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

SPONSOR Ingle

DATE TYPED 2/7/05

HB

SHORT TITLE Clothing & Footwear Gross Receipts

SB 378

ANALYST Padilla-Jackson

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

($1,700.0)

Similar Recurring

General Fund

($1,000.0)

Similar Recurring Local Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 378 proposes a temporary gross receipts tax deduction for receipts on sales of cloth-

ing and footwear that cost less than $100 per article. The tax deduction would only apply to

sales taking place during the first weekend in August each year and exclude clothing that is de-

signed primarily for athletic or protective use and accessories, such as jewelry, handbags, lug-

gage, umbrellas, wallets, and similar items, as well as clothing rentals.

The effective date of the provisions of this bill is July 1, 2005.

FISCAL IMPLICATIONS

According to analysis provided by TRD, the total fiscal impact of the bill is -$2.7 million, of

which -$1.7 million will impact the general fund and -$1 million will impact local governments.

Using data from the “Analysis of Gross Receipts Tax by Industrial Classification,” TRD esti-

mates that taxable gross receipts attributable to clothing will be approximately $2 billion in

Senate Bill 378 -- Page 2

FY06. Based on the experience of Texas, which reportedly has a very similar statute to the pro-

posal, TRD estimates that 2.5 percent of total annual sales (or $50 million) would be eligible for

the proposed deduction. Therefore, utilizing an average tax rate of approximately 5.4 percent,

this bill would allow a total of $2.7 million in gross receipts tax deductions ($50 million x 5.4

percent).

ADMINISTRATIVE IMPLICATIONS

TRD notes that the department will have to do a significant amount of outreach to insure that the

deduction is properly claimed and reported. They believe that the administrative costs would be

minor unless the there is a desire to track this deduction separately from other deductions, in

which case, forms, systems and revenue processing would have to be modified.

OPJ/yr