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SPONSOR: |
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DATE TYPED: |
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HB |
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SHORT TITLE: |
Health
Practitioners Gross Receipts Deduction
|
SB |
35 |
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ANALYST: |
Smith |
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REVENUE
|
Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
|
|
FY03 |
FY04 |
|
|
|
|
|
|
|
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Gross Receipts Tax Deduction: |
|
|
(18,200.0) |
(19,900.0) |
Recurring |
General Fund |
|
|
(13,700.0) |
(14,900.0) |
Recurring |
Municipalities |
|
|
(2,200.0) |
(2,400.0) |
Recurring |
Counties |
|
|
(34,100.0) |
(37,200.0) |
|
Total |
|
|
|
|
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Distribution Increase: |
|
|
(4,900.0) |
(5,300.0) |
Recurring |
General Fund |
|
|
4,900.0 |
5,300.0 |
Recurring |
Municipalities |
|
|
|
|
|
|
|
|
(23,100.0) |
(25,200.0) |
Recurring |
Net General Fund |
|
|
(8,800.0) |
(9,600.0) |
Recurring |
Net Municipalities |
|
|
(2,200.0) |
(2,400.0) |
Recurring |
Net Counties |
|
|
(34,100.0) |
(37,200.0) |
|
Total |
(Parenthesis ( ) Indicate Revenue Decreases)
Responses
Received From
TRD
SUMMARY
Synopsis
of Bill
Senate Bill 35 provides
a gross receipts tax deduction for receipts of licensed health practitioners
from services performed pursuant to a contract with managed health care
providers. The deduction is limited to
the “commercial portion of contract services”, or services performed other than
for Medicare and Medicaid patients. The state-shared gross receipts
distribution to municipalities is increased from the current 1.225% to
1.24%. The increase is intended to
generate additional revenues for municipalities in order to offset the new
gross receipts tax deduction.
FISCAL
IMPLICATIONS
TRD reports that the fiscal
impact was derived from the 1997 Census of Healthcare Services in New Mexico,
the Department’s “Analysis of Gross Receipts by Standard Industrial Classification”
(Report-80), “Combined Reporting System-Warrant Distribution Summary” (Report
490B), state Medicare and Medicaid expenditure data from the Centers for
Medicare and Medicaid Services (CMMS), and financial statements from selected
managed care providers filed with the Public Regulation Commission. TRD makes the following observations:
· First, the increase in the state-shared portion of
gross receipts tax from 1.225% to 1.24% is not sufficient to completely offset
removing the contracted services from the gross receipts tax base. In fact, municipalities are collectively
compensated for less than half of the effect of removing contracted services
from the base. The state-shared rate for
fiscal year 2004 would need to be close to 1.28% in order to approximate
revenue neutrality for the municipalities.
· Additionally, taxable gross receipts attributable to
the health-care industry are expected to grow at a higher rate than the overall
gross receipts base. As a result,
although the increase in rate will partially compensate municipalities in the
short-term, the revenue gap will widen over time. The gross receipts revenue
derived from a relatively slow-growing base will not keep pace with the
foregone revenue.
· Finally, most receipts from health care services are
concentrated in larger municipalities.
However, cities in which physicians’ receipts are a greater share of
total receipts than the municipal average will suffer a proportionally greater
loss of revenue because the base on which the 1.24% share is calculated would
be reduced by a greater percentage than for average municipalities. In this regard, provisions contained in this
bill result in net transfers from some cities (primarily
· The increase in the state-shared distribution to
municipalities is not accompanied by a corresponding increase in the overall
state gross receipts tax rate, thus municipal compensation is financed with
foregone state general fund revenue. Further, county governments will have a
smaller tax base on which to generate revenue, and there are no provisions to
compensate counties contained in the proposal.
OTHER SUBSTANTIVE ISSUES
TRD makes notes the
following tax policy issues:
· Targeting preferential tax treatment to specific
industries is not necessarily good tax policy. It raises questions of equity
and increases the pressure to extend relief to others by setting a precedent
that they may use to justify similar tax breaks.
· This bill proposes a tax deduction for a “merit good”.
However, the Gross Receipts and Compensating Tax Act taxes many otherwise
meritorious goods and services, and exempts other meritorious goods and
services. The Gross Receipts and Compensating Tax Act treats some medical
services as meritorious, and certainly provides extensive tax relief for most
charitable organizations. The state has
traditionally had a very broad transaction tax base with a fairly low tax
rate. Narrowing the base eventually
leads to increasing rates in order to maintain revenue, or reduced public
services.
· This continues a trend over the last decade of
removing medical and hospital services from the gross receipts base. A broad base helps to limit the tax rate,
thus cutting the base by an industry this large may shift a noticeable amount
of tax burden to remaining taxpayers.
· In addition to adding an element of stability to the
gross receipts tax, receipts of health practitioners grow more quickly than
general revenue. Exempting this sector
reduces the “elasticity” of the gross receipts tax over time.