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F I S C A L I M P A C T R E P O R T
SPONSOR Wirth
ORIGINAL DATE
LAST UPDATED
2/21/07
3/15/07 HB 990/aHTRC/aSFC
SHORT TITLE Real Property Transfer Tax Credit
SB
ANALYST Francis
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY07
FY08
FY09
Insignificant
($200.0) Recurring-
Increasing General Fund
(Parenthesis ( ) Indicate Revenue Decreases)
SOURCES OF INFORMATION
LFC Files
Responses Received From
Energy Minerals and Natural Resources Department (EMNRD)
Taxation and Revenue Department (TRD)
SUMMARY
Synopsis of SFC Amendment
The Senate Finance Committee amended House Bill 990 to restore the carry forward of the
credit to twenty years and clarify that the limit on a conveyance prior to January 1, 2008, is
$100,000 and after that the limit is $250,000. The amendment also requires that the conveyance
will not adversely affect the property rights of contiguous landowners.
Synopsis of HTRC Amendment
The House Taxation and Revenue Committee amended House Bill 990 changed a grandfathering
provision. The original bill stipulated that credits claimed prior to January 1, 2007 can be carried
forward 20 years. The amendment stipulates that a credit for a conveyance that was made prior
to January 1, 2008, that is less than $100,000 can be carried forward 20 years.
pg_0002
House Bill 990/aHTRC – Page
2
Synopsis of Original Bill
House Bill 990 increases the personal and corporate income tax credit for the donation of land
for open space, natural resource or biodiversity conservation, agricultural preservation or
watershed or historic preservation from $100,000 to $250,000. Credits claimed after January 1,
2007, can only be carried forward 5 years. Credits claimed prior to January 1, 2007, can be
carried forward 20 years.
Taxpayers apply to the Energy Minerals and Natural Resources Department (EMNRD) for
certification that the donation meets the criteria, EMNRD will issue a certificate indicating the
maximum amount of the credit available to the taxpayer. This certificate must be included along
with the claim to the Taxation and Revenue Department (TRD) which will give the taxpayer a
document that states the value of the credit. The document then can be sold or otherwise
exchanged one time to any other taxpayer.
The exchange of credit documents can only be transferred through a qualified intermediary who
shall keep accounts of credits being transferred. The minimum amount of transfer is $10,000.
The intermediary nor the intermediary’s employees cannot be a convicted felon, cannot have had
a license revoked, and cannot be an accountant or real estate professional.
If a credit is claimed as a federal itemized deduction, the amount must be added back into
income for the purposes of state income tax. Taxpayer is defined to be any US citizen or
resident, a limited liability company, a domestic corporation, an estate, including foreign estates,
or a trust.
FISCAL IMPLICATIONS
Changing the carry-forward back to 20 years as amended should not change the fiscal impact
calculated here. Those taxpayers who are likely to need a 20 year carry-forward may transfer the
credit to a taxpayer who can use it more quickly. The “adverse impact" provision may result in
fewer conveyances but it is difficult to estimate the fiscal impact.
EMNRD:
There are no direct fiscal implications to the Energy, Mineral and Natural Resources
Department (EMNRD) Forestry Division. If the amendment to Section 7-2-18.10 NMSA
1978 and Section 7-2A-8.9 NMSA 1978 passes, it will increase the number of land
donations and the amount of tax credit used. It will impact the amount of income tax
collected. In 2004, EMNRD certified six (6) land donations with a total tax credit amount
of $501,050. In 2005, EMNRD certified fourteen (14) donations with a total tax credit
amount of $1,005,540.
Using data from TRD, there are expected to be an average of 10 claims with property values
totaling $1 million under the current credit (similar to EMNRD data). With the increase to
$250,000 credit, the fiscal impact in FY08 would be $200,000 at the current rate of credits
claimed, which according to Taxation and Revenue Department (TRD) is 20 percent. Due to the
transferability, it is assumed that 50 percent of the credit will eventually be used, up from
approximately 20 percent assumed in FY08. The net fiscal impact is $500 thousand in reduced
tax revenues by FY11. This assumes that intermediaries have entered the market and large
taxpayers have learned of the program and can take advantage of it. Table 1 shows the fiscal
pg_0003
House Bill 990/aHTRC – Page
3
impacts. TRD reports that the impact in FY08 is likely to be small because the new transferable
credits are likely to be claimed on tax year 2008 returns filed in April of 2009, although they
could affect returns for estimated payments prior to that.
Table 1: Fiscal Impact
Claim Rate
Impact
FY08
0%
-
-
-
FY09
20%
200,000
400,000
(200,000)
FY10
30%
300,000
600,000
(300,000)
FY11
40%
400,000
800,000
(400,000)
FY12
50%
500,000
1,000,000
(500,000)
SIGNIFICANT ISSUES
Land donations have become an important source for states and local governments to create open
space, wilderness areas and protected areas. Many owners of land do not want to see it
developed for a variety of reasons and tax incentives such as this one allow them to lower their
income tax liability as a result.
Attached is a state by state comparison for 10 states that have similar credits compiled by the
Land Trust Alliance (LTA). (These are states that responded to LTA). Only three of the states
have transferable credits and most have a carry forward of 5 to 20 years (South Carolina has an
unlimited carry forward).
According to the Conservation Resource Center, a non profit tax credit exchange in Colorado,
the landowners who transfer their credits through the Center receive 82 percent of the value of
the credit. (
http://www.taxcreditexchange.com/whywork.html#one
) That means that a portion of
the credit will go to the Center for administration and a buyer who will receive the credit to use
against its tax liability.
How transferability would work. When a land donor receives the certificate from EMNRD
with the amount of the credit, the donor would have two options. If the donor has sufficient tax
liability, then the donor would hold the certificate and claim the credit over five years. If,
however, the donor does not have sufficient tax liability, the donor could sell the certificate to an
intermediary at a discounted price. A taxpayer with significant tax liability would buy the credit
from the intermediary and claim the credit with TRD.
Example:
Donor donates land with a value of $1,000,000 qualifying her for the maximum $250,000 credit.
Her tax liability is only $10,000, she can transfer the remaining $240,000 to the intermediary,
who buys it for 80 percent of the value or $192,000. The intermediary finds a taxpayer who has
at least $240,000 in tax liability who buys the credit from the intermediary for $216,000. In this
example, the credit is divided between the donor, the intermediary and a taxpayer who buys the
credit.
Table One: Example of Transfer
Property Value
1,000,000
Tax Credit
250,000
pg_0004
House Bill 990/aHTRC – Page
4
Donor
Tax Liability
10,000
Remaining Credit
240,000
Sale to Intermediary at 80%
192,000
Intermediary
240,000
Sale to Taxpayer at 90%
216,000
Intermediary Income
24,000
Taxpayer
Tax Liability
240,000
Cost of Credit
216,000
Taxpayer Savings
24,000
From the state’s perspective, only 80 percent of the credit went to the targeted taxpayer. This
level is probably efficient enough to make the program worthwhile. If the donor only received
50 cents on the dollar, this would be considered an inefficient program in that half the credit is
going to unintended taxpayers. Transferability is an excellent tool but must be carefully
monitored to assure that all parties have adequate information.
TECHNICAL ISSUES
The amendment requires that the conveyance does not impact the property rights of contiguous
landowners but there is no specific information or guidance on determining how a conveyance
impacts these landowners. There also is no procedure for appeal or adjudication.
EMNRD:
The amended Part H in Section 7-2-18.10 NMSA 1978 and Section 7-2A-8.9 NMSA
1978 specifies January 1, 2008 for the initiation of transferability of credits issued on or
before January 1, 2007. Several applications are pending EMNRD certification for
donations made on or before December 31, 2006. If certified, will these tax credits fall
within the parameters of the amended Land Conservation Incentives Act. Or, is it the
intention of the amendment Sponsor to begin the effects of this amended Act on land
donations made after January 1, 2007.
OTHER SUBSTANTIVE ISSUES
Land donors for conservation also enjoy a federal deduction from income for federal tax
purposes but this deduction is scheduled to expire this year. It is 50 percent of the net value (the
assessed value – the value in conservation land) for regular property and 100 percent for
agricultural land and can carry it forward for 16 years. There is a bill pending in Congress to
make this permanent.
ADMINISTRATIVE ISSUES
TRD reports that the switch from 20 year carry forward to 5 year carry forward will be much
more efficient to administer.
pg_0005
House Bill 990/aHTRC – Page
5
ALTERNATIVES
As currently written, there are no restrictions on the operations of intermediaries. One option
would be to direct EMNRD to develop regulations for these intermediaries such as rate setting.
An amendment clarifying the method by which the adverse impact on adjoining landowners is
determined would address this issue.
WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL
There will be less land donated for conservation purposes.
NF/mt
pg_0006
Conservation Tax Credit State by State Comparison
KEY
CALIFORNIA
CONNECTICUT
COLORADO
DELAWARE
MARYLAND
State Law & Effective Date
Natural Heritage (2002)
Preservation Credit
Land Conservation/
Preservation Credits
Gross Conservation
Easement Credit (2000)
Land & Historic Resource
Conservation Credit (2000)
Conservation Property
Tax Credit (1986)
Available Credit
Corporate Franchise (income)
Tax & Personal Income Tax
Corporate Income Tax
Colorado Residents,
Corporations, Trusts, Estates Taxes
Personal and Corporate Income Taxes Income Tax
Conservation Benefits Preserve wildlife & wildlife habitat,open
space, agricultural land, fish, plants,
water,or endangered species.
Conditions, must meet one or more:
(a) meet goals of Conservation Plan,
(b) protect species or habitat,
(c) conserve threatened farmland
in unincorporated areas, zoned
for agricultural use, etc.
(d) includes water rights, etc.
(e) used for or access to parks
or open space, etc.
Open Space Land:
(a) conservation of natural or scenic
resources,
(b) protect natural streams or water
supply,
(c) conservation of soils, wetlands,
beaches, or tidal marshes,
(d) enhance neighborhood parks,
forests, wildlife preserves, nature
reservations, or other open space,
(e) enhance public recreation
opportunities,
(f) preserve historic sites or
Preserve recreation, education,
habitat, open space,
or historical property
Open Space: natural habitat, rare biological
and natural resources, historic resources
Conservation Property:
unimproved, not used for
commercial purpose, and subject to
conservation easement.
Limit on Tools/Benefits Fee Interests, Conservation
Easements, and Water Rights /
No credits on any required donation
Fee Interests and Conservation
Easement
Conservation Easement only
Fee Interest and Conservation Easement Conservation Easement only
Size of Credit
55% of Fair Market Value
50% of Fair Market Value
100% of first $100,000 and 40% of
additional Fair Market Value
40% of Fair Market Value
100% of property tax owned
Caps on Credits
$100 million / year statewide for
FY 01-02 through 04-05
Only one credit per year not to
exceed $260,000.
$1 million / year statewide for 1999 and ten
years thereafter.
No
Carry Forward Periods Eight succeeding years
Twenty succeeding years
Five succeeding years
Fifteen consecutive years
following donation
Transferability
N/A
Yes, but only once
No
No
Refundability
N/A
Yes, only a partial refund up to $50,000
if state revenues are above
specified thresholds.
No
No
Certification
Yes, Wildlife Conservation Board
must approve (WCB). Donor applies
to Donee. Donee must hold public
hearing before acceptance. Donee
must submit Plan of Acceptance to WCB.
WCB musts provide Franchise Tax Board
with list of all approved donors and credits.
No
Yes, Department of Natural Resources &
Environmental Control, in conjunction with
Department of State and Division of
Historical & Cultural Resources will certify.
Yes, donation must be approved by
Board of Public Works
Recipient
State Resource Agency (SRA),
Local Government (LG), Nonprofit 501(c)(3)
Land & Water Conservation Organization
designated by SRA or LG.
State, Political Subdivision, Nonprofit
Land Conservation Organization
Government Entity or Charitable
Organization [501(c)(3)] pre-existing
donation by two years.
Public Agencies and Qualified Private
Nonprofit Charitable Organizations.
Maryland Environmental Trust
Note: The information reported above reflects the language of each State’s conservation tax credit statutes and agency descriptions thereof. Information institutionalized in broader tax codes was
beyond the scope of this review and may not be reported.
For More Information on the NC Conservation Tax Credit Program, Log onto: http://ncctc.enr.state.nc.us
pg_0007
Conservation Tax Credit State by State Comparison
KEY
MISSISSIPPI
NEW MEXICO
NORTH CAROLINA
SOUTH CAROLINA
VIRGINIA
State Law & Effective Date
Income Tax Credit for Donations of Land
that are Priority Conservation Sites (2003)
Land Conservation
Incentives (2004)
Conservation Tax
Credit (1983)
Conservation Tax
Credit (2001)
Land Conservation
Incentives (2000)
Available Credit
Individual Income Tax
Corporate Income
and Franchise Tax
Corporate and Individual
Income Tax
Any Tax Payer who has
qualified for and claimed
federal charitable contribution
Individual and Corporate
Income Tax
Conservation Benefits Natural Heritage sites and stream bank habitat
along Scenic Stewardship Program streams
Open space, natural resource
or biodiversity conservation,
agricultural preservation,
or watershed or
historical preservation.
Public beach access or use,
public access to public water
or trails, fish and wildlife
conservation, or other similar
land conservation purposes.
Per IRS Code Section 170(h).
Agricultural and forest use, open space, natural
resource, and/or biodiversity conservation, or land,
agricultural, watershed,
and/or historic preservation
Limit on Tools/Benefits Fee Interests and Conservation Easements
Fee Interest and Conservation
Easement / no credit on
donations required for
subdivisions or building permits
Fee Interest and Conservation Easement/
no credit on donations required by local
ordinance or to
increase building density
Fee Interest and
Conservation Easement
Fee Interest and Conservation Easement /
no credit for donations required to obtain
subdivision or building permits,
or to fulfill density requirements
Size of Credit
50% of allowable transaction costs
50% of Fair Market Value
25% of Fair Market Value
25% of federal Charitable
Deduction Value.
50% of Fair Market Value / may claim both
Land Conservation Credit and Historic
Rehabilitation Credit
Caps on Credits
$10,000
$100,000 per year / only one
credit per year.
$500,000 Corporate, and $250,000
Individual plus charitable contribution
$250/acre, not to
exceed $52,500.
$100,000 per year
Carry Forward Periods Ten succeeding years
Twenty successive years
Five successive years
Unlimited, until all credit
is claimed
Five successive years
Transferability
No
No
No
Yes
Refundability
No
No
No
No
Certification
No
Yes, certified by Secretary of
Energy, Minerals, and Natural
Resources
Yes, Certified by Department of
Environment and Natural Resources
No
No
Recipient
N/A
State, Political Subdivision, or
Charitable Organization eligible
to hold land for conservation or
preservation purposes.
State, Local Government, or Qualified
Nonprofit organized to receive and
administer land for conservation purposes.
Qualified Recipient per IRS
Code Section 170(h).
Commonwealth, an instrumentality thereof,
or a Charitable Organization eligible to hold
land for conservation or preservation purposes.
Note: The information reported above reflects the language of each State’s conservation tax credit statutes and agency descriptions thereof. Information institutionalized in broader tax codes was beyond the
scope of this review and may not be reported.
For More Information on the NC Conservation Tax Credit Program, Log onto: http://ncctc.enr.state.nc.us