LEGISLATIVE FISCAL OFFICE
Fiscal Note
Fiscal Note On: HB 279 HLS 21RS 142
Bill Text Version: ORIGINAL
Opp. Chamb. Action:
Proposed Amd.:
Sub. Bill For.:
Date: April 14, 2021 7:01 PM Author: DEVILLIER
Dept./Agy.: Revenue
Subject: Phase Out Corporate Franchise Tax Analyst: Greg Albrecht
TAX/CORP FRANCHISE OR -$397,000,000 GF RV See Note Page 1 of 1
Phases out the corporate franchise tax over a 5-year period
Proposed law phases out the corporate franchise tax evenly over a 5-year period, beginning with taxable years beginning on
and after January 1, 2023.
Contingent upon adoption of a constitutional amendment contained in HB____ of this session.
EXPENDITURES 2021-22 2022-23 2023-24 2024-25 2025-26 5 -YEAR TOTAL
State Gen. Fd. INCREASE INCREASE INCREASE INCREASE INCREASE
Agy. Self-Gen. $0 $0 $0 $0 $0 $0
Ded./Other $0 $0 $0 $0 $0 $0
Federal Funds $0 $0 $0 $0 $0 $0
Local Funds $0 $0 $0 $0 $0 $0
Annual Total
REVENUES 2021-22 2022-23 2023-24 2024-25 2025-26 5 -YEAR TOTAL
State Gen. Fd. $0 ($35,700,000) ($111,100,000) ($190,500,000) ($269,900,000) ($607,200,000)
Agy. Self-Gen. $0 $0 $0 $0 $0 $0
Ded./Other $0 $0 $0 $0 $0 $0
Federal Funds $0 $0 $0 $0 $0 $0
Local Funds $0 $0 $0 $0 $0 $0
Annual Total $0 ($35,700,000) ($111,100,000) ($190,500,000) ($269,900,000) ($607,200,000)
EXPENDITURE EXPLANATION
Tax system changes will have to be made each year to provide for the changing tax liability calculation over the life of the
phase-out. These changes are typically estimated as several thousands of dollars of staff time for design, modification, and
testing (estimated at $26,000 per year in this case). In addition, a phase-out of the tax will likely result in some confusion
among taxpayers regarding their tax liability for particular years, amended returns, and prior year overpayments. Additional
costs will be incurred communicating with and advising taxpayers as the phase-out progresses.
REVENUE EXPLANATION
The base of the estimated revenue phase-out was established by the Dept. of Revenue as the franchise tax liabilities after
nonrefundable credits for tax year 2018, the most current complete filing year, inclusive of the extension of the tax to LLCs.
This base is $397 million. The bill’s 5-year even phase-out generates a schedule of liability reductions starting at 20% or
$79.4 million in the first year, accumulating by that amount each year for five years until the entire $397 million liability
reduction is effective for tax year 2027. Liability reductions are first realized in FY23 because the franchise tax is due at the
beginning of the tax year, and the bill begins the phase-out with tax year 2023.
This simple phase-out is complicated by the fact that in any particular fiscal year returns are filed for a number of prior tax
years. Past filing patterns suggest that within a fiscal year, 45% of franchise tax returns apply to the immediate tax year,
50% to the preceding tax year, and 5% from earlier tax years. Incorporating these factors into the phase-out schedule,
results in a first fiscal year revenue reduction of $35.7M ($397M x 20% x 45%). The second year reduction will include a
50% filing factor applied to the first year’s 20% tax reduction plus the second year’s 40% tax reduction and a 45% filing
factor, resulting in a $111.1M revenue reduction. The third year reduction will include a 5% filing factor applied to the first
year’s 20% reduction plus a 50% filing factor applied to the second year’s 40% tax reduction plus the third year’s 60% tax
reduction with a 45% filing factor, resulting in a $190.5M revenue reduction. This pattern accumulates the tax year liability
reductions realized in fiscal years over a seven year period before the full amount of corporate franchise tax revenue is
eliminated in FY29.
Actual revenue reductions are further complicated by the carry-forward of overpayments from prior years, which are
still due to the taxpayer even if the tax is phased out. For the base tax year of 2018, the franchise tax credit carry-forward
was some $189.5 million. Taxpayers will claim these refunds in the years of the phase-out, increasing the annual revenue
reduction estimates above.
In addition, refundable tax credits and rebate payments charged against the franchise tax will continue to be refunded
and paid as they will be shifted to the income tax. This, in combination with claims of refund carry-forwards, and the normal
variability of the tax, means that actual tax receipt changes in any particular fiscal year can differ materially from those
estimated above.
Senate Dual Referral Rules House
13.5.1 >= $100,000 Annual Fiscal Cost {S & H} 6.8(F)(1) >= $100,000 SGF Fiscal Cost {H & S}
Christopher A. Keaton
x 13.5.2 >= $500,000 Annual Tax or Fee 6.8(G) >= $500,000 Tax or Fee Increase
Change {S & H} Legislative Fiscal Officer
or a Net Fee Decrease {S}


Statutes affected:
HB279 Original: 47:601(A)