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 a vailable 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 2/18/2005 HB 53

SHORT TITLE Extend Rural Job Tax Credit

SB

ANALYST Taylor

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

(225.0)

Similar

Recurring

General Fund

(75.0)

Similar

Recurring Local Government

(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates SB 695

SOURCES OF INFORMATION

LFC Files

Economic Development Department (EDD)

SUMMARY

House Bill 53 makes the rural job tax credit permanent. Under current law this credit would sun-

set as of June 30, 2005.

The rural job tax credit is available to qualifying employers located in rural New Mexico. Rural

New Mexico is defined by exception. Excepted are Los Alamos County and incorporated mu-

nicipalities within a metropolitan statistical area with a population of 30 thousand or more. A

qualifying employer is one who has been approved by EDD for participation in the in-plant-

training program. The value of the credit is equal to 6.25 percent of the first $16 thousand in

wages paid for a qualifying job, where a qualifying job is also determined by qualification for in-

plant-training and has been held for at least 48 weeks in a 12 month period. The employer may

take the credit for 4 years in “tier one areas”, which is defined as municipalities in a rural area

with a population lower than 15 thousand or any other part of a rural area that is not located

within municipal boundaries. Employers may take the credit or two years in “tier two areas”,

which is defined as municipalities in a rural area with a population greater than 15 thousand. The

Economic Development, Taxation and Revenue, and the Department of Labor are required to

annually evaluate the effectiveness of rural job tax credit in stimulating rural economic develop-

House Bill 53 -- Page 2

ment and to report their findings to each session of the legislature as long as the credit is in ef-

fect.

PERFORMANCE IMPLICATIONS

EDD reports three businesses—Southwest Cheese in Clovis, Monarch Litho in Santa Teresa and

Merrillat Industries in Los Lunas—have announced decisions to locate in New Mexico. They

claim the rural jobs tax credit was part of their location decision.

FISCAL IMPLICATIONS

TRD estimates that fiscal impact of extending the credit is approximately $300 thousand. $225

thousand of this impacts the state general fund, and the rest represents revenue losses to local

government funds. The estimate is simply an average of the $900 thousand of credits taken over

the last three years. TRD explains that there is a local government impact despite provisions that

the credit does not apply to local option gross receipts taxes. This is because the credit does ap-

ply to the revenue the state shares with local government out of the 5 percent state gross receipts

tax.

OTHER SUBSTANTIVE ISSUES

The law requires that an evaluation of the credits effectiveness be presented to the legislature

every session the credit is in effect. The report is supposed to be jointly prepared by the Depart-

ments of Labor, the Taxation and Revenue Department and the Economic Development. To

date, no such report has been prepared. Discussion with Taxation and Revenue indicates that

both the timing (session time) and the requirement for a joint-report make satisfying this re-

quirement difficult. Perhaps, the current requirement should be amended to require the report to

be delivered to interim committees, say the Revenue Stabilization and Tax Policy Committee and

the Legislative Finance Committee.

Given the uncertainty associated with the fiscal impacts of this legislation, perhaps a new sunset

should be applied. Alternatively, the value of the credits could be capped.

BT/yr