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

SPONSOR Sanchez M

ORIGINAL DATE

LAST UPDATED

1/27/06

2/13/06 HB

SHORT TITLE Railroad Car Company Tax Act Rate Changes

SB 315

ANALYST Francis

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

$427.7

Recurring

Railroad Crossing

Maintenance Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

$427.7

689.8

Recurring

Railroad Crossing

Maintenance Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Department of Transportation (DOT)

Responses Received From

Department of Transportation (DOT)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 315 appropriates $690 thousand from the general fund to the “Railroad Crossing

Maintenance Fund” for the purpose of maintaining and upgrading railroad crossings. SB315

amends the Tax Administration Act by creating a new fund called the “Railroad Crossing Main-

tenance Fund.” SB 315 increases the ad valorem tax on private railroad cars to 3.5 percent.

Senate Bill 315 – Page

2

FISCAL IMPLICATIONS

SB 315 has a net fiscal impact on the general fund of zero due to the rate increase combined with

the new distribution to the railroad crossing fund. The increase in the rate from 1.5 percent to

3.5 percent is matched by the distribution of four sevenths of the fund to the railroad crossing

fund.

The taxable base in 2007 is estimated to be $34.448 million. At the current rate, this would yield

revenue of $517 thousand. At the new rate of 3.5 percent, the revenue would be $1.2 million.

Four-sevenths of that, or $690 thousand, would go to the railroad crossing maintenance fund

leaving the general fund with $517 thousand or no different from the current law. Because the

tax accrues on a calendar basis and is paid in March of the following year, only the May 17

through December 31, 2006, tax is counted. This makes the FY07 impact 62 percent of a full

year or $427.7 thousand.

SIGNIFICANT ISSUES

TRD:

In 1976 Congress passed the Railroad Revitalization and Recovery Act (the 4R Act). The 4R

prohibited states from imposing discriminatory taxes on railroads. In 1995 Congress

amended the anti-discrimination statute, 49 USCA Sec. 11501, and made it even more strin-

gent in what the states could tax. In 1996, several railroads threatened to challenge New

Mexico’s Railroad Car Tax Act. Department representatives suspected the firms would win

the prospective litigation, since the Act is facially discriminatory against railroads. As a

compromise, the state agreed to reduce the tax from 3.5% down to 1.5%. The lawsuits were

avoided. This bill would renew the conflict initiated in 1996, and threaten the entire statute.

The 4R act provides that a state cannot pass a tax which:

Assesses railroad property at a higher ratio to true value than other industrial property;

Levy taxes at a higher rate than other industrial property;

Discriminates against Railroad property.

Because the tax treats railroads differently from all other transportation, the burden would be

on the state to prove (in federal court) that the statute nonetheless imposes a lesser burden on

railroads than other types of property. Non-discrimination on a statute like this is very diffi-

cult to show from a factual basis, requiring complex property tax burdens analysis. Some

cases simply say these statutes are always discriminatory and strike them down. Other cases

have looked to expected hypothetical property tax burdens. Trailer Train Co. v. Bair, 60 F.3d

410 (8th Cir. 1995)(upholding similar 3% apportioned earnings tax—but note Iowa may have

had much higher property taxes than NM). The fact that the proceeds will be used for Rail-

road safety purposes does not save a discriminatory statute. Trailer Train Co. v. State Tax

Commission, 929 F.2d 1300 (8th Cir. 1991).

NF/nt;mt