NOTE: As provided in LFC policy, this report is intended 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 in any other situation.

The LFC is only preparing FIRs on bills referred to the Senate Finance Committee, the Senate Ways and Means Committee, the House Appropriations and Finance Committee and the House Taxation and Revenue Committee. The chief clerks are responsible for preparing and issuing all other bill analyses.

Only the most recent FIR version, excluding attachments, is available on the Intranet. Previously issued FIRs and attachments may be obtained from the LFC office in Room 416 of the State Capitol Building.

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

Taxation and Revenue Department

SUMMARY

Synopsis of HTRC Amendment

The HTRC amendment expands the exception to civil penalty for failure to pay a tax or file a return so that "if a taxpayer has made a reasonable effort to cause a tax to be paid in a timely manner, but through the fault of a financial institution or a third party the tax is not paid on the date it is due the taxpayer is not negligent or acting in disregard of rules or instructions of the secretary of the department."

Fiscal Impact of the HTRC Amendment

The TRD amended FIR does not indicate that amendment would change the fiscal impact.

Synopsis of Bill

House Bill 86 amends the Tax Administration Act in the following ways:

• •taxpayers who make their payments using automated clearinghouse transactions are required to provide "substantially all" of the information required by TRD. Currently they must provide all information.
• •protects the taxpayer from being assessed penalty and interest payments on transferred funds dishonored by the taxpayer's financial institution when the dishonoring is not the fault of the taxpayer.



• •requires that TRD accept payment from the taxpayers so long as they can identify the taxpayer from the information submitted. Automated transfer transactions and other electronic transfers may be reversed only in cases where the funds transmitted are not available to the financial institution.



• •requires TRD to assess to compute interest due to the state on a daily basis rather than a monthly basis.



• •relieves the taxpayer of negligence when he (she) has made a reasonable effort to pay taxes owed in a timely manner, but through the fault of a financial institution the tax is paid late.

The proposed changes would become effective with the start of fiscal year 2000.

FISCAL IMPLICATIONS

TRD reported range estimates as to the fiscal impacts of this bill. For FY 2000, the range is from a negative $460 thousand to a negative $920 thousand. For FY2001, the range is from a negative $500 thousand to a negative $1 million. The numbers shown in the LFC fiscal impact table represent the midpoints of the TRD ranges. The figures in the table also divide the impact between the general fund and other state funds, assuming that roughly 75 percent of the impact is on the general fund and the rest on other state funds. However, that division is rather arbitrary as LFC staff does not have information necessary to provide a more precise breakout. A point estimate and the impact on specific funds are necessary for tracking the state's likely financial position if the legislation is adopted.

ADMINISTRATIVE IMPLICATIONS

TRD reports that in order to implement the changes proposed they will incur the one time costs necessary for changes to computer systems, overhead and forms. They say that this will require 6 FTE and cost $769 thousand.

OTHER SUBSTANTIVE ISSUES

1. TRD says that changing the information requirement to "substantially all" instead of all, is vague and could become a source of conflict between the department and taxpayers.
2. TRD says that determining whether transfer dishonors and reversals are the taxpayers fault may also be difficult to determine.
3. TRD claims that weakening the reporting requirements and lowering the costs of untimely payments will decrease taxpayers' incentives to file their taxes in a timely manner.

POSSIBLE QUESTIONS

Can TRD provide an estimate as to how much of the fiscal impact is likely to be borne by the general fund?

BT/prr:gm