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.

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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 2/07/05

HB

SHORT TITLE Penalty for Incorrect Gross Receipts Reports

SB 85

ANALYST Taylor

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

(Uncertain) (Uncertain)

(Uncertain)

Recurring

General Fund

(Uncertain)

(Uncertain)

(Uncertain)

Recurring Local Governments

(Parenthesis ( ) Indicate Revenue Decreases)

Relates to: SB 177

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department (TRD)

SUMMARY

SB 85 amends the provisions of the law regarding incorrect reporting of gross receipts deduc-

tions of sales of food for home consumption and certain medical services. The bill reduces the

penalty in current law, which is equal to the misreported deduction multiplied by twice the gross

receipts rate for both the state and local options to a rate of 0.25 percent of the local options rate

times the misreported amount, but only when the amount of the deduction is over reported.

The bill carries an emergency clause, making it effective upon signature by the governor.

FISCAL IMPLICATIONS

TRD reports that the fiscal impact uncertain because no penalties have been collected under the

statute, which went into effect January 1, 2005.

Senate Bill 85 -- Page 2

ADMINISTRATIVE IMPLICATIONS

The Taxation and Revenue Department indicates that it will need to make changes to systems,

forms, publications, processing and training. Short-term costs of perhaps 0.5 FTE combined.

They say that these changes could not be implemented in time for emergency clause effective

date.

TECHNICAL ISSUES

TRD suggested this technical point:

The bill should contain an effective date to clarify which transactions and tax liabilities

are affected.

OTHER SUBSTANTIVE ISSUES

TRD’S bill analysis raised the following issue:

The penalties being repealed in this bill were designed to insure accurate reporting by lo-

cation to facilitate the distribution of “hold harmless” amounts to local governments, but

the magnitude of the penalties – equivalent to 200% of the misreported local option gross

receipts tax – is much larger than that for other tax underpayment penalties that are lim-

ited to 10% of the principal amount.

BT/lg/njw