Fiscal Note - 5138 SB Financial instit./B&O tax (Multiple Agency Summary, 2021-01-21)
Summary
A Multiple Agency Fiscal Note Summary for Bill Number 5138 SB, Financial instit./B&O tax, marked Preliminary 1/20/2021, with the individual fiscal notes of the Department of Financial Institutions and the Department of Revenue. The summary shows Department of Revenue estimated cash receipts totals of $287,800,000 for 2021-23, $343,700,000 for 2023-25 and $376,600,000 for 2025-27, and shows the Office of State Treasurer with the entry Fiscal note not available. The Department of Financial Institutions note states that the bill eliminates the Business and Occupation tax deduction for financial institutions, uses the resulting revenue to help fund affordable housing, and will not have fiscal impact for that department.
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“Fiscal Note - 5138 SB Financial instit./B&O tax (Multiple Agency Summary, 2021-01-21).”
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Multiple Agency Fiscal Note Summary
Bill Number: 5138 SB Title: Financial instit./B&O tax
Estimated Cash Receipts
Agency Name 2021-23 2023-25 2025-27
GF-State NGF-Outlook Total GF-State NGF-Outlook Total GF-State NGF-Outlook Total
Department of 248,300,000 287,800,000 287,800,000 296,600,000 343,700,000 343,700,000 324,900,000 376,600,000 376,600,000
Revenue
Total $ 248,300,000 287,800,000 287,800,000 296,600,000 343,700,000 343,700,000 324,900,000 376,600,000 376,600,000
Estimated Operating Expenditures
Agency Name 2021-23 2023-25 2025-27
FTEs GF-State NGF-Outlook Total FTEs GF-State NGF-Outlook Total FTEs GF-State NGF-Outlook Total
Office of State Fiscal note not available
Treasurer
Department of .0 0 0 0 .0 0 0 0 .0 0 0 0
Financial Institutions
Department of .4 78,700 78,700 78,700 .3 49,100 49,100 49,100 .2 40,200 40,200 40,200
Revenue
Total $ 0.4 78,700 78,700 78,700 0.3 49,100 49,100 49,100 0.2 40,200 40,200 40,200
Estimated Capital Budget Expenditures
Agency Name 2021-23 2023-25 2025-27
FTEs Bonds Total FTEs Bonds Total FTEs Bonds Total
Office of State Treasurer Fiscal note not available
Department of Financial .0 0 0 .0 0 0 .0 0 0
Institutions
Department of Revenue .0 0 0 .0 0 0 .0 0 0
Total $ 0.0 0 0 0.0 0 0 0.0 0 0
Estimated Capital Budget Breakout
NONE
FNPID: 61180
FNS029 Multi Agency rollup
Prepared by: Ramona Nabors, OFM Phone: Date Published:
(360) 902-0547 Preliminary 1/20/2021
FNPID: 61180
FNS029 Multi Agency rollup
Individual State Agency Fiscal Note
Bill Number: 5138 SB Title: Financial instit./B&O tax Agency: 102-Department of
Financial Institutions
Part I: Estimates
X No Fiscal Impact
Estimated Cash Receipts to:
NONE
Estimated Operating Expenditures from:
NONE
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
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).
Capital budget impact, complete Part IV.
Requires new rule making, complete Part V.
Legislative Contact: Jeffrey Mitchell Phone: 360-786-7438 Date: 01/10/2021
Agency Preparation: Emily Fitzgerald Phone: (360) 902-8780 Date: 01/13/2021
Agency Approval: Levi Clemmens Phone: (360) 902-8818 Date: 01/13/2021
OFM Review: Ramona Nabors Phone: (360) 902-0547 Date: 01/19/2021
Form FN (Rev 1/00) 161,807.00 Request # 21-005-1
FNS063 Individual State Agency Fiscal Note 1 Bill # 5138 SB
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.
This bill eliminates the Business and Occupation tax deduction for financial institutions and uses the resulting
revenue to help fund affordable housing. This legislation will not directly impact the operations or revenue
collections of the Department of Financial Institutions, and will not have fiscal impact.
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.
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.
Part III: Expenditure Detail
III. A - Operating Budget Expenditures
NONE
III. B - Expenditures by Object Or Purpose
NONE
III. C - Operating FTE Detail: List FTEs by classification and corresponding annual compensation. Totals need to agree with total FTEs in
Part I and Part IIIA
NONE
III. D - Expenditures By Program (optional)
NONE
Part IV: Capital Budget Impact
IV. A - Capital Budget Expenditures
NONE
IV. B - Expenditures by Object Or Purpose
NONE
IV. C - Capital Budget Breakout
Identify acquisition and construction costs not reflected elsewhere on the fiscal note and describe potential financing methods
NONE
IV. D - Capital FTE Detail: List FTEs by classification and corresponding annual compensation. Totals need to agree with total FTEs in
Part IVB
NONE
Financial instit./B&O tax 102-Department of Financial Institutions
Form FN (Rev 1/00) 161,807.00 Request # 21-005-1
FNS063 Individual State Agency Fiscal Note 2 Bill # 5138 SB
Part V: New Rule Making Required
Financial instit./B&O tax 102-Department of Financial Institutions
Form FN (Rev 1/00) 161,807.00 Request # 21-005-1
FNS063 Individual State Agency Fiscal Note 3 Bill # 5138 SB
Department of Revenue Fiscal Note
Bill Number: 5138 SB Title: Financial instit./B&O tax Agency: 140-Department of
Revenue
Part I: Estimates
No Fiscal Impact
Estimated Cash Receipts to:
Account FY 2022 FY 2023 2021-23 2023-25 2025-27
GF-STATE-State 109,800,000 138,500,000 248,300,000 296,600,000 324,900,000
01 - Taxes 05 - Bus and Occup Tax
Workforce Educationa Investment 17,500,000 22,000,000 39,500,000 47,100,000 51,700,000
Account-State
01 - Taxes 05 - Bus and Occup Tax
Total $ 127,300,000 160,500,000 287,800,000 343,700,000 376,600,000
Estimated Expenditures from:
FY 2022 FY 2023 2021-23 2023-25 2025-27
FTE Staff Years 0.4 0.4 0.4 0.3 0.2
Account
GF-STATE-State 001-1 39,500 39,200 78,700 49,100 40,200
Total $ 39,500 39,200 78,700 49,100 40,200
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.
X Requires new rule making, complete Part V.
Legislative Contact: Jeffrey Mitchell Phone: 360-786-7438 Date: 01/10/2021
Agency Preparation: Melissa Howes Phone: 360-534-1518 Date: 01/20/2021
Agency Approval: Don Gutmann Phone: 360-534-1510 Date: 01/20/2021
OFM Review: Ramona Nabors Phone: (360) 902-0547 Date: 01/20/2021
Request # 5138-1-1
Form FN (Rev 1/00) 162,933.00 1 Bill # 5138 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.
Note: This fiscal note reflects language in SB 5138, 2021 Legislative Session.
CURRENT LAW:
Amounts received as interest on investments or loans primarily secured by first mortgages or trust deeds on nontransient
residential properties are subject to the Service and Other Activities business and occupation (B&O) tax.
Banking, loan, security and other financial businesses with locations in ten states or less may deduct interest income received
on investments or loans primarily secured by first mortgages or trust deeds on nontransient residential properties.
A business is located in a state if the person or an affiliate of the person maintains a branch, office, or one or more employees
or representatives in the state and such presence allows borrowers or potential borrowers to contact the branch, office,
employee, or representative concerning the acquiring, negotiating, renegotiating, or restructuring of, or making payments on,
mortgages issued or to be issued by the person or an affiliate of the person.
Interest amounts 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.
PROPOSAL:
The intent of this bill is to fund affordable housing with revenues generated through the elimination of the deduction for first
mortgage interest.
This bill eliminates the deduction for interest received on investments or loans primarily secured by first mortgages or trust
deeds on nontransient residential properties is eliminated.
By October 15, 2022, and by each October 15th thereafter the Department of Revenue (Department) must estimate any
increase in the state general fund revenue collections for the immediately preceding fiscal year resulting from the elimination
of the deduction for first mortgage interest.
Beginning November 1, 2022, and by each November 1st thereafter the State Treasurer must transfer from the general fund the
estimated amount determined by the Department for the immediately preceding fiscal year into the housing trust fund.
EFFECTIVE DATE:
August 1, 2021
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
- Some businesses have first mortgage interest income, but do not report the related deduction data. These businesses are
assumed to be netting the interest income with other taxable amounts when reporting their taxable Service & Other
Activities income on their excise tax return.
- For those businesses assumed to be netting first mortgage interest amounts, the taxable amounts are estimated using
available Washington loan data. It is assumed these businesses use the first mortgage deduction at the same rate as those
Request # 5138-1-1
Form FN (Rev 1/00) 162,933.00 2 Bill # 5138 SB
FNS062 Department of Revenue Fiscal Note
businesses who report deduction detail on their excise tax returns.
- The first mortgage deduction data is combined with the deduction for interest income received on government
obligations on the excise tax returns. For those businesses that report deduction detail, a ratio was used to determine the
amount of the deduction applicable to first mortgage interest.
- Businesses with over $1 million of taxable Service & Other Activities income in the previous calendar year are subject to
the Service & Other Activities rate of 1.75%; All others are subject to the Service & Other Activities rate of 1.5%.
- "Specified financial institutions" are subject to an additional 1.2% 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 2020 forecast.
- This bill is effective August 1, 2021, resulting in 10 months of cash collections for Fiscal Year 2022.
DATA SOURCES
- Department of Revenue, 2019 Excise Tax Data
- Federal Financial Institutions Examination Council, 2019 Call Report Data
- Federal Deposit Insurance Corporation 2019 data
- Home Mortgage Disclosure Act 2019 data
- Nationwide Multistate Licensing System Consumer Access (branches)
- Economic and Revenue Forecast Council November 2020 forecast
REVENUE ESTIMATES
This bill increases state revenues by an estimated $127.3 million in the 10 months of impacted collections in Fiscal Year
2022, and by $160.5 million in Fiscal Year 2023, the first full year of impacted collections.
TOTAL REVENUE IMPACT
State Government (cash basis, $000):
FY 2022 - $ 127,300
FY 2023 - $ 160,500
FY 2024 - $ 167,900
FY 2025 - $ 175,800
FY 2026 - $ 184,000
FY 2027 - $ 192,600
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:
This legislation affects 300 taxpayers.
FIRST YEAR COSTS:
The Department will incur total costs of $39,500 in Fiscal Year 2022. These costs include:
Labor Costs - Time and effort equates to 0.39 FTE.
- Test and verify computer systems to implement the repeal of this deduction.
- Process returns, payments and all associated work items, including issuing assessments for return errors and
underpayments.
- Assist taxpayers with reporting questions and respond to inquiries via email, web message, and paper correspondence.
- Examine accounts and make corrections as necessary.
- Amend one Excise Tax Advisory (ETA).
- Amend one administrative rule.
Request # 5138-1-1
Form FN (Rev 1/00) 162,933.00 3 Bill # 5138 SB
FNS062 Department of Revenue Fiscal Note
Object Costs - $6,100.
- Contract computer systems programming.
- Print and mail a special notice to banks and financial institutions.
- Print and mail additional paper returns and correspondence.
SECOND YEAR COSTS:
The Department will incur total costs of $39,500 in Fiscal Year 2023. These costs include:
Labor Costs - Time and effort equates to 0.4 FTE.
- Process returns, payments and all associated work items, including issuing assessments for return errors and
underpayments.
- Assist taxpayers with reporting questions and respond to inquiries via email, web message, and paper correspondence.
- Examine accounts and make corrections as necessary.
- Analyze reporting data and make reports to the State Treasurer.
ONGOING COSTS:
Ongoing costs for the 2023-2025 Biennium equal $49,100 and include similar activities described in the second year costs.
Time and effort equates to 0.3 FTE in Fiscal Year 2024 and 0.2 FTE in Fiscal Year 2025.
Part III: Expenditure Detail
III. A - Expenditures by Object Or Purpose
FY 2022 FY 2023 2021-23 2023-25 2025-27
FTE Staff Years 0.4 0.4 0.4 0.3 0.2
A-Salaries and Wages 19,600 24,600 44,200 31,900 26,400
B-Employee Benefits 7,200 8,900 16,100 11,500 9,600
C-Professional Service Contracts 2,200 2,200
E-Goods and Other Services 8,100 4,600 12,700 5,200 3,800
J-Capital Outlays 2,400 1,100 3,500 500 400
Total $ $39,500 $39,200 $78,700 $49,100 $40,200
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 2022 FY 2023 2021-23 2023-25 2025-27
EMS BAND 4 119,061 0.0 0.0
EMS BAND 5 139,090 0.0 0.0
EXCISE TAX EX 1 43,392 0.1 0.1 0.1 0.1 0.1
EXCISE TAX EX 2 54,108 0.1 0.1 0.1 0.1
EXCISE TAX EX 3 59,688 0.1 0.1 0.1
MGMT ANALYST4 70,956 0.0 0.0
TAX POLICY SP 2 72,756 0.0 0.0
TAX POLICY SP 3 82,344 0.0 0.0
TAX POLICY SP 4 88,644 0.0 0.1 0.1 0.1 0.1
WMS BAND 3 101,257 0.0 0.0
Total FTEs 0.4 0.4 0.4 0.3 0.2
III. C - Expenditures By Program (optional)
NONE
Request # 5138-1-1
Form FN (Rev 1/00) 162,933.00 4 Bill # 5138 SB
FNS062 Department of Revenue Fiscal Note
Part IV: Capital Budget Impact
IV. A - Capital Budget Expenditures
NONE
IV. B - Expenditures by Object Or Purpose
NONE
IV. C - Capital Budget Breakout
Identify acquisition and construction costs not reflected elsewhere on the fiscal note and dexcribe potential financing methods
NONE
None.
Part V: New Rule Making Required
Identify provisions of the measure that require the agency to adopt new administrative rules or repeal/revise existing rules.
Should this legislation become law, the Department will use the expedited rule-making process to amend WAC 458-20-146,
titled: “National and state banks, mutual savings banks, savings and loan associations and other financial institutions”.
Persons affected by this rule-making would include banks that currently receive the deduction for first mortgage interest.
Request # 5138-1-1
Form FN (Rev 1/00) 162,933.00 5 Bill # 5138 SB
FNS062 Department of Revenue Fiscal Note
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