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

SPONSOR Wallace

DATE TYPED 3/5/05

HB 572/aHGUAC

SHORT TITLE Release of Taxpayer Info to LFC

SB

ANALYST Rosen

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

NFI

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to SB524, HB411, HB424, HB431 and SB240.

SOURCES OF INFORMATION

LFC Files

Responses Received From

Attorney General’s Office (AGO)

Taxation and Revenue Department (TRD)

FOR THE LEGISLATIVE FINANCE COMMITTEE

SUMMARY

Synopsis of HGUAC Amendment

House Government and Urban Affairs Committee amendment to House Bill 572 addresses

technical issues, replacing “audit” with “review” (page 1, line 13), replacing “audit” with “re-

view of the operation and management” (page 13, line 18 and 19), and after “department” insert-

ing “pursuant to Section 2-5-4 NMSA 1978” (page 13, line 19).

AGO indicates this amendment clarifies that information in tax returns may be released to LFC

during a “review of the operation and management of the [taxation and revenue] department pur-

suant to Section 2-5-4 NMSA 1978”. That section gives LFC statutory authority to conduct an-

nual reviews of the operation and management of selected state agencies, and make appropriate

recommendations to the legislature.

House Bill 572/aHGUAC -- Page 2

Synopsis of Original Bill

House Bill 572 amends the Tax Administration Act to allow release of information in tax returns

to LFC during an audit of TRD by LFC. It authorizes release of procedural or evidentiary rul-

ings by TRD hearing officers, as long as the name and identification number of the taxpayer re-

questing the ruling are redacted, and prohibits TRD from releasing information regarding

whether a person has filed a tax return, subject to certain exceptions listed in Section 7-1-8.

Significant Issues

LFC audit staff will be bound by the same confidentiality requirements as those currently bind-

ing TRD employees and financial auditors.

The legislature relies on timely and accurate analysis of tax collection and distribution informa-

tion to formulate state agency budgets and make appropriations. LFC performance review of the

tax collection and distribution process is frequently requested. Providing LFC performance audi-

tors access to this information will reduce delays in the audit process, allowing LFC to perform

more thorough and accurate analysis of tax collection and distribution processes and provide

timely feedback.

The LFC audit unit reports that LFC access to taxpayer information has been restricted despite

LFC willingness to execute confidentiality agreements, hampering the extent of audit procedures

LFC performance auditors are able to perform. During LFC audit of the GenTax computer sys-

tem, LFC could not perform an adequate analysis of how the system is processing and distribut-

ing taxes because LFC was not allowed to review how individual tax information is received and

processed. In some cases tax collections placed into suspense due to processing errors are not

resolved until research is performed, affecting the distribution of revenues. LFC had to rely on

TRD staff to extract the individual information, delaying the audit for several months.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Relates to SB524.

AGO notes HB411, HB424, HB431 and SB240 amend the same section of statute.

TECHNICAL ISSUES

According to AGO, the exception allowing release to the LFC refers to “information” and it is

assumed this means all information in taxpayer returns. It is also unclear as to the nature of the

audit mentioned, or whether this bill is intended to grant the LFC the right to audit TRD. The

LFC is authorized to examine the operation and management of selected state agencies pursuant

to NMSA Section 2-5-4, but TRD is not specifically mentioned and that examination is not re-

ferred to as an “audit”.

According to AGO, because of the reference to the “name and identification number of the tax-

payer requesting the ruling”, the bill might prohibit the release of procedural or evidentiary rul-

ings requested by TRD.

House Bill 572/aHGUAC -- Page 3

ALTERNATIVES

AGO indicates consideration should be given to defining the type of taxpayer return information

that will be released to the LFC under this bill, along with the type of “audit” referred to and the

statutory basis for that audit.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

LFC will not have the right to request and receive taxpayer information and the legislature will

not be able to expect timely or accurate performance audits of the tax collection and distribution

systems of the state.

JR/njw:yr