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.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

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

SPONSOR Cisneros

DATE TYPED 3-04-2005 HB

SHORT TITLE Repeal Certain Property Use Taxation Statutes

SB 420

ANALYST Taylor

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

$190

Similar Recurring

General Fund

$20

Similar Recurring Small Cities Assistance

$20

Similar Recurring Small Counties Assistance

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of bill

Senate Bill 420 repeals a section of tax law related to the prohibition of enforcement of the com-

pensating tax for the use of property for nonbusiness purposes. The section to be repealed 7-9-

7.1 states that the department is to take no action to enforce collection of compensating tax due

on purchases made by an individual if:

1.

the property is used only for nonbusiness purposes;

2.

the property is not a manufactured home; and

3.

the individual is not an agent for collection of compensating tax.

Significant Issues

The bill has the effect of allowing the taxation and revenue department to collect compensating

tax from individuals.

The bill has no effective date; provisions assumed to take effect 90 days after the end of the leg-

islative session.

Senate Bill 420 -- Page 2

FISCAL IMPLICATIONS

TRD estimates that collecting compensating tax from individuals would increase state general

fund revenue by about $190 thousand. There is also a small impact on the small county and

small cities assistance programs. They base their estimates on collections by other states that

collect this tax, which are then adjusted for New Mexico’s population and income relative to

those states. They also note that collection is influenced by enforcement effort, and that most

states report limited compliance.

ADMINISTRATIVE IMPLICATIONS

TRD reports that the administrative implications are significant. Their report is replicated here:

The proposal would impose significant new administrative responsibilities on TRD. Cur-

rently the department has no mechanism for collecting the compensating tax due on pur-

chases made out-of-state for personal use in New Mexico. In developing such a mecha-

nism, the state could choose to require individuals to report their purchases on the Per-

sonal Income Tax return or to institute a new tax program. A new tax program would re-

quire new forms and instructions and changes to existing publications. Educational ma-

terials and programs for both taxpayers and TRD employees would have to be developed,

as would new audit and compliance procedures. Systems to capture and record the return

data and to deposit and distribute the money collected would also have to be developed.

These duties would require at least 3 FTE.

The proposed responsibilities could not be implemented before January 1, 2006.

OTHER SUBSTANTIVE ISSUES

TRD also reported this issue:

Significant new compliance costs would be imposed on taxpayers as a result of the re-

quirement to substantiate their purchases. Since a cancelled check does not contain

enough information to establish the origin of the purchase, invoices would have to be re-

tained for long periods.

BT/yr