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
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obtained from the LFC in
F I S C A
L I M P A
C T R E P O R T
|
SPONSOR |
Maes |
DATE TYPED |
|
HB |
|
||
|
SHORT
TITLE |
Amend Lab Partnership & Business Tax
Credits |
SB |
197/aSCORC |
||||
|
|
ANALYST |
Neel |
|||||
REVENUE
|
Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
|
|
FY04 |
FY05 |
|
|
|
|
|
(2,400.0) |
(2,400.0) |
Recurring
|
General
Fund |
|
|
* |
* |
Recurring
|
General
Fund |
(Parenthesis ( ) Indicate Revenue Decreases)
Duplicates HB 194, Amend
Lab Partnership & Business Tax Credits
Relates to:
HB
67, High-Wage Jobs Tax Credit;
SB
28, High-Wage Jobs Tax Credit
SB
78, National Lab Water Treatment
SOURCES
OF INFORMATION
LFC Files
Responses
Received From:
Taxation
and Revenue Department (TRD)
Economic
Development Department (EDD)
SUMMARY
Synopsis of SCORC
Amendment #1
The Senate Corporations and Transportation
Committee amendment makes the following changes:
·
Specifies
that the combined small business and supplemental tax credits may not exceed
$4.2 million;
·
Deletes
the $2.5 million small business credit annual floor amount mandated in the
original proposal;
·
Specifies
that the proposed supplemental tax credit may only be claimed if the lab’s
claims for small business assistance do not exceed $2.5 million;
·
States
that the lab shall use the supplemental tax credit the same year the amount is
calculated by the department; and
·
Corrects
a small technical error.
Synopsis of Original Bill
Senate Bill 197
amends the Laboratory Partnership with Small Business Tax Credit Act (LPSBTCA)
to increase from $5 thousand and $10 thousand, to $10 thousand and $15 thousand,
the credit amounts allowed in non-rural and rural areas, respectively. The statutory limit on the total amount
allowed under the LPSBTCA is increased from $1.8 million per year to $4.2
million. Additionally, there is a new
funding floor of $2.5 million. A
supplemental tax credit is added in an amount equal to subtracting the gross
receipts taxes paid in calendar year 2003 (base year) from gross receipts taxes
due in subsequent calendar years, and multiplying by one-third. New reporting requirements are included in
the legislation requiring quarterly and annual reports.
Significant Issues
The Legislature has consistently
emphasized economic development and job creation. The 2003 Legislature renewed
the job mentorship tax credit that encourages businesses to hire young people
to participate in career preparation education programs by providing tax
credits of up to 30 percent of the gross wages paid for employing young people;
the credit is limited to 320 hours per student. The Investment Tax Credit Act (Chapter 402)
was amended to
reduce the employment requirements to qualify for the credit; it now allows tax
credits equal to 5 percent of
the
value of qualified equipment purchased and incorporated into certain
manufacturing operations in the state.
In 2002 the Legislature passed HB 40 Software
Development GRT Credit (Laws 2002, Chapter 10) to provide a gross receipts
tax deduction for receipts for software design and development and web-site design
and development. The 2000 Legislature passed HB 19 Technology Jobs Tax
Credits (Laws 2000, Chapter 22, 2nd SS) that provides a basic tax credit and an
additional tax credit, both in the amount of 4 percent of the qualified
expenditure made by a taxpayer conducting “qualified” research at a “qualified
facility”. To be eligible for the additional credit, the taxpayer must increase
its payroll by $75.0 over the base payroll of the taxpayer for each $1.0 million
of qualified expenditures.
are
its employment and income growth. Although these indicators are often influenced
by
external
forces, the mission of the Economic Development Department remains to provide
programs
and policies that help lead the state in a direction that produces an overall
benefit for
the
citizens of
Figures 1 and 2 graphically depict
Similar to
employment growth,
1991 to
1996 than that of the nation. Growth, again, began to
decline in 1997 and fell behind the
due
to the recession, as shown in the personal income growth graph.
FISCAL IMPLICATIONS
*TRD
notes that confidentiality provisions of section
TECHNICAL ISSUES
EDD makes the following content comments:
- “Reasonable Cost”
should be defined. Also, EDD
believes the intent of this legislation is to leverage national laboratory
expertise for the purpose of providing direct, technical assistance to
small business. Therefore, we
question the usage of contractors. If the laboratory does not have the
appropriate expertise, then it should refer the client company to a
service provider that does.
TRD
makes the following substantive comments:
TECHNICAL ISSUES: Proposed amendment
number 3 does not provide a specific period in which the small business claims
may not exceed $2.5 million for the purpose of qualifying for the supplemental
tax credit. It is assumed the $2.5 million
amount is the annual threshold. If this
is the case “in a calendar year” should be inserted after “(2,500,000)”.
OTHER IMPACTS AND
ISSUES:
·
As
the original bill was written, it was not at all clear if the “supplemental tax
credit” was in any way related to actual small business assistance provided by
the laboratory. The SCORC amendment
does link the two by specifying that the supplemental credit may only be
claimed if the lab’s small business claims are less than $2.5 million [in a
given year]. The lab’s small business
claims are explicitly based on actual expenditures made to provide small
business assistance. However, there is
no similar criterion for the supplemental credit. Hence, it appears as if
the supplemental credit actually rewards the lab for not providing
small business assistance.
Depending upon how much the lab’s prospective GRT liabilities exceed the
amount of GRT paid in the base year, the lab could provide assistance
sufficient to qualify for and claim small business credit up to the $2.5
million threshold amount, then, without providing any additional assistance,
claim the supplemental credit until the combined credit amounts total $4.2
million. The supplemental credit simply
guarantees the lab some additional credit over the amount for which they would
qualify for providing small business assistance alone.
·
The
laboratory may contract with qualified outside entities to aid in the provision
of small business assistance. Thus the
lab, rather than acting solely as a provider of technical assistance, is essentially
an administrator of a state-funded assistance program. A direct appropriation to the relevant state
agency for expenditure in this program by
contract, would be a less expensive means of funding this program, and
allow for greater oversight.
·
This
law has a single intended beneficiary. Targeting preferential tax treatment to
specific businesses is not good tax policy. It increases complexity and sets a
precedent that other businesses can use to obtain similar tax preferences.
·
The
bill requires businesses receiving assistance to certify that they couldn’t
obtain the same assistance at a reasonable cost from another
·
According
to information provided by the national laboratory, technical assistance is
provided to roughly 300