Fiscal Note & Local Impact Statement
127 th General Assembly of Ohio
|
STATE FUND |
FY 2009 |
FY 2010 |
FUTURE YEARS |
|
|
General Revenue Fund |
||||
|
Revenues |
Up to $74.8 million loss |
Up to $71.4 million loss |
||
|
Expenditures |
- 0 - |
- 0 - |
- 0 - |
|
Note: The state
fiscal year is July 1 through June 30.
For example, FY 2009 is July 1, 2008 – June 30, 2009.
·
The
deduction of interest income reduces the state income tax base and hence income
tax revenue. The estimated income tax revenue
loss is up to $88.0 million in FY 2009.
The GRF will bear 94.1% of any revenue loss. The revenue loss decreases in FY 2010 because of the scheduled
reduction in income tax rates.
|
LOCAL
GOVERNMENT |
FY 2009 |
FY 2010 |
FUTURE YEARS |
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|
Local government funds
(LGF, LLGSF) |
|||||
|
Revenues |
Up to $5.2 million loss |
Up to $4.7 million loss |
Up to $4.5 million loss |
||
|
Expenditures |
- 0 - |
- 0 - |
- 0 - |
||
|
School districts |
|||||
|
Revenues |
Up to $2.1 million loss |
Up to $2.1 million loss |
Up to $2.1 million loss |
||
|
Expenditures |
- 0 - |
- 0 - |
- 0 - |
||
Note: For most local governments, the fiscal year is the calendar year. The school district fiscal year is July 1 through June 30.
·
The
deduction of interest income reduces the state income tax base and hence income
tax revenue. The estimated income tax
revenue loss is up to $88.0 million in FY 2009. The local government funds will bear 5.9% of any revenue loss. The revenue loss decreases in FY 2010
because of the scheduled reduction in income tax rates.
·
The
revenue of some school district income taxes will be reduced due to a reduction
in the tax base.
|
|
H.B. 516 allows taxpayers,
beginning in tax year 2008, to deduct interest earned on savings accounts,
checking accounts, certificates of deposit, or money market accounts when
computing their Ohio income tax liability.
Interest may be deducted if it has been included in the taxpayer's
federal adjusted gross income (FAGI).[1] The maximum amount of interest that may be
deducted for any tax year is $500 for separate returns and $1,000 for joint
returns. The deduction is one of the
adjustments to a taxpayer's FAGI in the determination of the taxpayer's Ohio
adjusted gross income (OAGI). The
deduction will reduce OAGI for taxpayers with eligible interest income and will
result in a reduction in the taxpayer's tax liability. Because some school district income taxes
use OAGI as their starting point, the deduction will also result in a reduction
in revenue from these school district income taxes.
The revenue impact of the
proposed deduction was estimated using a sample of returns for tax year
2005. The rate structures and personal
exemptions for tax years 2008 and later were used. Summary information of federal income tax returns filed by Ohio
taxpayers for tax year 2005 was used to estimate the amount of interest income
included in FAGI.[2] Tax liabilities were calculated with and
without the proposed deduction. The
simulation yielded estimates of the changes in effective tax rates (tax as a
percent of FAGI) that were applied to projected distributions of FAGI to obtain
estimates of the changes in tax revenue.[3] The estimated revenue losses are sensitive
to both the projected growth in FAGI and the projected distribution of FAGI. Assuming that the recent trends in the
changes in the shares of FAGI for each income bracket continue, the income tax
revenue loss for tax year 2008 was estimated at up to $88.0 million. The revenue loss for a given tax year was
assumed to occur in the following fiscal year.
The estimated revenue loss decreases for tax year 2009 (FY 2010) because
of the scheduled reduction in income tax rates.[4] Any reduction in state income tax revenue
will be shared by the General Revenue Fund (GRF), the Local Government Fund
(LGF), and the Library and Local Government Support Fund (LLGSF). The GRF will bear 94.1% of the revenue
reductions, the LGF will bear 3.68%, and the LLGSF will bear 2.22%.
The school district income
tax, as originally designed, uses the same income base as the state income tax.[5] Exempting interest income from the state
income tax would also reduce revenues to those districts levying the school
district income tax against the same income base as the state income tax. Using the statewide percent of income from
school districts levying this type of income tax and the average school
district income tax rate, LSC estimated the revenue loss for the school
district income tax at up to $2.1 million.
LSC fiscal staff: Isabel Louis, Economist
[1] Generally, in computing
FAGI all interest income is taxable unless specifically excluded.
[2] The summary information
covered taxable interest income from all sources, not just those sources
excluded by the bill. The estimation
also assumed that the average interest income as a percent of FAGI for an
income bracket applied to all taxpayers in that income bracket. Because of these factors, the estimated
revenue loss is most likely overestimated by the simulation.
[3] The distribution of FAGI
refers to the percentage shares of aggregate FAGI for each income bracket.
[4] Am. Sub. H.B. 66 of the
126th General Assembly reduced state income tax rates by 21% over a five-year
period starting with tax year 2005. Tax
year 2009 is the last year of the scheduled rate reductions.
[5] Am. Sub. H.B. 66 of the 126th General Assembly permits a school district to levy the school district income tax against an alternative tax base that includes only the earned income and self-employment income of school district residents. As of January 2008, 13 districts have adopted this alternative tax base.