PUBLIC HEARING HB 2542

PUBLIC HEARING HB 2505

 

TAPES 50-51, A-B, 52 A

 

HOUSE REVENUE COMMITTEE

FEBRUARY 22, 2005   1:00 PM   STATE CAPITOL BUILDING

 

Members Present:                      Rep. Tom Butler, Chair

                                                Rep. Vicki Berger, Vice-Chair

                                                Rep. Mark Hass, Vice-Chair

                                                Rep. Brian Boquist

                                                Rep. Sal Esquivel                                       

                                                Rep. Larry Galizio

                                                Rep. Betty Komp

                                                Rep. Andy Olson

                                                Rep. Chuck Riley

                       

 

Witnesses Present:                      Rep. Kim Thatcher

                                                David Schreffler

                                                Debra Buchanan, Dept. of Revenue

 

 

Staff Present:                          Paul Warner, Legislative Revenue Officer

                                                Lizbeth Martin-Mahar, Economist

                                                Kristi Bowman, Committee Assistant

                                               

 

TAPE 50, SIDE A

 

 

 

002

Chair Butler

Calls meeting to order at 1:04 p.m.

 

 

 

OPENS PUBLIC HEARING FOR HOUSE BILL 2505

 

 

 

005

Rep. Thatcher

Testifies in support of HB 2505 because it connects the tsunami relief contributions to the federal tax law. “It is a small token of our appreciation to the hundreds of generous Oregon taxpayers who have reached out to others in their time of greatest need.”

 

 

 

020

David Schreffler

Testifies in support of HB 2505 because it proposes tax simplification to align federal and state deductions pertaining to the tsunami relief contributions. Also supports permanent reconnection to federal tax laws.

 

 

 

050

Rep. Berger

Asks about the date HB 2505 will be enacted.

 

 

 

052

Schreffler

Responds that he believes most taxpayers and preparers will take the deduction on their Oregon return for tax year 2004 before the law actually takes effect.

 

 

 

070

Chair Butler

Comments about late reconnect issues.

 

 

 

CLOSES PUBLIC HEARING FOR HOUSE BILL 2505

 

 

 

OPENS PUBLIC HEARING FOR HOUSE BILL 2542

 

 

 

126

Lizbeth Martin-Mahar

Provides overview of Section by Section handout (Exhibit 2) pertaining to House Bill 2542 and the reconnect components of the bill.

 

 

 

175

Chair Butler

Asks if the definition of dependent child changes the child care credit. Expresses concerns that all definitions be consistent pertaining to tax credits.

 

182

Martin-Mahar

Responds that the definition pertains to the Working Family Child Care Credit and the personal tax exemption for a disabled child.

 

 

 

215

Rep. Berger

Asks if Section 16 covers the tsunami relief provision.

 

 

 

220

Martin-Mahar

Responds that tsunami relief will be incorporated in Section 19 and Section 16.

 

 

 

238

Chair Butler

General comments about a taxpayer making a charitable contribution in either tax year 2004 or 2005.

 

 

 

250

Rep. Hass

Asks how this can be a “wash” in revenues between this year and next year.

 

 

 

254

Martin-Mahar

Responds that this is a timing issue. All that is affected is that an additional month was allowed by the IRS to make a donation to tsunami relief for tax year 2004.

 

 

 

269

Rep. Boquist

Asks if HB 2542 passes, does the language contained in HB 2505 automatically pass.

 

 

 

271

Martin-Mahar

Responds yes.

 

 

 

333

Rep. Berger

Asks about Real Estate Investment Trusts (REITs) in Sections 17 and 18. Is this an issue that the multistate tax commission is reviewing?

 

 

 

335

Martin-Mahar

Responds yes. Debra Buchanan from the Dept. of Revenue will also speak to that issue.

 

 

 

365

Chair Butler

Comments about a recent poll taken in OR about tsunami relief contributions.

 

 

 

390

Martin-Mahar

Discusses revenue estimates of the major components of HB 2542 (Exhibit 3). The information on the handout refers to the CPA booklet discussed in public hearing for HB 2542 on 2/21/05 (Exhibit 2).

 

 

 

430

Rep. Hass

Clarifies that the depreciation doesn’t cost the state new revenues. It is depreciation is up front, but is made up in the next biennium.

 

 

 

440

Martin-Mahar

Responds yes. Adds that the depreciation is automatically connected to the federal law.

 

 

 

TAPE 51, SIDE A

 

 

 

025

Rep. Hass

Comments about a scenario to consider an amendment to the Jobs Creation Act that would change some components to defer depreciation to a future biennium.

 

 

 

030

Martin-Mahar

Responds that amendments could be considered.

 

 

 

040

Chair Butler

Discusses a conversation with Rep. Dingfelder regarding depreciations becoming tax expenditure. Dingfelder wants to review the purposes of the depreciations, and the Chair states that this would be a viable issue to investigate during the interim.

 

 

 

085

Rep. Boquist

Clarification question about the depreciation amount ($51.2 M) stated in the table for 2003-05 biennium.

 

 

 

110

Martin-Mahar

Responds that this is a rolling amount from previous bienniums.

 

 

 

112

Rep. Boquist

Follow-up question regarding the $51.2 M amount. Is that amount a loss against the revenue forecast?

 

 

 

118

Martin-Mahar

Responds yes, the General Fund revenue forecast that will be released on 2/25/05 will reflect the impacts from the Jobs Creation Acts of 2003 and 2004.

 

 

 

124

Rep. Hass

Asks if the $51.2 M is for tax year 2004 only.

 

 

 

125

Martin-Mahar

Responds that it is for tax year 2003 and 2004.

 

 

 

153

Paul Warner

Adds that any new federal tax information is passed on to the forecasters and Dept. of Revenue. Also provides historic background of points brought up by Rep. Boquist and Rep. Hass.

 

 

 

178

Rep. Komp

Restates previous comment by Rep. Hass regarding the feasibility of making amendments rather than taking financial “hits.”

 

 

 

190

Chair Butler

States that while passing an amendment is possible to recapture revenue, the impact of amended returns would be significant.

 

 

 

200

Rep. Boquist

Asks if the $51 M would go back into the General Fund if the law was amended.

 

 

 

202

Warner

Responds that the liability for previous tax years would be changed. Also, all forecasts are on a cash basis and revenues are forecast when they come in the door.

 

 

 

230

Martin-Mahar

Continues review of revenue estimates.

 

240

Chair Butler

General comments about components of forecasting.

 

 

 

255

Warner

Discusses general principles of dynamic analysis pertaining to forecasting.

 

 

 

270

Martin-Mahar

Continues review of revenue estimates (page 2).

 

 

 

313

Chair Butler

Asks if there is any residual effect of the Oregon Tax Incidence Model (OTIM) and private health savings accounts in moving people off public assistance programs.

 

 

 

320

Warner

Responds probably not. Increases in private savings accounts provide savings at the federal level, but not necessarily at the state level.

 

 

 

TAPE 50, SIDE B

 

 

 

110

Martin-Mahar

Discusses revenue impact statement (Exhibit 4).

 

 

 

190

Chair Butler

General comments about military family tax deductions.

 

 

 

245

Rep. Boquist

General comments about calculating death benefits for military. Follow-up comments about military travel expenses.

 

 

 

279

Rep. Esquivel

Asks about tax-free status for in-country service by active military personnel.

 

 

 

285

Rep. Boquist

Responds that everything up to $5100 is tax-free under the federal tax code. There have been some changes regarding hazardous duty pay.

 

 

 

320

Martin-Mahar

Discusses totals for revenue impacts.

 

 

 

340

Chair Butler

Asks about Medicare Drug Improvement Act revenue impact numbers.

 

 

 

383

Warner

Responds that the Legislative Revenue Office staff will review the information and respond to the committee.

 

 

 

411

Rep. Boquist

General comments about the revenue impacts of certain components.

 

 

 

455

Rep. Hass

Suggests the inclusion of a one-line explanation pertaining to certain obscure provisions in tax law and how they impact the OR economy.

 

 

 

TAPE 51, SIDE B

 

041

Warner

Responds that the staff will provide that information. However, the federal tax document is nearly 600 pages long, and determining the reasons why some laws were passed is nearly impossible. However, the staff will analyze those items the staff does know about and respond to the committee.

 

 

 

085

Martin-Mahar

Provides anecdotal information about corporate earnings.

 

 

 

118

Debra Buchanan

Refers to handout pertaining to connecting to federal tax law (Exhibit 5). Discusses sample 1040 handout (Exhibit 6) pertaining to military deductions as stated in Form 40 line instructions.

 

 

 

165

Chair Butler

Clarifies what “above the line” means. Questions and answers exchanged with Debra Buchanan.

 

 

 

211

Martin-Mahar

Discusses Dividends Deduction Calculations graph (Exhibit 7).

 

 

 

370

Chair Butler

Asks about other disconnects with federal dividends tax law.

 

 

 

380

Martin-Mahar

Responds that the pink boxes on the graph are clear policy choices that the state has made. Discusses corporate and other entity liabilities.

 

 

 

397

Chair Butler

Asks about the fiscal impact of HB 2542 dividend reconnects.

 

 

 

399

Martin-Mahar

Responds that the dividend data is not specific to the types of dividends declared. An estimate of the dividend impact is stated in the table of the revenue impact exhibit.

 

 

 

430

Chair Butler

Asks about dividend reconnects stated on page 19, Sections 17 and 18 of the bill.

 

 

 

432

Martin-Mahar

Responds that the bill refers only to REITs, not to all dividends. For example, foreign sales corporations are 100% excluded per current law. Not all dividends deductions conform to federal tax law.

 

 

 

TAPE 52, SIDE A

 

 

 

050

Buchanan

Adds additional explanation of why there is a difference between federal dividend deductions and state dividend deductions. Discusses the multi-state tax commission and its stance on federal dividend deductions.

 

 

 

065

Chair Butler

Comments that more discussion is needed pertaining to REITs and other dividend deductions.

 

 

 

CLOSES PUBLIC HEARING FOR HOUSE BILL 2542

 

 

 

090

Chair Butler

Adjourns meeting at 3:00 p.m.

 

 

 

Tape Log Submitted by:

Reviewed by:

 

 

 

Kristi Bowman, Committee Assistant

Kim Taylor James, Committee Coordinator

 

Exhibit Summary:

  1. 1.      HB 2505, Written Testimony, Schreffler, 1 pg., 02/22/05
  2. 2.      HB 2542, Handout: Section by Section Description, Martin-Mahar, 2 pp., 02/22/05
  3. 3.      HB 2542, Handout: Preliminary Revenue Estimates, Martin-Mahar, 2 pp., 02/22/05   
  4. 4.      HB 2542, Revenue Impact Statement, Martin-Mahar, 1 pg., 02/22/05
  5. 5.      HB 2542, Handout: Oregon’s Selective Connection to Federal Tax Law, Buchanan,

13 pp., 02/22/05

  1. 6.      HB 2542, Handout: Tax Form 1040, Buchanan, 5 pp., 02/22/05
  2. 7.      HB 2542, Handout: Current Law Dividends Deduction Calculations, Martin-Mahar,

2 pp., 02/22/05