Fiscal impact
reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for
standing finance committees of the NM Legislature. The LFC does not assume
responsibility for the accuracy of these reports if they are used for other
purposes.
Current FIRs (in
HTML & Adobe PDF formats) are available on the NM Legislative Website (legis.state.nm.us). Adobe PDF versions include all attachments,
whereas HTML versions may not.
Previously issued FIRs and attachments may also be obtained from the LFC
in
|
SPONSOR |
|
DATE TYPED |
|
HB |
17 |
||
|
SHORT
TITLE |
Certain Health Care Services Gross Receipts |
SB |
|
||||
|
|
ANALYST |
|
|||||
REVENUE
|
Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
|
|
FY05 |
FY06 |
|||
|
(7,000.0) |
(15,000.0) |
(24,000.0) |
Recurring |
General
Fund |
|
(6,000.0) |
(13,000.0) |
(21,000.0) |
Recurring |
Local
Governments |
(Parenthesis ( ) Indicate Revenue Decreases)
Relates to:
HB 154 and SB 179
LFC Files
Responses
Received From
Taxation
and Revenue Department (TRD)
SUMMARY
Synopsis of Bill
HB 17 provides a phased-in gross receipts tax
deduction to licensed health care practitioners for payments from managed
health care providers for Medicare Part C and commercial contract services. The deduction is phased in over three years,
with one-third of receipts being exempt in FY05, two-thirds exempt in FY06, and
all receipts exempt thereafter.
Commercial contract services are
defined as services provided by contract other than services provided to
Medicaid and Medicare patients pursuant to applicable federal titles.
Medicare Part C services are contract-provided services
to Medicare patients pursuant to Title 18 of the federal social security tax.
Licensed health practitioners are defined to
include chiropractic physicians, dentists, dental hygienists, physicians,
physician assistants, osteopathic physicians, doctors of oriental medicine,
podiatrists, psychologists, registered nurses, licensed practical nurses,
midwives, physical therapists, optometrists, registered occupational
therapists, respiratory care practitioners, a clinical lab accredited pursuant to 42 USCA 263, and speech
pathologists or licensed audiologists.
FISCAL IMPLICATIONS
TRD estimates that exempting health care
practitioners’ gross receipts from the tax would reduce general fund revenues
by $7 million in FY05, $15 million in FY06 and $24 million in FY07. Revenue
losses associated with the bill are fully phased-in (FY07) with more than $740
million in health care practitioner receipts exempted. This fiscal estimate revenue loss to the general
fund of $24 million is estimated by applying an effective state gross receipts
rate of 3.25 percent.
Estimated revenue losses to local governments
are calculated in the same manner, except that a lower effective tax rate is
used.
ADMINISTRATIVE IMPLICATIONS
TRD reports moderate administrative impacts that
can be absorbed with existing resources.
OTHER SUBSTANTIVE ISSUES
The following issues were raised in TRD’s
analysis:
1. 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.
2. 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.
3. The 1997 Balanced Budget Act expanded the types of
private health care plans that may offer Medicare benefits to include medical
savings accounts, managed care plans, and private fee-for-service plans. The new Medicare Part C programs are in addition to the
fee-for-service options available under Medicare Parts A and B.
4. 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”—the rate of growth of revenue collections relative to
the rate of economic growth--of the gross receipts tax. In other words, it makes it harder for the
tax revenues to keep up with inflation when the higher-growth sectors are carved out of the existing tax base.
5. Some of the impetus behind proposals to provide
deductions or exemptions to health care practitioners stems from the fact that
some health plans are said to be refusing to pay the
passed-on tax. Additionally, Medicare
reimbursement rates are widely believed to be unjustly low, creating
significant economic strain on the
BT/yr