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 Beffort

ORIGINAL DATE

LAST UPDATED

1/30/07

3/13/07 HB

SHORT TITLE

Agricultural Water Conservation Tax Credits

SB 291/aSCORC

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

($6,250.0)

($8,950.0) Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department (TRD)

Department of Agriculture Census of State and Local Agriculture

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of SCORC Amendment

The Senate Corporations and Transportation Committee made several amendments to Senate bill

291. First, the amendment changes the responsibility for promulgating rules to the NM

Department of Agriculture from the Soil and Water Conservation Commission but requires the

latter’s advice and consent. Second, the amendment defines “taxpayer" to include partnerships,

limited liability corporations, or other pass-through entities and prorates the credit to share of

ownership. Both of these provisions apply to the personal income tax and corporate income tax.

Synopsis of Original Bill

Senate Bill 291 allows a taxpayer to claim a credit against personal or corporate income tax

liability of up to 75 percent of incurred expenses up to $10,000 for eligible improvements that

conserve water used in agriculture. The taxpayer must own or lease the water right for the land,

file an NM tax return, not be a dependent of another taxpayer and does not take the credit for

both personal and corporate income tax.

Senate Bill 291/aSCORC – Page

2

An eligible improvement is one made after January 1, 2008, is consistent with a water

conservation plan approved by the local soil and water conservation district, and designed to

conserve water on farm, ranch or timber land. Co-owners of the land can receive pro-rata shares

of the credit and the credit can be carried forward for five years if it exceeds the liability in the

current year.

FISCAL IMPLICATIONS

The amendments by SCORC do not change the fiscal impact estimated in the original bill.

TRD:

Note: Fiscal impacts of the bill have been revised due to new information, not primarily

because of the amendments.

According to the USDA’s Census of Agriculture, 2003 Farm and Ranch Irrigation

Survey 2,500 New Mexico farms spent a total of $25.6 million on all types of investment

in irrigation equipment, land improvement and computer technology in that year. For the

U.S. as a whole, that figure had declined slightly over the previous five years. $6.2

million of the total was spent on water conservation investments. The estimate assumes

that a substantial part of the remaining investment would qualify for the proposed credit,

so that the total credit base of expenditures would be about $14 million in tax year 2008.

Assuming the $14 million is spread over the 2,500 farms that had investments of any kind

yields an average per farm of about $5,500. At a credit rate of 75 percent, this would

yield potential credits of $4,125 per farm. Based on farm income information from the

Census of Agriculture and income statistics from the federal income tax returns of New

Mexico residents, it appears that the average farm operator will have between $1,000 and

$2,000 of annual income tax liability. Thus, the average farm would not be able to take

advantage of the full $4,1215 in credits in one year. The fiscal impact assumes that

taxpayers will use 60 percent of the credits in the year in which they are generated, and

the remainder are carried forward and used over the next four years. Credits earned in

tax year 2008 are assumed to be claimed for the first time in the spring of 2009 when the

tax returns for tax year 2008 are due. The same pattern is assumed in future years.

SIGNIFICANT ISSUES

Farm income tax liability is generally low due to the nature of the industry and the tax treatment

of agriculture both at the state level and the federal level. The average farm had a net income of

$19, 373 in 2002, according to the Department of Agriculture. Credits for expenditures such as

irrigation equipment will have the effect of completely erasing tax liability in many cases.

NF/mt