BOARD00489

• Board Meeting Date: 7/24/2000
• Description: Impacts of Initiative 205 on Water Districts
• Board Meetings - Doc Type: Memo

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Question 9. How does the Amendment affect the State income tax?

The Amendment may reduce each income tax bill in three ways. First, the
Amendment requires a basic income tax cut each year. Second, the Food Tax Cut discussed in
Question 8 could result in an income tax cut. Finally, the income tax is subject to a cut related to
the amount of estate taxes collected by the State in each year. The estate tax cut would probably be
calculated much like the Food Tax Cut. The State will determine its total annual estate tax revenue
and divide that revenue by the total number of income tax returns. If that amount equals or exceeds
$25 in 2002 (assumed by the Title Board to be the first year of the income tax cut), then the income
tax is cut by another $25.

In the fust year of the income tax cut, a single person could receive an income tax
cut ofas much $75 due to application of the Amendment. The Amendment specifically requires
that joint income tax returns be treated as two tax bills. The maximum potential income tax cut on
ajoint return, therefore, is $150 in the first year. (Note that this rule only applies to the income tax
and not to other joint tax returns.) In addition, note that this tax cut is just that - a reduction in
income taxes owed. It is not a tax credit, which even persons who owe no income tax can claim.

OSPB estimates the total income tax revenue loss for the thirty month period ending
June 30, 2003 to be approximately $627.6 million (including all three potential income tax cuts).

As with the other tax cuts, certain issues remain to be resolved. One such issue is the
"base" years to be used. For example, should the State use 2001 estate taxes and sales taxes to
calculate the income tax cut in 2002? Or is it required to use 2002 estimated figures? If the
estimated figures result in a tax cut which is smaller or larger than the required tax cut, what
procedures are to be followed?

Question 10. What is the affect of the Amendment on the specific ownership tax?

The specific ownership tax is imposed annually on each vehicle registered in
Colorado. The tax is imposed at differing rates depending upon the age of the vehicle and declines
each year as the vehicle depreciates. The specific ownership tax is collected by the State
Department of Revenue and distributed to each county in proportion to the amount of miles of State
highways in each county. At the county level, it is then distributed to each local government which
levies a property tax in proportion to the total amount of property taxes levied. DOLA estimates that
the total revenue lost to local governments in 2001 as a result of this tax cut will be $58.2 million.

It should be noted that smaller taxing entities may be disproportionately impacted
by the specific ownership tax cut. Smaller taxing entities are likely to have a larger percentage of
their tax revenue cut as a result of the basic property tax cut revenue. Because distribution of
specific ownership tax revenue could be based on reduced total tax collections, those smaller entities
also may receive a proportionately smaller share of specific ownership tax revenue.

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