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

Cervantes

DATE TYPED

2-4-04

HB

463

 

SHORT TITLE

Tax Administration Interest Rates

SB

 

 

 

ANALYST

Reynolds-Forte

 

 

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Recurring

Fund

Affected

FY 2005

FY 2006

 

 

 

(1,500.0)

(3,000.0)

(7,500.0)

Recurring

State General Fund

(350.0)

(700.0)

(1,875.0)

Recurring

Local Governments

(10.0)

(20.0)

(40.0)

Recurring

State Road Fund

 

SOURCES OF INFORMATION

LFC Files

 

SUMMARY

 

Significant Issues

 

House Bill 463 makes changes to interest rates charged and paid by the Taxation and Revenue Department.  These changes include:

 

1.  The interest rate charged and paid by Taxation and Revenue Department on tax deficiencies and overpayments will be changed.  The current 15 percent rate would be changed to 10 percent from January 1, 2005 through December 31, 2006.  Starting January 1, 2007, the rate would be set equal to the IRS underpayment rate, a floating rate that reflects market interest rates.  Exceptions to these rates are provided for in compacts or other interstate agreements stipulating other rates.

 

2.  A new provision is added which requires Taxation and Revenue Department to pay interest on refunds or credits initially denied for failure to produce a proper nontaxable transaction certificate or not claimed by the taxpayer on a timely filed original return from the date the taxpayer produces proof the certificate has been obtained.

 

3.  A new provision is added which requires no interest to be paid to an amount credited or refunded if the refund or credit is in settlement of a protective claim. 

 

FISCAL IMPLICATIONS

 

The Taxation and Revenue Department estimates that the lower interest rates on deficiencies will reduce general fund revenues by $1.5 million in FY 05, $3 million in FY 06 and $7.5 million in FY 07.  They note that annual collections have been about $14 million in recent years.  The FY05 impact is half that of FY 06 because the lower rates are in effect for only half the fiscal year.  In FY 07 revenues are deceased further as the rates are further reduce to the IRS rate.

 

Local government and the state road fund are also impacted by the proposed interest rate changes.  Local government can expect to see revenues decline by $350 thousand in FY 05, $700 thousand in FY 06 and $1.9 million in FY 07.  Losses to the road fund are $10 thousand in FY 05, $20 thousand in FY 06 and $40.0 in FY 07.   

 

ADMINISTRATIVE IMPLICATIONS

 

Changes will need to be made to the Taxation and Revenue Department’s computer systems.

 

RELATIONSHIP

 

House Bill 463 relates to House Bill 258 which also makes these same changes as well as additional changes to the interest rates

 

OTHER SUBSTANTIVE ISSUES

 

The Taxation and Revenue Department believes that by reducing the rate of interest on deficiencies, there is the possibility of encouraging taxpayers to delay their tax payments.   

 

PFR/njw