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committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

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

SPONSOR Silva

ORIGINAL DATE

LAST UPDATED

2/1/06

2/15/06 HB 500/aHFL#1

SHORT TITLE Mutual or Hedge Fund Fee Gross Receipts

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

(105.0)

Recurring General Fund

(70.0)

Recurring

Local

Governments

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates SB 457.

SOURCES OF INFORMATION

LFC Files

Responses Received From

Regulation and Licensing Division (RLD)

State Investment Council (SIC)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of HFL Amendment #1

The House Floor amendment to House Bill 500 changes the gross receipts tax deduction that will

be created by the bill to include receipts from performing management or investment advisory

services for a mutual fund, hedge fund or real estate investment trust (REIT). The gross receipts

deduction created in the bill will no longer be limited to firms located in New Mexico.

The amended bill defines the terms “hedge fund,” “mutual fund,” “investment advisor,” and

“real estate investment trust.”

Synopsis of Original Bill

House Bill 500 creates a gross receipts tax deduction for the receipts from fees for management

of a mutual or hedge fund located in New Mexico. The bill defines a “hedge fund” as a private

House Bill 500/aHFL#1– Page

2

investment fund or pool, the assets of which are managed by a professional management firm

that trades and invests, is not an investment company, and is comprised on investments by secu-

rities and exchange commission accredited investors.

The effective date of this bill is July 1, 2006.

FISCAL IMPLICATIONS

TRD’s fiscal impact estimate is based on the Report 80, Analysis of Gross Receipts Tax by In-

dustrial Classification. The state collects about $3.5 million in gross receipts tax from companies

providing investment advisory services. Only about 5 percent of this amount is expected to be

eligible for the new deduction because a small number of these firms are located in New Mexico

($3.5 million X 5%). About 60 percent of this revenue decrease will accrue to the general fund,

while about 40 percent will accrue to local governments.

SIGNIFICANT ISSUES

According to SIC, House Bill 500 would help attract hedge and mutual fund managers to New

Mexico because most other states do not tax this type of activity. These types of investment

firms provide high-wage jobs and improve the investment and financial planning sector envi-

ronment.

ADMINISTRATIVE IMPLICATIONS

The administrative impact on TRD will be minimal.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

House Bill 500 duplicates Senate Bill 457.

TECHNICAL ISSUES

The bill provides a definition of “hedge fund” but no definition of “mutual fund” or “located in

New Mexico. Both of these terms could be defined by referencing Securities and Exchange

Commission regulations.

ALTERNATIVES

SIC recommends adding the receipts of investment consultants and investment advisors regis-

tered under the 1940 federal Investment Advisors Act to this deduction.

SS/nt:mt:yr