Fiscal Note & Local Impact Statement
126 th General Assembly of Ohio
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BILL: |
DATE: |
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LOCAL IMPACT
STATEMENT REQUIRED: |
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STATE FUND |
FY 2006 |
FY 2007 |
FUTURE YEARS |
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General Revenue Fund |
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Revenues |
Potential gain |
Potential gain |
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Expenditures |
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Note: The state
fiscal year is July 1 through June 30.
For example, FY 2006 is July 1, 2005 – June 30, 2006.
·
The
bill increases state revenues by imposing a new gross receipts tax on credit
card companies. The Legislative Service
Commission assumes that the proceeds of the tax are distributed to the General
Revenue Fund.
·
No
direct fiscal effect on political subdivisions.
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The bill imposes a tax on
"credit card" companies for the privilege of doing business in
Ohio. Under the bill, a "credit
card" company is a legal person that issues a card to allow another person
to make purchases or otherwise incur charges against the card at multiple locations
and with entities unrelated to the card issuer. A retailer issuing a charge card for a customer to make
purchases only from that retailer is excluded from the definition of taxpayer.
The tax is measured on the
basis of a credit card company's taxable gross receipts. The rate of the tax is 0.26% (2.6 mills per
dollar). A taxpayer is prohibited from
billing or invoicing the tax to another person. The tax is measured on the
basis of a credit card company's taxable gross receipts after subtracting bad
debts attributable to Ohio billing addresses.
Taxable gross receipts
include charges against a cardholder's account at a location in Ohio, interest,
fees and other charges, and recovered bad debts. The bill specifies the definition of bad debt. Bad debts are deductible to the extent
attributable to Ohio -- i.e., in proportion to the bad debts associated with
accounts billed to addresses in Ohio as compared to bad debts associated with
accounts billed to addresses anywhere.
The tax is to be reported
and paid on a quarterly basis. The tax is first payable on the basis of a
credit card company's taxable gross receipts from July 1, 2005 to December 31,
2005, and the first tax report and payment is due February 15, 2006. Bad debts incurred during that six-month period
are not deductible, but may be deducted for a subsequent quarter.
The bill permits a credit
card company to deduct from its gross receipts tax liability the amount of
corporation franchise taxes paid for the same tax year. The credit is nonrefundable, meaning that if
a company's franchise tax payment is greater than its gross receipts tax, the
company is not entitled to a refund of the difference. The bill states that it is to take effect
July 1, 2005.
The Legislative Service
Commission assumes that revenues from the gross receipts tax on credit card
companies will be distributed to the General Revenue Fund.
The bill does not make a
distinction among the various payment cards.
A payment card may be a credit card, a charge card, a PIN debit card, or
a signature debit card. Generally, in a
purchase with a debit card or check card, funds are immediately withdrawn from
the user's bank account. In a purchase
with a credit card, the purchaser is billed several days later. The purchaser may pay a portion or the
entire balance of the bill. If the
balance is not paid fully, the purchaser incurs interest or fees that are added
to the amount owed. The Legislative
Service Commission assumes that all card transactions in which a store credit
card was not utilized would generate a taxable gross receipt to the issuer of
the card.
Payment cards may be used
for nationwide purchases of $2.6 trillion by the end of 2005. Purchases with store cards, excluded from
the tax base, are about 15% of the transactions. Unrecoverable bad debt, which is also nontaxable under the bill,
is assumed at 2% of the purchases. At
least $100 billion[1] in
additional taxable receipts from interest, penalty fees, cash-advance fees,
annual fees, and miscellaneous fees may be added to the potential tax base. After these adjustments, nationwide
potential taxable receipts were estimated at $2.3 trillion in
CY 2005. Applying the share of
Ohio population (3.8%) to this nationwide amount, potential taxable receipts
for all payment card transactions by Ohio customers might be up to $87
billion. Using the tax rate of 0.26%,
this taxable base may yield about $227 million in potential gross receipts tax
revenue before the corporate franchise tax credits are applied.
The bill permits a
nonrefundable tax credit against the gross receipts tax. The nonrefundable credit would be the amount
paid in corporation franchise tax liability by a credit card issuer. Financial institutions reported $162 million
in franchise tax liability in FY 2003.
Banks (253 taxpayers) reported $126 million (77%) of the total tax
liability. Savings and loans (110
taxpayers) reported $35 million (22%) of the total tax liability. Credit agencies that accept deposits
reported about 1% of the total tax liability.
A number of these financial institutions will be issuers of payment
cards. The Legislative Service
Commission does not have access to individual corporate franchise tax
returns. Thus, LSC is unable to
determine the franchise tax liability paid by payment card issuers.
Assuming that CFT payments
by banks were applied as tax credits against the gross receipt tax, revenue
from the gross receipts tax would be about $102 million per year. This amount
may be considered the lower range of potential revenue from the gross receipts
tax. The upper range may be up to $146
million if half of the total CFT tax liability was applied against the gross
receipts tax. Potential revenue from
the gross receipts tax may be less than the previous estimate for FY 2006 if
H.B. 200 became effective July 1, 2005.
FY 2006 revenue from the gross receipts tax may be between $51 million
and $73 million.
This estimate is subject to
a large error because a number of payment card issuers that currently do not
pay the Ohio corporate franchise tax would potentially become taxpayers under
the gross receipts tax. Several issues,
including issues of nexus may be the subject of lengthy litigations brought by
the new taxpayers. Therefore, it may be several years before the gross receipts
tax generates the amount of revenue estimated above. Also, any narrowing of the definition of taxable gross receipts
would reduce substantially estimated revenue from the gross receipt tax on
credit card companies.
LSC fiscal staff: Jean J. Botomogno, Economist