Tax Conformity Act of 2000Bill 13-86

ENGROSSED ORIGINAL

A BILL IN THE COUNCIL OF THE DISTRICT OF COLUMBIA

To amend Title 47 of the District of
Columbia Code to provide for automatic conformity with federal income tax laws and require
the Mayor to publish a certain report in the District of Columbia Register:

BE IT ENACTED BY THE COUNCIL OF THE
DISTRICT OF COLUMBIA, That this act may be cited as the "Tax Conformity Act of
2000".

Sec. 2. Section 47-1801.4(28A) of the
District of Columbia Code is amended to read as follows:

"(28A) The term "Internal
Revenue Code of 1986" means the Internal Revenue Code of 1986 (100 Stat. 2085; 26
U.S.C. §1 et seq.), as amended from time to time. The provisions of the Internal Revenue
Code of 1986 shall be effective on the same dates that they are effective for federal tax
purposes.".

Sec. 3. Section 47-1816.3(a) of the
District of Columbia Code is amended as follows:

(a) By striking the phrase "§
47-1801.4(28)" and inserting the phrase "§ 47-1801.4(28A)" in its place:
and

(b) By adding a new sentence at the
end to read as follows:

"The Mayor shall publish the
report in the District of Columbia Register.".

Sec. 4. Fiscal impact statement.

The estimated revenue impact of
conformity to the income and deduction provisions of the Taxpayer Relief Act of 1997,
approved August 5, 1997 (Pub. L. No. 105-34; 111 Stat. 788) ("Taxpayer Relief
Act"), is noted below for each of the fiscal years from 1998 through 2002. The
revenue impact is relatively small and is offset by the administrative savings and
taxpayer convenience. Failure to conform with the federal income and deduction changes in
the Taxpayer Relief Act will require the District of Columbia to create new tax forms,
change audit and collection procedures and require taxpayers to keep separate records for
the District of Columbia and the federal individual income tax.

The revenue estimates summarized and
explained below are based on more than one methodology. The primary basis for District
estimates is the federal data provided in the Conference Report on the Taxpayer Relief
Act. Supplemental data when available was also utilized in estimating the revenue impact
of the Taxpayer Relief Act.

REVENUE IMPACT OF
CONFORMITY TO TAXPAYER RELIEF ACT OF 1997

(Fiscal year amounts in thousands of dollars)

* Impact of adopting conformity to
income and deduction items related to franchise and individual income taxes.

**Includes estate tax and cigarette tax impacts, which would be reflected in revenue
estimate revisions, but are not directly associated with passage of conformity
legislation.

There are two provisions of the 1997
federal tax law change that are not technically conformity issues, but which will have an
impact on District of Columbia revenues. These are included in the table above.

The first of these reflects the
changes in the federal estate tax included in the Taxpayer Relief Act. The major change in
the federal estate tax is a gradual increase in the unified credit from the current
$600,000 to $1,000,000 by the year 2006. The District of Columbia estate tax is based on
the state tax credit, which is part of the federal estate tax return. The changes in the
federal estate tax in the Taxpayer Relief Act will affect the state tax credit and will
have an impact on the District’s estate tax collections. According to the Virginia Tax
Department, which taxes estates in the same manner as the District of Columbia, the
federal provisions will result in an estimated tax reduction of 1.3% in FY 1998 rising to
an estimated 4.7% loss in FY 2002. If the District were to suffer similar losses the loss
in revenue from the estate tax would be $313,000 in FY 1998 rising to $1.1 million by
2002.

The Balanced Budget Act of 1997,
approved August 5, 1991 (Pub. L. No. 105-33; 111 Stat. 251) ("Balanced Budget Act),
became law the same time as the Taxpayer Relief Act. One provision of the Balanced Budget
Act will increase the federal cigarette tax from its current level of 24 cents per pack to
34 cents, effective January 1, 2000, and to 39 cents effective January 1, 2002. These
increases will affect District of Columbia cigarette consumption and will reduce cigarette
cigarette tax revenues after FY 1999. Based on data from the Federation of Tax
Administrators there is a -0.4 elasticity with regard to the impact of cigarette price
increases on cigarette consumption. Thus, if cigarette prices rise 10%, smoking should
decline by 4% (10% x (-.4)==4%). Based on current cigarette prices in the District and
using the -0.4 elasticity provides the following:

Current average D.C. cigarette price
per pack: $2.33

Percent price increase due to 10 cent
federal tax rate increase 4.29%

In the year 2000 from current price

Estimated percentage consumption
change in 2000 from -1.72%

Current levels due to federal tax
rate increase

Impact on cigarette tax estimate for
year 2000: -$284,000

2001: -$275,000

Percent price increase due to
additional 5 cent federal 6.44%

Tax rate increase in the year 2002
from current level

Estimated percentage consumption
change in 2002: -2.58%

From current levels due to federal
tax rate increase

Impact on cigarette tax estimate for
year 2002: -$402,000

The revenue impacts noted above for
both the estate tax and the cigarette tax were reflected in the January 1998 revised
revenue estimates prepared by the Office of Tax and Revenue. These revenue losses will
occur independently of any decision concerning conformity with federal income and
deduction provisions.

The estimated revenue impact of
conformity noted above does not include increased revenues due to enhanced economic
activity caused by provisions of the Taxpayer Relief Act. There are several provisions,
which could generate such economic activity. These include the changes in the capital
gains tax rates, the provision that exempts the first $500,000 in capital gains from sale
of a home from the income tax and other provisions which will likely have some revenue
impact.

Also included in proposals which may
increase economic activity are the various District of Columbia tax incentives included in
the Taxpayer Relief Act. These incentives are designed to stimulate economic activity in
the District of Columbia. The estimates included in this analysis assume no increase in
economic activity from these provisions. Rather, the increased economic activity will be
reflected in revised revenue estimates over the period of the incentives.

Sec. 5. This act shall take effect
following approval by the Mayor (or in the event of veto by the Mayor, action by the
Council to override the veto), approval by the Financial Responsibility and Management
Assistance Authority as provided in section 203(a) of the District of Columbia Financial
Responsibility and Management Assistance Act of 1995, approved April 17, 1995 (109 Stat.
116; D.C. Code §47-392.3(a)), a 30-day period of Congressional review as provided in
section 602(c)( I ) of the District of Columbia Home Rule Act, approved December 24, 1973
(87 Stat. 813; D.C. Code §1-233(c)(1)), and publication in the District of Columbia
Register.