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

SPONSOR Campos

ORIGINAL DATE

LAST UPDATED

2/05/2007

HB 441

SHORT TITLE Gross Receipt Info For Municipalities

SB

ANALYST Schuss

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY07

FY08

FY09 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

Unknown Unknown Unknown Recurring General

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

New Mexico Municipal League (NMML)

SUMMARY

Synopsis of Bill

House Bill 441 would expand the exception to confidentiality of tax return information to allow

the Taxation and Revenue Department to release information to municipalities and counties

about the amount of gross receipts taxes paid by individual taxpayers in their jurisdiction. Under

present law the department is authorized to release to a county or municipality that has imposed a

local option gross receipts tax the names, taxpayer identification numbers and addresses of

registered gross receipts taxpayers reporting gross receipts within their jurisdiction. The proposal

would expand this permission to include information on “gross receipts and gross receipts taxes

paid" by taxpayers.

FISCAL IMPLICATIONS

TRD reports that there would be a need to add an additional FTE due to the additional requests

for information regarding gross receipts tax.

SIGNIFICANT ISSUES

House Bill 441 gives further access to information for municipalities and counties. With passage

of this bill, they will be able to access information on gross receipts taxes and gross receipts

taxes paid by a request made to the Taxation and Revenue Department.

House Bill 441 – Page

2

TRD notes that House Bill 441 also re-instates a section of the confidentiality statutes that was

passed by the Legislature in 2005 but was “stepped on" by another bill amending the same

section of law that was signed later. The re-instated section allows the department to provide

information to the General Services Department to be used to develop jury selection pools.

NMML states that currently municipalities and counties have no method of determining if a

taxpayer located in the municipality is reporting to the department correctly. Local government

officials, given the ability to verify the amount of tax being reported by taxpayers in the

municipality, could become an important mechanism to assure that the state and local

governments are receiving the proper amount of tax from taxpayers. With employees of the

municipality or county being subject to the same penalties as department employees the risk of

distribution of the confidential information will be no greater than it is now.

The New Mexico Municipal League has passed a resolution supporting the issue.

ADMINISTRATIVE IMPLICATIONS

The Taxation and Revenue Department could see an increase in requests for this information

which could have an impact on administration, depending on the number of requests received.

According to TRD, preparing reports in response to requests from local governments would

become a new responsibility for the department. Since the likelihood is that almost all

jurisdictions will want these reports on a regular basis, the new responsibility will require an FTE

to handle these requests. System changes will be required that will entail additional non-

recurring expense. The bill provides no appropriation, so these functions will have to be met out

of the Department’s existing budget.

Information provided to the local governments will likely lead to numerous requests for TRD to

follow-up, either with audits or less formal means of checking whether taxpayers have accurately

reported tax due. Again, there are no added resources for the department proposed in the bill.

TRD adds that the department’s auditors are fully committed at present and any new functions

performed pursuant to the bill will simply crowd out ongoing audit and collection activities, with

the likelihood that there would be no net increase -- and possibly a decrease -- in collections.

Municipalities and counties will be required to designate individuals that may receive and review

the reports from TRD.

TECHNICAL ISSUES

According to TRD, the proposed amendments to Section 7-1-8 NMSA would make local

government employees who receive taxpayer information subject to the same criminal penalties

for misuse of the information that currently apply to the department’s employees and to

employees of the Attorney General’s Office with such access. Since the proposal provides no

guidelines as to who will receive the information or for what purpose it will be used, it would

seem likely that some local government employees may end up exposed to possible

misdemeanor prosecution. To help limit this problem, the proposal could be modified to explain

that employees of local governments receiving the information could share it with other

employees whose duties require that they have access to the information.

House Bill 441 – Page

3

OTHER SUBSTANTIVE ISSUES

TRD has included the following in their analysis:

House Bill 441 would allow local governments to know whether all taxpayers in their

jurisdiction are reporting and paying all of the tax that is due. It is unclear, however, how local

governments would use this information. They do not have the authority to conduct audits, since

this is reserved to the Taxation and Revenue Department. They would not be allowed to publish

the information, or to confront taxpayers themselves. The most likely outcome is that they

would make a series of requests of the department to conduct investigations into whether

taxpayers are paying correctly. These requests will probably not provide important audit leads

because the local governments do not have access to as much information – and do not have as

much expertise with the tax code – as the Department’s audit managers, who currently determine

the department’s priorities for audit work. The department already applies the overwhelming

majority of its audit and collection resources to the Gross Receipts Tax. The proposal does not

contain an appropriation to enable the department to expand those resources. Thus, the most

likely outcome of the proposal is a series of requests for audits to which the department will be

unable to respond.

Confidentiality of taxpayer information is an extremely important component in securing the

voluntary compliance of taxpayers. Over 97 percent of all amounts collected by the state are

voluntarily reported. Any policy change that undermines taxpayers’ motivation to voluntarily

comply with tax requirements poses significant risks to the tax system.

BS/csd