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Preliminary F
I S C A L I M P A C T R E P O R T
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SPONSOR: |
|
DATE
TYPED: |
|
HB |
14 |
||
|
SHORT
TITLE: |
Tax
Relief for Economic Development |
SB |
|
||||
|
|
ANALYST: |
Taylor,
Neel, Valenzuela |
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REVENUE
|
Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
|
|
FY04 |
FY05 |
|
|
|
|
(27,200) |
(86,300) |
(85,300) |
Recurring |
General Fund |
|
|
(1,500) |
(1,500) |
Recurring |
Local Gov’t Funds |
(Parenthesis
( ) Indicate Revenue Decreases)
SOURCES OF
INFORMATION
Agency
analysis not received on HB 14. This
preliminary analysis assumes sections are similar to comparable sections in SB
5 and HB 15.
NM
Taxation and Revenue Department (TRD)
NM
Department of Transportation (DOT)
NM Finance Authority (NMFA)
SUMMARY
SYNOPSIS
OF BILL
Tax
Administration Issues. Sections 1 &
2 address tax administration matters.
Section 1 allows taxpayers to elect the “Rules of Civil Procedures for
the District Courts” in TRD administrative hearings. Section 2 provides taxpayers with the right
to designate certain refund claims as a protective claim. A protective claim is a claim for refund
filed by someone based upon the arguments advanced by another person in a
previously filed claim that has not been resolved. TRD would not take action on the protective
claim until the previously filed claim is resolved.
Tax
Exemption on Income of Persons 65 and Older. Section 3 and 4 extends the exemption of
retirement income so that all persons aged 65 and older would be able to exempt
at least $2,500 of income. Currently,
the exemption starts at $8,000, gradually decreases at higher income levels,
and ends completely at incomes over $51,000 for married persons and $28,500 for
single persons.
Income
Tax Filing Categories Reduced.
Sections 5 through 7 eliminate the separate personal income tax tables
for heads of household and roll the head of household category into the tax tables
covering surviving spouses and married persons filing joint returns. The separate tables for head of households
imposed higher taxes on that group compared with the married individuals
table.
Low
Income Rebates Renamed; Rebate Amounts Increased. Section 8changes the name of the “Low Income
Comprehensive Rebate” to the “Family and Individual Rebate”, expands the table
to increase the number of exemptions from 6 to 7, broadens the income
groupings, lengthens the table so that larger families with incomes between
$22,000 and $39,000 receive rebates (as income increases, family size must also
increase to be eligible) and increases the rebate amounts. The definition of modified gross income is
amended to include the value of food stamp benefits. .
Additional Exemption
Amounts. Section 9 increases the value of the personal
exemption amount for low and moderate income taxpayers up to a maximum of
$3,000 per exemption. The value of the
exemption is reduced as income increases up to a maximum amount at which point
it goes to zero. The rate of the phased
reductions is adjusted for the number of exemptions. Single individuals with adjusted gross income
less than $8,000 receive the full $3,000 exemption; the value of exemption is
gradually reduced for greater incomes, completely phasing out at $28,000. Married individuals filing joint returns with
adjusted gross income less than $18,000 receive the full $3,000 exemption; the
value of the exemption is gradually reduced at greater incomes, ending at
$48,000. Heads of households with
adjusted gross income less than $15,000 receive the full $15,000 exemption; it
is gradually reduced at greater incomes and fully phased-out at $40,000. .
Business Services Tax
Credit. Section 10 provides a new business services
tax credit which may be claimed against the state gross receipts tax, state
compensating tax and withholding tax liabilities. The credit is equal to 0.625 percent of the
value of qualified business service expenditures, which excludes entertainment,
janitorial, repair and maintenance and any other services for which a taxpayer
receives another credit. The credit may
be claimed within three years of when the expenditure was made.
High
Wage Jobs Tax Credit. Section 11 provides
“high wage jobs tax credit” equal to 10 percent of wages and benefits paid to
an eligible employee in a new high-wage job
up to a maximum of $12,000. To qualify, a job must pay more than $40,000 per
year in municipalities with a population greater than 40,000, and $28,000 per
year in a municipality with a population below 40,000. Also, to qualify a business must be growing,
with employment greater on the last qualifying day of the credit than the day
when the new positions were created. The
credit may be claimed for the year in which the job is created and for three
years thereafter. It can be taken
against the taxpayer’s modified combined tax liability (gross receipts tax,
compensating tax and others), personal income tax liability or corporate income
tax liability. The credit is refundable.
Research
and Development Small Businesses Gross Receipts Deduction. Section 12 and 13 enact a new section of
statute to provide a GRT/compensating “tax holiday” for small, high tech research
businesses. Qualifying businesses are
small firms (no more than 25 employees with revenue of $10 million or less in
the prior fiscal year) that have made qualified research expenditures in the
last 12 months. Qualified research
expenditures exclude expenditures funded with grants, expenditures on property
associated with Industrial Revenue Bonds, or property received as part of the
Capital Equipment Tax Credit Act, the Investment Credit Act or the Technology
Jobs Tax Credit Act.
Gross
Receipts Deduction for Certain Receipts From Services Provided by Licensed
Health Care Practitioners. Section
14 provides a gross receipts tax deduction for receipts of licensed health
practitioners from payments by a managed care provider for Medicare Part C
services or commercial contract services.
Commercial contract services are services provided through a contract
with a managed care organization other than those provided to Medicare and
Medicaid patients. Licensed health care
practitioners include physicians, physician assistants, osteopathic physicians,
chiropractic physicians, doctors of oriental medicine, dentists, dental
hygienists, podiatrists, psychologists, registered nurses, licensed practical
nurses, midwives, physical therapists, optometrists, occupational therapists,
respiratory care practitioners and speech pathologists.
Gross
Receipts Exemption for Certain Athletics Contests, Sporting Events and Concerts. Section 15 exempts receipts from ticket sales
and admission fees to boxing, wrestling, auto racing, one-time sporting events
and live concerts held at a venue capable of holding at least 2,500 persons.
Gross Receipts and Compensating
Taxes on Motor Vehicles. Sections 16 and 18
exempt new alternative fuel cars from
the gross receipts and compensating tax.
This section relates to the motor vehicle excise tax exemption provided
for these vehicles. Absent this
exemption, cars provided the motor vehicle excise tax exemption would fall
under the gross receipts and compensating tax provisions.
Tax
Administration—Request for Regulations.
Section 19 allows taxpayers or other interested parties to request TRD
regulations.
Regulatory
Fees on Promotions. Sections 20 to 25
deal with fees on athletic promotions.
Section 20 strikes the 4 percent privilege tax on promotions and
replaces it with a regulatory fee. The
fee is to be established at an amount that covers the cost of regulating the
contest, with a maximum set at four percent of total gross receipts. Section 21 directs regulatory and supervisory
fee revenues to the athletic commission fund.
Section 23 strikes the five percent tax on exhibiting live professional
contests on closed-circuit telecast or motion picture. It replaces the tax with a “supervisory fee”
in amount necessary to cover the cost of supervising the exhibition, but capped
at five percent of gross receipts.
Emergency
Clause. The act takes effect immediately.
SIGNIFICANT REVENUE ISSUES
Tax Exemption on Income
of Persons 65 and Older. The benefit from
this reduction is targeted to those persons with income too high to qualify for
the current exemption.
Income Tax Filing
Categories Reduced. According to TRD,
this provision would provide tax relief to 13,000 of the 140,000 families
filing taxes under the head of household option. Families in this category pay higher income
taxes than two-parent families.
Low Income Tax Rebates. The BRTC recommended changing the name to
FAIR and increasing rebate amounts as a means of targeting relief against gross
receipts taxes on food to low and moderate income families, particularly large
families. The rebates are increased to a
level sufficient to offset food taxes.
The change in the definition of income to include the value of food
stamps could prove to be a disincentive for the use of food stamps. This would effectively shift some of the
burden of supporting those low-income persons from the federal government to
the state.
Additional Income Tax
Exemptions. The BRTC recommended increasing income tax
exemptions for low and moderate income persons and families as a means of
providing income tax relief for income groups that did not benefit from the
income tax cut passed in last year’s session.
Gross Receipts Tax
Exemption for Certain Athletic Contests, Sporting Events and Concerts. TRD notes that this exemption may level the
playing field for venues competing with Indian pueblos and tribal lands that
also host such activities.
High Wage Tax Credit. The fiscal impact reported in the table
reflects TRD assumptions on how many high wage jobs would be created. This estimate is based on information
regarding the number of such jobs created in a recent year. Economic forecasts suggest that the state may
experience stronger job growth in the future.
Also, an assumption that the jobs created will be similar to activity in
a prior year (which may be quite accurate given all the uncertainty) implies
that the incentive does not result in additional jobs being created. Should the incentive prove effective, the
fiscal impact (reduced general fund revenues) would be higher.
Motor Vehicle Tax
Exemption. The fiscal impact of this legislation is
relatively muted in near future.
Technological breakthroughs could make such cars more competitive and
available later on, however. A sunset
provision may be in order. TRD suggests
another alternative to dealing with the risks would be to provide a cap on the
value of the exemption.
FISCAL
IMPLICATIONS BY FUND AND GOVERNMENT ENTITY
The
Fiscal Implications are summarized in table below.
