APPENDIX TWO

METHODOLOGY AND INTERPRETATION OF DATA

This appendix describes the information provided for each of the 431 exemptions, deductions, differential tax rates, deferrals and credits that are presented in this report. It explains some of the principal assumptions and what the data represent.

Description

The first item for each exemption is a short explanation of the exemption in nonlegal terms. It draws upon the statute, administrative rules, and discussions with personnel of the agency which collects the tax.

Purpose

This presents the intent of the Legislature in enacting the exemption statute. In most instances, the law does not explicitly state the legislative intent, so this statement is often at best an "educated guess" on the part of the analyst.

Category/Year Enacted

For the larger tax sources with many exemptions, the exemptions are grouped together. For example, property tax exemption categories are public property, nonprofit organizations, private property and personal property. In an attempt to compile more meaningful aggregated information for all taxes, the report contains a categorical assignment for each of the exemptions. There are 13 categories of tax exemption based on the type of exemption or its principal beneficiary. These categories and the total estimated impact of exemptions for all taxes in this group are presented in the introductory section of the report.

Also presented under this heading is the year the exemption was first enacted. In some cases, major subsequent revisions are also noted.

Primary Beneficiaries

Here the analyst attempts to identify the type of taxpayer that actually receives the benefit of the exemption. In most instances, the number of beneficiaries is unknown but for some exemptions an estimate is given. It should be noted that the excise tax secrecy statute prohibits the release of confidential information which could be identified with a particular taxpayer. For this reason, impact estimates have been omitted for certain exemptions which are believed to be utilized by fewer than three taxpayers.

Conflict With Other Programs

The authorizing statute which mandates the exemption study requires that this item be included in the analysis. The fact is that there are very few examples of tax exemptions which are in direct opposition to another state program. In the broadest sense, however, all tax exemptions conflict with the purpose of the tax, which is to generate revenue for public programs. Therefore, exemptions, by definition, create internal conflicts within the tax base via-a-vis other groups of taxpayers who do not receive the preferential treatment.

Tax Savings

The estimated impact of the exemptions, in terms of accrued tax liability, is presented for each year of the current biennium (1999-01, full 24 months) and the ensuing two year period (2001-03). For property taxes which operate on a calendar year basis, the calendar year estimates for the year 2000 and 2001 are used as a proxy for fiscal years 2000 and 2001 which comprise the current biennium. Estimates for the impact on local government are included for those sources which are directly levied by cities, counties or other local taxing districts. The receipts for some taxes are shared with local government, e.g. motor fuels and liquor taxes, but the taxes themselves (and the exemptions) are considered as state taxes. Purely local tax sources, such as the municipal business taxes, are not included in this report.

The starting point for analysis of exemption impacts is the workpapers for previous exemption studies. In some instances, there is no better or more current information available. For others, new data sources and estimation methodologies are available. For example, the Department of Revenue captures the deduction detail listed by taxpayers on their combined excise tax returns. The results have been very useful for this study, although inaccurate reporting by taxpayers continues to be a problem that limits the usefulness of the data. Because of different estimating methodologies or interpretive assumptions, the estimates in this report may differ significantly from the amounts shown in previous exemption reports.

As indicated in the introduction, the fiscal estimates represent the tax savings for the exempted group of (otherwise) taxpayers. The figures should not be interpreted as the amount of potential revenue to the taxing jurisdiction if the exemption were removed, unless other statutes were commensurately modified. In particular, the property tax exemptions are constrained by various limitations. Also for exemptions with very large impacts, the overall limitation on state spending (Initiative 601) might come into play. Finally, there are the obvious legal or administrative difficulties for some exemptions which would limit their potential ability to produce the full amount of revenue. While it is not possible to accurately estimate the "actual" revenue in all instances, the brief discussion at the conclusion of each exemption section tries to indicate how "realistic" the estimates are in terms of potential additional revenue.

Assumed Tax Rates

Property tax levy rates for the state levy ($3.60 per thousand of assessed value, adjusted to full market value) and aggregate local levies for all other taxing districts are projected as follows for the following calendar years:
  
Year Due State Local
2000 $3.04 $8.93
2001 2.90 9.69
2002 2.81 9.61
2003 2.73 9.52
Excise taxes on other vehicles includes aircraft excise tax ranging from $25 to $125; boat excise tax at 0.5 percent of fair market value and 1.1 percent tax on campers/travel trailers.
 
Timber excise tax state tax of 1.0 percent on timber harvested on private lands and 5.0 percent on public lands; county tax of 4.0 percent on private lands.
Leasehold excise tax state tax of 6.84 percent and local tax of 6.0 percent of the rental value for leases of publicly owned property.
B&O tax (state tax only) rates for major business classifications:
manufacturing/wholesaling, 0.484 percent;
retailing, 0.471 percent;

public/nonprofit hospitals, 1.5 percent;

services, 1.5 percent.
Public utility tax rates for major classifications for the state tax:
water distribution, 5.029 percent;
power, 3.873 percent;
gas, sewer, express, 3.852 percent
motor and railroad transportation, 1.926 percent;
urban transportation, 0.642 percent;
all other utilities,1.926 percent.
Insurance premiums tax 2.0 percent for domestic and foreign companies, including "prepayments" of health maintenance organizations; 0.95 percent for ocean marine insurance.
 
Petroleum products tax the tax has been suspended and is not expected to be reimposed.
Retail sales/use tax state tax rate of 6.5 percent; average aggregate local rate of 1.7 percent includes taxes levied by cities, counties and transit districts was used for most local sales/use tax exemptions.
Fuel taxes 23 cents per gallon.
Alcoholic beverage taxes 20.5 percent liquor sales tax and $2.44 tax per liter.
Parimutuel tax rate depends upon the daily gross receipts of parimutuel betting machines at horse races: 0.52 percent for annual receipts of less than $50 million or 1.3 percent for annual receipts above $50 million; plus additional tax of 1.0 percent for certain race events and additional tax of 0.6 percent for those with average on-site parimutuel receipts of more than $886,000.
Real estate excise tax 1.28 percent state tax; average local rate of 0.25 percent
Soft drinks syrup tax $1.00 per gallon.
Refuse collection tax

3.6 percent tax on refuse collection firms.

Oil spill tax 5 cents per 42 gallon barrel of crude oil or petroleum products imported via water.