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

SPONSOR Carraro

DATE TYPED 10/06/05 HB

SHORT TITLE Natural Gas Heating Cost Tax Rebates

SB 10

ANALYST Francis

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

$106,000.0

Non-Recurring General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to HB8

SOURCES OF INFORMATION

LFC Files

Tax and Revenue Department (TRD)

Public Service Company of New Mexico (PNM)

Department of Energy, Energy Information Agency

SUMMARY

Synopsis of Bill

Senate Bill 10 provides a rebate in the amount of $200 for each taxpayer who has paid a heating

and cooling bill in one of the last four months of taxable year 2005 (September through Decem-

ber, 2005). The rebate will go to individual taxpayers who submit an income tax return and a bill

from a natural gas provider in New Mexico. The bill must be addressed to the person on the tax

return, a sole proprietorship owned by that person or to a partnership of which the person is a

member.

A taxpayer is entitled to multiple rebates if they pay the natural gas heating bill on more than one

property. A landlord that pays the utilities for the tenants would be able to receive multiple re-

bates, for example.

If the person is part of a partnership that is the account holder of the natural gas bill than the re-

bate is apportioned based on the ownership interest of the person. The total rebate is not more

than $200.

Similar language in the bill is included in the Corporate Income Tax Act. The bill must be in the

name of the corporate income tax filer.

Senate Bill 10 -- Page 2

Though the bill does not make it explicit, the rebate payments are assumed to come from the

general fund.

Significant Issues

According to the Energy Information Administration, approximately 30% of New Mexican

households use other means than natural gas to heat and cook and so will not receive a rebate.

There are some who use solar power or other alternative fuels for heating and cooking, but the

bulk of these households use electricity for heating and cooking and a not insignificant number

uses propane (particularly in rural areas where transmission lines and utilities are not available).

Since natural gas can represent anywhere from 25-50% of the inputs to an electrical generator,

the high price is also reflected in higher electricity bills. Propane has increased in price 21% and

has also been affected by the Gulf Coast hurricanes.

FISCAL IMPLICATIONS

This bill is estimated to cost at least $106 million for the rebates. There are an estimated 712,000

households in the state, 493,000 are owner-occupied and 219,000 are rental units. According to

the Energy Information Administration, in the West, 70% of households use natural gas which

means that approximately 500,000 households will be affected by this bill. At $200 per cus-

tomer, assuming all customers are PIT filers, that would cost the state general fund $100 million.

There are also approximately 44,000 businesses in New Mexico and assuming the same share of

businesses use natural gas as households, 31,000 would receive $6 million in rebates. This may

include real estate companies that will receive the rebate for their tenants and so may overcount

some businesses. There are also government agencies, except government hospitals, and pro-

prietors without employees who do not work out of their homes. These could amount to an addi-

tional $7 to $10 million but the number is not known.

According to PNM, the largest provider of natural gas in New Mexico, the average heating bill

this winter will be 60% higher than the similar five month period in 2004. Using their reported

average of $157 per month, that would mean that New Mexicans will be paying an average of

$300 more this winter than they did last winter.

TECHNICAL ISSUES

There may be a problem with the copy of the heating bill with the use of electronic payment.

The “bill” will come in different sizes and formats depending on the bill payer’s printer and pa-

per.

The bill calls for the income tax return rather than a copy of the income tax return and does not

explicitly state a year. This may confuse taxpayers as to whether they should send in their origi-

nal or a copy. It also opens it up to people who have filed in the past but not in 2004 since there

is no explicit year. It does mention that it is for taxpayers who have been subject to taxes for tax

year 2005 but does not specify that those be income taxes.

POSSIBLE QUESTIONS

Is this for taxpayers who filed in 2004 and can prove it.

Senate Bill 10 -- Page 3

What about taxpayers in 2005 who did not file in 2004 – will they receive a credit.

How do we ensure the bill is authentic.

NF/yr