The Revenue Laws Study Committee has met regularly during legislative interims since 1979, and this year was no different. The committee had its final meeting yesterday and released a draft of its Omnibus Tax Law Changes. This bill will be introduced to the 2014 legislature for approval. Most of the components of the bill are clarifications and corrections to last year’s tax reform package. But fixing problems with last year’s tax reform package wasn’t the only thing that was discussed and proposed by the committee. There was the creation of a new excise tax on e-cigarettes, a new excise tax on biodiesel fuel, and a new business privilege license tax for local governments.
Even though the legislative session isn’t scheduled to begin until mid-week, this committee meeting just a day before has already shed light on some of the small yet very important issues that can be expected to arise during this legislative session. The creation of new taxes was not on any of the press releases listing priorities for the upcoming session, but from the draft legislation coming out of this committee, it is evident there are going to be some surprises during this short session.
The major new taxes included in this Omnibus Tax Law Changes legislation are outlined below. These new taxes aren’t expected to generate much revenue, and the new privilege tax is expected to lose more money than it generates. So why have these taxes at all? Repeal of the privilege tax would be a good thing, but this legislation to repeal the current tax and replace it with a new one falls short. Better to get rid of it altogether.
- E-Cigarettes: a new excise tax of 5 cents per milliliter of vapor product used in electronic cigarettes will be included in the new legislation. The license fee for wholesale dealers will be $25, and the license fee for retail dealers will be $10. Normally taxpayers that file timely returns are allowed a discount of 2% on other tobacco products, but vapor products are exempt from this discount. In addition to the new excise tax, the law states that no vapor products are allowed for use in State correctional facilities. This tax is expected to collect $5.1 million per fiscal year.
- Biodiesel: a new excise tax would be imposed on all biodiesel fuel. Because B100 is not subject to federal excise tax, it is not currently subject to the State’s excise tax. This bill language would create this tax new.
- Privilege Business License Tax: a repeal of the existing authority for cities to levy a privilege license tax of any amount on businesses, replacing it with authorization to levy a privilege business tax of up to $100 on each business location within the city. The tax is prohibited on utilities. The fiscal impact is expected to be a $11.4 to $24.6 million loss to municipalities with an estimated loss to counties of $500,000.
The tax changes below are adjustments made from previous legislation, mainly the tax reform package from the 2013 session:
- Corporate Loss Deduction: Current law allows a tax deduction for corporations that incur a loss during the taxable year. The calculation used to determine the deduction is going to be changed to be more in line with the federal net operating loss calculation.
- Income Tax Changes: This corrects a dollar amount for a specific investment limit, clarifies deductions for mortgage interest expenses, and updates the law imposing income tax on estates and trusts.
- Agricultural Exemption Certificate: This creates a three-year income averaging provision to accommodate income volatility in farming operations, and also clarifies the income requirements for a qualifying farmer.
- Prepaid Meal Plans: For students purchasing meal plans from educational institutions, the tax is to be collected on the gross receipts from the prepaid meal plan and not the individual meals.
- Admissions: This provision answers questions about administration and implementation of the tax as well as clarification of those limited non-profit events that are exempt.
- Service Contracts: The legislation addresses who must collect the tax and how to administer refunds of sales tax paid on service contracts that are later rescinded.
- Retailer-Contractors: There is clarification for businesses, such as major home improvement stores, that they will be considered the consumers of items or materials they furnish and install or apply to real property to the extent the item becomes part of the real property. As the consumer of those items, the retailer-contractor would be responsible for payment of the tax rather than the customer.
- Sales Tax Changes: All rental properties, regardless of whether they are listed by a real estate broker, are subject to sales and occupancy taxes. The law will also disallow a sales tax refund for video programming and piped natural gas, exempt 50% of the sales price of a mobile home, and clarify that all newspapers be taxed the same regardless of whether they are sold in a store or through a vending machine.
- ABC Permits: This change would require filing all state tax returns and paying all state taxes to receive and hold an ABC permit.
- License Plate Agent Compensation: these agents work under commission contracts with the state, and the new Tax & Tag Together program has increased these agents’ workload. The agent’s commission contracts for a standard rate per transaction. The current rate to collect property tax with registration is $1.06 per transaction with a scheduled decrease to $0.71 per transaction. This new legislation will keep the transaction rate at $1.06 indefinitely.
Click here for the Fiscal Update archive.
You can unsubscribe to this and all future e-mails from the John Locke Foundation by clicking the "Manage Subscriptions" button at the top of this newsletter.
