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SPONSOR: |
Heaton |
DATE TYPED: |
|
HB |
193a/HBIC |
||
SHORT TITLE: |
Technology Startup Tax Credit Act |
SB |
|
||||
|
ANALYST: |
Neel |
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REVENUE
Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
|
FY03 |
FY04 |
|
|
|
|
($920.0) |
($1,000.0) |
Recurring |
General Fund |
|
|
|
|
|
(Parenthesis ( ) Indicate Revenue Decreases)
Duplicates:
HB 14 Technology Startup Tax Credit Act
Relates to:
HB 21 Amend Lab Partnership/Small Business Act
SB 12
Amend Lab Partnership/Small Business Act
LFC files
Responses
Received From
Taxation
and Revenue Department (TRD)
Department
of Economic Development
SUMMARY
Synopsis of HBIC Amendment
The House Business and Industry Committee
Amendment defines the time where the tax credit can be taken to the preceding
12 month period prior to when the tax credit is sought. Additionally, the amendment excludes for the
purposes of the credits expenditures by other entities than those claiming the
credit.
Last, the HBIC amendment eliminates the “double dip” provision whereby the credits included in HB 193a could overlap those taken pursuant to the current Technology Jobs Tax Credit Act (Section 7-9F NMSA 1978). This “double dip” provision produces claims averaging about $1.2 million per year.
Synopsis
of Original Bill
House Bill 193 enacts a new section of statute titled the Technology Startup Tax Credit Act (TSTCA) to allow a business to claim tax credits equal to the gross receipts, compensating or withholding taxes due to the state for engaging in “qualified research”. Qualified research is
defined as research for the (1) purpose of discovering information that is technological in nature and where (2) substantially all activities contribute to improved performance and (3) are not cosmetic in nature. In order to qualify for the tax credits the entity’s:
· Revenues cannot exceed $10.0 million;
· Qualified expenditures must equal 20 percent of its revenues for the qualifying period;
Expenditures on property owned by a municipality or county in connection with an industrial revenue bond project or property for which the entity has received tax credits pursuant to the Capital Equipment Tax Credit Act, the Investment Credit Act or the Technology Jobs Tax Credit Act are expressly excluded.
The tax credit is
available for 59 consecutive months and the provisions of HB 193 will be administered
by TRD.
Provisions in HB 193
are effective
Significant
Issues
The expressed goal for TSTCA is to provide a
favorable tax climate for startup technology businesses in
Attachments 1 and 2 graphically depict
FISCAL IMPLICATIONS
TRD notes the following assumptions in regard to HB193,
the 1997 Economic Census of Professional and Technical Services,
The provisions of this bill, even with amendment, are not
limited to actual “start-up” companies. The amendment by inserting the word
“new” in the definitions of “business” and “qualified business” provides
partial clarification. If the intent is to limit the credit to bona fide new
businesses in the state and not extend it to “re-formed” businesses, the credit
could be restricted to businesses established after some specific date. For example, a qualified business could be defined
as a “taxpayer who is not a successor in business of another taxpayer and
whose primary business in
According to TRD, in fiscal year 2002, small research and development firms generated $161 million in total gross receipts and deducted $88 million (55%), leaving $73 million in taxable gross receipts. Payroll expenditures subject to state withholding are estimated to have been $58 million. A growth rate of 3% per year yields estimated fiscal year 2004 taxable gross receipts of $77.4 million and payroll of $61 million.
TECHNICAL ISSUES
It should be noted that HB 14a does not require that a
qualified business be newly formed or new to
Additionally, this proposal appears to create a “double dip” with credits taken pursuant to the current Technology Jobs Tax Credit Act (Section 7-9F NMSA 1978), with which this proposal has many overlapping provisions, and produces credit claims averaging about $1.2 million per year. There is no provision contained in this proposal that would exclude a taxpayer from qualifying for credit under both programs. This bill does define “qualified expenditure” to exclude “…property for which the taxpayer has received any credit pursuant to the Capital Equipment Tax Credit Act, the Investment Credit Act or the Technology Jobs Tax Credit Act.” But this provision simply excludes the above expenditures from being counted towards the 20% of expenditures spent in connection with qualified research for the purposes determining credit eligibility. It does not preclude a taxpayer from qualifying for credit under both programs. Further, as stated above, payroll expenditures alone are likely to be sufficient to qualify a business for credit eligibility. Nothing in the bill states that if a taxpayer claims credit pursuant to existing credit programs, the taxpayer is no longer eligible for the “Technology Startup” credit.
Pursuant to this proposal, once a business is qualified to claim credit, there is no cap on the amount of credit a business may claim. The credit amount is limited only by the combined gross receipts, compensating, and withholding taxes due.
OTHER SUBSTANTIVE ISSUES
SN/prr/njw