Department of Revenue Fiscal Note — 6445 SB (Financial Instit./B&O Tax)
Summary
Department of Revenue Fiscal Note (Agency 140) for Bill Number 6445 SB, titled Financial instit./B&O tax. The Part I tables list estimated cash receipts to the GF-State account (91,700,000) and a second account (17,600,000), with totals of 109,300,000, 284,200,000 and 318,700,000, and estimated expenditures totaling 34,600. The narrative describes current law as taxing amounts received as interest on loans secured by first mortgages or trust deeds on nontransient residential properties.
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“Department of Revenue Fiscal Note — 6445 SB (Financial Instit./B&O Tax).”
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Department of Revenue Fiscal Note
Bill Number: 6445 SB Title: Financial instit./B&O tax Agency: 140-Department of
Revenue
Part I: Estimates
No Fiscal Impact
Estimated Cash Receipts to:
Account FY 2020 FY 2021 2019-21 2021-23 2023-25
GF-STATE-State 91,700,000 91,700,000 238,300,000 267,200,000
01 - Taxes 05 - Bus and Occup Tax
Workforce Educationa Investment 17,600,000 17,600,000 45,900,000 51,500,000
Account-State
01 - Taxes 05 - Bus and Occup Tax
Total $ 109,300,000 109,300,000 284,200,000 318,700,000
Estimated Expenditures from:
FY 2020 FY 2021 2019-21 2021-23 2023-25
FTE Staff Years 0.3 0.2
Account
GF-STATE-State 001-1 34,600 34,600
Total $ 34,600 34,600
Estimated Capital Budget Impact:
NONE
The cash receipts and expenditure estimates on this page represent the most likely fiscal impact. Factors impacting the precision of these estimates,
and alternate ranges (if appropriate), are explained in Part II.
Check applicable boxes and follow corresponding instructions:
If fiscal impact is greater than $50,000 per fiscal year in the current biennium or in subsequent biennia, complete entire fiscal note
X
form Parts I-V.
If fiscal impact is less than $50,000 per fiscal year in the current biennium or in subsequent biennia, complete this page only (Part I).
X Capital budget impact, complete Part IV.
Requires new rule making, complete Part V.
Legislative Contact: Clinton McCarthy Phone: 360-786-7319 Date: 01/16/2020
Agency Preparation: Melissa Howes Phone: 360-534-1518 Date: 01/21/2020
Agency Approval: Don Gutmann Phone: 360-534-1510 Date: 01/21/2020
OFM Review: Ramona Nabors Phone: (360) 902-0547 Date: 01/22/2020
Request # 6445-1-1
Form FN (Rev 1/00) 155,798.00 1 Bill # 6445 SB
FNS062 Department of Revenue Fiscal Note
Part II: Narrative Explanation
II. A - Brief Description Of What The Measure Does That Has Fiscal Impact
Briefly describe, by section number, the significant provisions of the bill, and any related workload or policy assumptions, that have revenue or
expenditure impact on the responding agency.
CURRENT LAW:
Amounts received as interest on loans secured by first mortgages or trust deeds on nontransient residential properties are
subject to tax.
A deduction is provided for those engaging in banking, loan, security or other financial businesses. Interest received on
investments or loans primarily secured by first mortgages or trust deeds on nontransient residential properties may be
deducted from the measure of tax.
Interest deductible includes the portion of fees charged to borrowers, including points and loan origination fees, which are
recognized over the life of the loan as an adjustment in the taxpayer's accounting records according to generally accepted
accounting principles.
A person, or an affiliate of such person, must be located in ten or less states to qualify for the deduction.
PROPOSED LAW:
This proposal repeals the deduction of interest received on investments or loans primarily secured by first mortgages or
trust deeds on nontransient residential properties. With the repeal, this interest and related fees would become fully taxable
under the service and other activities tax classification.
By October 15, 2021, and by October 15th of subsequent years, the Department of Revenue (Department) is required to
estimate the previous fiscal year increase in state general fund revenue collections resulting from the repeal. The State
Treasurer is required to transfer this estimated amount into the housing trust fund beginning November 1, 2021.
EFFECTIVE DATE:
This bill takes effect on August 1, 2020.
II. B - Cash receipts Impact
Briefly describe and quantify the cash receipts impact of the legislation on the responding agency, identifying the cash receipts provisions by section
number and when appropriate the detail of the revenue sources. Briefly describe the factual basis of the assumptions and the method by which the
cash receipts impact is derived. Explain how workload assumptions translate into estimates. Distinguish between one time and ongoing functions.
ASSUMPTIONS
- Certain banks make mortgage loans, but do not report detailed deduction data related to the first mortgage interest
deduction (usually because they apportion their income between states). These banks use the deduction at the same rate as
banks reporting the deduction detail.
- The ratio between the banks interest income from government obligations and from the first mortgage interest income
reported to the Federal Financial Institutions Examination Council approximates the relationship between the deduction
for government obligations and the deduction for first mortgages reported in Washington.
- All impacted businesses are subject to the Workforce Education Surcharge.
- Some financial institutions are subject to the Financial Institutions tax.
- Interest income growth mimics the growth in the Service and Other Activities tax classification, as forecasted by the
Economic and Revenue Forecast Council in the November 2019 forecast.
- This bill is effective August 1, 2020 resulting in 10 months of cash collections for Fiscal Year 2021.
DATA SOURCES
- Department of Revenue, Excise Tax Data
Request # 6445-1-1
Form FN (Rev 1/00) 155,798.00 2 Bill # 6445 SB
FNS062 Department of Revenue Fiscal Note
- Federal Financial Institutions Examination Council, Call Report Data
- Federal Deposit Insurance Corporation data
- Home Mortgage Disclosure Act Data
- Nationwide Multistate Licensing System, Branch Data
REVENUE ESTIMATES
This bill increases state revenues by an estimated $109,300,000 in the 10 months of impacted collections in Fiscal Year
2021, and by $138,300,000 in Fiscal Year 2022, the first full year of impacted collections.
TOTAL REVENUE IMPACT:
State Government (cash basis, $000):
FY 2020 - $ 0
FY 2021 - $ 109,300
FY 2022 - $ 138,300
FY 2023 - $ 145,900
FY 2024 - $ 154,700
FY 2025 - $ 164,000
There is no Local Government impact.
II. C - Expenditures
Briefly describe the agency expenditures necessary to implement this legislation (or savings resulting from this legislation), identifying by section
number the provisions of the legislation that result in the expenditures (or savings). Briefly describe the factual basis of the assumptions and the method
by which the expenditure impact is derived. Explain how workload assumptions translate into cost estimates. Distinguish between one time and
ongoing functions.
ASSUMPTIONS:
- Quarterly and annual returns will need to be split due to the effective date of August 1, 2020.
FIRST YEAR COSTS:
The Department will incur total costs of $34,600 in Fiscal Year 2021. These costs include:
Labor Costs – Time and effort equates to 0.3 FTEs.
- Review tax reporting and estimate the increase to the state general fund revenue collection resulting from the repeal.
- Assist taxpayers with reporting, questions, and respond to inquiries.
- Update special notices and the website.
Part III: Expenditure Detail
III. A - Expenditures by Object Or Purpose
FY 2020 FY 2021 2019-21 2021-23 2023-25
FTE Staff Years 0.3 0.2
A-Salaries and Wages 22,500 22,500
B-Employee Benefits 6,800 6,800
E-Goods and Other Services 3,300 3,300
J-Capital Outlays 2,000 2,000
Total $ $34,600 $34,600
Request # 6445-1-1
Form FN (Rev 1/00) 155,798.00 3 Bill # 6445 SB
FNS062 Department of Revenue Fiscal Note
III. B - Detail: List FTEs by classification and corresponding annual compensation. Totals need to agree with total FTEs in Part I
and Part IIIA
Job Classification Salary FY 2020 FY 2021 2019-21 2021-23 2023-25
EXCISE TAX EX 2 52,536 0.1 0.1
TAX POLICY SP 4 86,064 0.2 0.1
Total FTEs 0.3 0.2
III. C - Expenditures By Program (optional)
NONE
Part IV: Capital Budget Impact
NONE
None.
Part V: New Rule Making Required
Request # 6445-1-1
Form FN (Rev 1/00) 155,798.00 4 Bill # 6445 SB
FNS062 Department of Revenue Fiscal Note
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