Honorable Dennis Bonnen, Chair, House Committee on Ways & Means
Ursula Parks, Director, Legislative Budget Board
HB28 by Bonnen, Dennis (Relating to the use of certain surplus state revenue to phase out the franchise tax and to the expiration of that tax.), As Introduced
Estimated Two-year Net Impact to General Revenue Related Funds for HB28, As Introduced: an impact of $0 through the biennium ending August 31, 2019.
Additionally, the bill will have a direct impact of a revenue loss to the Property Tax Relief Fund of ($1,528,703,000) for the 2018-19 biennium. Any loss to the Property Tax Relief Fund must be made up with an equal amount of General Revenue to fund the Foundation School Program.
Probable Net Positive/(Negative) Impact to General Revenue Related Funds
Probable Revenue (Loss) from Property Tax Relief Fund 304
The bill would amend Chapter 171 of the Tax Code, regarding the franchise tax, by adding provisions that would require the Comptroller to make determinations and calculations and take actions that would lead to the phase out and expiration of the franchise tax.
The bill would require the Comptroller after September 1, but before December 15 of each odd-numbered year, to determine the ending cash balance of General Revenue-Related funds available for certification for the preceding biennium. The Comptroller would be required to determine franchise tax rates that if applied beginning January 1 of the following year are estimated to yield an amount of revenue for the state fiscal biennium in which the determination is made equal to the lesser of the ending cash balance or $3.5 billion.
Not later than December 15 of each odd-numbered year the Comptroller would determine adjusted tax rates which would be equal to the rates from the prior biennium less the rates calculated to raise the amount of revenue described above. The Comptroller would adopt and publish the adjusted rates.
In the fiscal year in which the adjusted rates are less than 15 percent of the rates in effect on September 1, 2017, the franchise tax would expire on December 31 of that year. The Comptroller would publish notice that a taxable entity is not required to pay the tax or to file a report.
The provisions relating to audits, deficiencies, redeterminations and refunds of tax would remain in effect until barred by limitations. Sections of Chapter 171 related to confidentiality of records would continue to apply after the expiration of Chapter 171.
The bill would take effect on September 1, 2017, and apply to franchise tax reports due on or after January 1, 2018.
The fiscal impact shown for the 2018-19 biennium is based on adjusted tax rates consistent with a fiscal 2016-17 ending balance available for certification of $1.53 billion which is the amount estimated in the Comptroller's 2018-2019 Biennial Revenue Estimate.
Because they depend on future legislative appropriation decisions, which are unknown, estimates of biennial ending balances for years after 2019 are not available. The revenue loss estimates for fiscal years 2020-22 are based upon the adjusted 2018-19 adjusted tax rates. However, further rate reductions are expected, dependent on future positive ending certification balances; therefore the revenue loss projections after fiscal year 2019 represent a minimum amount of tax reduction that is expected from the implementation of the bill.
Local Government Impact
No fiscal implication to units of local government is anticipated.