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SPONSOR: |
Park |
DATE TYPED: |
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HB |
43 |
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SHORT
TITLE: |
Investment
Credit Determination |
SB |
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ANALYST: |
Smith |
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REVENUE
|
Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
|
|
FY03 |
FY04 |
|
|
|
|
|
(2,500.0) |
(5,250.0) |
Recurring |
General
Fund |
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|
|
|
|
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(Parenthesis ( ) Indicate Revenue Decreases)
Relates to HB179, HB275
Responses
Received From
Taxation
and Revenue Department
SUMMARY
Synopsis
of Bill
House Bill 43 increases
the investment tax credit to 8% of the value of qualified equipment. The Investment
Credit Act (Section 7-9A NMSA 1978) currently allows tax credits equal to the
state compensating tax rate (5%) applied against the value of qualified
equipment purchased and incorporated into certain manufacturing operations in
the state. The credits may be applied
against gross receipts, compensating, or withholding tax liability.
FISCAL
IMPLICATIONS
TRD believes that this proposal has the
potential to increase credit claims by as much as 60%. Currently, approximately 35 taxpayers
actively claim credits totaling $10 to $12 million annually. If credit claims would continue to average
$11 million in the absence of this legislation, the recurring fiscal impact
could amount to a loss of $7.5 million annually. However, credit claims are limited to 85% of
a taxpayer’s combined gross receipts, compensating and withholding tax
liability; the annual fiscal impact is limited by actual tax liabilities
incurred each year. Some of the additional credit would be carried forward and
applied against future year’s tax obligations.
This estimate assumes 30% of the additional credits will be carried
forward, thus the full-year recurring impact is estimated to be $5.25
million. Additionally, since taxpayers must first apply for,
and be approved by the Department in order to claim credit at the new rate, the
fiscal year 2004 impact is not likely to exceed $2.5 million.
OTHER SUBSTANTIVE ISSUES
TRD makes the
following tax policy observation:
“The original intent of the Investment Credit
was to compensate manufacturing businesses for the 5% compensating tax (or the
state portion of the gross receipts tax) on manufacturing equipment purchases,
making the state’s tax code more consistent with competing states in the taxation
of manufacturing equipment. By raising the credit percentage to 8%, the
proposal creates an additional subsidy that exceeds the maximum effective gross
receipts tax rate. These benefits are
available only to manufacturers. State
and local governments currently provide several other tax incentives for
manufacturers including a gross receipts tax deduction for tangible personal
property sold for use in an industrial revenue bond project. Additional incentives for manufacturers would
further favor this industry segment relative to others”.
SS/prr