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

SPONSOR King

DATE TYPED 02/07/05 HB 247

SHORT TITLE RECYCLING EQUIPMENT TAX CREDITS

SB

ANALYST Padilla-Jackson

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

(*)

($150.0)

Increasing

Recurring General Fund

(*)

($100.0)

Increasing

Recurring Local Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

House Bill 247 would add a new section to the Gross Receipts and Compensating Tax Act to

provide a tax credit for 10 percent of the value of qualified recycling equipment. The value of

the equipment is the purchase price or the reasonable value if the equipment has been imported

into New Mexico and owned for more than one year prior to importation. The bill would not

allow any taxpayer to claim a value of more than $1 million in any tax year. The tax may be ap-

plied against a taxpayer’s compensating tax, gross receipts tax or withholding tax, not to exceed

85 percent of the sum of the three taxes due for that reporting period. The tax credit can be

rolled over if not completely used in a given tax period.

Qualified recycling equipment is defined as being in New Mexico; incorporated or to be incorpo-

rated within one year into an operation to recycle material or produce products from recycled

material; purchased or imported into New Mexico after July 1, 2005 by a business for the pur-

pose of recycling; is owned by the taxpayer or the US agency or instrumentality of the United

states or a political subdivision of the state and leased or subleased to the taxpayer; has not been

House Bill 247 -- Page 2

previously used in New Mexico or not previously approved for a credit under the Investment

Credit Act; and does not include a vehicle that leaves the site of the recycling operation for pur-

poses of transporting people or property for which the taxpayer claims a credit.

No effective date was specified.

FISCAL IMPLICATIONS

According to the TRD analysis, the total fiscal impact of this bill is -$250 thousand in FY06, of

which -$150 will impact the general fund and -$100 thousand will impact local governments.

The fiscal impact assumes there will be 50 claims per year for $5,000 credit each. TRD cautions

that the fiscal impact is only a rough estimate because they do not have information on the

amount of expenditures eligible for the proposed credit. See Other Substantive Issues for more

information.

ADMINISTRATIVE IMPLICATIONS

TRD notes that the bill would require the department to process, review and track the proposed

credits manually. Application and claim forms would be needed and instruction and publications

would need to be modified. Taxpayer and staff education would be required. They estimate that

one FTE would be needed to administer the proposed credits. It may prove difficult to implement

this program by the effective date.

TECHNICAL ISSUES

TRD believes that the term “reasonable value” should be clarified. One method of clarification

would be by linking it to the depreciation schedule or to the IRS code.

OTHER SUBSTANTIVE ISSUES

TRD provided the following area of concern:

The bill provides few standards as to what constitutes “recycling” or what is manufactured from

recycled materials. Recycling of scrap metal is a standard industrial activity, not generally con-

sidered to require a tax subsidy. These scrap metals are commonly incorporated into any number

of manufactured objects. General Motors reports that 17 million recycled rubber shoe soles are

incorporated into its Chevy Trailblazer model alone. The bill could provide a tax credit for prac-

tically any equipment bought for a junkyard, save for vehicles, which appear to be specifically

excluded. Another industry that performs extensive recycling of waste products is the lumber

processing industry.

According to the US Environmental Protection Agency web pages, approximately 25 states cur-

rently allow some sort of tax incentive for recycling activities.

OPJ/yr