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SPONSOR: |
|
DATE
TYPED: |
|
HB |
891 |
||
SHORT
TITLE: |
Local
Option Compensating Taxes |
SB |
|
||||
|
ANALYST: |
Smith |
|||||
REVENUE
Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
|
FY03 |
FY04 |
|
|
|
|
(2,800.0) |
(3,040.0) |
Recurring |
General Fund |
|
(700.0) |
(760.0) |
Recurring |
Small Cities/Counties
Assistance |
|
8,800.0 |
9,600.0 |
Recurring |
Municipalities |
|
4,100.0 |
4,500.0 |
Recurring |
Counties |
(Parenthesis ( ) Indicate Revenue Decreases)
Responses
Received From
TRD
SUMMARY
Synopsis
of Bill
House Bill 891 allows
the imposition of local option compensating taxes on a taxpayer’s use of
property within a local taxing jurisdiction.
For the most part, this proposal parallels the administration of current
local option gross receipts tax statutes.
The bill is structured to set local option compensating tax rates equal
to corresponding local option gross receipts tax rates. Hence this proposal serves to equalize total
gross receipts and compensating tax rates.
TRD has provided a section by section analysis.
·
Section 1 amends Section
·
Section 3 amends Section 7-1-6.13 to provide a transfer
of revenue to counties from local option compensating taxes.
·
Section 4 amends Section 7-1-6.15 to allow adjustments
for any erroneous compensating tax revenue distributions to local
governments.
·
Section 5 adds a new section to the Tax Administration
Act (TAA) to establish terms for determining the jurisdiction in which property
is used. This is done to allocate the
local option compensating taxes to the appropriate local government. The location of use is the buyer’s place of
business if the property is used in furtherance of that business. If the buyer is not engaged in business in
·
Section 6 amends Section 7-9-7.1 to bar the department
from taking collection action with respect to local option compensating taxes
due on purchases made by an individual.
·
Section 7 provides a credit against municipal
compensating tax paid. The value of the
credit is equal to one-half percent (.5%) of the value of property for which
the taxpayer is liable if the rate of the municipal compensating tax is .5% and
one-fourth percent (.25%) if the rate of the municipal compensating tax is
.25%.
FISCAL IMPLICATIONS
TRD notes that the fiscal
year 2004 statewide compensating tax base is expected to be $975 million. The
weighted average local option tax rate is about 1.45%. Total compensating tax
distributions to local governments will total about $14.1 million on a “full
year” basis.
The negative general fund
and small cities/small counties assistance fund impacts are due to the .5%
credit allowed against the compensating tax for taxpayers within municipal
boundaries. The effective state
compensating tax rate will fall from 5% to 4.5% for taxpayers in incorporated areas. Twenty percent (20%) of net compensating tax collections go to small cities and small
counties assistance funds. The remaining 80% is distributed to the state
General Fund.
An estimate of fiscal year
2004 distribution amounts is included at the end of this review. The department does not currently receive
information from taxpayers that identifies compensating tax liability by
location. Therefore, the distribution
amounts are allocated using fiscal year 2002 taxable gross receipts
information. This method is only an
approximation of the actual distributions that would arise under the bill.
TRD has provided the
following table estimating county impacts.
Estimated Local Option Compensating Tax
Distributions—Counties
|
|||||
Bernalillo
|
1,064,982 |
Harding |
545 |
|
40,942 |
Catron
|
736 |
|
9,862 |
Sandoval |
163,814 |
Chaves
|
152,060 |
Lea |
102,254 |
|
414,175 |
|
61,013 |
|
31,198 |
San Miguel |
44,599 |
Colfax
|
25,705 |
|
293,384 |
|
672,127 |
Curry
|
58,115 |
Luna |
55,375 |
Sierra |
21,752 |
DeBaca
|
2,502 |
McKinley |
272,004 |
Socorro |
11,286 |
Dona
Ana |
320,367 |
Mora |
4,343 |
|
152,454 |
Eddy
|
189,115 |
Otero |
67,897 |
|
22,524 |
Grant
|
77,656 |
Quay |
18,779 |
|
4,818 |
Guadalupe
|
6,480 |
|
61,375 |
|
95,835 |
|
|
|
|
All Counties |
$4,520,071 |
ADMINISTRATIVE
IMPLICATIONS
TRD states that the
provisions in this bill would have a major impact on the department. In order
to capture the appropriate data, larger CRS reporting forms would be required.
This, in turn would require at least two full-page scanners at a cost of about
$350 thousand apiece. Three additional
FTE would be required to enter the additional data and verify distribution
amounts.
Major computer systems
changes would be necessary to make the appropriate local revenue distributions. Reprogramming the system is possible. However, the department is in the process of
converting to a new computer system for processing gross receipts and
compensating taxes. The changes required
by this bill would have to be implemented in the new system. This system is currently scheduled to become
operational in October 2003. Thus, it is
unlikely the department will be able to implement the changes by the
This proposal does not authorize the department to
collect an administrative fee to defray the costs of collecting and
distributing local option compensating taxes.
TECHNICAL
ISSUES
TRD
makes several technical comments:
1.
Section
7-1-6.41 NMSA 1978 authorizes the department to withhold an administrative fee
for local option taxes distributed pursuant to Sections 7-1-6.12 and 7-1-6.13.
These two sections of statute have been amended to apply to local option compensating
tax distributions. Currently, however,
these distribution statutes specifically refer to the administrative fee to be
collected on local option gross receipts taxes.
The amendments to these sections do not include similar language
referring to local option compensating taxes. Similarly, current statutes
regarding the various local options clearly recognize an administrative fee for
local option gross receipts taxes. There
is no recognition of an administrative fee for the local option compensating
tax contained in the amendments to these sections of statute. Hence, although this proposal may intend to
allow the department a fee for its role in administering the local option
compensating tax, it is not accomplished with the language contained in this
proposal.
2.
Section
7 provides a credit against municipal compensating tax paid. The value of the credit is equal to one-half
percent (.5%) of the value of property for which the taxpayer is liable “if the
rate of the municipal compensating tax in effect at the time of use was
one-half percent.” To be consistent with
the municipal credit for gross receipts tax paid, the value of the compensating
tax credit should be .5% of the value of property if the rate of municipal tax
is at least .5%. On page
15, line 10 “at least” should be inserted between “was” and “one-half”.
OTHER
SUBSTANTIVE ISSUES
One argument in favor of the proposal is that
equalizing the compensating and GRT rates would eliminate an incentive some
buyers have to use out-of-state vendors.
However, a compelling argument could be made that increasing the
compensating rate to the average statewide gross receipts tax rate would accomplish
the same objective.
SS/yr:njw