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:

Heaton

 

DATE TYPED:

2/25/03

 

HB

632

 

SHORT TITLE:

High-Wage Jobs Tax Credit

 

SB

 

 

 

ANALYST:

Neel

 

 

REVENUE

 

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY03

FY04

 

 

 

 

($0.1)

($1,000.0)

Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

 

Relates to:

HB 21 Amend Lab Partnership/Small Business Act

SB 12  Amend Lab Partnership/Small Business Act

HB 14 Technology Startup Tax Credit Act

 

SOURCES OF INFORMATION

 

LFC files

 

Responses Received From

Taxation Revenue Department (TRD)

 

SUMMARY

 

     Synopsis of Bill

 

House Bill 632 enacts a new section of statute to provide for “high wage jobs tax credits” for newly created private sector positions.  The amount of the tax credit is graduated as follows:

 

  • 5 percent paid to eligible employees whose position merits between 110 percent and 125 percent of the average wage paid in the county where the job is performed;
  • 10 percent paid to eligible employees whose position merits 125 percent and over the average wage paid in the county where the job is performed;

 

The period by which the employer can claim the credit is based on the location and size of the county and municipality with the smaller counties (i.e. municipality or county less than 15,000) qualifying for three periods, medium sized municipalities or counties (populations of between 15,000 and 30,000) qualifying for two periods, and larger areas (larger than 30,000) qualifying for one period.

 

The tax credit can be taken against the taxpayer’s modified combined tax liability (gross receipts tax, compensating tax and others), personal income tax liability or corporate income tax liability and may be carried forward for three years or may be sold or transferred. 

 

HB 632 stipulates that the enterprise qualifying for the tax credit must be a growing business with employment greater on the last qualifying day of the credit than the day when the new positions was created.  An eligible high-wage job must be one created on or after July 1, 2003, and prior to July 1, 2008.  In addition, the job must be occupied for at least 48 weeks of either the year beginning when the employee begins working or the year beginning on the anniversary of the day they began working. 

 

HB 632 requires the eligible employer to certify to TRD pursuant to a specified criteria that they are qualified to receive the tax credit. Eligible employer is defined as an employer who made more than 50 percent of its sales to persons outside New Mexico during the most recent 12 month of the employers modified combined tax liability reporting periods.  Additional definitions are enumerated in the bill. 

 

     Significant Issues

 

The Legislature has consistently emphasized high technology job creation.  During the 2002 session, it passed HB 40 Software Development GRT Credit (Laws 2002, Chapter 10) to provide a gross receipts tax deduction for receipts for software design and development and web-site design and development.  The 2000 Legislature passed HB 19 Technology Jobs Tax Credits (Laws 2000, Chapter 22, 2nd SS) that provides a basic tax credit and an additional tax credit, both in the amount of 4 percent of the qualified expenditure made by a taxpayer conducting “qualified” research at a “qualified facility”.  To be eligible for the additional credit, the taxpayer must increase its payroll by $75.0 over the base payroll of the taxpayer for each $1.0 million of qualified expenditures.   

 

Attachments 1 and 2 graphically depict New Mexico’s need to “promote increased employment and higher wages”.  Attachment 1 shows New Mexico lagging the nation in nonagricultural employment growth. This under performance is projected to continue for the next few years.  Similar to employment growth, Attachment 2 shows New Mexico maintaining higher personal income growth from 1991 to 1996 than the nation.  However, this growth declined in 1996-1997 and fell behind the rest of the nation.  The next four years saw lower personal income growth than the national average.  In 2001, New Mexico’s growth exceeded the national average due, in part, to the recession.

 

FISCAL IMPLICATIONS

 

TRD notes the following assumptions in determination of the fiscal impact:

 

The fiscal impact is based on an analysis of the In-Plant Training program provided by the Economic Development Department.  A review of training awards from 2002 found that 22 employers were awarded training funds for 1,502 employees.  Only 10 of these employees received wages between 110% and 125% of the county average. 212 employees received wages above 125% of the county average.  The average wage of the first group was $16.78 per hour, while that of the second group was $21.78 per hour.  Based on these data, this group of employers would qualify for approximately $1 million per year in credits.  The department does not have a reasonable basis for extrapolating from the population of in-plant training employers to the wider population potentially eligible for the new credits.  It is possible that a much larger group would receive credits, but the complicated record keeping required will probably hold down overall utilization of the credit.

 

There would be a limited fiscal impact in FY04 because of the requirement that an employee hold a job for 48 weeks before the employer can certify their eligibility for the credit.

 

ADMINISTRATIVE IMPLICATIONS

 

According to TRD, provisions in HB 632 would require significant revisions to forms, instructions and publications will have to be modified for the CIT, PIT, PTE and CRS systems.  The new credit will require manual processes to track and record the credit.  An application form and a claim form will have to be developed.  An additional 0.2 FTE will be required because of the manual processing required.  The new forms will require 60 to 80 hours to develop and approve.  The forms will have to be updated annually for the average county wage information.

 

TECHNICAL ISSUES

 

TRD notes that record keeping on the part of the taxpayer and TRD would be extremely cumbersome and time consuming.  As an example, there are several overlapping time periods the employer and the department must track to determine eligibility for the credit.  One relevant period is the “qualifying period” for the job itself.  The average wage during this period is compared to “the most recent” published annual average wage for the county, which would correspond to a different time period.  Another relevant period is the most recent twelve months of the employer’s combined tax liability reporting periods, which is needed to determine whether 50% of the employer’s sales were to persons outside New Mexico.  This latter determination will require extensive record keeping and reporting.  It will also be difficult or impossible to confirm the validity of information on the destination point of sales. 

 

SN/yr

 

Attachments