A proposed bill to reduce commercial rent taxes by 0.5% could result in $829 million in losses in state revenue over the next five fiscal years.
The measure would drop the tax rate on commercial rental or licensing fees from 5.5% to 5.0%. State budget experts agreed on the possible multimillion-dollar revenue hit at Friday’s Revenue Estimating Impact Conference.
While the current tax rate is 5.7%, that rate will drop to 5.5% in January. The conference repeated methodology to predict previous tax cuts when adopting the 5.0% projection.
The conference also addressed three proposals that would exempt small businesses from the tax altogether. Each proposal defines a small business as employing no more 4, 9, or 14 workers across all the business’s locations.
Because of a drafting error, the conference could not approve revenue loss estimates Friday. The fix could be ready by Tuesday, budget chief Amy Baker said.
Last week, the impact conference considered a fourth tax exemption bill that would apply to businesses with 19 or fewer employees. The conference estimated the 19-employee exemption could leave the state with at least $1.3 billion less revenue.
But questions arose over the period for businesses to request the exemption. As written, the law would let businesses repeatedly apply for the exemption until they are accepted, said Bob McKee, chief economist at the Department of Revenue.
“Say, for instance, if you’re seasonal, and for nine months of the year you have 25 employees, and for one month of the year, you only have two or three employees, if you apply during those months of the year … if you meet that test, well then, if you meet that test, you’re in.”
The proposed changes would go into effect on Jan. 1, 2021, halfway through the next fiscal year.
None of the bills discussed Friday have been filed or received a bill number. The Revenue Estimating Conference, part of the Legislature’s Office of Economic and Demographic Research, meets before, during and following each Session to review the predicted impact of proposed legislation.