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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

2/6/07

HB 472

SHORT TITLE

Municipal Tax Distributions

SB

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

(5,650)

(11,300) Recurring General Fund

5,650

11,300 Recurring

Local

Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

Department of Finance and Administration (DFA)

New Mexico Municipal League

SUMMARY

Synopsis of Bill

House Bill 472 creates a mechanism for municipalities to share personal income tax revenues in

exchange for gross receipts tax revenues. The bill creates a municipal income tax distribution

equivalent to 0.275 percent of the adjusted gross income (AGI) for residents within the

municipality. If the new distribution exceeds 0.225 percent of gross receipts, the municipality

can forego 0.225 percent of gross receipts distribution in exchange for the PIT distribution. The

Taxation and Revenue Department (TRD), the Department of Finance and Administration

(DFA), and the NM Municipal League (NMML) must report annually to the revenue

stabilization and tax policy committee (which sponsored HB472) on the distributions and

House Bill 472 – Page

2

FISCAL IMPLICATIONS

TRD estimates that the impact will be an $11.3 million reduction in general fund revenue. Since

the effective date is January 1, 2008, half of a full year impact is accrued to FY08. The impact is

estimated using current zip codes from personal income tax returns.

SIGNIFICANT ISSUES

The NM Municipal League, an association that represents the state’s municipalities, reports that

the municipalities are too dependent on gross receipts tax for general purpose revenue and suffer

during recessions. Including a distribution on personal income taxes, according to NMML,

would diversify municipal revenues.

TRD:

The table below provides approximate estimates of the net impact on municipalities using

personal income tax information from tax year 2004 and estimates of the gross receipts tax

base for calendar year 2006. Thus, the estimates should be viewed as approximating effects if

the bill were in place as of calendar year 2006. These are only approximate estimates and

are not intended to indicate the exact amount that would be distributed to any

community. There is not enough information currently available to make that

calculation.

Illustration: Estimated Impacts Proposed Legislation by Municipality

Municipality

Estimated FY06

Distribution

Estimated

New

Distribution

Change from

Estimated

Distribution

Alamogordo

7,645,621 7,645,621 -

Albuquerque

187,290,651 187,290,651 -

Angel Fire

1,015,537 1,015,537 -

Artesia

4,495,551 4,630,160

134,609

Aztec

1,793,009 2,055,529

262,520

Bayard

231,704

262,375

30,671

Belen

2,594,947 2,819,107

224,160

Bernalillo

1,156,220 1,251,977

95,757

Bloomfield

2,299,708 2,389,421

89,713

Bosque Farms

428,774

627,581

198,807

Capitan

178,085

217,403

39,318

Carlsbad

7,862,965 7,862,965 -

Carrizozo

143,156

156,008

12,853

Causey

4,367

5,680

1,313

Chama

302,105

302,105 -

Cimarron

124,817

142,324

17,507

Clayton

483,100

483,100 -

Cloudcroft

268,888

298,841

29,953

Clovis

9,698,928 9,698,928 -

Columbus

81,688

370,317

288,629

Corona

29,535

40,475

10,939

Corrales

1,121,491 1,646,724

525,234

Cuba

257,210

432,513

175,303

Deming

3,347,633 3,347,633 -

House Bill 472 – Page

3

Illustration: Estimated Impacts Proposed Legislation by Municipality

Municipality

Estimated FY06

Distribution

Estimated

New

Distribution

Change from

Estimated

Distribution

Des Moines

31,580

159,714

128,134

Dexter

296,594

346,943

50,349

Dora

40,447

53,961

13,514

Eagle Nest

78,349

78,349 -

Edgewood

916,761 1,259,679

342,918

Elephant Butte

166,367

294,622

128,254

Elida

28,707

215,376

186,669

Encino

13,860

18,058

4,198

Espanola

4,206,885 4,206,885 -

Estancia

414,897

414,897 -

Eunice

958,740

958,740 -

Farmington

26,387,168 26,387,168 -

Floyd

37,451

650,525

613,075

Folsom

7,196

12,953

5,757

Fort Sumner

193,890

193,890 -

Gallup

8,514,177 8,514,177 -

Grady

12,456

351,375

338,918

Grants

2,316,516 2,316,516 -

Grenville

680

101,570

100,890

Hagerman

142,165

156,564

14,399

Hatch

311,914

332,022

20,108

Hobbs

14,966,735 14,966,735 -

Hope

4,826

261,686

256,859

House

37,903

38,488

586

Hurley

145,742

150,023

4,281

Jal

358,167

362,380

4,213

Jemez Springs

69,894

183,334

113,440

Lake Arthur

26,691

82,756

56,065

Las Cruces

28,695,585 28,695,585 -

Las Vegas

3,447,927 4,422,414

974,487

Logan

114,145

285,178

171,033

Lordsburg

576,048

576,048 -

Los Alamos

9,454,618 9,454,618 -

Los Lunas

4,177,966 4,806,133

628,167

Los Ranchos

1,112,030 1,206,394

94,364

Loving

112,685

133,445

20,760

Lovington

2,713,893 2,713,893 -

Magdalena

141,247

255,724

114,477

Maxwell

28,405

45,226

16,821

Melrose

79,163

93,328

14,165

Mesilla

382,545

544,492

161,947

Milan

898,387

898,387 -

Moriarty

971,691

974,400

2,708

Mosquero

17,123

64,560

47,437

Mountainair

136,428

155,222

18,795

Pecos

141,258

207,444

66,186

Portales

2,313,386 2,313,386 -

Questa

212,649

331,285

118,636

House Bill 472 – Page

4

Illustration: Estimated Impacts Proposed Legislation by Municipality

Municipality

Estimated FY06

Distribution

Estimated

New

Distribution

Change from

Estimated

Distribution

Raton

1,579,886 1,579,886 -

Red River

417,377

439,577

22,199

Reserve

55,598

73,330

17,732

Rio Rancho

12,382,570 12,636,025

253,456

Roswell

11,558,942 11,600,528

41,586

Roy

28,497

438,170

409,674

Ruidoso

3,146,948 3,146,948 -

Ruidoso Downs

1,341,714 1,341,714 -

San Jon

73,900 2,566,076 2,492,176

San Ysidro

52,051

53,785

1,734

Santa Clara

43,355

183,339

139,984

Santa Fe

39,752,907 39,752,907 -

Santa Rosa

993,013

993,013 -

Silver City

3,773,987 3,773,987 -

Socorro

1,994,658 2,050,706

56,049

Springer

98,610

115,596

16,987

Sunland Park

1,376,145 1,376,145 -

Taos

4,679,004 4,679,004 -

Taos Ski Valley

508,463

508,463 -

Tatum

247,803

383,628

135,825

Texico

34,895

73,889

38,994

Tijeras

413,503

834,898

421,394

Truth or

Consequences

1,011,317 1,136,931

125,613

Tucumcari

1,415,397 1,421,860

6,463

Tularosa

345,482

441,625

96,143

Vaughn

104,785

131,356

26,571

Virden

2,276

5,363

3,086

Wagon Mound

66,931

66,931 -

Willard

5,416

14,847

9,432

Williamsburg

25,685

43,141

17,456

Totals

436,800,739 448,103,189 11,302,449

ADMINISTRATIVE IMPLICATIONS

TRD:

The PIT forms would need to change in tax year 2008 to determine the site of residence of

income tax payers, which is not reported on current tax returns. These changes could not be

made before tax year 2008. Therefore, this information would not be available when the

modified distribution formula takes effect. Although the proposal authorizes the Department

to come up with an alternative means of determining local distribution in 2007, the lack of

accurate residence information will make it difficult for the Department to do so.

TECHNICAL ISSUES

Taxpayers who recognize losses in a given year often report negative figures for adjusted

House Bill 472 – Page

5

gross income. In tax year 2004, total adjusted gross income in one municipality – Causey--

summed to a negative amount. The proposal should probably be amended to specify that AGI

totals on which the proposed distributions would be based would exclude returns which

report negative AGI. The fiscal impact estimates shown above are based on this presumption.

The proposal does not specify what revenue source TRD is to use in making the required

distribution. The bill should specify the intended source. Distributions based on AGI would

presumably be from individual income tax revenues. The largest component of income tax

payments is made through the Withholding Tax. This would be an appropriate source for the

proposed distributions

NF/mt