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F I S C A L I M P A C T R E P O R T

SPONSOR Lujan, B.

ORIGINAL DATE

LAST UPDATED

1/24/07

HB 236

SHORT TITLE National Lab Small Business Tax Credits

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

(1,200.0)

Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates SB 1

SOURCES OF INFORMATION

LFC Files

Responses Received From

Economic Development Department (EDD)

SUMMARY

Synopsis of Bill

House Bill 236 expands the existing laboratory partnership with small business tax credit. The

bill increases the credit that a national laboratory can claim against its gross receipts tax liability

for assistance to each small business in Bernalillo County from $5 to $10 thousand per year, and

increases the credit that a national laboratory can claim for assistance to each small business

outside of Bernalillo County from $10 to $20 thousand per year. The total amount of credits that

can be claimed by a national laboratory is increased from $1.8 to $2.4 million per year.

The bill will also require national laboratories claiming this credit to submit a joint annual report

to the Taxation and Revenue Department (TRD), the Economic Development Department

(EDD), and the appropriate legislative interim committee by October 15 of each year. The report

will summarize program results, describe projects funded, provide results of surveys of small

businesses that received assistance, quantify the total amount of credits claimed, and include an

economic impact study of jobs created and retained.

If more than one national lab claims the credit, those labs will be required to coordinate their

efforts.

House Bill 236 – Page

2

House Bill 236 also expands eligibility requirements for claiming the laboratory partnership with

small business tax credit. To be eligible for the credit, the national laboratory providing small

business assistance will be required to 1) offer each small business receiving assistance the

option of obtaining ownership of license to property developed through the assistance; 2)

acknowledge that the small business assistance is rendered once it is completed; and 3) provide

forms for small business assistance requests and for completion of small business assistance that

are in accordance with state and federal laws.

The effective date of these provisions is July 1, 2007.

FISCAL IMPLICATIONS

Under current law, Sandia National Laboratories (SNL) and Los Alamos National Laboratory

(LANL) are each eligible to claim $1.8 million per calendar year in credits (LANL became

eligible for the credit in 2006 when its new contract made it liable for the gross receipts tax). By

increasing the total amount of credits that each national laboratory can claim to $2.4 million per

calendar year, the bill will reduce state gross receipts tax collections from each lab by $600

thousand per year, for a total of $1.2 million per year. The fiscal impact assumes that SNL will

be able to reach the higher cap of $2.4 million in calendar year 2007, while LANL will not reach

the cap until calendar year 2008.

Since this gross receipts tax credit can only be claimed against the state portion of gross receipts

tax liability it has no impact on local governments.

SIGNIFICANT ISSUES

LFC notes that while individual credits, deductions and exemptions from the gross receipts tax

may have small fiscal impacts, their cumulative effect significantly narrows the gross receipts tax

base. Narrowing the gross receipts tax base increases revenue volatility and requires a higher tax

rate to generate the same amount of revenue.

EDD reports that this credit has enabled SNL to help New Mexico businesses create 449 jobs

with an average salary of $37 thousand per year over the last five years. According to TRD, this

credit benefited 278 small businesses in 2004.

By doubling the cap on assistance a national laboratory may provide to each small business from

$5 to $10 thousand in Bernalillo County and from $10 to $20 thousand in the rest of the state, the

bill is likely to result in a smaller number of businesses receiving assistance, but those that do

receive assistance will receive a larger amount.

ADMINISTRATIVE IMPLICATIONS

The bill will have minimal administrative impacts on TRD.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

House Bill 236 duplicates Senate Bill 1.

House Bill 236 – Page

3

TECHNICAL ISSUES

TRD notes that to qualify for the program, small businesses must certify that assistance is not

available at a reasonable cost through private sources. There is currently no mechanism in place

to verify these assertions.

SS/nt