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F I S C A L I M P A C T R E P O R T
SPONSOR Smith
ORIGINAL DATE
LAST UPDATED
2/3/06
HB
SHORT TITLE U.S. Government Contract Gross Receipts
SB 311
ANALYST Schardin
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY06
FY07
FY08
(9,000.0)
(9,450.0) Recurring
General Fund
(6,000.0)
(6,300.0) Recurring Local Governments
(Parenthesis ( ) Indicate Expenditure Decreases)
SOURCES OF INFORMATION
LFC Files
Responses Received From
Taxation and Revenue Department (TRD)
Economic Development Department (EDD)
SUMMARY
Synopsis of Bill
Senate Bill 311 makes several changes to gross receipts and compensating tax deductions for
certain contractors with the federal government.
Currently, Section 7-9-54.5 contains a compensating tax deduction for the value of test articles
used in New Mexico in contract with the U.S. Department of Defense. The bill would allow this
test article deduction from the compensating tax for contracts with all U.S. government agencies.
The definition of “test article” is also expanded to include tangible or intangible property used
for research or testing that is consumed or becomes unfit for use as a result of the research or
testing. While this deduction is currently denied to operators of New Mexico’s national laborato-
ries, it would be denied to operators of any facility in New Mexico for any U.S. government
agency.
The bill creates two new gross receipts tax deductions for receipts from selling research and de-
velopment services or tangible personal property to U.S. government agencies, except for re-
ceipts from selling to a prime contractor for operation of any facility.
pg_0002
Senate Bill 311 – Page
2
Finally, the bill repeals Section 7-9-54.1, which provides a gross receipts tax deduction from the
sale of aerospace services by 501(c)(3) organizations that receive a federal income tax exemp-
tion.
The effective date of these provisions will be July 1, 2006.
FISCAL IMPLICATIONS
TRD reports that industry representatives say taxable gross receipts covered by the proposed de-
ductions average about $230 million per year. Applying the statewide average gross receipts tax
rate of 6.5 percent to this base yields a fiscal impact of roughly $15 million per year. About 60
percent of gross receipts tax collections go to the general fund, while 40 percent is distributed to
local governments.
The bill would also reduce compensating tax collections by an uncertain amount. Compensating
tax is distributed to the general fund (80 percent) and to the small cities and small counties assis-
tance funds (10 percent each).
ADMINISTRATIVE IMPLICATIONS
TRD reports the bill will have minor administrative impacts stemming from form and publica-
tion changes and nontaxable transaction certificate development and distribution.
SS/mt