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 HBIC

DATE TYPED 03/18/05 HB 245/HBICS

SHORT TITLE Research & Development Business Tax Credit

SB

ANALYST Padilla-Jackson

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

($1,500.0)

($2,200)

Increasing Recurring

General Fund

($300.0)

($450.0)

Increasing Recurring Local Governments

(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates: Senate Bill 53 and is very similar to House Bill 51

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

The House Business and Industry Committee Substitute for House Bill 51 and 245 provides a tax

credit to small research and development businesses which would apply to all gross receipts,

compensating, or withholding taxes owed to the state. In order to qualify as a “qualified research

and development small business”, the business must employ no more than 25 full-time employ-

ees; have total revenues of no more than $5 million in any prior fiscal year; not have had, in any

prior calendar month, more than 50 percent of its voting securities or other equity interest owned

by another business; and has made qualified research expenditures for the period of 12 calendar

months ending with the month for which the credit is sought of at least 20 percent of its total ex-

penditures. In calculating the qualified research expenditures, the business cannot include grant-

funded research, property expenditures in connection with industrial revenue bonds, or property

for which the taxpayer has received a Capital Equipment Tax Credit, an Investment Credit or a

Technology Jobs Tax Credit. A qualified research expenditure is defined an expenditure related

House Bill 245/HBICS -- Page 2

to qualified research, meaning research that (1) is undertaken for the purpose of discovering in-

formation that is technological in nature and the application of which is intended to be useful in

the development of a new or improved business component of the taxpayer; and (2) in which

substantially all activities constitute elements of a process of experimentation related to new or

improved function, performance, reliability or quality, but not related to style, taste, cosmetic, or

seasonal design factors. The tax credit is available until June 30, 2009.

This bill is being proposed on behalf of the Revenue Stabilization and Tax Policy Committee.

The effective date is July 1, 2005.

FISCAL IMPLICATIONS

The TRD fiscal impact totals -$1.8 million in FY06 and -$2.65 million in FY07. According to

the TRD analysis, tax return data indicates that there are more than 250 firms eligible for the

proposed credits. In the most recent year, TRD estimates that these firms had combined gross

receipts, withholding, and compensating tax liability – and therefore total potential credits of --

of $3.8 million. The fiscal impacts assume that a little less than half of the eligible taxpayers

take advantage of the credit in the first year ($3.9 million x 47 percent generates a $1.8 million

impact), but that the number of businesses participating increases significantly in future years.

ADMINISTRATIVE IMPLICATIONS

TRD would be responsible for providing the credit claim forms for the proposed tax credit. Ac-

cording to TRD, new forms would be needed and instructions and publications would have to be

modified. Manual review and tracking of the credit would be required. An approval process

would be needed. TRD would require 0.5 additional FTE to administer the provisions of this

bill.

OPJ/lg:yrx