Tax Conformity Act of 2000
Bill 13-86

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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.