Esther Van Mourik, Office of Legislative Legal Services, introduced herself and set up the discussion for the Legislative Council Staff presentation. She discussed tax structure and noted that the definition of tax expenditures is based on federal definition from 1968 and that is an alternative to direct spending or other programs. She noted that OMB does not include all tax expenditures in their list of tax expenditures like allowing some income rules for interest or trying to adjust for filing status and household makeup as ability to pay. She stated that the federal definition indicates that a tax system is better if there is a broad base and low rate, therefore fewer exemptions or expenditures lead to a better tax system. She noted that the state auditor included 4 elements: must be a state provision enacted by state law, a expenditure for taxes not fees, must apply to only certain types of people or businesses (preferential tax expenditures), and must reduce revenue from legally collected taxes. Mr. Sobetski then began his presentation on tax expenditures in the state budget (Attachment D). He noted that tax expenditures for sales and use taxes, income taxes, and cigarette, tobacco, and liquor excise taxes generally impact revenue into the General Fund. He state that other tax expenditures that reduce cash fund revenue include severance taxes and fuel excise. He discussed the budget implications when we are in a TABOR surplus situation and noted that, while a tax expenditure may not impact the budget in all years, a permanent tax expenditure will reduce the revenue available in some future years.