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

SPONSOR Cote

ORIGINAL DATE

LAST UPDATED

2/07/07

2/20/07 HB 547/aHTRC

SHORT TITLE Locomotive Fuel Gross Receipts

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

(*See Narrative for

FY10 impact)

Recurring General Fund

(*See Narrative for

FY10 impact)

Recurring Small Cities

Assistance Fund

(*See Narrative for

FY10 impact)

Recurring Small Counties

Assistance Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Economic Development Department (EDD)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of HTRC Amendment

The House Taxation and Revenue Committee amendment to House Bill 547 changes the

provisions created in this bill from deductions to exemptions from the gross receipts and

compensating taxes. The amendment also adds a contingent July 1, 2009 effective date, which

will take effect only if EDD certifies to TRD before July 1, 2009 that construction of a railroad

locomotive refueling facility has commenced in Dona Ana County.

Synopsis of Original Bill

House Bill 547 creates a new gross receipts tax deduction for receipts for the sale of fuel to a

common carrier for use in a locomotive engine. The bill also creates a new compensating tax

deduction for the value of fuel used by a common carrier in a locomotive engine. The new

deductions will apply to sales that occur after July 1, 2009.

House Bill 547/aHTRC – Page

2

FISCAL IMPLICATIONS

Based on information from the U.S. Department of Transportation, TRD estimates that

approximately 59 billion ton-miles of freight are carried on New Mexico’s railroad lines each

year. Based on an estimate of 710 ton-miles traveled per gallon of fuel, TRD estimates that about

82.6 million gallons of railroad fuel are consumed in New Mexico each year.

Of the 82.6 million gallons of railroad fuel consumed in New Mexico each year, it is estimated

that about 40.6 million are purchased in California, where sales tax is paid, making those 40.6

million gallons eligible for an existing compensating tax credit. The remaining 42 million gallons

will qualify for the exemptions created in the amended bill.

Assuming an average fuel price of $2 per gallon, the tax base eligible for the new exemptions

will be $84 million (42 million gallons X $2). Since the compensating tax rate is 5 percent, tax

collections will be reduced by $4.2 million. Eighty percent of this revenue reduction will accrue

to the general fund ($3,360 thousand) and 20 percent will accrue to the small cities and small

counties assistance funds ($840 thousand).

Summary of FY10 Impacts (dollars in thousands)

General Fund: (3,360.0)

Small Cities Assistance Fund: (420.0)

Small Counties Assistance Fund: (420.0)

If construction of a railroad locomotive refueling facility commences before July 1, 2009, the

exemptions created in this bill will apply to fuel sold on or after July 1, 2009, so the fiscal

impacts calculated above will apply only to FY10 and beyond.

SIGNIFICANT ISSUES

In October 2006, Union Pacific railroad announced plans to build a new terminal facility four

miles west of Santa Teresa, New Mexico, which is near El Paso, Texas. However, Union

Pacific’s agreement to build the facility in New Mexico is contingent on removal of New

Mexico’s gross receipts and compensating tax liabilities for locomotive fuel by 2009.

The Santa Teresa facility will employ 260 Union Pacific employees who currently work in El

Paso as well as 285 new employees. The 285 new jobs will be mainly engineers and mechanical

workers. The Santa Teresa facility will be constructed on about 1 thousand acres of Bureau of

Land Management (BLM) and State of New Mexico land. Union Pacific is said to be waiting to

purchase that land until the tax deductions contained in this bill are enacted.

By 2015, Union Pacific plans to construct an intermodal ramp at the Santa Teresa facility that is

expected to process about 100 thousand container units each year. This type of facility is used to

transfer shipping containers from one train to another or from train to truck.

In 2005, federal Safe, Accountable, Flexible, and Efficient Transportation Equity Act provided

$14 million to relocate Union Pacific’s facility from El Paso to Santa Teresa. About $5 million

of that federal funding will be used to construct a road connecting Pete Domenici Highway in

Santa Teresa to the new Union Pacific facility.

Currently, Union Pacific is also negotiating with the Arizona Land Department for a parcel of

House Bill 547/aHTRC – Page

3

land halfway between Tucson and Phoenix. The company plans to build a new switching station

there. According to the Arizona Joint Legislative Budget Committee, Union Pacific has not

sought any tax relief from the State of Arizona as a precursor to doing business in that state.

ADMINISTRATIVE IMPLICATIONS

Administrative impacts on TRD will be minimal.

By converting the proposed tax provisions from deductions to exemptions, the House Taxation

and Revenue Committee amendment will no longer require taxpayers claiming those tax

incentives to report the gross receipts and then show the amount deducted. This reduces the

amount of information available to TRD, auditors, and policymakers. It is more difficult for

auditors to determine whether exemptions are being claimed correctly.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

The plan to relocate Union Pacific’s facility from El Paso to Santa Teresa may fall through.

SS/mt