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 Suite 101 of the State Capitol Building North.

 

 

F I S C A L    I M P A C T    R E P O R T

 

 

 

SPONSOR

Powdrell-Culbert

DATE TYPED

1/28/04

HB

137

 

SHORT TITLE

Remove Bond Interest from Base Income

SB

 

 

 

ANALYST

Taylor

 

REVENUE

 

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY04

FY05

(1,900.0)

(7,600.0)

(6,000.0)

Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

 

SOURCES OF INFORMATION

 

LFC Files

 

Response Received From

Taxation and Revenue Department

 

SUMMARY

 

Synopsis of Bill

 

House Bill 137 proposes to amend the definition of base income by removing interest received on a state or local government bond from the definition.  The definition of local bond is also removed.  Thus, interest earnings income from all state and local government bonds would no longer be subject to state income taxation.  Currently, only interest earnings from New Mexico state and local bonds are exempt.

 

The bill carries no effective date.

 

FISCAL IMPLICATIONS

 

TRD estimates that eliminating out-of-state bond interest revenues would reduce state general fund revenues by $7.6 million in FY05.  The estimate is based on 2002 tax return data.  Taxpayers reported $218 million of interest earnings from all state and local bonds.  About $107 million of this was from New Mexico bonds, leaving $111 million in out of state bonds.  Multiplying $111 million by the average tax rate of 6.9 percent for persons reporting this income yields $7.6 million.  The lower revenue loss reported in subsequent years reflects the lower income tax rates enacted last year.

ADMINISTRATIVE IMPLICATIONS

 

TRD reports modest administrative impacts than can be absorbed with existing resources.

 

OTHER SUBSTANTIVE ISSUES

 

TRD notes that exempting out-of-state bonds from income taxes reduces the relative advantage provided to New Mexico bonds. 

 

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