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

Taylor

DATE TYPED

2/02/2004

HB

290

 

SHORT TITLE

Provide Local Option Compensating Taxes

SB

 

 

 

ANALYST

Taylor

 

REVENUE

 

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY04

FY05

 

(3,000.0)

(3,100.0)

Recurring

General Fund

 

(750.0)

(770.0)

Recurring

Small Cities/Counties

 

9,600.0

9,800.0

Recurring

Municipalities

 

4,500.0

4,600.0

Recurring

Counties

(Parenthesis ( ) Indicate Revenue Decreases)

 

Duplicates SB118

 

SOURCES OF INFORMATION

LFC Files

 

Responses Received From

Taxation and Revenue Department (TRD)

 

SUMMARY

 

House Bill 290 allows county and municipal governments to impose a local option compensating tax.  The local option compensating tax is imposed pursuant to current local option gross receipts taxes.  Local option compensating tax rates mirror local option gross receipts tax rates.  As is the case with the gross receipts tax, a credit against the state compensating tax is provided. The bill requires TRD to administer the tax and transfer payments to local governments in the same way it does the state compensating tax.  It prescribes how to determine in which jurisdiction the use of property occurs.  It extends the prohibition on TRD taking collection action to compensating tax liabilities to local option compensating taxes.  It also extends the liability for payment of the compensating tax to the local option compensating tax.   The bill has an effective date of July 1, 2004.

 

 

 

FISCAL IMPLICATIONS

 

TRD estimates that enacting a local government compensating tax in FY05 would increase local government recurring revenues by $14.1 million ($9.6 million for municipalities; $4.5 million for counties) and reduce state general fund recurring revenues by $3.0 million.  There is also an estimated negative impact to the small cities and small counties assistance fund of $750 thousand.

 

TRD’s analysis assumes the FY05 compensating tax base is $975 million.  The 0.5 percent credit is applied for taxpayers living within municipal boundaries (approximately 77 percent implied by the analysis).  Multiplying the tax base of $975 by the 77 percent of the population living in municipalities’ yields and then by the credit rate of 0.5 percent implies that state revenues will decline by $3.75 million.  Eighty percent or $3 million of the revenue loss would be absorbed by the general fund and the remaining 20 percent would be lost to the small cities and small counties fund.

 

Revenue gains for the cities and counties can be estimated in the same way by applying an assumed municipal rate of about 1.25 percent and a county rate of 0.5 percent.

 

TRD provides the estimated revenue gains for all counties and cities.  This table is reported in the other impacts section of this report.

 

ADMINISTRATIVE IMPLICATIONS

 

TRD reports that this bill would have major administrative impacts.  Their analysis is repeated here:

 

The provisions in this bill would have a major administrative impact on the department. In order to capture the appropriate data to distribute revenue from the new local option taxes, larger Combined Revenue System (“CRS”) reporting forms would be required. This, in turn would require at least two full-page scanners at a cost of about $350 thousand apiece.  Three additional FTE would be required to enter the additional data and verify distribution amounts. Absent full-page scanners and additional resources, there is a high likelihood of late revenue distributions to local governments resulting from increased time for processing tax returns. 

 

Major computer systems changes would be necessary to make the appropriate local revenue distributions.  Reprogramming the system is possible.  However, the effective date of July 1, 2004 does not allow the department enough time to implement the changes by the effective date.  An effective date of January 1, 2005 would give the department enough time to incorporate the changes.

 

Section 7-1-6.41 NMSA 1978 authorizes the department to withhold an administrative fee for local option gross receipts taxes distributed.  Similarly, current statutes regarding the various local option gross receipts taxes clearly recognize an administrative fee for collecting and distributing the revenue.  However, this proposal does not contain similar provisions allowing an administrative fee to be withheld for local option compensating taxes.  The costs of administering the provisions would therefore have to be funded out of the department’s General Fund appropriation.

 

TECHNICAL ISSUES

 

TRD’s analysis also raises the following technical issue: 

 

Section 8, beginning on page 16, provides a credit against municipal compensating tax paid.  The value of the credit is equal to one-half percent (.5%) of the value of property for which the taxpayer is liable “if the rate of the municipal compensating tax in effect at the time of use was one-half percent.”  To be consistent with the municipal credit for gross receipts tax paid, the value of the compensating tax credit should be .5% of the value of property if the rate of municipal tax is at least .5%.  On page 16, line 11 “at least” should be inserted between “was” and “one-half”. 

 

OTHER SUBSTANTIVE ISSUES

 

TRD notes a policy advantage to making the compensating tax equivalent to the gross receipts tax rate is that it would eliminate a tax induced incentive for buyers to purchase from out of state vendors.

 

These two tables, estimating county and municipal government distributions from the local option compensating tax, were provided by TRD.

 

Estimated Local Option Compensating Tax Distributions—Counties

Bernalillo

        1,064,982

  Harding

        545

  Roosevelt

      40,942

Catron

                 736

  Hidalgo

     9,862

  Sandoval

    163,814

Chaves

           152,060

  Lea

  102,254

  San Juan

    414,175

Cibola

             61,013

  Lincoln

    31,198

  San Miguel

      44,599

Colfax

             25,705

  Los Alamos

  293,384

  Santa Fe

    672,127

Curry

             58,115

  Luna

    55,375

  Sierra

      21,752

DeBaca

               2,502

  McKinley

  272,004

  Socorro

      11,286

Dona Ana

           320,367

  Mora

     4,343

  Taos

    152,454

Eddy

           189,115

  Otero

    67,897

  Torrance

      22,524

Grant

             77,656

  Quay

    18,779

  Union

       4,818

Guadalupe

               6,480

  Rio Arriba

    61,375

  Valencia  

      95,835

 

 

 

 

All Counties

 $4,520,071

 

 

Estimated Local Option Compensating Tax Distributions—Municipalities

   Alamogordo

           197,962

   Eunice

         18,168

   Pecos

          4,210

   Albuquerque

        3,506,484

   Farmington

        543,802

   Portales

        64,741

   Angel Fire

            30,384

   Floyd

              158

   Questa

          4,521

   Artesia

           129,195

   Folsom

                66

   Raton 

        73,959

   Aztec

            38,358

   Fort Sumner

           5,438

   Red River

        18,009

   Bayard

              6,586

   Gallup

        249,169

   Reserve

          1,783

   Belen 

            92,545

   Grady

              143

   Rio Rancho 

       244,913

   Bernalillo

            27,266

   Grants

         58,562

   Roswell

       292,579

   Bloomfield

            40,601

   Grenville

                32

   Roy

          1,256

   Bosque Farms 

            11,451

   Hagerman

           4,075

   Ruidoso  

       141,860

   Capitan

              4,984

   Hatch

           9,857

   Ruidoso Downs

        35,031

   Carlsbad

           200,137

   Hobbs

        322,141

   San Jon

          1,898

   Carrizozo

              4,151

   Hope

              220

   San Ysidro

          3,067

   Causey

                   31

   House

              625

   Santa Clara 

          1,252

   Chama

              8,650

   Hurley

           2,699

   Santa Fe

    1,159,875

   Cimarron

              3,414

   Jal

         10,542

   Santa Rosa

        26,519

   Clayton

            15,848

   Jemez Springs

           1,840

   Silver City

       106,187

   Cloudcroft

              8,877

   Lake Arthur

              300

   Socorro

        39,593

   Clovis

           229,789

   Las Cruces

        732,908

   Springer

          3,283

   Columbus

              1,965

   Las Vegas

        108,534

   Sunland Park

        33,833

   Corona

                 735

   Logan

           3,602

   T or C

        33,055

   Corrales

            15,051

   Lordsburg

         21,492

   Taos

       137,685

   Cuba

              6,985

   Los Lunas 

         80,806

   Taos Ski Valley 

        10,635

   Deming

            68,890

   Los Ranchos

         19,162

   Tatum

          4,589

   Des Moines

              1,844

   Loving

           1,878

   Texico

          2,349

   Dexter

              5,484

   Lovington

         44,099

   Tijeras

          6,220

   Dora

                 192

   Magdalena

           2,240

   Tucumcari

        41,006

   Eagle Nest

              2,635

   Maxwell

              196

   Tularosa

          7,956

   Edgewood  

            12,901

   Melrose

           2,515

   Vaughn

          2,354

   Elephant Butte  

              3,282

   Mesilla

         10,713

   Virden

               36

   Elida

              1,121

   Milan

         24,826

   Wagon Mound

          1,228

   Encino

                 380

   Moriarty

         24,204

   Willard

             247

   Espanola 

           135,855

   Mosquero 

              263

   Williamsburg

             842

   Estancia

              8,271

   Mountainair

           3,071

 

 

 

 

 

 

 All Municipalities

    $9,637,223