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

SPONSOR Cisneros

ORIGINAL DATE

LAST UPDATED

1/20/06

1/25/06 HB

SHORT TITLE Advanced Energy Product Tax Credit Act

SB 254

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

(175)

Increasing Recurring General Fund

(25)

Increasing Recurring Local Govern-

ments

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to HB200 and duplicates HB128.

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

Energy Mineral and Natural Resources Department (EMNRD)

Economic Development Department (EDD)

Environment Department (NMED)

SUMMARY

Synopsis of Bill

Senate Bill 254 creates the Advanced Energy Product Manufacturers Tax Credit for businesses

that manufacture advanced energy products, which are defined as motor vehicles propelled in

whole or in part by electricity, fuel cell systems, renewable energy systems, or any component of

hybrid vehicles, fuel cell systems, renewable energy systems, or clean coal technologies.

A credit of up to 5 percent of a taxpayer’s expenditures on advanced product manufacturing

equipment may be deducted from a taxpayer’s total liability from state gross receipts tax, com-

pensating tax, withholding tax, interstate telecommunications gross receipts tax, 911 emergency

surcharge, network and database surcharge, and telecommunications relay service surcharge.

Any unused tax credit may be carried forward for three years.

Senate Bill 254 – Page

2

To qualify for the credit, the manufacturer must employ at least one more full-time employee

than in the previous year for every $500 thousand of equipment expenditures up to $30 million,

and at least one more full-time employee than in the previous year for every $1 million of ex-

penditures over $30 million. Existing employees can count toward the employment requirements

if the taxpayer trained the existing employee, or the employee was hired to use the qualified

equipment.

Advanced energy product manufacturers may apply for the credit any time within the calendar

year following the calendar year in which they purchased qualified manufacturing equipment.

If a taxpayer who receives this credit ceases operations in New Mexico for 180 or more consecu-

tive days within two years after applying for the credit, the taxpayer rights to the credit and must

pay all taxes for which the credit was awarded.

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

FISCAL IMPLICATIONS

TRD assumes that investments eligible for the new tax credit will total $4 million each year.

With a gross receipts tax of 5 percent, this means credits will total $200 thousand per year. TRD

anticipates that tax liability for claimants of the credit will be large enough to absorb the entire

$200 thousand.

The credit will primarily impact the general fund, but several other funds will experience small

impacts. Claims against the gross receipts and compensating taxes will impact the general fund

and local governments. Overall, general fund revenue will be reduced by about $175 thousand

and local government revenue will be reduced by about $25 thousand.

SIGNIFICANT ISSUES

According to EMNRD and EDD, this bill will create jobs in and generate revenues from the ad-

vanced energy technology sector. The bill encourages the recruitment and retention of an ad-

vanced energy cluster economy. They note that in combination with New Mexico’s world-class

renewable energy resources and the technical expertise existing at New Mexico’s universities

and national laboratories, this incentive will make the state more attractive for the relocation of

advanced energy businesses. Further, jobs created by this bill will tend to be in economically de-

pressed rural and semi-rural parts of the state.

PERFORMANCE IMPLICATIONS

EMRND states that recruitment and retention of advanced energy businesses would significantly

assist the Energy Conservation and Management Division in achieving targets relating to renew-

able energy, energy efficiency and clean-burning alternative transportation fuels.

NMED states that recruitment of advanced energy manufacturers would help the Air Quality Bu-

reau achieve two performance measures related to improved visibility and air quality by decreas-

ing the likelihood that new dirtier power sources will be constructed. In addition, the bill pro-

motes two of Governor Richardson’s priority goals, increasing New Mexico’s use of clean en-

ergy and reducing greenhouse gas emissions.

Senate Bill 254 – Page

3

ADMINISTRATIVE IMPLICATIONS

TRD reports that the bill would require 1/8 FTE to evaluate applications and maintain logs of

credits approved and claimed.

TECHNICAL ISSUES

TRD believes that the employment requirements stated in Section 5 of the bill should be clarified

so that all of a taxpayer’s employees must be counted in determining the calculation, and so that

the replacement of one worker by another does not count as adding an employee.

TRD also believes the word “not” should be added to page 6, line 24 after the word employee so

that the tax credit is contingent on increases in employment.

The credit states that advanced energy products that will be eligible for the credit include com-

ponents of “integrated gasification combined cycle coal facilities.” However, the proposed credit

will not be available for such equipment because the credit is only available for equipment used

to “manufacture” advanced energy products. Modifying the credit to include purchases of inte-

grated gasification combined cycle coal facilities would greatly increase the fiscal impacts of the

bill.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate Bill 254 duplicates House Bill 128.

OTHER SUBSTANTIVE ISSUES

TRD notes that a presentation sponsored by Sandia National Laboratories on state and local tax

incentives and wage subsidies for manufacturers estimated that existing subsidies, such as the

technology jobs tax credit, renewable energy production tax credit, and industrial revenue bonds,

are enough to offset between 55 and 67 percent of initial capital investment. To prevent exces-

sive subsidies, TRD recommends limiting eligibility for the advanced energy manufacturer tax

credit to expenditures not eligible for other credits and incentives.

SS/nt:yr