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F I S C A L I M P A C T R E P O R T

SPONSOR Moore

DATE TYPED 01/27/05 HB 42

SHORT TITLE

WIND ENERGY GENERATION GROSS

RECEIPTS

SB

ANALYST Padilla-Jackson

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

($60.0)

Increasing Recurring

General Fund

($10.0)

Increasing Recurring Local Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

Energy, Minerals & Natural Resources Department (EMNRD)

SUMMARY

Synopsis of Bill

House Bill 42 expands the eligibility for the gross receipts tax deduction on wind energy genera-

tion equipment. Under current law, the tax deduction requires the deductible receipts of sales of

wind generation nacelles, rotors, or related equipment to be sold to “the United States or New

Mexico or any governmental unit or subdivision, agency, department or instrumentality thereof”.

The new bill strikes this clause allowing the sales to be to any third party.

The effective data of the provisions of this act is July 1, 2005.

FISCAL IMPLICATIONS

TRD’s fiscal impact analysis estimates that this bill would reduce gross receipts tax revenues by

about $70 thousand in FY06. $60 thousand of the estimated revenue loss would be absorbed by

the state; the remaining $10 thousand would impact local governments. The estimate assumes

1,000 kW of qualified wind electric generating equipment being installed annually at an average

House Bill 42 -- Page 2

cost of about $1,000 per kW. Multiplying 1,000 kW of qualified equipment by the average

$1,000.0 cost implies that about $1 million would eligible for the expanded deduction. Applying

a 7 percent gross receipts tax rate against the $1 million base implies a $70 thousand revenue

loss. TRD assumes that most of these projects will be placed in rural areas, so the state would

absorb a large share of the revenue loss.

TRD notes that although there are currently only a small number of eligible facilities under de-

velopment, the Public Regulation Commission (“PRC”) has recently ordered the state’s utilities

to significantly increase the share of renewable energy in their total sources of supply to New

Mexico consumers. Thus, revenue impacts of the proposal will probably increase as new wind

facilities are developed to meet the PRC requirements.

ADMINISTRATIVE IMPLICATIONS

Necessary revisions to forms and systems could be done at minimum cost within the normal re-

placement cycle, according to TRD.

OTHER SUBSTANTIVE ISSUES

According to EMNRD, House Bill 42 supports further development of wind energy in New

Mexico. Promotion, planning, and implementation of renewable energy programs, including

wind, are key components of the Strategic Plan of EMNRD’s Energy Conservation and Man-

agement Division

EMNRD reports that this bill would aid development of the wind power industry in New Mex-

ico, with particular economic benefit to rural communities. However, the existing tax deduction

essentially is available only to projects that utilize Industrial Revenue Bond (IRB) financing.

Removing this limitation in the current statute would simplify the financing structure of wind

power projects in New Mexico, thus encouraging and accelerating development, and making the

state more competitive relative to other windy states.

OPJ/yr