NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

The LFC is only preparing FIRs on bills referred to the Senate Finance Committee, the Senate Ways and Means Committee, the House Appropriations and Finance Committee and the House Taxation and Revenue Committee. The chief clerks are responsible for preparing and issuing all other bill analyses.

Only the most recent FIR version, excluding attachments, is available on the Intranet. Previously issued FIRs and attachments may be obtained from the LFC office in Room 416 of the State Capitol Building.

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

This bill would allow individuals to subtract from state taxable income up to three thousand dollars pension or annuity receipts as they are defined in Sections 401-404, 408 & 457 of the Internal Revenue Code. Effective date of this legislation is July 1, 1999.

FISCAL IMPLICATIONS

The estimated impact on the general fund is estimated to be $17.5 million in FY2000. The impact of this proposed legislation is expected to grow $1 million annually. The Taxation and Revenue Department (TRD) estimated the net benefit to state income tax relief to be 60 to 85 percent because state income taxes are deductible for federal tax purposes. Federal taxes may increase as much as $200 for each taxpayer who utilizes this proposed legislation. TRD estimates that this legislation will affect over 100,000 tax returns.

ADMINISTRATIVE IMPLICATIONS

The Taxation and Revenue Department estimates that the impact will be twenty to forty thousand dollars recurring due to the additional temporary FTE's that will be needed for processing the returns. Additionally, the believe that this will further slow the time it takes TRD to process tax returns. An increase in taxpayer errors due to confusion would also contribute to slowing down the process.

TECHNICAL ISSUES

The Taxation and Revenue Department (TRD) points out that they will have no way of determining if the amount reported on the 1099-R tax form is from an eligible pension/annuity account.

OTHER SUBSTANTIVE ISSUES

The retirement instruments eligible for deduction under current Internal Revenue Code is constantly changing and growing in scope (an example is the inclusion of the new Roth IRA). The current trend is to encourage the proliferation of individual retirement plans.

The effect of this legislation on New Mexico's personal income tax collections will be decided at the federal level, not at the state level as they decide for us what qualifies, and what does not.

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