NOTE:  As provided in LFC policy, this report is intended only 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 for other purposes.

 

The most recent FIR version (in HTML & Adobe PDF formats) is available on the Legislative Website.  The Adobe PDF version includes all attachments, whereas the HTML version does not.  Previously issued FIRs and attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

 

 

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

 

 

 

SPONSOR:

Rodella

 

DATE TYPED:

3/17/03

 

HB

62/aHTRC

 

SHORT TITLE:

Increase Jet Fuel Tax Deductions

 

SB

 

 

 

ANALYST:

Reynolds-Forte

REVENUE

 

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY03

FY04

 

 

 

 

(76.4)

(83.3)

Recurring

State General Fund

 

(*)

(*)

Recurring

Small Cities Assistance Fund

 

(*)

(*)

Recurring

Small Counties Assistance Fund

 

(54.0)

(58.9)

Recurring

Local Governments

 

None

None

Recurring

State Aviation Fund

(Parenthesis ( ) Indicate Revenue Decreases)

 

 (*) The Department has no information regarding the amount of jet fuel subject to the Compensating Tax.  It is assumed that amount is negligible.

 

The assumptions used for the Gross Receipts Tax impact were: 1) taxable base of about $13.9 million based on FY04 revenue estimate for the State Aviation Fund; 2) 100% of taxable base subject to municipal taxes; 3) tax rate in municipal areas of 5.8125% (Albuquerque rate).  The current law General Fund share of Gross Receipts Tax is diverted to the State Aviation Fund (estimated at $500 thousand for FY03).  FY03 amounts were then adjusted to 11/12ths of the full year impact due to the effective date of the bill and the one-month lag for filing and paying tax returns.

 

Relates to Appropriation in the General Appropriation Act

 

SOURCES OF INFORMATION

 

Responses Received From

New Mexico State Highway and Transportation Dept.

 

SUMMARY

    

     Synopsis of HTRC Amendment

 

The House Taxation and Revenue Committee amendment to HB62 increases the gross receipts and compensating tax deduction for jet fuel from the current 40% deduction to a 50% deduction.  The original bill proposed a 100% deduction.  The HTRC amendment also adjusts the distribution to the State Aviation Fund to maintain the current level of revenue to that fund.

 

FISCAL IMPLICATIONS 

 

The House Taxation and Revenue Committee amendment to HB62 decreases the amount of gross receipts and compensating tax which will be paid on jet fuel by airline companies each year by $142.2.  The annual decrease of revenue of $142.2 will decrease the state general fund by $83.3 and the local governments funds by $58.9.  The FY04 impact will be $130.4 revenue loss, $76.4 to the general fund and $54.0 to the local government funds.   

 

 

     Synopsis of Original Bill

 

House Bill 62 changes the current gross receipts tax deduction and compensating tax deduction for jet fuel from 40% to 100%.  This means jet fuel will be totally exempt from gross receipts tax and the revenues from the tax are eliminated.  

 

The effective date for collection of the tax is July 1, 2003; the effective date for revenue distribution is August 1, 2003.  This means that the funds impacted will receive only one month of revenues from this source in FY04. 

 

     Significant Issues

 

Twelve months of this revenue was appropriated by both the LFC and the Executive for use in the Aviation Division of the State Highway and Transportation Dept. for their FY04 budget.

 

FISCAL IMPLICATIONS

 

The FY04 eleven month estimated revenue loss from the Jet Fuel is $759.4 which impacts the State, municipalities and counties.  The first full year of revenue loss will be in FY 05 and is estimated to be $868.7.

 

The State portion of the funds ($458.3 in FY04 and $525.0 in FY05) are used to fund the Aviation Division of the State Highway and Transportation Department.  Approximately seventy-five percent of the Aviation Division funds are provided to community airports to use as matching funds for federal money available for airport construction. 

 

The $500.0 loss to the State Aviation Fund will result in a $10 million plus decrease in funds available for airport construction projects each year.  This revenue is used to match federal money.  The match ratio is 5%: the $500.0 in state funds leverages $9.5 million of federal funds.

 

The $10+ million per year of airport construction is mostly federal money and is subject to state and local gross receipts taxes.

 

Municipalities and counties will also be impacted by House Bill 62.  Municipalities will have a revenue loss of $262.8 in FY 04 and the counties will have a loss of $38.3.  

 

RELATIONSHIP

 

House Bill 62 relates to House Bill 4 that appropriates the jet fuel revenues in FY04 for operation of the Aviation Division of the State Highway and Transportation Department. Approximately 75 percent of these funds are used by the Division to provide grants to communities to enable them to match federal funds available for airport construction.  Revenues in House Bill 4 will need to be decreased and the Aviation Division expenditures, including grant funds, cut by $458.3 if House Bill 62 is passed. 

 

OTHER SUBSTANTIVE ISSUES

 

The State Highway and Transportation Department provided the following information:

 

·        The price of jet fuel in New Mexico is not significantly higher than prices in other states, even after imposition of the current tax.  The Aviation Division reports the following average prices in 2002:

 

 

Price

State Tax Imposed

Total Price

Albuquerque

$1.10

3.4875%

$1.138

El Paso

$1.14

none

$1.140

Denver

$1.12

3%

$1.154

Las Vegas

$1.24

$0.03 per gallon

$1.270

Atlanta

$1.16

none

$1.160

St. Louis

$1.09

5.725%

$1.152

Dallas

$1.10

none

$1.100

Baltimore

$1.20

unknown

$1.200

Average

 

 

$1.164

 

·        Fluctuations in jet fuel gross receipts (total, before deductions) appear to follow price fluctuations both before and after imposition of the current 40% deduction.  It does not appear that imposition of the 40% deduction in 1993 resulted in any large increase in the amount of jet fuel sold in New Mexico.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


ALTERNATIVES

 

·        The State Aviation Fund could be held harmless by an additional, permanent distribution of a share of general fund gross receipts tax.  The average level of jet fuel GRT revenue over the past 5 years was $565 thousand per fiscal year, so the State Aviation Fund might be held harmless by a new distribution of 0.0417 percent of general fund gross receipts revenue.  The hold harmless distribution could be added to Section 1 of the bill (Section 7-1-6.7).

 

PRF/yr/njw:yr