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

SPONSOR Altamirano

DATE TYPED 02/16/05 HB

SHORT TITLE Clinical Laboratory Gross Receipts

SB 570

ANALYST Padilla-Jackson

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

($2,112.0) ($2,260.0)

Increasing Recurring

General Fund

($1,320.0) ($1,413.0)

Increasing Recurring General Fund (Lo-

cal Gov. hold harm-

less distribution)

($3,432.0) ($3,673.0)

Increasing Recurring

Net Change to

General Fund

($1,320.0) ($1,413.0)

Increasing Recurring Local Governments

$1,320.0

$1,413.0

Increasing Recurring Local Governments

Hold Harmless

distribution

0

0

0 Recurring Net Change to Lo-

cal Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 570 provides a gross receipts tax deduction for an accredited clinical laboratory for

medical services reimbursed by managed care. The current law, which was passed in the 2004

legislative session, provides a tax deduction from gross receipts for receipts from payments by a

managed health care provider or health care insurer for commercial contract services or Medi-

care Part C services provided by a health care practitioner. Senate Bill 570 modifies the defini-

Senate Bill 570 -- Page 2

tion of health care practitioner to include certain clinical laboratories.

Significant Issues

TRD notes that the proposed deductions would be eligible for the local government “hold harm-

less” provisions that were adopted as part of the 2004 legislation.

FISCAL IMPLICATIONS

The total fiscal impact, as estimated by TRD, is -$3,432.0 to the general fund in FY06. The new

tax deduction would have an impact of -$2,112.0 and the hold harmless provision would have a

negative impact to the general fund of -$1,320.0. As noted by the table above, the net change to

the general fund includes the estimated payment to local governments in lieu of revenues that

would have been received by before the new tax deduction.

Based on aggregate industry trends, TRD’s analysis assumes that approximately half of these

providers’ receipts are assumed to come from managed care insurers, and are thus eligible for the

new deduction. Assuming an average gross receipts tax rate, the fiscal estimate would imply to-

tal eligible receipts of approximately $52.6 million for FY06 and a seven percent growth rate in

FY07. TRD noted that gross receipts data from the department’s “Analysis of Gross Receipts by

North American Industry Classification System (NAICS)” was gathered for the industry Medical

and Diagnostic Laboratories and the remaining industries in Health Care, based on industry

composition from the 1997 Economic Census

ADMINISTRATIVE IMPLICATIONS

If the bill is passed, TRD anticipates that system coding and troubleshooting must be performed;

forms and instructions must be revised; taxpayer education materials and instruction publications

must be prepared; and Department personnel must be trained on the new provisions. These

changes can be implemented with existing resources.

OPJ/yr