: |
48,626.4 |
100.0% |
48,482.17 |
100.0% |
-144.2 |
100.0% |
-0.30% |
|
Taxes Paid by Households: |
|
|
|
|
|
| |
|
Residential Owner-Occupied |
23,340.97 |
|
23,340.97 |
|
0 |
|
0 |
|
Personal Consumption |
22,180.80 |
|
22,180.80 |
|
0 |
|
0 |
|
Total Taxes on Households: |
45,521.77 |
|
45,521.77 |
|
0 |
|
0 |
|
|
|
|
- |
|
|
|
|
|
Total Taxes |
94,148.14 |
|
94,003.94 |
|
-144.2 |
|
-0.15% |
Tax Incidence by Income Group
Economists commonly distinguish between the initial “impact” of a tax and its “incidence”. The initial impact of a tax falls on taxpayers legally liable to pay the tax, while the incidence refers to the ultimate payer of the tax. For example, the initial impact of a business tax falls on the firm incurring the tax liability. Over time, to varying degrees, the tax cost is “shifted” so that the ultimate burden of the tax falls either to consumers in different retail prices, to employees in changed wages, to owners of land and capital in different investment returns, or most likely, to some combination of all three. The degrees to which a tax can be shifted, and the amount of time that elapses before a tax can be shifted, depends on the type of tax, the elasticity of consumption of the good or service with respect to the tax rate, and the competitiveness of capital, labor, input materials, and product markets.
The results of this analysis for tax law changes effective with this proposal are shown in Table 2 and Table 3.
Summary of Tax Incidence Findings
HB 800, Committee Report 1st House, Substituted would ultimately reduce the taxes of all households by $114.9 million for tax law changes effective in 2015. The difference between the initial reduction in revenue of $144.2 million in fiscal 2015 and the ultimate reduction of $114.9 million in household tax incidence is primarily due to the exporting of some of the tax changes to non-Texas consumers and businesses, changes in federal tax liability, and the absorption of some of the tax changes by business profits, some of which are received by non-Texas shareholders and business owners.
Final Incidence of Changes Effective in Fiscal 2015
· Lowest income level (income range from $0 to $31,771):
A decrease of $8.9 million, or 0.15 percent.
· Middle income level (income range of $57,478 to $87,377):
A decrease of $19.2 million, or 0.16 percent.
· Highest income level (income range of $136,297 and above):
A decrease of $44.8 million, or 0.15 percent.
Table 2
Tax Incidence by Income Quintile
Current Law vs. HB 800, Committee Report 1st House, Substituted
Taxes Effective in Fiscal Year 2015
Comparisons Include Property Tax, Sales and Excise Taxes, and Taxes on Business
|
Quintile |
Quintile Income: Lower Bound |
Quintile Income: Upper Bound |
Current Law Tax |
Percent of Total |
Proposed Law Tax |
Percent of Total |
Change in Tax |
Percent Change in Tax |
|
[$] |
[$] |
[$ Million] |
[%] |
[$ Million] |
[%] |
[$ Million] |
[%] | |
|
1 |
0 |
31,771 |
5,896.7 |
8.0% |
5,887.77 |
8.0% |
-8.9 |
-0.15% |
|
2 |
31,771 |
57,478 |
8,430.0 |
11.5% |
8,414.93 |
11.5% |
-15.1 |
-0.18% |
|
3 |
57,478 |
87,377 |
11,684.7 |
15.9% |
11,665.49 |
15.9% |
-19.2 |
-0.16% |
|
4 |
87,377 |
136,297 |
16,736.1 |
22.8% |
16,709.20 |
22.8% |
-26.9 |
-0.16% |
|
5 |
136,297 |
and above |
30,708.7 |
41.8% |
30,663.95 |
41.8% |
-44.8 |
-0.15% |
|
|
|
Total: |
73,456.3 |
|
73,341.34 |
|
-114.9 |
-0.16% |
Summary of Effective Rate Findings
HB 800, Committee Report 1st House, Substituted would ultimately decrease the effective rate for all households by 0.16 percent for taxes effective in fiscal year 2015. The effective rate is the aggregate amount of tax paid in a given income class divided by the aggregate amount of personal income in that income class.
Table 3
Effective Rate by Income Quintile
Current Law vs. HB 800, Committee Report 1st House, Substituted
Taxes Effective in Fiscal Year 2015
Comparisons Include Property Tax, Sales and Excise Taxes, and Taxes on Business
|
Quintile |
Quintile Income: Lower Bound |
Quintile Income: Upper Bound |
Current Law Effective Rate |
Proposed Law Effective Rate |
Change in Effective Rate |
Percent Change in Effective Rate |
|
[$] |
[$] |
[%] |
[%] |
[%] |
[%] | |
|
1 |
0 |
31,771 |
22.1% |
22.0% |
-0.03% |
-0.15% |
|
2 |
31,771 |
57,478 |
12.0% |
12.0% |
-0.02% |
-0.18% |
|
3 |
57,478 |
87,377 |
10.5% |
10.5% |
-0.02% |
-0.16% |
|
4 |
87,377 |
136,297 |
9.4% |
9.3% |
-0.02% |
-0.16% |
|
5 |
136,297 |
and above |
6.0% |
6.0% |
-0.01% |
-0.15% |
|
|
|
Total: |
8.2% |
8.2% |
-0.01% |
-0.16% |
| Source Agencies: |
| LBB Staff: | UP
|