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
|
SPONSOR: |
Papen |
DATE TYPED: |
|
HB |
|
||
|
SHORT TITLE: |
Endowment Contribution Tax Credits |
SB |
740/aSCORC |
||||
|
|
ANALYST: |
Neel |
|||||
REVENUE
|
Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
|
|
FY03 |
FY04 |
|
|
|
|
|
(5,000) |
(5,000) |
Recurring |
General
Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Parenthesis ( ) Indicate Revenue Decreases)
LFC files
Responses
Received From
Taxation
and Revenue Department (TRD)
Commission
on Higher Education (CHE)
SUMMARY
Synopsis
of SCORC Amendment
The Senate Corporations and Transportation Committee removed provisions that prevented a taxpayer from claiming the credit “if the taxpayer has included the full amount of the contribution on which the amount of the credit was computed as a deduction for federal income tax purposes.” Therefore, a taxpayer would be allowed to claim the full amount of the credits against federal and state income tax liability.
Synopsis
of Original Bill
Senate Bill 740 enacts a new section of the Income Tax Act to allow personal or corporate tax credits totaling 50 percent of “the present value of the aggregate amount of the charitable gift portion of a planned gift made by the taxpayer during the taxable year to any qualified endowment up to a maximum amount of ten thousand dollars ($10,000)…”. They may not be claimed, however, “if the taxpayer has included the full amount of the contribution on which the amount of the credit was computed as a deduction for federal income tax purposes.”
Significant
Issues
TRD
notes the following:
Estates,
small business corporations, partnerships and limited liability companies would
be allowed to claim the credits under some circumstances. Credits could not be
carried forward or backward. The measure
defines a “planned gift” as an “irrevocable contribution to a permanent
endowment held by or for a tax exempt organization…”. However, the tax exempt entity must employ
vehicles authorized under the Internal Revenue Code. These include, under some
circumstances, charitable remainder unitrusts or
charitable remainder annuity trust, as defined under 26 U.S.C 664, polled
income trusts as defined by 26 U.S.C. 642(c)(5), pooled income fund trusts,
charitable lead unitrusts, and annuity trusts,
charitable gift annuities under 26 U.S.C 1011(b), charitable life estate
agreements and paid-up life-insurance polices meeting requirements of 26 U.S.C.
170. The measure defines “qualified endowment”
as a permanent, irrevocable fund held by a New Mexico incorporated or
established organization that is tax-exempt under 26 U.S.C. 501(c)(3) or a bank
or trust company holding the fund on behalf of this type of organization.
FISCAL IMPLICATIONS
TRD does not
collection information on the amounts donated to the qualified organizations on
an annual basis. Total charitable
contributions deducted on tax returns of
TECHNICAL ISSUES
The contributions being awarded a tax credit in this bill are currently eligible for tax deduction from both federal and state income taxes. Providing a credit on top of a deduction could provide a taxpayer with a level of subsidy approaching 100 percent. This would result in an apparently extreme level of subsidy for almost any purpose. When tax advantages approach 100 percent of the expense of an activity, engaging in the activity effectively becomes “free” after taxes.