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 Taylor, T

ORIGINAL DATE

LAST UPDATED

3/1/07

3/9/07 HB 1228/aHTRC

SHORT TITLE Gross Receipts Definitions

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

NFI

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Response Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of HTRC Amendment

The House Taxation and Revenue Department amendment to House Bill 1228 amends the

definition of property so that it will include licenses and franchises except for licenses of

copyrights, trademarks or patents. This amendment allows the bill to clarify the definition of

property in the gross receipts tax base without creating a fiscal impact.

Synopsis of Original Bill

House Bill 1228 amends Section 7-9-3 NMSA 1978 to amend the definitions in the Gross

Receipts and Compensating Tax Act. The bill would remove licenses and franchises from the

definition of “property," leaving the term property to include only real and tangible personal

property, including electricity and manufactured homes.

The bill also amends the definition of “gross receipts" to include receipts from granting a right to

use a franchise employed in New Mexico and to remove the restriction that receipts must be

received from property “located" in New Mexico."

Because the bill has no effective date, its provisions will become effective 90 days after the

legislature adjourns on June 15, 2007 (see Technical Issues).

House Bill 1228/aHTRC – Page

2

FISCAL IMPLICATIONS

The original bill would have excluded transactions in which licenses are sold from the gross

receipts tax base. Removing licenses from the tax base would reverse some of the effects of

House Bill 583 as passed by the 2006 Legislature. However, the House Taxation and Revenue

Committee amendment successfully clarifies language to eliminate that fiscal impact by leaving

licenses taxable except licenses of copyrights, trademarks or patents.

SIGNIFICANT ISSUES

The bill clarifies the impacts of House Bill 583, which was passed by the 2006 Legislature. That

bill amended definitions in the Gross Receipts and Compensating Tax Act to clarify that receipts

from licensing property fore use in New Mexico are subject to the gross receipts and

compensating taxes. These amendments were made in response to the New Mexico Supreme

Court decision on the case KMART Corporation v. Taxation and Revenue Department of the

State of New Mexico

, in which the supreme court decided that the New Mexico’s gross receipts

tax did not apply to receipts from a trademark licensing agreement executed in a state other than

New Mexico, even though the trademark is used in New Mexico.

Although current law is clear that intangible property, including licenses, are subject to the gross

receipts tax, there remains room for argument about what constitutes a taxable “licensing"

transaction. The bill clarifies this ambiguity.

ADMINISTRATIVE IMPLICATIONS

The amended bill has no major administrative impact for TRD.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

House Bill 1228 conflicts with Senate Bill 321, which also amends Section 7-9-3.5 NMSA 1978.

Senate Bill 321 amends the section to exclude receipts of certain temporary staffing firms from

gross receipts taxation.

TECHNICAL ISSUES

Gross receipts tax provisions are easier to implement if they become effective on January 1 or

July 1 since that is when taxpayer instructions are revised.

SS/mt