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

SPONSOR Jennings

ORIGINAL DATE

LAST UPDATED

2/8/06

HB

SHORT TITLE Taxation of Railroad Equipment

SB 727

ANALYST Francis

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

140.0

1,724.0

Recurring

Railroad Crossing

Maintenance Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to SB 315

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

140.0

1,724.0

1,724.0 Recurring

Railroad Cross-

ing Maintenance

Fund

(43.0)

(517.0)

(517.0) Recurring General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Transportation (NMDOT)

SUMMARY

Synopsis of Bill

Senate Bill 727 creates a new fund called the “Railroad Crossing Safety Fund,” clarifies the

compensating tax exemption for railroad equipment, and increases the tax on private railcars to 5

percent from 1.5 percent, and changes the method of valuation for railroad operating property.

There is no effective date and so the effective date is assumed to be May 17, 2006.

Senate Bill 727 – Page

2

The compensating tax exemption is clarified to define railcars as those that are engaged in inter-

state transportation.

The change in the property valuation for operating equipment (i.e., not real property such as land

or buildings) establishes one method of valuation based on reproduction cost rather than a choice

of methods that currently exist.

FISCAL IMPLICATIONS

Raising the tax rate to 5 percent from 1.5 percent will result in additional revenues of $1.2 mil-

lion per tax year. In FY06, there is assumed to be a $140 thousand increase in revenues as a re-

sult of the default effective date of May 17, 2006. Since all of the revenue is to be distributed to

the railroad crossing safety fund, the general fund revenues will be reduced by $517 thousand per

year and $43 thousand in FY06. In FY06, the railroad crossing safety fund revenues will in-

crease $140 thousand and in FY07 and subsequent years that increase is $1.7 million per year.

The appropriation of $1.7 million contained in this bill is a recurring expense to the railroad

crossing safety fund. Any unexpended or unencumbered balance remaining at the end of shall

not revert.

The change in the property tax valuation has no fiscal impact since property taxes are determined

based on needs of local governments. The change in the valuation method will redistribute the

tax burden amongst other taxpayers. It is likely that this change will increase the valuation of rail

property since it does not allow for depreciation or obsolescence.

The change to the compensating tax exemption for railroad equipment defines railroad equip-

ment as that equipment that is directly related to interstate commerce. There currently are insig-

nificant amounts of rail property that is not directly related to interstate commerce and so no as-

sociated fiscal impact. However, this bill may impact the commuter rail which will not be di-

rectly involved in interstate commerce and will likely have a significant quantity of imported tan-

gible goods.

This bill creates a new fund and provides for continuing appropriations. The LFC has concerns

with including continuing appropriation language in the statutory provisions for newly created

funds, as earmarking reduces the ability of the legislature to establish spending priorities.

TECHNICAL ISSUES

There is no effective date for this bill and so it is assumed that the effective date is May 17

th

,

2006. This will pose problems for NMDOT in terms of administering and collecting this tax and

educating taxpayers about the new rate and new method of valuation.

NF/mt