Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

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

SPONSOR HAGC

ORIGINAL DATE

LAST UPDATED

2/22/07

2/26/07 HB 1011/HAGCS

SHORT TITLE Chile Production Tax Credits

SB

ANALYST Schardin/Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

(1.6)

Recurring General Fund

(0.4)

Recurring

Local

Governments

(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates SB 1191

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Agriculture (NMDA)

Economic Development Department (EDD)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of HAGC Substitute

The House Agriculture and Water Resources Committee substituted House Bill 1011 making it a

duplicate of Senate Bill 1191. The HAGC substitute amends the Investment Credit Act to

redefine manufacturing to include “chile farming" and exempts chile-related manufacturing from

the employment requirements of the Act. This would allow the investment tax credit for

purchases of chile farming and processing equipment. The investment tax credit allows a credit

against CRS taxes—withholding, gross receipts taxes and compensating taxes—up to 85 percent

of the combined liability. The credit may be carried forward if the credit exceeds liability and

can be refunded under certain circumstances.

The changes apply to qualified equipment purchases on or after January 1, 2007.

House Bill 1011/HAGCS – Page

2

FISCAL IMPLICATIONS

Using Department of Agriculture data, the amount of credit likely to be claimed is $2.0 million.

Since HB1011/HAGCS allows the growers and processors to take the credit without a job

creation requirement, a higher share of companies will likely claim the credit than is the case

with other manufacturers who are subject to the job creation requirements. Part of the impact is

on local governments due to the gross receipts share of the combined liability taxes.

The Economic Development Department (EDD) reports that the fiscal impacts are likely to be

substantial:

Taxation and Revenue has not determined the amount of the fiscal impact for this facility.

However, the impact would probably be substantial as this credit would apply to the

purchase of chile farming equipment. New Mexico’s chile industry is substantial and

there are a number of chile farmers that would purchase new equipment under this new

provision who are currently paying compensating and gross receipts taxes. The

exemption of the job creation component would limit the increase in revenues to the

general fund because the purchase of new equipment would not increase payrolls.

Therefore, the fiscal implications are substantial.

According to TRD, representatives of NMSU estimate that about 81.6 thousand tons of chile is

harvested in New Mexico each year. About 17.6 thousand tons are dry chile and 64 thousand

tons are raw chile. Multiplying these figures by $100 per ton for dry chile and $20/ton for raw

chile suggests credits will total $3,040 thousand.

NMSU believes that about 30 percent more chile is processed than harvested each year since

New Mexico processors also process chile harvested in Arizona, Texas, and Mexico. Tax credits

for chile processors are expected to be 30 percent higher than for harvesting, or $3,952 thousand.

Therefore, total credits due to harvesting and processing are expected to be $6,992 thousand.

TRD assumes that half of the credits will be claimed against the gross receipts tax and half

against withholding tax. Of the 50 percent of credits claimed against gross receipts tax, 60

percent of loss revenue will be to the general fund and the other 40 percent to local governments.

SIGNIFICANT ISSUES

EDD reports that the bill provides an incentive to New Mexico chile producers and processors.

NMDA reports that high production costs, labor shortages, flooding, drought, and other factors

have created difficult conditions for New Mexico’s chile industry. New Mexico chile industry

also faces greater competition from low-cost chile imports from Mexico, Peru, India, and other

countries. New Mexico chile growers currently produce over 60 percent of chile sold in the

United States.

ADMINISTRATIVE IMPACTS

The bill creates significant administrative impacts for TRD because an estimated 2 thousand

taxpayers will claim the credit each year. TRD will develop instructions, publish a new

certificate, amend audit procedures, and verify taxpayer eligibility.

SS:NF/csd