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

SPONSOR Snyder

DATE TYPED 02/25/05 HB

SHORT TITLE Architectural & Engineering Gross

SB 732

ANALYST Padilla-Jackson

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

(*) ($2,200.0)

Similar Recurring

General Fund

(*) ($1,500.0)

Similar Recurring Local Governments

(Parenthesis ( ) Indicate Revenue Decreases)

(*) uncertain due to the missing effective date.

Duplicate of House Bill 593

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

Department of Transportation (DOT)

SUMMARY

Synopsis of Bill

Senate Bill 732 expands current tax statutes to would allow a gross receipts tax deduction for re-

ceipts from an architectural or an engineering service for sales made to a person in the construc-

tion business. The buyer must have the construction services performed on a construction pro-

ject that is subject to gross receipts tax or located on Indian lands.

No effective date was provided.

Significant Issues

DOT provided the following background:

Senate Bill 732-- Page 2

Currently, Section 7-9-52, NMSA 1978, allows a subcontractor to deduct receipts from the sale

of “construction services” to a prime contractor if these services are sold and used in a construc-

tion project. However, TRD regulations exclude indirect services from this deduction, such as

accounting, architectural, engineering, and drafting. In theory, these services are consumed by

the prime contractor in the performance of the contract, and are considered normal expenses of

doing business. Therefore, although the prime contractor pays gross receipts tax on the whole

amount in the end, the law allows some pyramiding of taxes. Senate Bill 732 will simply extend

the deduction allowed under Sec. 7-9-52 to include engineering and architectural services.

FISCAL IMPLICATIONS

The total fiscal impact of such a bill, as estimated by TRD, is -$3,700.0 in FY06, of which -

$2,200.0 will impact the general fund and -$1,500.0 will impact local governments. Based on a

taxable sales of architectural and engineering services to persons in the construction business es-

timate of $57 million in FY06, TRD calculated the total impact using an average gross receipts

tax rate of 6.5 percent. TRD’s analysis was based on information from the Department’s

“Analysis of Gross Receipts Tax by Industry Classification,” 1997 Economic Census for the

State of New Mexico, and input-output estimates from Implan, Inc.

ADMINISTRATIVE IMPLICATIONS

None to TRD.

Although DOT is arguably the single largest consumer of engineering and architectural services

in New Mexico, DOT notes that the bill does not affect the department directly.

OPJ/lg