NOTE: As provided in LFC policy, this report is
intended only for use by the standing finance committees of the
legislature. The Legislative Finance Committee does not assume
responsibility for the accuracy of the information in this report when used for
other purposes.
The most recent FIR
version (in HTML & Adobe PDF formats) is available on the Legislative
Website. The Adobe PDF version includes
all attachments, whereas the HTML version does not. Previously issued FIRs and attachments may be
obtained from the LFC in
SPONSOR: |
|
DATE
TYPED: |
|
HB |
742 |
||
SHORT
TITLE: |
Out
of State Buyer Gross Receipts |
SB |
|
||||
|
ANALYST: |
Smith |
|||||
REVENUE
Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
|
FY03 |
FY04 |
|
|
|
|
(600.0) |
|
Recurring |
General Fund |
|
(400.0) |
|
Recurring |
Local Governments |
|
|
|
|
|
(Parenthesis
( ) Indicate Revenue Decreases)
Responses
Received From
TRD
SUMMARY
Synopsis
of Bill
Senate Bill 727 amends
The section is further amended to include two
definitions:
1.
“Delivery
of the product of the service” is defined to require an identifiable act
whereby the seller conveys the product of the service into the actual or
constructive possession or control of the buyer.
2.
“Initial
use of the product of the service” is similar to the definition contained under
current law Section
FISCAL
IMPLICATIONS
TRD notes that there is
no direct fiscal impact associated with this proposal. However, under this proposal, the written
evidence provided by the buyer is only required to indicate that the buyer is out
of state. This effectively eliminates the requirement that the seller accept
the evidence with a good faith belief that there will not be initial use or
delivery of the product of the service in the state. Hence, this bill will
increase the likelihood that taxpayers will claim inappropriate deductions, and
will make it harder for the department to determine the validity of those
deductions. The result will be a
reduction of audit efficiency, with fewer collections on audit. In addition, there will be ongoing erosion in
the revenue base due to reduced compliance with the statutes.
The fiscal impact is
based on the size of the services sector in the gross receipts tax base, and
the level and efficiency of audit activity.
In the absence of this legislation, audit recoveries from invalid
deductions for the sale of services to out-of-state buyers will be close to
$2.3 million in fiscal year 2004. The
fiscal impact assumes provisions of this bill will increase claims of invalid
deductions by roughly 10%, and the audit recovery rate for these taxpayers will
be cut by 25%.
ADMINISTRATIVE ISSUES
TRD also notes a
significant administrative impact. The bill would impose an additional burden
on limited audit resources. If the
evidentiary requirement is relaxed, department auditors will have to establish
other more time-consuming and likely more subjective means of determining the
validity of taxpayer deductions taken under Section
TECHNICAL
ISSUES
In this case, the NTTC
or other written evidence is a promise from the buyer to the seller that the
buyer is out of state and product of the service will be initially used and
delivered out of state. Hence, a seller
can accept written evidence from a buyer as proof that a sale qualifies for
deduction. In this manner, the provisions of Section
OTHER
SUBSTANTIVE ISSUES
TRD has substantial
concerns over this bill. The department
states that SB727 represents an attempt to erode and displace the current
system of verifying and enforcing statutory deductions in a piecemeal manner. If the current system is to be fundamentally
changed, it should be done so in a consistent and all-encompassing
manner following a thorough and deliberate reform process including and
addressing the concerns of industry as well as the concerns of protecting the state’s
interests. The “Blue Ribbon Tax Reform
Commission” is scheduled to make its tax policy recommendations no later than
Recently, the department has made a concentrated effort to modernize the
NTTC system. In addition to expertise
from internal personnel, the department has incorporated input from the legislature
and private industry to streamline the process and minimize compliance and enforcement
burdens. Included among the major
improvements are plans to employ an electronic issuance process, including
online application and approval. In
addition, plans are being made to consolidate the number and types of NTTCs
issued, from 15 certificate types into 6 main classifications. Overall, these changes are expected to
expedite the application process and improve compliance. This is accomplished by eliminating reliance
on paper documentation thereby reducing the administrative burden on the
department, as well as taxpayers.
SS/yr