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

SPONSOR Gonzales

DATE TYPED 3-11-2005 HB 997/aHTRC

SHORT TITLE School Bus Fuel Excise Tax Exemption

SB

ANALYST Taylor

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

($430.0)

Similar

Recurring Road Fund

($45.0)

Similar

Recurring Local Governments

Road Funds

$140.0

Similar

Recurring State General Fund

$50.0

Similar

Recurring Local Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department

SUMMARY

Synopsis of HTRC Amendment

The HTRC amendment expands the deduction provided to include school buses under contract

with the Public Education Department.

Synopsis of original bill

House Bill 997 provides a special fuels tax deduction for number 2 diesel fuel used by public

school buses.

FISCAL IMPLICATIONS

The Taxation and Revenue Department’s estimate is reported below.

House Bill 997/aHTRC -- Page 2

\Special Fuel Tax Deduction:

Based on information provided by the N.M. Public Education Department, total fuel con-

sumption by private contractors operating public school buses is estimated at 3.0 million

gallons. 25% of these contractors currently purchase tax deductible dyed fuel. Another

25% purchase their fuel in bulk quantities, but do not have access to dyed fuel, and are

therefore paying tax under present law. These buyers would benefit as follows from the

deduction provided in HB 997: 750 thousand gallons at $0.21 per gallon, the special fuel

tax reduction is $158 thousand. Under present distribution formulas, 90.48% of this

amount is attributable to the State Road Fund and the remainder to the Local Government

Road Fund. Gross receipts tax collections would increase by an estimated $66 thousand

due to the provision because fuel that is exempt from the Special Fuels Tax becomes tax-

able under the gross receipts tax.

Special Fuel Tax Refunds:

The refund provisions are estimated to benefit 50% of total fuel used by school bus op-

erators, or 1.5 million gallons. At $0.21 per gallon, this reduces net special fuel tax col-

lections by $315 thousand. Under present distribution formulas, 90.48% of this amount

is attributable to the State Road Fund and the remainder to the Local Government Road

Fund. Compensating tax collections would increase by an estimated $125 thousand due

to the provision because fuel on which refunds are claimed for the Special Fuels Tax be-

comes taxable under the compensating tax. 80% of this revenue is distributed to the

General Fund while the other 20% goes to local governments through the Small Cities

and Small Counties Assistance programs.

ADMINISTRATIVE IMPLICATIONS

TRD’s analysis included this discussion of administrative impacts:

The increase in refund claims will impose additional costs on the Department’s fuels tax

processing unit. Depending on the number of monthly refund claims, the costs could be

as high as 0.5 FTE.

TECHNICAL ISSUES

TRD raised these technical issues:

The language in the bill specifying the type of eligible fuel by reference to the distillation

temperature, etc. causes a significant increase in the complexity of administering the new

deduction. Also, the language limiting the deduction to “number 2 diesel” would exclude

some school bus fuel that is subject to the Special Fuel Tax. If the purpose is to allow the

deduction for all school bus fuel users, the language should simply refer to “special fuel.”

OTHER SUBSTANTIVE ISSUES

TRD reported these issues:

Under present law and regulations, a special fuels tax deduction is available for school

buses that are owned by government entities. In addition, non-government owned school

bus users of special fuel can buy tax-deductible fuel if they purchase dyed fuel from a

House Bill 997/aHTRC -- Page 3

supplier. The dyed fuel requirement enables the Department (and the Federal govern-

ment) to keep track of legitimately tax-deductible fuel. Thus, the only school bus users

currently paying the special fuel tax are private contractors operating school buses who

are not able to get access to dyed fuel.

According to the N.M. Public Education Department, the contractors paying the tax have

been billing the Department for reimbursement. Thus, if the tax is eliminated, the

amount in the Public School budget for this purpose could be reduced by an equivalent

amount.

BT/lg