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

SPONSOR Leavell

DATE TYPED 2-12-05

HB

SHORT TITLE Farrier Services Gross Receipts Deduction

SB 34

ANALYST Taylor

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

($35.0)

($36.0) Recurring

General Fund

($15.0)

($16.0) Recurring Local Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department

SUMMARY

Senate Bill 34 provides a gross receipts tax deduction for farrier services.

The bill has effective date of July 1, 2005.

FISCAL IMPLICATIONS

The Taxation and Revenue Department notes that the bill does not define “farrier services”.

They cite the Webster’s New World Dictionary definition which defines a “farrier” as someone

who “shoes horses; blacksmith; one who treats the diseases of horses.”

In developing their fiscal impact estimate, TRD, excluded receipts reported by veterinary busi-

nesses. They assumed the tax base was that reported in the “Analysis of Gross Receipts by

North American Industry Classification System” for “Support Activities for Animal Production,

including Farriers”. Reported gross receipts for this industry were $784 thousand in FY04, ac-

cording to TRD. The total TRD fiscal impact estimate of $50 thousand implies an overall gross

receipts rate of 6.4 percent. The fiscal impact is split between the state general fund and local

government fund, with the state general fund absorbing $35 thousand of the revenue decrease,

and the local governments $15 thousand.

Senate Bill 34 -- Page 2

ADMINISTRATIVE IMPLICATIONS

TRD reports that they could administer the provisions of this bill with current resources.

TECHNICAL ISSUES

TRD submitted this technical note:

The bill does not define the term “farrier services”. It is not clear if blacksmithing, gen-

eral horse veterinary services and associated trip and travel charges would be covered by

the deduction. This bill states that any persons, not necessarily those that are certified as

professional farriers, are able to deduct farrier services performed from gross receipts tax.

OTHER SUBSTANTIVE ISSUES

TRD’s bill analysis included this policy comment:

The tax policy rationale for providing a deduction from the gross receipts tax is usually

either that it is needed to eliminate the double-taxation of goods and services, or that it

supports public policy by reducing costs for an industry with important “public good”

characteristics. Economists define public goods as those that provide important benefits

to people other than the direct purchaser. The classic example is vaccines. To be more

consistent with these principles, the proposed deduction should be limited to sales for re-

sale.

BT/lg:yr