Title MV LEASE SALES TAX DEPOSIT CHANGES

							Fiscal Note – 2005-06 Session                                                          Fiscal Impact             Yes         No
                                                                                State                             X
Bill #: S2651-0         Complete Date: 03/22/06
                                                                                Local                                        X
Chief Author: BONOFF, TERRI                                                     Fee/Departmental Earnings                    X
Title: MV LEASE SALES TAX DEPOSIT CHANGES                                       Tax Revenue                          X

    Agency Name:         Revenue Dept

This table reflects fiscal impact to state government. Local government impact is reflected in the narrative only.
                            Dollars (in thousands)       FY05         FY06            FY07           FY08                FY09
 Expenditures
      General Fund                                                             0              7              3                   3
 Less Agency Can Absorb
      -- No Impact --
 Net Expenditures
      General Fund                                                             0              7              3                   3
 Revenues
      General Fund                                                                    (32,100)       (25,060)            (32,210)
      Highway Users Tax Distribution Fund                                               18,400         14,920              19,330
      Metropolitan Area Transit Fund                                                    12,840          9,560              12,240
      Greater Minnesota Transit Fund                                                       850            580                 640
 Net Cost <Savings>
      General Fund                                                             0        32,107         25,063              32,213
      Highway Users Tax Distribution Fund                                             (18,400)       (14,920)            (19,330)
      Metropolitan Area Transit Fund                                                  (12,840)        (9,560)            (12,240)
      Greater Minnesota Transit Fund                                                     (850)          (580)               (640)
     Total Cost <Savings> to the State                                         0            17              3                   3

                                                        FY05           FY06           FY07           FY08            FY09
 Full Time Equivalents
      -- No Impact --
                                      Total FTE




S2651-0                                                                                                                   Page 1 of 3
Bill Description – The bill provides a phased allocation of the sales tax from vehicle leases from the general fund
to transportation funds, as follows:

                                        FY 2007    FY 2008      FY 2009 FY 2010 FY 2011 FY 2012
Highway User Tax Distribution Fund       30.82%     32.0%        44.25%  50.25%  56.25%  60.0%
Metropolitan Area Transit Fund           21.5%      20.5%        28.025% 31.825% 35.625% 38.0%
Greater Minnesota Transit Fund            1.43%      1.25%        1.475%  1.675%  1.875%  2.0%
General Fund                             46.25%     46.25%        26.25%  16.25%   6.25%   0.0%

There will be a negative revenue impact to the state’s general fund if the proposed bill passes.

There will be a fiscal impact to the Department of Revenue if the proposed bill passes.

Revenue Analysis Assumptions
• The estimate was based on lease payment data from the U.S. Bureau of Economic Analysis. In state fiscal
   year 2002, national personal consumption expenditures on vehicle leasing were $31.5235 billion.
• This amount was increased by 25% to account for leases by businesses.
• The adjusted amount was apportioned to Minnesota at 1.72%, the state portion of new passenger car and
   truck registrations in 2002.
• Amounts were allocated to the funds by the percentages specified in the bill.
• Annual growth was at the same rate as for the motor vehicle sales tax according to the February 2006 state
   revenue forecast.
• The estimates reflect the effect of the 2005 law change which requires sales tax on vehicle leases to be paid
   in full at the beginning of the lease, effective for new leases entered into after September 30, 2005. This is
   the main reason why the estimates for fiscal year 2008 are lower than those for fiscal year 2007.

•   Fiscal Impact Assumptions
•   Currently the revenue collected from motor vehicle leases is reported under the General Rate of Sales on the
    sales tax return, and is not separated out. In order to accommodate this change, the department will provide
    an additional line on the sales tax return for lessor’s to report this amount separately.
•   The department will notify lessor’s of motor vehicles through the normal Sales Tax Law Change mailing that is
    sent out after the legislative session.
•   There will additional computer systems development costs along with storage and on-going maintenance
    costs to capture this new tax type.
•   There will also be additional accounting and distribution costs incurred.
•   The effective date of this change is July 1, 2006

Revenue Analysis Formula
                                                  Fund Impact
                                                  F.Y. 2006       F.Y. 2007       F.Y. 2008        F.Y. 2009
                                                                            (000’s)
General Fund                                              $0        ($32,100)       ($25,060)       ($32,210)
Highway User Tax Distribution Fund                        $0          $18,400         $14,920         $19,330
Metropolitan Area Transit Fund                            $0          $12,840          $9,560         $12,240
Greater Minnesota Transit Fund                            $0             $850            $580            $640

Effective July 1, 2006




Fiscal Impact Formula




S2651-0                                                                                                 Page 2 of 3
   Expenditures/Savings                   FY '06             FY '07     FY '08          FY '09 FY '10
  1) Systems Development                      $0             $3,500         $0              $0            $0
  2) Systems Support                          $0             $1,400     $1,400          $1,400        $1,400
  3) Salaries – Acct & Distr.                 $0             $2,000     $2,000          $2,000        $2,000
  Total                                       $0             $6,900     $3,400          $3,400        $3,400

Details
1) Systems Development: Vendor cost to add a line to sales tax e-filings.
2) Systems Support: MA & ITS support throughout division to create specs and test various systems.
3) Salaries: Accounting Officer to account and distribute funds to correct accounts.

Long-Term Fiscal Considerations
None


Local Government Costs
None




References/Sources




FN Coord Signature: JOHN POWERS
Date: 03/21/06 Phone: 556-4054

EBO Comments

I have reviewed this Fiscal Note for accuracy and content.

EBO Signature: ALEXANDRA BROAT
Date: 03/22/06 Phone: 296-1700




S2651-0                                                                                              Page 3 of 3