Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

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

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

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

SPONSOR Ortiz y Pino

ORIGINAL DATE

LAST UPDATED

2/12/06

HB

SHORT TITLE Soft Drink Sale Gross Receipts

SB 724

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

1,252.0

Recurring General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to SB228.

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

Department of Health (DOH)

Public Education Department (PED)

SUMMARY

Synopsis of Bill

Senate Bill 724 proposes removing soft drinks and nonalcoholic flavored beverages containing a

sweetener additive such as corn fructose, sugar or aspartame from the list of foods eligible to re-

ceive a gross receipts tax deduction passed by the 2004 Legislature.

The effective date of these provisions is July 1, 2006.

FISCAL IMPLICATIONS

According to TRD, the American Beverage Association reports that in 2004 the average Ameri-

can consumed 52 gallons of soft drinks per year. Assuming New Mexico’s population means that

about 100 million gallons of soft drinks are consumed in the state each year. About 77 percent of

soft drink products are packaged and therefore are likely to be sold in a retail food store, but only

Senate Bill 724 – Page

2

about half of these sales occur in retail food stores that qualify for gross receipts tax deductions

from food. TRD assumes that a half gallon of soda costs about $1.

TRD believes reinstating the gross receipts tax on soft drinks will increase revenue by about $1.3

million per year. This estimate includes the direct effect of reinstating the tax as well as the effect

of removing the local government hold harmless provision for soft drinks.

SIGNIFICANT ISSUES

Senate Bill 724 attempts to reduce consumption of soft drinks by increasing their price relative to

other beverages.

According to DOH, a 12 ounce can of non-diet soda contains 10 teaspoons of sugar. Consump-

tion of soft drinks is associated with obesity.

PED believes the bill may increase student performance because performance is positively linked

with nutrition.

ADMINISTRATIVE IMPLICATIONS

TRD reports that implementing the food and medical deductions has been unusually complicated

and expensive due to programming necessary to distribute hold-harmless payments to local gov-

ernments. Changing the definition of food items eligible for the deduction will cause administra-

tive problems to grow.

TRD also notes that retail food stores selling “soft drinks” will have to retain a tally of soft drink

sales on which gross receipts tax must be paid. Retailers will have to recode systems.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate Bill 724 relates to Senate Bill 228, which creates a soft drink tax.

TECHNICAL ISSUES

TRD notes that the term “soft drink” should be defined. Some juices, fruit-flavored drinks, en-

ergy drinks, flavored bottled water and bottled tea and coffee drinks contain sweeteners equal to

the amount found in “soft drinks” but are not excluded from the provisions of this bill.

SS/nt