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

SPONSOR SCORC

DATE TYPED 03/18/05 HB

SHORT TITLE NURSING HOME GROSS RECEIPTS

SB 540/SCORCS

ANALYST Padilla-Jackson

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

($11,000.0)*

($22,000)

Similar Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

*The first year impact is assumed to be 50 percent of the recurring impact.

Relates to Senate Bill 534, Senate Bill 59, Senate Bill 570, and House Bill 634

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

The Senate Corporations and Transportation Committee substitute for Senate Bill 540 would

provide personal income tax credits for unreimbursed or uncompensated medical expenses paid

by taxpayers for themselves, their spouses or their dependents to the extent that medical ex-

penses exceed $28,000. The credits would be refundable, so that when the credits exceed tax li-

ability, the excess credits would be refunded to taxpayers. The bill's definition of medical ex-

penses covers a wide range of medical costs, including diagnosis, cure, mitigation or prevention

of disease, insurance covering medical care, and long-term care as defined in Section 770B(c) of

the Internal Revenue Code.

The effective date of the provisions of this are applicable for tax years beginning on or after

January 1, 2005.

Senate Bill 540/SCORCS -- Page 2

FISCAL IMPLICATIONS

The total fiscal impact is estimated by TRD to be -$22 million in FY06 to the General Fund.

TRD notes that the fiscal impacts were estimated using information from federal and state tax

returns of New Mexico residents. In tax year 2001, 1,475 New Mexico tax returns claiming

more than $28,000 per return in medical and dental expenses as an itemized deduction on their

federal tax returns claimed a total of $138 million in expenses. At this level of expenditures,

these taxpayers would be eligible for approximately $14 million in credits under the proposal. In

addition, 1,700 taxpayers claiming over $2,800 in medical expense deductions each claimed a

total of $8.2 million under state law in each of the last two tax years. These deductions are only

available if the taxpayer has not claimed the same expense on the federal tax return. Since the

rate of deduction is 10 percent (and higher for some low-income taxpayers), these taxpayers had

medical expenses of more than $28,000 for the year. They would be eligible for approximately

$8 million in credits under the proposal. Thus, the combined revenue impacts would be ap-

proximately $22 million per year.

ADMINISTRATIVE IMPLICATIONS

Minor to TRD.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate Bill 534 provides nursing homes a gross receipts tax deduction for receipts from third-

party administrators of Medicare and the Federal Military TRICARE program. Senate Bill 59

adds counselors and social workers and Senate Bill 570 and House Bill 634 adds clinical labora-

tories to the gross receipts tax deduction for medical services reimbursed by managed care. Sen-

ate Bill 643 proposes that hospitals licensed by the New Mexico Department of Health may

claim a gross receipts tax credit.

TECHNICAL ISSUES

TRD cautions that since the bill permits all receipts of a nursing home to be deductible, it is pos-

sible that nursing homes would be able to deduct receipts that were unrelated to the provision of

nursing home services, such as payment received for transporting a patient to a beauty shop.

OPJ/yr