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F I S C A L I M P A C T R E P O R T

SPONSOR Harrison

DATE TYPED 1/31/05

HB 534

SHORT TITLE Amending the Income Tax Act

SB

ANALYST Taylor

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

33,000.0

66,000.0

63,000.0 Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department (TRD)

SUMMARY

House Bill 534 alters the definition of “net income” in the income tax act. Current law excludes

itemized deductions defined in the Internal Revenue Service Code less the amount of the IRS

allowed standard deduction. The bill would change what may be excluded from net income by

also excluding the amount of state and local taxes included in the taxpayer’s itemized deduction.

FISCAL IMPLICATIONS

TRD estimates that total state taxes deducted in tax year 2005 will be approximately $1.2 billion,

and the average effective tax rate is 5.5 percent. Multiplying $1.2 billion by 5.5 percent yields

the full-year impact of $66 million. The FY05 impact is based on the assumption that 50 percent

of the first year impact will be accrued to FY05. The lower impact shown in the subsequent

years’ cell reflects the lower income tax rates being implemented.

ADMINISTRATIVE IMPLICATIONS

TRD reported the following administrative impact:

Implementing provisions of the measure would impose moderate administrative impacts on

the Department. A new line on would need to be added to the PIT-1 form. Changes to all

other forms which reference the taxable income line and tax lines would need to be made; in-

struction and publication changes would also be needed. Taxpayer and staff education would

be required. Audit and compliance procedures would need to be developed. Changes would

also be needed on the withholding tax tables.

BT/yr:lg