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

SPONSOR Gutierrez

ORIGINAL DATE

LAST UPDATED

2/27/07

HB 1107

SHORT TITLE Plastic Surgery Gross Receipts

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

($237.6)

Recurring General Fund

($158.4)

Recurring

Local

Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Health Policy Commission (HPC)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

House Bill 1107 creates a new gross receipts tax deduction for receipts of licensed and board-

certified plastic surgeons, so long as receipts are for services provided in the scope of that

certification.

The bill’s provisions will be effective on July 1, 2007.

FISCAL IMPLICATIONS

Based on both New Mexico and national data, TRD estimates that about 30 practitioners will

benefit from the proposed deduction. Each of these practitioners is expected to have taxable

gross receipts of about $200 thousand per year. This suggests a tax base of $6 million will be

eligible for the deduction. Taxed at a statewide rate of 6.6 percent, the proposal would reduce

revenue by $396 thousand in FY08. About 60 percent of that loss would accrue to the general

fund and the remaining 40 percent to local governments.

House Bill 1107 – Page

2

SIGNIFICANT ISSUES

HPC notes that the medical services gross receipts tax deduction enacted in 2004 gave little

benefit to plastic surgeons because it did not apply to receipts from fee-for-service transactions.

Most plastic surgeon receipts are fee-for-service because plastic surgery is not covered by

Medicare or managed care insurance.

HPC also notes that many surgeries performed by plastic surgeons are often performed by other

types of physicians including otolaryngologists, dermatologists, ophthalmologists, gynecologists,

orthopedic surgeons, oral surgeons, maxillofacial surgeons, and general surgeons. The bill would

arbitrarily allow plastic surgeons to receive a deduction for some services while other physicians

providing the same services would not receive a deduction.

LFC notes that while individual deductions from the gross receipts tax may have small fiscal

impacts, their cumulative effect significantly narrows the gross receipts tax base. Narrowing the

gross receipts tax base increases revenue volatility and requires a higher tax rate to generate the

same amount of revenue.

LFC notes that receipts of health practitioners have historically grown faster than receipts of

other industries. Removing receipts from high-growth sectors from the gross receipts tax base

makes it more difficult for tax revenue to keep pace with inflation.

The bill will reduce local government gross receipts tax collections. Many of New Mexico’s

local governments are highly dependent on gross receipts tax revenue.

ADMINISTRATIVE IMPLICATIONS

The proposal will have a minimal administrative impact on TRD.

TECHNICAL ISSUES

TRD is concerned that creating a different type of gross receipts tax deduction than already

exists in Sections 7-9-77.1 or 7-9-93, the proposal may create taxpayer confusion.

ALTERNATIVES

LFC suggests the bill could be targeted to receipts from medically necessary plastic surgery

procedures. Perhaps language could be added so that the deduction only applies to receipts from

procedures that correct things like birth defects, accidental injuries, cancer-related injuries,

burns, and other medically-necessary procedures.

House Bill 688 amends Section 7-9-93, the medical services gross receipts tax deduction enacted

in 2004, to allow deduction of fee-for-service receipts. That bill would allow a deduction for all

fee-for-service receipts, regardless of whether a physician is a certified plastic surgeon.

SS/csd