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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 Chasey
ORIGINAL DATE
LAST UPDATED
1/31/06
2/12/06 HB 617
SHORT TITLE CIGARETTE TAX STAMP PROCEDURES
SB
ANALYST Francis
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY06
FY07
FY08
668.0
661.0 Recurring General Fund
191.0
189.0 Recurring
New Mexico
Finance Author-
ity/CEA
16.0
16.0 Recurring UNM Cancer
Center
24.0
24.0 Recurring NM Finance
Authority
173.0
172.0 Recurring NMFA/UNM
Health Sciences
73.0
72.0 Recurring NMFA/Departm
ent of Health
16.0
16.0 Recurring
County and
Municipal Rec-
reation Fund
32.0
32.0 Recurring
County and
Municipal Ciga-
rette Fund
(Parenthesis ( ) Indicate Expenditure Decreases)
ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)
Additional
4 FTE for
TRD
FY06
FY07
FY08 3 Year
Total Cost
Recurring
or Non-Rec
Fund
Affected
Total
240.0
240.0
480.0 Recurring General
Fund
(Parenthesis ( ) Indicate Expenditure Decreases)
pg_0002
House Bill 617 – Page
2
SOURCES OF INFORMATION
LFC Files
Taxation and Revenue Department (TRD)
Responses Received From
Taxation and Revenue Department (TRD)
SUMMARY
Synopsis of Bill
House Bill 617 amends the Cigarette Tax Act in the following ways:
1.
numerous definition changes including defining a “distributor;”
2.
changing the cigarette inventory tax to levy the tax on tax-exempt stamps or tax stamps
whether affixed to a pack or not and to levy the tax in the month of an excise increase;
3.
assigns serial numbers to tax stamps;
4.
lowers the vendor discount rates
HB 617 adds a section to the Cigarette Tax Act to require a license to manufacture or distribute
cigarettes. The license is good for one year and costs $100.00 and they are required to be a par-
ticipating manufacturer in the Master Settlement Agreement (MSA), which is the tobacco set-
tlement with the states.
There is also a section that allows the Taxation and Revenue Department (TRD) to enter into in-
tergovernmental agreements with tribes concerning enforcement of the Cigarette Tax Act. The
last section enacts new civil and criminal penalties for violation of the Cigarette Tax Act.
In lieu of effective date reported, the effective date is 90 days after the end of the 2006 session.
FISCAL IMPLICATIONS
TRD:
Fiscal impacts are due to the proposed reduction of the cigarette stamp discount rate. The
current weighted discount rate is approximately 2.2%. This is the case because nearly 90% of
stamp sales occur at the 2% discount rate. This proposal would cause the average discount
rate to decrease to 0.55% and generate over $1 million in additional cigarette tax revenue.
There are also some additional revenues from licensing fees of $3,400/year. This revenue
would be distributed to each of the cigarette tax beneficiaries. In the event that the revenues
distributed to the Credit Enhancement Account (CEA) at NMFA are not needed to meet cur-
rent debt obligations, this revenue will be deposited in the General Fund. The Consensus
Group General Fund revenue forecast assumes that the General Fund will receive the CEA
distribution for the next few years.
FY 2007
FY 2008
Discount Change
$1,191
$1,179
License Fee
$3.40
$3.40
Total Increase in Rev $1,194
$1,182
pg_0003
House Bill 617 – Page
3
ADMINISTRATIVE IMPLICATIONS
TRD reports that the Cigarette Tax Unit would have significant administrative impacts due to the
changes in the forms, contracts and procedures required. TRD estimates that 4 new FTEs would
be required to meet the demands. There would also be significant information systems changes
required.
TRD also notes the effective date of 90 days after the session leaves the department little time to
prepare for the new law.
TECHNICAL ISSUES
TRD notes the following technical issues:
Page 7 lines 4-6- Practice is for distributors to buy more than 10 day supply of cigarettes and
hold together in unstamped inventory until order is received by instate, out of state, Indian
buyer. This will be difficult to enforce.
Page 7 line 23. Refers to “subject to the cigarette tax” 7-12-3 refers to “selling, giving,
consuming cigarettes there is levied and excise tax. This conflicts with new language on line
23.
Page 14 line 21 suggest inserting “taxed” in B- A retailer of cigarettes shall only obtain taxed
stamped cigarettes
Page 15 line 9-10 A retailer need not retain copies of invoices of sales. All a retailer will
have to do is not keep purchase invoices and not report sales to sell internet Indian cigarettes
without fear of discovery.
Page 16- lines 19 to page 17 line 5. Distributors typically do not know where cigarettes are
going before orders are received and commingle all unstamped until determination made to
which state sales is made. Cigarettes are not stamped until they are ready to be shipped.
Page 22 line 19 through page 23 line 4 seems to apply to retailers, while B is confusing as to
who should have paid the tax and owes the penalty.
Internet Sales: The bill does not specifically address internet sales. Addition of specific ref-
erences to internet sales would give the department more legal power to pursue internet sell-
ers.
o
Page 3 definitions- next to Master settlement, Jenkins Act definition which requires
all internet sellers to give the state copies of invoices of cigarettes sold in NM.
o
Page 10 new material licensing 7-12-9.1 A adding “including through the internet”
after cigarettes
o
Page 14 7-12-9.4 A – new material - seems to imply retail cannot buy from internet
who is not a distributor “including non licensed internets”
o
7-12-12 A, Include reference to internet shipper of unstamped cigarettes.
o
Page 18 New material reports A “include internet sellers in report requirement” this
would supplement federal Jenkins Act requirements.
“Possession” with regard to the inventory tax is not clear in the bill.
pg_0004
House Bill 617 – Page
4
OTHER SUBSTANTIVE ISSUES
TRD notes that they have a significant quantity of seized cigarettes that they would like the au-
thority to destroy. The portion of HB617 dealing with the inventory tax does not give them that
authority if they are not bought back.
NF/mt:nt