Honorable Morgan Meyer, Chair, House Committee on Ways & Means
FROM:
Jerry McGinty, Director, Legislative Budget Board
IN RE:
HB4772 by Thierry (relating to an excise tax on, and storage, reporting, and recordkeeping requirements for, certain nontobacco nicotine products; providing a civil penalty; imposing a tax.), Committee Report 1st House, Substituted
Estimated Two-year Net Impact to General Revenue Related Funds for HB4772, Committee Report 1st House, Substituted : a negative impact of ($17,148,000) through the biennium ending August 31, 2025.
Additionally, the bill will have a direct impact of a revenue loss to the Property Tax Relief Fund of ($2,521,000) for the 2024-25 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.
However, there will be revenue gains to new General Revenue Dedicated accounts.
General Revenue-Related Funds, Five- Year Impact:
Fiscal Year
Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2024
($8,273,000)
2025
($8,875,000)
2026
($7,329,000)
2027
($7,475,000)
2028
($7,632,000)
All Funds, Five-Year Impact:
Fiscal Year
Probable Revenue Gain/(Loss) from General Revenue Fund 1
Probable Revenue Gain/(Loss) from Property Tax Relief Fund 304
Probable Revenue Gain/(Loss) from Physician Ed. Loan Repayment 5144
Probable Revenue Gain/(Loss) from New General Revenue Dedicated - Department of State Health Services
2024
($8,273,000)
($1,200,000)
$0
$3,797,000
2025
($8,875,000)
($1,321,000)
$0
$4,193,000
2026
($7,329,000)
($1,343,000)
($1,427,000)
$4,254,000
2027
($7,475,000)
($1,368,000)
($1,180,000)
$4,319,000
2028
($7,632,000)
($1,395,000)
($932,000)
$4,386,000
Fiscal Year
Probable Revenue Gain/(Loss) from New General Revenue Dedicated - Comptroller
Probable Savings/(Cost) from New General Revenue Dedicated - Comptroller
Change in Number of State Employees from FY 2023
2024
$1,519,000
($1,034,000)
14.0
2025
$1,677,000
($1,102,734)
14.0
2026
$1,702,000
($1,185,806)
14.0
2027
$1,727,000
($1,270,292)
14.0
2028
$1,754,000
($1,270,292)
14.0
Fiscal Analysis
The bill would amend the Tax Code by adding Chapter 164, regarding an excise tax on nontobacco nicotine products.
The bill would impose a tax on the first sale of nontobacco nicotine products in this state. The tax rates would be three percent of the wholesale cost price for open-system e-cigarettes, seven cents per milliliter of nicotine solution for closed-system e-cigarettes, and $1.22 per ounce of net weight of each alternative nicotine product.
A person who failed to pay the tax when due under Section 164.0005 would pay an additional five percent of the amount of the tax due as a penalty. A person who failed to pay the tax and penalty before the 31st day after the date that the tax is due would pay an additional five percent of the amount of the tax due as a penalty. The minimum penalty would be $50.
The bill would require persons receiving e-cigarettes or alternative nicotine products for the purpose of making the first sale in Texas to submit a monthly report as prescribed by the Comptroller. There would be a penalty for failing to maintain proper records and submitting the monthly report of up to $2,000 for each day a violation occurred.
The proceeds from the taxes on nontobacco nicotine products under new Chapter 164 would be deposited in the following manner: 50 percent to an account in the general revenue fund administered by the Texas Department of State Health Services (DSHS) that could be appropriated to DSHS only for administering youth vaping prevention and awareness programs, 20 percent to an account in the general revenue fund administered by the Comptroller that could be appropriated only for administering and enforcing Chapter 164, and the remainder to the general revenue fund.
Note: This legislation would do one or more of the following: create or recreate a dedicated account in the General Revenue Fund, create or recreate a special or trust fund either in, with, or outside the Treasury, or create a dedicated revenue source. The fund, account, or revenue dedication included in this bill would be subject to funds consolidation review by the current Legislature.
Methodology
This fiscal analysis is based on the 2024-25 Biennial Revenue Estimate, convenience store product share data from the August 2020 issue of Convenience Store News, and vapor tax collections from the state of Kentucky.
Under current Comptroller practice, alternative nicotine products that are not e-cigarettes are subject to the tobacco products tax (Chapter 155 of the Tax Code). The bill states that a taxable item under the new chapter is not an item taxable either under Chapter 154 (cigarettes) or Chapter 155. Therefore, there is an offsetting loss against the new Chapter 164 tax revenues. Both losses of current revenue and new Chapter 164 revenue are included in the fiscal impact table. Under the tobacco products tax, any items weighing less than 1.2 ounces are taxed as if they weigh 1.2 ounces. The proposed alternative nicotine products tax would not have a floor weight for the purposes of calculating the tax due. The removal of the floor weight would result in a significant decrease in revenue relative to the current tobacco products tax.
The Comptroller's office anticipates needing to hire 14.0 FTEs to administer the provisions of the bill: two Managers (I and IV) and one Program Specialist, beginning in fiscal year 2024 as a level II and reaching level V by fiscal year 2027, would be needed to provide training and subject matter expertise for the new tax; seven Taxpayer Compliance Officers would be needed, beginning at level II in fiscal year 2024 and reaching level V by fiscal year 2027, to pursue collections of delinquent taxes and reports and to accommodate the added taxpayers in filing and paying the tax; one Customer Service Representative III would be needed to handle the increase in administrative functions within the agency as a result of adding the new tax type; and three Accounts Examiners III would be needed to support the call center and help taxpayers understand and comply with this new tax, as well as handle phone calls and reporting from taxpayers. This analysis assumes administrative costs of $1.0 million in fiscal year 2024, increasing to $1.3 million in fiscal year 2027 and continuing in subsequent years.
Note: There would be effects on the Economic Stabilization Fund (ESF) balance limit and consequent effects for GR reserves and transfers to ESF. Because e-cigarette tax revenue is initially deposited to the general revenue fund, the reduction in tax revenue in the 2024-25 biennium would reduce the 2026-27 ESF balance limit by ten percent of the reduction in tax, reducing 2025 severance tax reserves for transfer to the ESF by the amount of the balance limit reduction, and increasing available GR in 2025 by the amount of reduction of the reserves, however that amount is not expected to be significant.
Local Government Impact
No fiscal implication to units of local government is anticipated.