Summary of Elements: HB 1463, As Introduced

This analysis is for taxes effective in fiscal 2015.

Revenue Changes

• Allows a taxable entity to include any non-employee compensation paid to independent contractors as reported on IRS form 1099 as expenses eligible to be deducted as compensation for purposes of computing an entities taxable margin.

Dollar Value of Revenue Changes in Fiscal 2015

• $145.4 million in franchise tax reduction

Initial Impact in Fiscal 2015

• A net decrease to business of $145.4 million
• A net decrease to households of $0.0 million

Major Industry Initial Impact in Fiscal 2015

The largest dollar decrease: $66.1 to the Other Services industry

 The largest percentage decrease: 1.05 percent to the Other Services Industry

Initial Tax Impact by Industry

HB 1463, As Introduced 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 1463, As Introduced
Fiscal Year 2015
Comparisons Include Property Tax, Sales and Excise Taxes, and Taxes on Business

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, depend on the type of tax and the competitiveness of capital, labor, input material 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 1463, As Introduced would ultimately reduce the taxes of all households by $104.5 million for tax law changes effective in 2015. The difference between the initial reduction in revenue of $145.4 million in fiscal 2015 and the ultimate reduction of $104.5 million in 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 $8.6 million, or 0.1 percent.
• Middle income level (income range from $57,478 to $87,377):
  A decrease of $16.9 million, or 0.1 percent.
• Highest income level (income range from $136,297 and above):
  A decrease of $42.2 million, or 0.1 percent.

                                                                             Table 2

Tax Incidence by Income Quintile
Current Law vs. HB 1463, As Introduced
Taxes Effective in Fiscal Year 2015
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business

Summary of Effective Rate Findings

HB 1463, As Introduced would ultimately decrease the effective rate for all households by 0.14 percent for taxes effective in fiscal year 2015. The effective tax rate is the aggregate amount of tax in a given income class divided by the aggregate amount of personal income in that class.

Table 3

Effective Tax Rate by Income Quintile
Current Law vs. HB 1463, As Introduced
Taxes Effective in Fiscal Year 2015
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business