BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  1

DATE:  February 25, 2001	Submitted by: TAXATION AND REVENUE DEPT.
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER: HB - 921

SPONSOR: Representative Rodella

BILL SHORT TITLE: Personal Income Tax Credit for Childcare Services Performed for a Relative

DESCRIPTION: this bill provides for a refundable $200 childcare credit for any person who cares for a relative in the taxpayer’s home for more than ten hours each week for at least six months of the year. The stated purpose of the credit is to reimburse the (presumably) volunteer babysitter for gross receipts tax paid on food, heat and home furnishings. In effect, state taxpayers are asked to pay grandma $.77 per hour (or less) for babysitting for a grandbaby. $.77 per hour represents expenditures incurred on gross receipts taxable commodities of about $13 per hour.

EFFECTIVE DATE: July 1, 2001

FISCAL IMPACT (Thousands of dollars):  		Note: Parenthesis ( ) indicate a revenue loss:
		Recurring or		
Estimated Impact on Revenues	Nonrecurring	Funds 	
	 FY 2002 	Full Year	     Impact     t     	             Affected          .             	
	(4,800)	(5,000)	Recurring	General Fund	

Estimated 1999 population of children under 18 is about 496,000. Ten hours a week might mean full-time care or after-school care. Assume 5% of children are looked after by a relative for the requisite six months of the year.

ADMINISTRATIVE IMPACT: minimal on systems and processing -- requires another line on the personal income tax form. Unfortunately, this program is largely creating a blank check on the state treasury. There is no independent means of verifying that the required amount of child care has been provided. The Department will promulgate regulation that the care giver must keep a contemporaneous log of hours spent looking after relatives.  If the cost of this program significantly exceeds $5M, the Department will recommend a direct audit program to verify this claims for credit. The minimum cost of this special audit effort will be about 300.0 thousand.

OTHER IMPACTS AND ISSUES:

1.	Parents who pay child care centers to look after their kids do not get a credit for the direct amount of gross receipts tax paid, let alone the pass-through tax on food and heat.

2.	Child care services provided for a relative may be paid. However, the Department, for administrative convenience, has never considered these payments as gross receipts. The fiction is that the care giver is not in the business of child care. Within this model, however, the parent could reimburse the caregiver for gross receipts taxes paid for food, heat, etc.

3.	Tying this credit to “for gross receipts taxes paid on the expenditures made to care for children of family members” is not a credible rational for expending public funds to pay for intra-family free child care. It does not avoid the strictures of the anti-donation clause.

4.	This credit is not income-tested. The wealthy retiree grandma is as eligible for credit as the woman who looks after her sister’s baby so one of them can work.

5.	The basic requirement is that care must be given no less than 10 hours per week for 6 months (i.e., 26 weeks), or for no less than 260 hours. $200/260 hours = roughly $.77/hour.