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 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

Heaton

DATE TYPED

2-7-04

HB

331

 

SHORT TITLE

High-Wage Jobs Tax Credit

SB

 

 

 

ANALYST

Neel

 

REVENUE

 

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY04

FY05

 

 

 

None

(600.0)

(2,250.0)

Recurring

State General Fund

None

(70.0)

(250.0)

Recurring

Local Governments

 

 

 

 

 

(Parenthesis ( ) Indicate Revenue Decreases)

 

Relates to

HB 300, Rural Community High-wage Jobs Tax Credit

HB 67 High-Wage Jobs Tax Credit

SB 78 National Lab Water Treatment

SB 28, High Wage Jobs Tax Credit

 

SOURCES OF INFORMATION

 

LFC Files

 

Responses Received From

Taxation and Revenue Department (TRD)

Economic Development Department (EDD)

 

SUMMARY

 

Synopsis of Bill

 

House Bill 331 amends statute to create a high wage tax credit equal to 10 percent of wages and benefits of new employees in “high wage jobs”. The total credit is limited to $12 thousand per eligible employee and credits must be claimed up to four years. An eligible high-wage job must:

 

  • be created after July 1, 2004 and before July 1, 2009;
  • be occupied for at least 48 weeks of the year prior to the claim for credit;  and
  • pay at least $40 thousand per year if located in a municipality of 40,000 or more residents, or at least $28,000 per year else where in the state.   

 

The tax credit can be taken against the taxpayer’s modified combined tax liability (gross receipts

tax, compensating tax and others, excluding local GRT).

 

HB 331 stipulates that the enterprise qualifying for the tax credit must be a growing business

with employment greater on the last qualifying day of the credit than the day when the new positions was created. In addition, the job must be occupied for at least 48 weeks before an employer is eligible for credits. 

 

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.

 

New Mexico Economic Performance. Two of the most vital indicators of a state’s economy

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 New Mexico.

 

Figures 1 and  2 graphically depict New Mexico’s need to “promote increased employment and higher wages”.  As illustrated in Figure 1, New Mexico lagged behind the United States in nonagricultural employment growth from 1996 to 2000. When the United States economy slipped into a recession in 2001, 2002, and 2003, New Mexico sustained a modest rate of job growth and ranked among the fastest growing states.

 

Similar to employment growth, New Mexico maintained a higher personal income growth from

1991 to 1996 than that of the nation. Growth, again, began to decline in 1997 and fell behind the

United States. But in 2001 and 2002, New Mexico’s growth surpassed the nation’s, primarily

due to the recession, as shown in the personal income growth graph.

 

 

 

 

 

FISCAL IMPLICATIONS

 

TRD notes the following assumptions of similar legislation (HB 300):

 

The fiscal impacts of the provision are limited in the first year because of the requirement that an employee hold a new job for 48 weeks before an employer is eligible for credits. 

 

Analysis of information from the in-plant training program suggests that, in a recent year, approximately 30 employees in non-urban settings, and 90 employees in urban settings would have qualified for this credit had it been in effect.  The associated cost of the credit for these employees would have been $400 thousand on an annual basis.  The total population of eligible firms would be larger than the number of firms currently participating in in-plant training, so the impacts would be larger than $400 thousand per year.  Although a precise estimate is not possible, the annual impact was doubled to $800 thousand to reflect firms not currently in the in-plant training program.  The annual cost of the proposal increases over time because the credits can be claimed for up to 4 years for each eligible employee.  The estimated “Subsequent Years Impact” reflects the maximum annual cost of the provision once it has been in place for three years.  The proposal contains a sunset date of July 1, 2009, so the fiscal impacts would diminish gradually after that date. 

 

Local government impacts are attributable to two effects:  (1) If credits are applied against the state’s 5% gross receipts tax in a municipal area, 1.225% of the 5% is reduced municipal revenue sharing (Section 7-1-6.4 NMSA 1978); (2) If the credit is applied against compensating tax liability, 20% of the revenue effect will be taken against the distributions to the small cities and small counties assistance funds (Section 7-1-6.2 and 7-1-6.5).  The share of credits applied against these revenue sources was modeled based on experience with the investment credit program.

TECHNICAL ISSUES

 

TRD notes the following technical issues:

 

Refundability of credits:

The provision allowing the excess of credits over liabilities to be refunded to the taxpayer could be challenged under the anti-donation provisions of the NM Constitution.  

 

Applicability with other tax incentives:

Applicants for this credit would potentially be eligible for certain other incentives including the investment credit, the rural job tax credit or the technology jobs tax credit.  The lack of coordination between these statutes means that the extent of the subsidy being provided to a particular enterprise is unknown.  Excessive subsidies may be provided.

 

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