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 SFC

DATE TYPED 3/08/04

HB

SHORT TITLE Exempt Jet Fuel From Gross Receipts Tax

SB 478/SFCSa

ANALYST Padilla-Jackson

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

NFI

$41.0

Similar Recurring

General Fund

NFI

$145.0

Similar Recurring State Aviation Fund

NFI

$147.0

Similar Recurring Local Governments

$333.0

Similar Recurring

Total

(Parenthesis ( ) Indicate Revenue Decreases)

Relates to Senate Bill 75 (see detail below).

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Transportation (DOT)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

The Senate Finance Committee substitute for Senate Bill 478 would clarify eligibility for the 55

percent gross receipts and compensating tax deductions on jet fuel to include only “commercial

aviation operators”. The bill also removes the current sunset date for the 55 percent deduction.

Distributions

The bill amends current statutes so that the current distribution of 4.79 percent of taxable gross

receipts attributable to the sale of fuel specially prepared and sold for use in turboprop or jet-type

engines requires that the fuel be sold to “commercial aviation operators”. The bill defines

“commercial aviation operators” to mean a person or entity that, for compensation or hire, en-

Senate Bill 478/SFCSa -- Page 2

gages in the carriage by aircraft in air commerce of persons or property. A new distribution is

made to the Aviation Fund amounting to 3.775% of taxable gross receipts on jet fuel that is not

sold to a commercial aviation operator for use in turboprop or jet-type engines.

Lastly, the bill repeals the sunset provision, which would have ended the fifty-five percent gross

receipts and compensating tax deduction in favor of the previously imposed amount of 40 per-

cent.

The effective date of the provisions of this bill is July 1, 2005.

Significant Issues

DOT notes that this revenue to the Aviation Fund (a portion of GRT on jet fuel) is the major

revenue source to that fund, accounting for about 50 percent of total Aviation Fund revenue.

Since certain other revenues are earmarked for the Air Service Assistance Program, this GRT on

jet fuel revenue represents about 69 percent of the unrestricted portion of the Aviation Division’s

budget.

ADMINISTRATIVE IMPACT

TRD anticipates minimal impacts on the department.

FISCAL IMPLICATIONS

The fiscal impact of the committee substitute for Senate Bill 478, according to the DOT analysis,

is $333 thousand in FY06. Gross revenue from jet fuel sales is estimated to be approximately

$51 million in FY06. Approximately $9 million or 18 percent of this revenue is assumed to

come from non commercial aviation users. Eliminating the 55 percent tax deduction for non-

commercial aviation users would increase revenues by approximately $330 thousand. The dis-

tributions in the revenue table show the net allocation of these additional revenues under present

law formulas with the modifications proposed in the bill. Based on these formulas, DOT esti-

mates that the bill will generate approximately $41 thousand to the General Fund, $145 thousand

to the State Aviation Fund, and $147 thousand to local governments. TRD concurred with these

estimates.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

DOT cautions that SB 75 also amends the same section. If both Senate Bill 75 and Senate bill

478 were to be passed and signed this session, the latter signed bill would become law, invalidat-

ing portions of the earlier signed bill. Since the two bills both add material to the same section,

there would be a conflict, except for the fact that Senate Bill 75 has been adjusted to include all

the provisions of Senate Bill 478.

.

OTHER SUBSTANTIVE ISSUES

DOT provided the following issues:

•

The Aviation Division reports that a significant increase in Federal Aviation Administra-

tion (FAA) funding to New Mexico could be achieved if the state were to receive FAA

funding using the “channeling” method of administration or if the state gained “block

Senate Bill 478/SFCSa -- Page 3

grant” status. Currently most FAA funding comes to New Mexico through direct grants

to specific airport improvement projects, and the funding is not routed through the Avia-

tion Division. Under the “channeling” or “block grant” approach, FAA funds would be

channeled through the Aviation Division. One important aspect of being considered by

the FAA for “channeling” or “block grant” status is that the state funding sources be

dedicated revenue streams that may be depended upon from year to year. This is a very

important consideration when determining the mechanism that would supplement or hold

the Aviation Fund harmless to any proposed change in the GRT deduction on jet fuel (the

bill works well in this regard).

•

In FY02 New Mexico received about $1.8 million in FAA discretionary funds, while Ar-

kansas received $22.4 million, Louisiana received $34.2 million, and Oklahoma received

$15.4 million. Texas (a block grant state) received $81.9 million in discretionary funds.

•

At the present time there are airport improvement needs in New Mexico (excluding the

Albuquerque Sunport) of over $248 million projected during the FY03 through FY07

time period. While these projects are being addressed at a level of about $16 million per

year, there are sufficient resources to address only about one-third of the state’s needs.

OPJ/lg:sb