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

SPONSOR Leavell

DATE TYPED 1/25/2005 HB

SHORT TITLE Partnership Info Filing Requirement Exemption

SB 30

ANALYST Taylor

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

Insignificant

Insignificant Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

The withholding Tax Act requires pass through entities doing business in New Mexico to deduct

and withhold taxes from nonresident owners’ share of net income. The amount withheld is the

owner’s share multiplied by a rate determined by TRD regulations.

SB 30 would provide an exemption from this requirement to publicly traded partnerships.

FISCAL IMPLICATIONS

TRD reports that this legislation would not significantly impact state revenues. They note that

publicly traded partnerships are rare, there being about 60 in the country, with about half in the

oil and gas industry. They also say that although eliminating the withholding requirement might

be expected to reduce tax compliance, most of the affected businesses are in the oil and gas in-

dustry and therefore subject to the oil and gas proceeds withholding tax.

ADMINISTRATIVE IMPLICATIONS

TRD indicates that this bill would reduce the cost of administering the Withholding Tax Act.

Senate Bill 30 -- Page 2

TECHNICAL ISSUES

TRD submitted this technical issue:

The bill does not exempt publicly traded partnerships from filing information returns. It

adds publicly traded partnerships to Subsection E of Section 7-3-12 NMSA. Subsection

E provides that Subsection D—the tax withholding requirement—will not apply in cer-

tain instances. Subsection E does not provide for exemption from the requirement of fil-

ing an information return contained in Subsection A of Section 7-3-12. Therefore, the bill

is inconsistent with its title: “…EXEMPTING PUBLICLY TRADED PARTNERSHIPS

FROM INFORMATION RETURN FILING REQUIREMENTS PURSUANT TO THE

WITHHOLDING TAX ACT.” If the intent is to exempt publicly traded partnerships

from filing information returns, the measure should be amended accordingly.

OTHER SUBSTANTIVE ISSUES

TRD’s analysis also reported this issue:

Most PTPs operate in more than one state. A typical PTP has millions of units held by

thousands of investors. Hence it is difficult for PTPs to determine the correct amount of

tax to withhold from their continuously changing groups of investors. They assert that

their unique structure makes the current withholding requirement excessively burden-

some.

BT/yr