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:	Crook		DATE TYPED:	03/07/03		HB	762/aHTRC
SHORT TITLE:		Estimated Tax Payment Filing Prerequisites				SB
					ANALYST:		Smith

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY03

FY04

NFI

Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Response Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of HTRC Amendment

House Taxation and Revenue Committee amendment to House Bill 762 corrects a technical error in Section 1, 7-2A-9.1(B) that would have resulted in a $(500.0) reduction in revenue to the general fund. With this correction, the bill is essentially revenue neutral, except for lost investment income of approximately ($7.0) which may be offset via administrative savings.

Synopsis of Original Bill

Senate Bill 762 amends NMSA 1978, § 7-2A-9.1, of the Corporate Income and Franchise Tax Act, to authorize a new procedure for estimating corporate tax payments. Under the new option, firms would estimate tax amounts due for each fiscal quarter of the current year, assuming the estimated amounts total at least 80 percent of the amount determined actually due for that quarter.

In addition to changing methods for estimating taxes due, the proposed measure modifies dates on which taxes are due.

Significant Issues

This bill makes eligibility of the estimated payments contingent upon the current years tax liability being greater than $5.0 and removes the language regarding “reasonably expected to be”. This removes the problem for taxpayers who suddenly become late on estimated payments because they receive an unexpected increase in income in late quarters in the fiscal year, and offers them instead an annualized option. The measure reduces the likelihood of estimated payment obligations when circumstances (i.e. economic downturns) will result in no or reduced tax liability at the end of the year. Currently, estimated payments are often required when subsequent refund requests are inevitable. Additionally, this bill would bring New Mexico more closely in line with IRS estimated tax provisions.

FISCAL IMPLICATIONS

As written, there is a technical error in HB 762 that would result in a $(500.0) reduction in revenue to the general fund. If corrected, TRD states that the bill would be revenue neutral.

The following summary assumes HB 762 is amended to correct the technical error:

According to the Taxation and Revenue Department (TRD), some taxpayers would make lower estimated payment tax payments than presently, or no estimated payments at all, due to removal of the stipulation that taxes in a previous year must total at least $5.0. About 95% of all corporate income tax is paid by firms with obligations in excess of $5.0. HB 762 would delay payment of taxes by some taxpayers that normally pay approximately $5.0 in taxes annually. In tax year 2001, 350 firms paid taxes totaling between $4.0 and $5.0 and their tax obligations totaled approximately $1.7 million. If 20% of such firms do not make estimated tax payments per this bill, $350.0 in taxes would be received at a later date than under current law. Applying a 2% interest rate (the rate currently received on general fund deposits) for potential investment income, this bill would result in approximately ($7.0) in lost revenues. However, TRD stated that the lost interest income would probably be offset by decreased processing costs.

ADMINISTRATIVE IMPLICATIONS

A computer system modification and changes in forms and instructions can be absorbed with resources currently available to TRD. Limited administrative efficiencies will occur because some taxpayers will no longer be making estimated tax payments.

OTHER SUBSTANTIVE ISSUES

A comparison of present law and the changes proposed in HB 762 is summarized below:

Corporate Income Tax Estimation Procedures – Present Vs. HB 762
Current Law	HB 762
Corporations must pay estimated taxes in any particular year if their taxes after credits can reasonably be expected to be $5,000 or more. Estimate via one of three methods:	Corporations must pay estimated taxes in any particular year if their taxes are $5,000 or more in the current year. Estimate via one of four methods:
1) estimate tax due in current year if the estimated amount is at least 80 percent of tax determined due for the current year;	1) Same as 1) under present law;
2) use 100 percent of tax due for previous year if a) the previous year was a full 12-month year, and b) the amount due in the previous year was at least $5,000;	2) use 100 percent of tax due for previous year if the previous year was a full 12-month year – same as under present law except that condition b) is excluded.
3) use 110 percent of tax due in the year prior to the previous year if a) it was a full 12-month year, b) amount due in that year was at least $5,000 and c) the return for the previous year has not been filed and d) the extended due date for filing the return has not occurred when the first installment is due in the current year.	3) use 110 percent of tax due in the year prior to the previous year if a) it was a full 12-month year, b) the return for the previous year has not been filed and c) the extended due date for filing the return has not occurred when the first installment is due in the current year – same as 3) under present law except that condition b) is excluded;
	4) estimate amount due, net of credits, for each fiscal quarter of current year, assuming estimated amount is at least 80 percent of amount determined due for that quarter.

TECHNICAL ISSUES

HB 762 modifies the dates on which taxes are due – currently 25% of amounts are due on or before the 15th day of the 4th, 6th, 9th and 12th months of the tax year. As written, the proposed statute would require payments on the 6th, 9th and 12th months. The bill is silent on the issue of when the first quarterly payment (4th month) would be made. This appears to be a drafting error.

RLG/sb/njw