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

SPONSOR Feldman

ORIGINAL DATE

LAST UPDATED

2/7/07

HB

SHORT TITLE Energy-Efficient Appliance Tax Credit

SB 542

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

($1395.0)

($1465.0) Recurring General Fund

($330.0)

($347.0) Recurring

Local

Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

www.energystar.gov

Responses Received From

Energy Minerals and Natural Resources Department (EMNRD)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate bill 542 allows a credit against personal income tax (PIT) for purchase of eligible energy

efficient appliances and a establishes an annual gross receipts tax (GRT) holiday for appliances

rated as Energy Star qualified by the US Environmental Protection Agency (EPA).

The credit ranges from $25 for an energy efficient circulation fan to $300 for an advanced

evaporative cooler (“swamp" cooler) and is in effect from tax year 2007 to tax year 2013, when

it expires (table 1). Energy Minerals and Natural Resource Department (EMNRD) will verify the

eligibility of appliances and provide information and procedures to taxpayers. A taxpayer can

claim up to $300 against current tax year liability. The effective date is January 1, 2007,

allowing appliances purchased prior to passage of SB542 to be eligible.

The GRT holiday will take place every November starting November 2007.

Senate Bill 542 – Page

2

Table 1: Eligible Appliances for PIT Credit

Energy use criteria

Credit amount

Advanced air circulation fan

No more than 2% of total energy of attached

furnace

$ 25.00

Furnace or hot water bilier

95% fuel efficient

75.00

Electric heat pump water heater

energy factor at least 2

150.00

Electric heat pump

Seasonal performance factor of at least 9;

Seasonal energy efficiency ratio of at least 15;

Total energy efficiency ration of at least 13

150.00

Geothermal heat pump - closed loop

Energy efficiency ration of 14.1 and heating

coefficient of 3.3

150.00

Geothermal heat pump - open loop

Energy efficiency ration of 16.2 and heating

coefficient of 3.6

150.00

Geothermal heat pump - direct expansion Energy efficiency ration of 15 and heating

coefficient of 3.5

150.00

Central air conditioner

Seasonal energy efficiency ratio of at least 15;

Total energy efficiency ration of at least 13

150.00

Energy/water efficient advanced

evaporative cooling system (swamp cooler)

90% effectiveness

300.00

FISCAL IMPLICATIONS

Taxation and Revenue Department (TRD) has provided the following fiscal impact analysis:

Recurring or

Estimated Impact on

Revenues

Nonrecurring

Funds

FY 2008

Full Year

Impact

Affected

Income tax

credits

(900)

(945)

Recurring

General Fund

GRT holiday

(495)

(520)

Recurring

General Fund

GRT

Holiday

(330)

(347)

Recurring

Local Governments

Income tax credits:

The provisions of the bill closely parallel those of the federal Internal Revenue Code Section

25C. The credit rates proposed in the bill are one-half the credit rates provided in federal

statute. The Joint Committee on Taxation of the U.S. Congress estimates that the federal

credits will reduce revenues by $275 million in FY 2007. Adjusting this figure for New

Mexico’s share of the U.S. population and for the reduced credit rate yields an estimate of

approximately $900 thousand. Given the limit of $300 per taxpayer implies that at least

3,000 taxpayers per year would take advantage of the credits.

Energy Star GRT “Holiday" assumptions:

Total New Mexico appliance sales in each category were estimated using the state’s share of

U.S. population times the national appliance figures drawn from Appliance magazine.

Average appliance prices were drawn from the same source. Energy Star market share for

each appliance was drawn from the U.S. Government’s Energy Star program. Total annual

sales of Energy Star appliances in New Mexico are estimated to be $62.5 million. The one-

month holiday on these sales is assumed to account for 20 percent of annual sales or $12.5

Senate Bill 542 – Page

3

million. At a 6.6% average statewide tax rate, the total GRT foregone would be $825

thousand, of which 60% is State General Fund revenue and the remainder is local

government revenue.

SIGNIFICANT ISSUES

EPA has identified greenhouse gas emissions as a serious factor in global climate change.

Residential and commercial emissions account for 34 percent of greenhouse emissions. The

Energy Star program, targeting these two sectors, has helped decrease these emissions by 34.2

metric tons and saved 151.2 billion kilowatt-hours of energy (Table 2).

Figure 1: US Greenhouse Gas Emissions by Sector

Senate Bill 542 – Page

4

Table 2: Energy Star Program Achievements in 2005

EMNRD:

SB 542 will promote the purchase of energy efficient equipment over the less efficient

models, which will result in reduced energy consumption throughout New Mexico. The tax

credit and gross receipts tax exemption will stimulate the demand for energy efficient

equipment thereby helping to bring prices down in the future. Purchase of more energy

efficient equipment will both lower the utility bills of participating taxpayers and help reduce

New Mexico’s total greenhouse gas emissions.

ADMINISTRATIVE IMPLICATIONS

TRD:

The income tax credit provisions are closely parallel to those of federal Internal Revenue

Code Section 25C. The administrative and compliance costs of the proposal could both be

reduced if EMNRD uses the federal law definitions to determine which equipment is eligible

for the credit.

As is the case for other deductions under the GRT, the current reporting requirements would

not require taxpayers to separately state the deductions they claim under the GRT holiday for

Senate Bill 542 – Page

5

Energy Star appliances. This makes it difficult to calculate how much revenue is foregone

due to a deduction and eliminates the possibility of auditing the program without doing field

visits. As an alternative, the proposal could require an informational return, to accompany

the November CRS-1 return, to document the amount of sales that qualify for this deduction

in order to track the impact.

NF/nt