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SPONSOR: |
Maes |
DATE
TYPED: |
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HB |
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SHORT
TITLE: |
Small
Business and Farm Income Tax Credit |
SB |
428 |
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ANALYST: |
smith |
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REVENUE
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Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
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FY03 |
FY04 |
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|
|
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(2,000.0) |
(2,000.0) |
Recurring |
General Fund |
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|
|
|
|
|
(Parenthesis
( ) Indicate Revenue Decreases)
Responses
Received From
TRD
SUMMARY
Synopsis of Bill
Senate Bill 428 adds a
new section to the New Mexico Personal Income Tax Act – Chapter 7, Article 2
NMSA 1978. The new section would provide
a credit in the amount of the guarantee fee paid on a federally guaranteed
loan. The fees are applicable to loans provided for business expenses
associated with small businesses or farms.
The credit could not exceed $5,000 per tax return. Taxpayers would be
allowed to claim the credits for the tax year in which the guarantee fee paid
on a federally guaranteed loan is paid.
Unused portions of the credit may be carried forward for four
consecutive tax years. “Federally
guaranteed loan” is defined as a loan obtained by a small business or farm that
is guaranteed by the Small Business Administration (“SBA”), the US Department
of Agriculture’s Farm Service Agency, Rural Development Program, or the
federally charted Enchantment Land Certified Development Corporation. The term “small business or farm” is defined
as “a corporation, partnership, sole proprietorship, farm business or other
business in the state that qualifies for a federally-chartered loan.
FISCAL
IMPLICATIONS
TRD notes that the figure shown above should be viewed as a preliminary
estimate, because representatives of all agencies that make loans are not able
to provide information immediately.
Representatives of the Farm Service Agency report that last year the
agency made 72 guaranteed loans totaling $19 million. The typical guarantee is for 90 percent of
the loan, hence the average loan was $260,000. The guarantee fee imposed by the
agency is typically 1 percent of 90 percent of the loan. Hence the guarantee on a $260,000 loan would
be approximately $2,340. Loan guarantees
totaled approximately $168,480 for that particular agency. Borrowers typically
pay the guarantees with borrowed funds.
Representatives of the SBA report that they made approximately $71
million worth of loans last year, on which approximately $1.5 million in fees
were paid. The fiscal impact reflects the combined value of the $170,000 figure
provided by the Farm Service Agency multiplied by a factor of three to reflect
the other eligible agencies, plus the $1.5 million reported by the Small
Business Administration.
OTHER
SUBSTANTIVE ISSUES
TRD notes that the fees that
are targeted for an income tax credit in the proposal are currently deductible
from taxable income. The proposal does
not modify this deduction. Thus, if
adopted, the proposal would provide a “double-dip”, i.e. a credit equal to the
total amount of the fees paid up to the $5,000 limit plus a deduction from
taxable income. Thus, the taxpayer would
be reimbursed more than the original amount paid up the $5,000 limit. This is a generous use of tax incentives.