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

 

 

 

SPONSOR:

Lujan

 

DATE TYPED:

1/27/07

 

HB

179

 

SHORT TITLE:

Amend Investment  Credit Act

 

SB

 

 

 

ANALYST:

Smith

 

 

REVENUE

 

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY03

FY04

 

 

 

 

(500.0)

(1000.0)

Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

 

SOURCES OF INFORMATION

 

Responses Received From

 

TRD

 

SUMMARY

 

     Synopsis of Bill

 

House Bill 179 amends Section 7-9A-7.1 to reduce the employment requirements so that taxpayers would be required to employ the equivalent of one additional full-time employee for every $500 thousand increment of qualified equipment up to a value of $30 million and $1 million increment of qualified equipment over $30 million.  TRD has provided the following table.

 

 

Employment Requirements for Investment Credit Eligibility
Equipment Value

Current

Proposal

$250,000

1

1

$500,000

2

1

$1,000,000

4

2

$1,500,000

6

3

$2,000,000

8

4

 

 

     Significant Issues

 

The Investment Credit Act (Section 7-9A NMSA 1978) allows tax credits equal to 5% of the value of qualified equipment purchased and incorporated into certain manufacturing operations in the state.  The credits may be claimed against gross receipts, compensating, or withholding tax liability. 

 

FISCAL IMPLICATIONS

 

Currently, approximately 35 taxpayers actively claim credits totaling $10 to 12 million annually.  Approximately 65% of the credits are applied to withholding tax, 32% to compensating tax, and 3% to gross receipts tax liabilities.  Taxpayers have more than $30 million in credit balances still outstanding. These amounts can be carried forward and applied against future year’s tax liability. 

 

The relatively small fiscal impact has to do with the amended employment provisions being most effective for smaller firms.

 

OTHER SUBSTANTIVE ISSUES

 

TRD makes the following observations:

 

1.      This proposal would benefit capital-intensive manufacturers that do not require proportionally as much labor as other manufacturers currently benefiting from the credit.  

 

2.      The intent of the Investment Credit Act is to create a favorable tax climate and create employment opportunities within the manufacturing sector.  The employment benefits would be tempered somewhat by the provisions contained in this proposal.

 

SS/njw