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

SPONSOR Garcia, MP

DATE TYPED 3-2-2005 HB 872

SHORT TITLE Gas Vapor Recovery System Tax Credit

SB

ANALYST Taylor

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

($50.0)

($100.0)

Recurring State General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department (TRD)

New Mexico Environment Department (NMED)

SUMMARY

House Bill 872 provides tax for the costs paid for the installation of “stage II vapor recovery sys-

tems” at gasoline stations. The credit can be applied against the station owners’ personal or cor-

porate income tax bill. Stage II vapor recovery systems are defined as “a system that captures

and transfers at minimum ninety-five percent by weight of gasoline vapors that are generated

during motor vehicle refueling into a gasoline dispensing facility’s stationary tanks”.

The bill has an effective date of January 1, 2005.

FISCAL IMPLICATIONS

The Taxation and Revenue Department estimates that the tax credit will reduce state general

fund dollars by $50 thousand in FY05 and $100 thousand in FY06. Their estimate notes that the

fiscal impact depends on how many station owners take advantage of the tax credit incentive.

They also note that the cost per station is likely to vary widely—from $3,500 per station to sev-

eral times that. They suggest that absent federal or state mandates, participation will be low, and

thus the relatively low fiscal impact.

Given the uncertainty about participation, it should be recognized that any fiscal impact estimate

for this type of legislation cannot be very precise, and therefore the risk associated with the esti-

mate is relatively high.

House Bill 872 -- Page 2

ADMINISTRATIVE IMPLICATIONS

The Taxation and Revenue Department’s analysis indicated the following administrative impact:

Impacts depend, in large part, upon the number of stations installing eligible equipment,

as the bill's provisions would require development of manual mechanisms to verify that

the tax basis of the equipment is decreased by the amount of the credit. Income tax forms

and instructions would also require modification. In addition, systems modifications and

training for department personnel would be necessary

.

OTHER SUBSTANTIVE ISSUES

The Taxation and Revenue Department and the Environment Department included substantive

policy issues in their analyses. These are replicated here.

Taxation and Revenue Department issues:

1) By providing credits for 100 percent of the cost of installing vapor recovery systems,

the State of New Mexico would, in effect, purchase the systems for the gas station own-

ers. Providing credits for some fraction of the costs (for example, 50%) would probably

be more cost-effective than credits for 100 percent of the costs. Moreover, vapor recov-

ery systems have been shown to return fuel to storage tanks. Hence, the net cost of instal-

lation after allowing for fuel savings from vapor recovery is substantially less than 100%

of the initial cost.

2) Expenditures for the vapor recovery systems would be deductible in most cases against

federal personal and corporate income tax obligations. Thus, under the provisions of this

bill, state and federal government would pay for over 100% of the cost of vapor recovery

systems.

Background: Stage I and II Vapor Recovery Systems

Stage I vapor recovery systems at gasoline dispensing facilities route gasoline vapors into

the tanker truck without releasing them into the atmosphere. Stage II Vapor Recovery

Systems collect gasoline vapors from vehicles' fuel tanks while customers dispense gaso-

line products into their vehicles at gasoline dispensing facilities. The stage II system con-

sists of special nozzles and coaxial hoses at each gasoline pump that capture vapors from

the vehicle's fuel tank and route them to the station's underground or aboveground storage

tank(s) during the refueling process.

1

According to the New Mexico Environment Department, stage II recovery systems re-

duce carcinogenic and non-carcinogenic air pollution, as well as vapors that contribute to

ozone air pollution. Stage II recovery systems recapture significant amounts of liquid

gasoline that would otherwise be released to the air as vapor, thereby improving service

station efficiency and profitability.

New Mexico Enviornment Department Issues:

1

http://www.epa.state.il.us/air/stage-ii-vapor-recovery.html

House Bill 872 -- Page 3

A tax credit for the installation of vapor recovery equipment is a powerful incentive for

gasoline station owners to add this equipment. Vapor recovery equipment not only re-

covers vapors, but can also result in significant recovery of fuel as vapors that are re-

turned to the tank become liquid, which is a cost savings for station owners. Gasoline

vapors include known carcinogens, such as benzene, and harmful non-carcinogenic com-

pounds that may cause dizziness and nervous system disorders. These toxic components

of gasoline vapors are also known as “volatile organic compounds” that are “ozone-

precursors”, which means that they contribute to the formation of ground-level ozone.

Ground-level ozone is formed by the following chemical reaction:

Volatile Organic Compounds + Oxides of Nitrogen + sunlight Ozone

The environment department monitors air quality around the state to ensure that concen-

trations of air pollutants do not exceed state and federal air quality standards. In San Juan

and Dona Ana County, ozone air pollution is approaching the federal ozone standard.

HB 872 provides an incentive for air pollution control at gasoline stations, where emis-

sions of gasoline vapors contribute to the formation of ozone. In an intensive analysis for

San Juan County, it was determined that reduction of volatile organic compounds, like

gasoline vapors, reduces ozone concentrations more effectively than reduction of other

air pollutants. Reduction of gasoline vapors in the ambient air will lead to less ozone

formation, especially in San Juan County. Lower ozone concentrations will ensure that

federal ozone standards are achieved in New Mexico.

BT/yr