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

Campos

DATE TYPED

02-09-04

HB

456

 

SHORT TITLE

Allow Counties to Impose Local Liquor Taxes

SB

 

 

 

ANALYST

Taylor

 

 

REVENUE

 

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY04

FY05

 

Indeterminate

Indeterminate

Recurring

County Funds

(Parenthesis ( ) Indicate Revenue Decreases)

 

 

SOURCES OF INFORMATION

 

LFC Files

 

Responses Received From

Taxation and Revenue Department

Department of Finance and Administration

 

 

SUMMARY

 

Synopsis of the bill

 

House Bill 456 amends the local liquor excise tax by striking the narrow definition for counties, and thereby enabling all counties to impose the liquor excise tax.  The bill has an effective date of July 1, 2004.

 

Significant Issues

 

The local option liquor tax allows counties to impose a tax with a maximum rate of 5 percent.  Lower rates are allowed, but must be imposed in even multiples of 1 percent.  The tax must be put to a vote of the people and must gain a majority of those voting to be imposed.  Proceeds may be used for alcohol education, prevention and treatment program.

 

 

 

FISCAL IMPLICATIONS

 

The fiscal impact of this legislation is indeterminate since it is not possible to know which counties will choose to enact the tax or the rate at which it will be imposed.  The Taxation and Revenue has prepared a table which shows the maximum impact of the tax, assuming all counties impose the tax at the 5 percent rate.  The table is attached to the last page of the FIR for illustrative purposes.  That analysis also shows that TRD would receive a 5 percent administrative fee.

 

ADMINISTRATIVE IMPLICATIONS

 

TRD submitted the following regarding the administrative implications for the department:

 

Administrative costs to the Department would be significant since the program would be expanded from one county to all counties.  The number of taxpayers reporting may increase to nearly 2,000, instead of the current 70 reporting from McKinley County.  The program is currently administered as a manually-intensive system.   The expansion would probably require a fully computerized system. Tax reporting forms and procedures will have to be re-designed.  Expansion of the Local Liquor Excise Tax will require an additional full-time employee to process and key-enter tax returns and perform error resolution work for the increased number of tax filers.  Taxpayer education will also be necessary.

 

TECHNICAL ISSUES

 

TRD reported this technical issue:

 

The current law definition of “retailer” (Section 1, Subsection F) applies to wholesalers as well as retailers. Following the exemption under Section 7-24-13 NMSA 1978, however, we administer the law so that purchases by wholesalers are not taxed.

 

OTHER SUBSTANTIVE ISSUES

 

TRD submitted the following substantive issues:

 

1)      An alternative to the local liquor option, one which would likely produce similar results with greater efficiency, is to increase the liquor excise tax and use a formula for distribution to the counties.  This would have the added benefit of not imposing the burden of an additional tax system on local businesses and TRD.  The allocation to each county would be based on the county’s share of statewide population and GRT collections that emphasize alcohol related sales.

 

 

2)      New Mexico's current tax rates on alcoholic beverages ranks relatively high among states. Laws 1993, Chapter 65 (SJC Substitute for SB-341, et al) increased the state-imposed liquor excise tax over a two-year period from about $18 million to about $35 million per year.  The tax on beer increased from 18 cents to 41 cents per gallon; the tax on wine increased from 25 cents to 45 cents per liter; and, the tax on spirits increased from $1.04 to $1.60 per liter.  As of 2001, New Mexico imposed the 8th highest tax on beer, the 4th highest tax on wine and, among the states not imposing a state monopoly on the sale of spirits, the 3rd highest tax on spirits.

 

3)      The 1993 and 1994 liquor tax increases resulted in no discernible effect on levels of alcohol consumption.  The 128% increase in the tax on beer, for example, amounted to about 13 cents per six-pack, or about 4% to 5% increase in price.  While the consumer "price elasticity" response was projected to be about a 2% decline in consumption, in hindsight the actual decline now appears to have been significantly less than 2%.

 

4)      Differences between the value-based Local Option Liquor Tax and the volume-based state Liquor Excise Tax make computerized audit cross-checks difficult.  The Department probably will not spend a lot of its limited audit resources providing audit coverage for a local option liquor tax, especially if it were at the expense of the more productive state and local gross receipts tax.

 

5)      Section 7-24-12 NMSA 1978 of the current Local Liquor Excise Tax Act exempts "the purchase of alcoholic beverages by any instrumentality of the armed forces of the United States engaged in resale activities."  It might be useful to condition this exemption on the continuation of the federal prohibition so that, if the federal government ever allows such sales to be taxed by state and local governments, such sales would automatically become taxable.

 

6)      Creation or expansion of local option taxes of this sort inhibit the ability of the state to raise revenue from the same source. Approximately $38.8 million is currently being raised by the state liquor excise tax, of which about $25.4 million is General Fund revenue and $13.4 million is distributed to the Local DWI Grant Fund. 

 

7)      Statistical information regarding the value of alcoholic beverages and their distribution by county would be somewhat enhanced by expansion of the Local Liquor Excise Tax.  The state liquor excise tax is collected at the distributor/wholesaler level. Since the disposition of the tax revenues in no way depends on the geographic dispersion of ultimate sales, the state Liquor Excise Tax does not generate information about patterns of local sales on either a dollar or volume basis.  We are not aware of any other source regularly reported which does.

 

 

 

Illustration of Potential Revenue from 5% Local Liquor Excise Tax

 

 

 

 

 

 

 

 

 

 

 

Allocated by

TRD

Local

 

 

Pop. & GRT

Administr.

Govt.

Pct. of

      County      

($ 23.4 million)

Fees (5%)

Revenue

Total

 

 

 

 

 

BERNALILLO

7,648,613

382,431

7,266,183

32.69%

CATRON

23,299

1,165

22,134

0.10%

CHAVES

807,043

40,352

766,691

3.45%

CIBOLA

334,473

16,724

317,749

1.43%

COLFAX

194,180

9,709

184,471

0.83%

CURRY

581,089

29,054

552,034

2.48%

DE BACA

30,254

1,513

28,741

0.13%

DONA ANA

1,886,371

94,319

1,792,052

8.06%

EDDY

741,438

37,072

704,366

3.17%

GRANT

403,644

20,182

383,462

1.72%

GUADALUPE

64,728

3,236

61,492

0.28%

HARDING

9,897

495

9,402

0.04%

HIDALGO

119,465

5,973

113,492

0.51%

LEA

737,560

36,878

700,682

3.15%

LINCOLN

309,814

15,491

294,323

1.32%

LOS ALAMOS

293,967

14,698

279,269

1.26%

LUNA

257,124

12,856

244,268

1.10%

MCKINLEY

886,828

44,341

842,486

3.79%

MORA

46,491

2,325

44,166

0.20%

OTERO

645,671

32,284

613,388

2.76%

QUAY

153,057

7,653

145,404

0.65%

RIO ARRIBA

429,695

21,485

408,210

1.84%

ROOSEVELT

222,432

11,122

211,310

0.95%

SANDOVAL

907,133

45,357

861,776

3.88%

SAN JUAN

1,440,310

72,015

1,368,294

6.16%

SAN MIGUEL

356,837

17,842

338,996

1.52%

SANTA FE

2,057,053

102,853

1,954,200

8.79%

SIERRA

173,169

8,658

164,511

0.74%

SOCORRO

203,459

10,173

193,286

0.87%

TAOS

480,234

24,012

456,223

2.05%

TORRANCE

171,893

8,595

163,298

0.73%

UNION

55,520

2,776

52,744

0.24%

VALENCIA

727,259

36,363

690,896

3.11%

 

 

 

 

 

TOTAL

23,400,000

1,170,000

22,230,000

100.00%

 

 

 

BT/dm:njw