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

SPONSOR Lujan, B

ORIGINAL DATE

LAST UPDATED

2/3/06

2/8/06 HB 440/aHBIC

SHORT TITLE Laboratory & Small Business Tax Credits

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

(600.0)

Recurring General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY06

FY07

FY08 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

100.0

100.0

200.0 Recurring General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of HBIC Amendment

The House Business and Industry Committee amendment to House Bill 440 includes language

that will require TRD to track credits claimed by national laboratories by the small business as-

sisted to ensure that credits awarded are associated with specific small business assistance re-

quests (see Administrative Impacts).

The amendment also expands eligibility requirements for claiming the laboratory partnership

with small business tax credit. To be eligible for the credit, the national laboratory providing

small business assistance will be required to 1) offer each small business receiving assistance the

option of obtaining ownership of license to property developed through the assistance; 2) ac-

knowledge that the small business assistance is rendered only after it is completed; and 3) pro-

House Bill 440/aHBIC – Page

2

vide forms for small business assistance requests and for completion of small business assistance

that are in accordance with state and federal laws.

The amendment also changes reporting requirements so that a report from one national labora-

tory claiming the credit will be due to TRD by October 15 of each year (see Technical Issues).

Synopsis of Original Bill

House Bill 440 expands the existing laboratory partnership with small business tax credit. The

bill increases the credit that a national laboratory can claim for assistance to a small business in a

rural area from $5 to $10 thousand per year, and increases the credit that a national laboratory

can claim for assistance to each small business in a non-rural area from $10 to $20 thousand per

year. The total amount of credits that can be claimed by a national laboratory is increased from

$1.8 to $2.4 million per year.

The bill will also require national laboratories claiming this credit to submit a joint annual report

to TRD, the Economic Development Department, and the appropriate legislative interim com-

mittee by July 1 of each year. The report will summarize program results, describe projects

funded, provide survey results, quantify the total amount of credits claimed, and include an eco-

nomic impact study of jobs created and retained.

Finally, if more than one national lab claims the credit, those labs will be required to coordinate

their efforts.

The effective date of these provisions is July 1, 2006.

FISCAL IMPLICATIONS

Under current law, Sandia National Laboratories are eligible to claim $1.8 million per year in

credits. By increasing the total amount of credits that a national laboratory can claim per year by

$600 thousand, the bill will reduce state gross receipts tax collections from Sandia National

Laboratories by $600 thousand per year.

Due to the new contract signed by Los Alamos National Lab, it is likely that LANL will soon

become eligible to claim the credit as well. If Los Alamos becomes eligible the cost of the credit

will increase by another $2.4 million per year.

Since this credit can only be claimed against the state portion of gross receipts tax liability it has

no impact on local governments.

SIGNIFICANT ISSUES

According to TRD, this credit benefited 278 small businesses in 2004.

House Bill 440/aHBIC – Page

3

ADMINISTRATIVE IMPLICATIONS

The House Business and Industry Committee amendment creates significant administrative im-

pacts for TRD by requiring TRD to track the credit received by each individual small business

that receives assistance from a national laboratory through this credit. In 2004, 278 small busi-

nesses received assistance through this credit. TRD would need to verify that each of these busi-

nesses requested and received assistance meeting the necessary requirements. This tracking

would need to be done manually and would require two additional FTEs. The salaries and other

costs associated with these two FTEs are estimated to be $200 thousand per year.

TECHNICAL ISSUES

TRD notes that to qualify for the program, small businesses must certify that assistance is not

available at a reasonable cost through private sources. There is currently no mechanism in place

to verify these assertions.

The House Business and Industry Committee Amendment to Section 6 A. creates different re-

porting requirements for years in which one or more national laboratories claim the credit. The

original bill would require all reports to be submitted to TRD, EDD and the appropriate interim

legislative committee. The amendment changes language so that if only one national laboratory

claims the credit the report will only be submitted to TRD, but if more than one national labora-

tory claims the credit it will be submitted to TRD, EDD and the appropriate interim legislative

committee.

According to TRD, it is unclear why the House Business and Industry Committee amendment

requires TRD to oversee the type of assistance requested and provided when national laborato-

ries claiming the credit already track this information and provide each year in the annual report.

SS/mt:nt