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

SPONSOR Ortiz y Pino

ORIGINAL DATE

LAST UPDATED

2/4/07

3/05/07 HB

SHORT TITLE Working Families Tax Credit

SB 317/aSCORC/aSFC/aSFL#1

ANALYST Francis/Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

(22,750.0)

(106,345.0)

(77,263.0) Recurring General Fund

(288.0)

(415.0) Recurring

Local

Government

(Parenthesis ( ) Indicate Revenue Decreases)

Relates to HB 236, HB 530, HB 785, HB 838, HB 839, SB 1, SB 265, SB 284, SB 291, SB 463,

SB 477, SB 701, SB 785, SB 809, SB 1138

Conflicts with HB 23, HB 256, HB 524, SB 161, SB 326

SOURCES OF INFORMATION

LFC Files

Responses Received:

Several agencies responded to the underlying bills that are related to the

provisions amended here.

SUMMARY

Synopsis of Senate Floor Amendments

Accelerate Income Tax Rate Reductions: This provision accelerates the current phase-in of the

personal income tax rate reductions. Under current law, the top personal income tax rate will be

5.3 percent in tax year 2007 and 4.9 percent in 2008. This bill would accelerate the schedule so

the rate would be 4.9 percent in 2007 forward, a reduction of 0.4 percent in the top personal

income tax rate in 2007.

Tax Rate Cut

Tax Year Current Law SB265

2006

5.3%

5.3%

2007

5.3%

4.9%

2008

4.9%

4.9%

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

2

Tuition Scholarship Tax Credit: The Senate Floor amendment would provide an income tax

credit for contributions to private elementary and secondary schools in New Mexico. Credits

totaling up to $500 would be allowed in any tax year for contributions to organizations who

provide scholarships for non-governmental primary and secondary schools. At least 75 percent

of the scholarships the organization provides must be for low-income students. These are

referred to as “tuition scholarship tax credits" in the proposal. The credit would not be

refundable. They would not be allowed if the associated donations are deducted against federal

income tax obligations.

Agricultural Water Conservation Tax Credits: The Senate Floor amendment allows a

taxpayer to claim a credit against personal or corporate income tax liability 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. The

credit is 35 percent of eligible expenditures in FY08, 55 percent of eligible expenditures in FY09

and 75 percent in FY10.

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.

Renewable Energy Production Tax Credits: The Senate Floor amendment changes the

existing renewable energy production credit in the corporate income tax act and includes the

credit in the income tax act. The existing credit of one cent per kilowatt hour (kWh) of electricity

produced by renewable energy sources is limited to wind and biomass energy sources while a

new more expansive credit is allowed for electricity produced by solar energy sources. The solar

credit is a staged credit as follows:

Phase-in of solar credit

Year of Production Credit per kWh

1

0.015

$

2

0.020

$

3

0.025

$

4

0.030

$

5

0.035

$

6

0.040

$

7

0.035

$

8

0.030

$

9

0.025

$

10

0.020

$

The solar credit is allowed for the first 200,000 megawatt hours (mWh) and for only ten years of

qualified electricity generation.

The amendment also expands the definition of biomass to match the definition used for the gross

receipts tax and lowers the size of electric generating plant to 1 megawatt (MW) from the current

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

3

10 MW. The bill sets the total eligible electricity generated by all plants at 2 million mWh plus

an additional 500 thousand mWh for solar power. The Energy Minerals and Natural Resources

Department (EMNRD) must approve the credit before the Taxation and Revenue Department

(TRD) will accept it.

For credits awarded prior to October 1, 2007, there is a five year carry-forward if the credit

amount exceeds the tax liability. Credits awarded on or after October 1, 2007, are refundable to

the taxpayers meaning the excess above the tax liability is refunded.

The effective date is January 1, 2008.

Armed Services Income Tax Exemption: The Senate Floor amendment exempts income

earned from active duty service from the state personal income tax. The effective date is January

1, 2007 so would apply for tax year 2007.

Sustainable Building Tax Credit: The Senate Floor amendment allows a new credit under both

the Income Tax Act and the Corporate Income and Franchise Act for the construction or

renovation of a commercial building or the construction of a residential building following

“sustainable" guidelines as established by the US green building council, Homebuilders of NM,

or the Environmental Protection Agency for manufactured housing. The guidelines, referred to

as LEED for “leadership in energy and environmental design," have different levels of

compliance and the credit is scaled accordingly.

New Table of Credit Amounts

Commercial

First 10,000 sq ft

10,001 to

50,000 sq ft

50,001 to

500,000 sq ft

LEED NC Silver

$3.50

$1.75

$0.70

LEED NC Gold

4.75

2.00

1.00

LEED NC Platinum

6.25

3.25

2.00

LEED EB/CS Silver

2.50

1.25

0.50

LEED EB/CS Gold

3.35

1.40

0.70

LEED EB/CS Platinum

4.40

2.30

1.40

LEED CI Silver

1.40

0.70

0.30

LEED CI Gold

1.90

0.80

0.40

LEED CI Platinum

2.50

1.30

0.80

Residential

First 2,000 sq ft 2,001 + sq ft

Build Green NM Gold

$4.50

$2.00

LEED H Silver

5.00

2.50

LEED H Gold

6.85

3.40

LEED H Platinum

9.00

4.45

EPA Energy Star

$3 up to 3,000 sq ft

A taxpayer, who is the owner of the building certified according to LEED standards and for

which a credit has not previously been claimed, would apply to the Energy Minerals and Natural

Resources Department (EMNRD) to validate the credit. EMNRD issues a certificate that can be

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

4

transferred through sale, exchange or other means to another taxpayer. The taxpayer holding the

certificate can claim the credit against tax liability over four years if the credit amount exceeds

$25,000 in 25 percent increments. If the credit value is less than $25,000, the taxpayer can claim

all of it in the taxable year the certificate was issued. If the credit exceeds liability in either case,

the taxpayer can carry the credit forward for up to seven years.

The credit can be claimed for certification of either commercial or residential buildings.

EMNRD can only issue an aggregate of $11.25 million in credits per year, $5 million for

commercial buildings, $5 million for residential buildings and $1.25 million for manufactured

housing. A solar thermal or photovoltaic system can be claimed as part of sustainable building if

a solar market development credit has not been and will not be claimed.

The credit is allowable for tax years 2007 through 2013.

Home Schooling Income Tax Deduction: The Senate Floor amendment provides a credit

against personal income tax liability of $175 for expenses attributable to tutoring or home

schooling. The credit is allowed for taxpayers whose dependent attended a public school and

was also tutored on a subject included in the public school curriculum, whose dependent was

home schooled, and whose dependent was or would have been claimed as a dependent on the

resident’s federal income tax return.

The effective date is January 1, 2007, and so is applicable to the 2007 tax year.

Rural Health Care Practitioner Tax Credit: The Senate Floor amendment provides a credit to

a health care practitioner who has provided services in a rural health care underserved area. The

credit is against personal income tax liability and can be carried forward for three years if the

credit exceeds tax liability. The maximum allowable credit for a physician, dentist, osteopathic

physician, clinical psychologist, podiatrist or optometrist is $5,000. The maximum allowable

credit for dental hygienists, physician assistants, certified nurse-midwives, certified registered

nurse anesthetists, certified nurse practitioners or clinical nurse specialists is $3,000.

To qualify for the full credit, a practitioner must have provided health care for 2,080 hours at a

practice site in an approved area. If the practitioner provided health care for at least 1,040 hours,

the practitioner is eligible for 50 percent of the credit. The Department of Health will determine

whether the practitioner’s application qualifies for the credit and will issue a certificate to the

Taxation and Revenue Department.

The credit is effective for tax years beginning with 2007.

Space Program Gross Receipts: The provision allows receipts from the provision of research,

development, testing and evaluation services for the U.S. Air Force operationally responsive

space program to be deducted from gross receipts. That program is authorized pursuant to 10

U.S.C. 2273a.

The effective date of these provisions will be July 1, 2007.

Border Zone Gross Receipts: The provision extends the sunset of an existing gross receipts tax

deduction for the receipts of a trade-support company that locates within twenty miles of a port

of entry on New Mexico’s border with Mexico. For the purposes of this deduction, a trade-

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

5

support company is defined as a customs brokerage firm or a freight forwarder. To be eligible for

the deduction, receipts must be received within five years of the trade-support company’s

establishment in New Mexico and the company must employ at least two people in New Mexico.

Currently, the deduction applies to companies locating near a port of entry between July 1, 2003

and July 1, 2008, but the bill would allow companies locating near a New Mexico port of entry

before July 1, 2013 to qualify for the deduction.

Aircraft Manufacturing Gross Receipts: This provision expands an existing deduction for

receipts of an aircraft manufacturer from selling aircraft to include receipts from an aircraft

manufacturer’s affiliate from selling aircraft parts, components, flight support, pilot training, or

maintenance training services.

An affiliate is defined as a business entity that is directly or indirectly controlled by an aircraft

manufacturer. Flight support is defined as providing navigation data, charts, weather

information, online maintenance records and other aircraft or flight-related information and the

software needed to access such information. An aircraft manufacturer is defined as a business

entity that designs and builds FAA certified private or commercial aircraft. Control of a business

is defined to mean at least 50 percent of total voting power and at least 50 percent of equity in

the business.

The effective date of these provisions will be July 1, 2007.

For Profit Hospital Gross Receipts: The provision creates a gross receipts tax credit for

hospitals licensed by the Department of Health (for-profit hospitals). The credit equals roughly

20 percent of the state gross receipts tax rate in FY08, 40 percent in FY09, 60 percent in FY10,

80 percent in FY11, and the entire state gross receipts tax rate in FY12 and beyond.

The bill will be applicable to tax reporting periods after July 1, 2007.

Military Transition Gross Receipts: This provision creates a new gross receipts tax deduction

for receipts from military construction services provided at New Mexico military installations to

implement special operations mission transition projects pursuant to contracts with the U.S.

Department of Defense. The deduction will only apply to reporting periods between July 1, 2007

and December 31, 2010.

The effective date of these provisions will be July 1, 2007.

Disabled Street Vendor Gross Receipts: This provision creates a gross receipts tax exemption

for the receipts from sale of goods by a disabled street vendor. For the purposes of the provision,

a person qualifies as disabled if they are blind, permanently disabled with medical improvement

not expected pursuant to 42 USCA 421 for the purposes of the federal Social Security Act, or

permanently and totally disabled pursuant to the state Workers’ Compensation Act.

A street vendor is defined as a person licensed by a local government to sell tangible personal

property by newly setting up a sales site daily or selling from a movable cart, blanket, or other

device.

The effective date of these provisions will be July 1, 2007.

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

6

Small Business Laboratory Partnership Gross Receipts: The provision expands the existing

laboratory partnership with small business tax credit. It increases the credit that a national

laboratory can claim against its gross receipts tax liability for assistance to each small business in

Bernalillo County from $5 to $10 thousand per year, and increases the credit that a national

laboratory can claim for assistance to each small business outside of Bernalillo County from $10

to $20 thousand per year. The total amount of credits that can be claimed by a national laboratory

is increased from $1.8 to $2.4 million per year.

National laboratories claiming this credit will be required to submit a joint annual report to the

Taxation and Revenue Department (TRD), the Economic Development Department (EDD), and

the appropriate legislative interim committee by October 15 of each year. The report will

summarize program results, describe projects funded, provide results of surveys of small

businesses that received assistance, quantify the total amount of credits claimed, and include an

economic impact study of jobs created and retained.

If more than one national lab claims the credit, those labs will be required to coordinate their

efforts.

The provision also expands eligibility requirements for claiming the laboratory partnership with

small business tax credit. To be eligible for the credit, the national laboratory providing small

business assistance will be required to 1) offer each small business receiving assistance the

option of obtaining ownership of license to property developed through the assistance; 2)

acknowledge that the small business assistance is rendered once it is completed; and 3) provide

forms for small business assistance requests and for completion of small business assistance that

are in accordance with state and federal laws.

The effective date of these provisions is July 1, 2007.

Increase Tobacco Products Tax: The provision increases the excise tax on tobacco products

other than cigarettes from 25 percent to 40 percent.

The effective date of these provisions is July 1, 2007.

Tax Incentives for Certain Health Insurers: The provision amends sections of the Insurance

Code to provide an increased premium tax credit for health insurers who pay assessments to the

New Mexico Medical Insurance Pool (NMMIP). Currently, health insurers who pay these

assessments get a credit equal to 30% - 50% of the amount paid. The provision increases those

credits to 50% of the assessed amount for most members and 75% of the assessed amount

attributable to Pool policy holders that receive premiums through the federal Ryan White CARE

Act, the Ted R. Montoya hemophilia program at the University of New Mexico health sciences

center, the Children's Medical Services bureau of the Public Health Division of the Department

of Health or other programs receive state funding or assistance.

The effective date of these provisions is July 1, 2007.

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

7

Synopsis of Original Bill

Working Families Tax Credit:

The Senate Finance Committee amended Senate Bill 317 clarifying that only NM residents can

claim the credit. The amendment also deletes a section referring to married filing separate filers

which was unnecessary as the federal earned income credit excludes this filing category.

Synopsis of SCORC Amendment.

The Senate Corporation and Transportation Committee

amended Senate Bill 317 to allow those taxpayers claiming the Low-Income Comprehensive Tax

Rebate (LICTR) to also claim the Working Families Tax Credit and change the percentage of the

federal credit from 10 percent to 7.5 percent.

Synopsis of Original Bill.

Senate Bill 317 creates a new personal income tax credit called the

“Working Families Tax Credit" (WFTC) that is calculated as 10 percent of the federal Earned

Income Credit (EIC). The credit is refundable, meaning if the credit exceeds the taxpayer’s

liability, the excess is refunded to the taxpayer. SB 317 also amends the low-income

comprehensive tax rebate (LICTR) to make a taxpayer ineligible for LICTR if the taxpayer

receives the WFTC. SB 317 also explicitly excludes credits provided in the Income Tax Act

from the calculation of modified gross income.

The effective date is January 1, 2007.

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

8

FISCAL IMPLICATIONS

Title

FY07 FY08 FY09

HOSPITAL GROSS RECEIPTS CREDIT

-

(3,097)

(6,637)

Recurring General Fund

AIRCRAFT MANUFACTURER GROSS RECEIPTS

-

(158)

(238)

Recurring General Fund

-

(106)

(158)

Recurring

Loc al

Government

BORDER ZONE TRADE SUPPORT GROSS RECEIPTS

-

-

-

Recurring General Fund

MILITARY MISSION TRANSITION GROSS RECEIPTS

-

(273)

(364)

Recurring General Fund

-

(182)

(243)

Recurring

Loc al

Government

SPACE PROGRAM GROSS RECEIPTS

-

-

(20)

Recurring General Fund

-

-

(13)

Recurring

Loc al

Government

DISABLED STREET VENDOR SALES GROSS RECEIPTS

*

*

* Recurring General Fund

*

*

* Recurring

Loc al

Government

RURAL HEALTH CARE PRACTITIONER TAX CREDIT

-

(3,400)

(3,400)

Recurring General Fund

ACCELERATE INCOME TAX RATE REDUCTIONS

(19,800)

(46,200)

-

Recurring General Fund

AGRICULTURAL WATER CONSERVATION TAX CREDITS

-

(2,993)

(7,695)

Recurring General Fund

RENEWABLE ENERGY PRODUCTION TAX CREDITS

-

-

(4,225)

Recurring General Fund

ARMED SERVICES INCOME TAX EXEMPTION

(2,950)

(11,990)

(10,400)

Recurring General Fund

SUSTAINABLE BUILDING TAX CREDITS

-

(450)

(700)

Recurring General Fund

HOME SCHOOLING INCOME TAX DEDUCTION

-

(1,225)

(1,225)

Recurring General Fund

CERTAIN SCHOLARSHIP DONATION TAX CREDITS

-

(2,100)

(2,100)

Recurring General Fund

NATIONAL LAB SMALL BUSINESS TAX CREDITS

-

(1,200)

(1,200)

Recurring General Fund

TAX INCENTIVES FOR CERTAIN HEALTH INSURERS

-

(7,700)

(12,400)

Recurring General Fund

INCREASE TOBACCO PRODUCTS TAX

-

1,541

1,525

Recurring General Fund

Sub Total - Amendments

(22,750)

(79,245)

(49,079)

Recurring General Fund

-

(288)

(415)

Recurring

Loc al

Government

WORKING FAMILIES TAX CREDIT

-

(27,100)

(28,184)

Recurring General Fund

Grand Total

(22,750)

(106,345)

(77,263)

Recurring General Fund

-

(288)

(415)

Recurring

Local

Government

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

9

Working Families Tax Credit: Enacting this credit would reduce general fund personal income

tax revenue by $27.1 million per tax year based on $360 million in estimated federal EIC. Even

though the credit is for tax year 2007, it is assumed that it will be claimed in the filing season in

2008 and so all of the impact is in FY08. In 2004, 199,552 New Mexican taxpayers received the

federal EIC and 90 percent of the credits were in excess of liability.

Accelerate Income Tax Rate Reductions: Using a model provided by the Taxation and

Revenue Department (TRD), the full year impact would be a $66 million reduction in personal

income tax collections. Thirty percent of the impact, or $19.8 million, occurs in FY07 because

the first quarter of 2007 personal income tax collections will have been at the current rates. In

FY08, the impact is $46.2 million or 70 percent of the tax year impact. While this would reduce

current estimates of recurring general fund revenues, the reduction is only for these two fiscal

years and does not recur in the future.

Agricultural Water Conservation Tax Credits: In 2002, according to the Department of

Agriculture, there were 15,000 farms in New Mexico that spent $17 million on irrigation or an

average of $1,120 per farm. The credit allows for 75 percent of the eligible expenditures or $840

per farm phased-in over three years. The average tax liability for farmers, which includes both

farm and non-farm income, is approximately $1,400 so it is assumed that all farms will qualify

for $840 in tax credit. It is assumed that tax years are evenly split over fiscal years.

TAX YEAR

2008

2009

2010

2011

Eligible Expenditures

1140

1140

1140

1140

% Credit

0.35

0.55

0.75

0.75

Credit Amount

399

627

855

855

# Returns

15000

15000

15000

15000

Tax Year Impact 5,985,000 9,405,000 12,825,000 12,825,000

FY08

FY09

FY10

FY10

Fiscal Year Impact 2,992,500 7,695,000 11,115,000 12,825,000

Renewable Energy Production Tax Credits: According to the Taxation and Revenue

Department (TRD), the provisions will reduce general fund revenue by about $8 million per year

but growing as the industry develops. Under current law, the credit is expected to grow to $10

million by 2012. The credit is expected to be $25 million in 2012. The credit has a maximum

for all electricity of 2 million mWh (or 2 billion kWh) plus an additional 500 thousand mWh.

Using an effective 1 cent for the 2 million mWh, recognizing that wind will be the majority, and

3 cents for solar, the credit is limited to $35 million in any given year for both PIT and CIT.

This cap increases if solar power is a greater part of the mix of renewable energy than wind.

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

10

Fiscal impacts by provision:

Fiscal Year Impacts ($ thousands)

2008

2009

2010

2011

2012

Allow Credit against PIT

($2,800) ($2,300) ($2,500) ($2,700)

Refundable for new wind facilities

($1,425) ($1,650) ($2,180) ($2,620)

Refundable for new biomass facilities

($2,083) ($1,372) ($1,367)

Refundable for new solar at increasing rate

($1,778) ($2,416) ($3,799)

Total

$0 ($4,225) ($7,811) ($8,468) ($10,486)

Assumptions:

New Wind facilities added at 30MWe per year

New Biomass: one 35 MWe facility in FY 2009

New Solar: 18 MWe in 2009, added 10 MWe per year thereafter.

Source: TRD

In tax year 2006, under current law, the renewable energy production tax credit (REPTC) totaled

$1.7 million with an expectation that that would increase to approximately $8.5 million by 2012,

mostly due to wind energy (table). Only ten percent of the approved credit is expected to be

claimed in any given year and the remainder carried forward (for up to five years).

Under the proposal, which takes effect on January 1, 2008, TRD estimates that 50 percent of the

existing approved credits will be claimed, primarily because they will now apply to the personal

income tax credit as well as the corporate income tax and many of the businesses operate under

partnerships where the PIT liability is higher than the CIT liability. This will dramatically

increase the cost of the credit to the general fund for existing approved credits. For new

facilities, the credit is refundable against tax liability so 100 percent of these facilities will claim

the credit. The credit in 2012 is expected to almost reach $20 million, making the net impact in

2012, $11.4 million.

Armed Services Income Tax Exemption: Exempting active duty salaries from personal income

tax would result in a $10 million reduction in personal income tax revenues going to the general

fund. Since the tax year straddles two fiscal years, the FY07 impact is $3 million, reflecting 30

percent of the tax year and the FY08 impact is $12 million, which include 70 percent of tax year

2007 and 50 percent of tax year 2008.

According to TRD, the fiscal impact is based on approximately 7,000 active duty military in

New Mexico earning an average $45,000 per year as well as an additional 3,000 active duty

National Guard and army reserve members. The average tax relief to service members would be

$1,350 and $133 for National Guard and army reserve members.

Sustainable Building Tax Credit: According to Taxation and Revenue Department (TRD), the

fiscal impact would start out as a $450 thousand reduction in general fund revenues in FY08 and

increase to over $3.3 million by FY13. This assumes an increasing amounts of eligible square

footage over time (see table 2) and 50 percent of the credits actually being claimed, due to

transferability. The average credit per square foot was assumed to be $250.

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

11

Assumed Total Eligible Square Footage: (Thousands of square feet)

Calendar year:

Commercial buildings:

Residential buildings:

2007

250

100

2008

375

150

2009

563

225

2010

844

338

2011

1,266

506

2012

1,898

759

2013

2,847

1,139

Source: TRD

Home Schooling Income Tax Deduction: The fiscal impact has been calculated without the

benefit of Taxation and Revenue Department analysis. TRD input may change the fiscal impact

upward or downward. Public Education Department (PED) has reported there are 7,000 home

schooled students recognized by PED. The Senate Floor amendment provides a $175 per pupil

credit that is refundable making the impact $1.3 million in FY08.

Rural Health Care Practitioner Tax Credit: TRD prepared the following fiscal impact

analysis:

Fiscal impacts were estimated using information provided by the New Mexico

Department of Health and information from individual income tax returns. The

Department of Health conducted an analysis of the number of physicians in each

specialty with residences in rural underserved areas of the state. This analysis yielded an

estimate of approximately 1,250 practitioners, approximately 900 of whom were

physicians eligible for the $5,000 credit. Multiplying this population by the maximum

credit amounts yields a potential revenue loss of $5.5 million. This impact was then

adjusted downward to reflect the following considerations:

(1) A 2003 report by the N.M. Health Policy Commission estimated that

approximately 55 percent of the respondents to a survey of licensed practitioners were

actively practicing medicine in New Mexico. A large percentage was practicing in other

states and some were retired. A separate study by the Center for Health Workforce

Studies estimated that only 52 percent of licensed physicians were actively practicing in

the state.

(2) Some of the practicing physicians living in rural areas may be practicing only pat-

time in the rural area, thus they will receive the reduced tax credit.

(3) A $3,000 tax credit could offset tax on about $60,000 of taxable income,

equivalent to about $75,000 of total income. A $5,000 credit could completely offset tax

on $100,000 of taxable and $125,000 of total income. Although many physicians are

likely to make enough to fully utilize the credits, other practitioners are less likely to be

able to do so.

These considerations warrant a downward adjustment of 50 percent or more. To be on the

fiscally conservative side, the estimates in the table are adjusted down by approximately 40%.

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

12

Space Program Gross Receipts: According to EDD the operationally responsive space program

currently consists of three part-time contractors who earn about $500 thousand per year in

salaries and benefits. Assuming the program does not expand, taxed at the statewide rate of 6.6

percent, the bill would reduce gross receipts tax collections by about $33 thousand. About 60

percent of this revenue loss will accrue to the general fund and the other 40 percent will accrue to

the local government in which the operationally responsive space program is located.

The amount and timing of this fiscal impact depends on if and when the operationally responsive

space program locates in New Mexico. EDD believes that FY09 is the earliest time operations

could begin. EDD reports that the fiscal impacts of this deduction will grow larger over time but

cannot predict how much.

Border Zone Gross Receipts: TRD expects the fiscal impacts of this provision, beginning in

FY09, to be minimal. However, LFC notes that construction of a large Union Pacific facility near

Santa Teresa may lead more companies to claim this deduction in future years.

Aircraft Manufacturing Gross Receipts: Based on industry information and the Report 80,

“Analysis of Gross Receipts by Standard Industrial Classification," TRD estimates taxable gross

receipts for this new deduction will total about $4 million in FY08 and about $6 million

thereafter. With a statewide average gross receipts tax of 6.6 percent, the provision will reduce

gross receipts tax revenue by about $264 thousand in FY08. About 60 percent of this revenue

loss will accrue to the general fund and the remaining 40 percent will accrue to local

governments.

For Profit Hospital Gross Receipts: All of the state’s for-profit hospitals are currently located

within municipal areas, where the state tax rate is 3.775 percent. Therefore, the credit will

eliminate the state gross receipts tax paid by for-profit hospitals once it is fully phased in. The

bill does not apply to local option gross receipts taxes, so for-profit hospitals will still pay a little

over 1 percent local gross receipts tax.

A New Mexico Hospital Association survey on hospital gross receipts indicates that for-profit

hospitals paid gross receipts tax of $16.5 million in FY05 and $21.4 million in FY06, of which

60 percent went to the state and 40 percent went to local governments. Assuming that the

impacted tax base will grow by 10 percent each year, the credit will reduce general fund revenue

by about $3,096.9 thousand in FY08, $6,637.3 thousand in FY09, and $10,951.6 thousand in

FY10, $16,062.4 thousand in FY11, and $22,085.7 thousand once it is fully phased-in in FY12.

Military Transition Gross Receipts: EDD estimates that construction projects at Cannon AFB

eligible for the proposed deduction will cost $9.2 million in FFY08, $9.2 million in FFY09, and

$15 million in FFY10. Taxed at a statewide rate of 6.6 percent, the deduction would reduce gross

receipts tax revenue by $607.2 thousand in FFY08, $607.2 thousand in FFY09, and $990.0

thousand in FFY10. Translating those impacts into state fiscal years yields a revenue reduction

of $455.4 thousand in FY08, $607.2 thousand in FY09, $758.1 thousand in FY10, and $247.5

thousand in FY11. About 60 percent of the revenue reduction will accrue to the general fund and

the remaining 40 percent will accrue to local governments.

This estimate is uncertain because funding for these projects depends on the federal budget

process; delay of these projects would lessen the bill’s fiscal impact or shift the impact into the

farther future.

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

13

Disabled Street Vendor Gross Receipts: LFC and TRD believe the fiscal impact of this

provision will be small due to the limited number of disabled street vendors operating in New

Mexico.

Small Business Laboratory Partnership Gross Receipts: Under current law, Sandia National

Laboratories (SNL) and Los Alamos National Laboratory (LANL) are each eligible to claim $1.8

million per calendar year in credits (LANL became eligible for the credit in 2006 when its new

contract made it liable for the gross receipts tax). By increasing the total amount of credits that

each national laboratory can claim to $2.4 million per calendar year, the bill will reduce state

gross receipts tax collections from each lab by $600 thousand per year, for a total of $1.2 million

per year. The fiscal impact assumes that SNL will be able to reach the higher cap of $2.4 million

in calendar year 2007, while LANL will not reach the cap until calendar year 2008.

Since this gross receipts tax credit can only be claimed against the state portion of gross receipts

tax liability it has no impact on local governments.

Increase Tobacco Products Tax: Raising the tax rate on tobacco products will increase revenue

collected but not by the full amount at current consumption due to elasticity effects. The

elasticity on tobacco products is estimated to be -1.18 meaning that there is a negative response

to a price increase. Combined with the increase in the tax, the net effect is to lower consumption

of tobacco products by 18 percent, according to the Taxation and Revenue Department (TRD).

The Department of Health (DOH) reports that this negative elasticity presented itself when the

tax on cigarettes was raised:

New Mexico’s increase in the cigarette tax from $0.21 to $0.91 per pack in 2003, which

may have reduced cigarette smoking among youth, also carried the potential unintended

consequence of increasing the use of smokeless and other tobacco products among youth.

SB888 would decrease the price disparity between cigarettes and other tobacco products,

thereby discouraging youth and adults from switching from cigarettes to other tobacco

products.

Fiscal Impact with Elasticity Effect

2008

2009

Base $19,454 $19,259

Rate @ 25%

25%

25%

Tobacco Products Tax $4,863

$4,815

Snuff is 85% of the Revenue $16,535 $16,370

Average Price Per Can

2.50

2.50

Cans

6,614

6,548

Units After Elasticity Effect

5,443

5,389

New Base $13,609 $13,473

Tax @ 40%

$5,443

$5,389

Cigars & Other $2,918 $2,889

Average Price per Unit $3.50

$3.50

Units

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

14

Fiscal Impact with Elasticity Effect

834

825

Units After Elasticity Effect

686

679

New Base

2,402

2,378

Tax @ 40%

$961

$951

General Fund $6,404

$6,340

New Revenue to General Fund $1,541 $1,525

Source: TRD

Tax Incentives for Certain Health Insurers: Insurance premium taxes are collected by the

Public Regulation Commission for the benefit of the general fund. Thus, premium tax credits

reduce the amount of premium tax revenue to the general fund. NMMIP has projected future

assessments to grow from more than $20 million in 2006 to $50 million in 2009.

Under current law, the 30 and 50 percent tax credits result in a $14.6 million revenue loss for the

general fund for FY08. Under projections provided by NMMIP, the 50 and 75 percent tax

credits proposed in this bill result in a $22.3 million general fund revenue loss – a $7.7 million

difference.

Under current law, and assuming the same rate of growth in the 2008 assessment, the revenue

impact of the 30 and 50 percent credits for FY09 is $32.5 million. The 50 and 75 percent tax

credits proposed in this bill result in a $44.9 million general fund revenue loss – a $12.4 million

difference.

The projections assume the same in growth rate in the tax credit for the 2008 assessment as in the

2007 assessment. This near doubling rate of growth is not expected in future years as the Pool

reaches its saturation point.

SIGNIFICANT ISSUES

Working Families Tax Credit: Twenty states, including the District of Columbia, currently

offer a state level EIC (Colorado’s EIC is tied to their TABOR rules and so some years they do

not allow the credit). The credit has proven to be a simple and efficient credit. It is also popular

since it only goes to individuals and families with earned income. One of the key elements is the

refundability of the credit: the taxpayer receives the full amount of the credit regardless of the tax

liability. Twelve of the seventeen state EICs are refundable, according to research at the Institute

on Taxation and Economic Policy. New York and Vermont have the most generous EICs

allowing over 30 percent of the federal credit and making it refundable. Rhode Island has a 25

percent credit but it is not refundable which restricts its effectiveness.

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

15

TABLE 1: STATE EARNED INCOME TAX CREDITS BASED ON THE FEDERAL EITC

State

Percentage of Federal

Credit

(Tax Year 2006

Except as Noted)

Refundable

Workers Without

Qualifying Children

Eligible.

Delaware

20%

No

Yes

District of Columbia

35%

Yes

Yes

Indiana

a

6%

Yes

Yes

Illinois

5%

Yes

Yes

Iowa

6.5%

No

Yes

Kansas

15%

Yes

Yes

Maine

5%

No

Yes

Maryland

b

20%

Yes

No

Massachusetts

15%

Yes

Yes

Michigan

10% (effective in 2008; to

20% in 2009)

Yes

Yes

Minnesota

c

Average 33%

Yes

Yes

Nebraska

8%

Yes

Yes

New Jersey

d

20%

Yes

No

New York

e, f

30%

Yes

Yes

Oklahoma

5%

Yes

Yes

Oregon

5% (to 6% in 2008)

Yes

Yes

Rhode Island

25%

Partially

g

Yes

Vermont

32%

Yes

Yes

Virginia

20%

No

Yes

Wisconsin

4% - one child

4% - one child

No

14% - two children

14% - two children

43% - three children

43% - three children

Notes: From 1999 to 2001, Colorado offered a 10% refundable EITC financed from required rebates under the state’s “TABOR" amendment.

Those rebates, and hence the EITC, were suspended beginning in 2002 due to lack of funds and again in 2005 as a result of a vot er-

approved five-year suspension of TABOR. Under current law, the EITC is projected to resume in 2010.

a Presently scheduled to expire in TY 2011.

b Maryland also offers a non-refundable EITC set at 50 percent of the federal credit. Taxpayers in effect may claim either the refundable

credit or the non-refundable credit, but not both.

c Minnesota’s credit for families with children, unlike the other credits shown in this table, is not expressly structured as a percentage of the

federal credit. Depending on income level, the credit for families with children may range from 25 percent to 45 percent of the federal credit;

taxpayers without children may receive a 25 percent credit.

d The New Jersey credit is available only to families with incomes below $20,000.

e The New York credit would be reduced automatically to the 1999 level of 20 percent should the federal government reduce New York’s

share of the TANF block grant.

f Beginning in 2006, New York also allows certain non-custodial parents who are making child support payments to claim an EITC that is the

greater of 20 percent of the federal EITC that they would be eligible for with one qualifying child as a custodial parent or 250 percent of the

federal EITC for taxpayers without qualifying children.

g Rhode Island made a very small portion of its EITC refundable effective in TY 2003. In 2006, the refundable portion was increased from 10

percent to 15 percent of the nonrefundable credit (i.e. 3.75 percent of the federal EITC).

Source: Economic Policy Institute (

www.epi.org

)

For a single or married taxpayer with no children, the cut-off for benefits is very low but for

taxpayers with children, the benefit goes to many more. The federal EIC can only be claimed if

someone is below the income cut-offs and

•

has a valid social security number

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

16

•

is not filing separately

•

is a US citizen or resident alien

•

does not have foreign income

•

does not have more than $2,800 in investment income

•

has some earned income.

Table one shows the cut-off and peak amounts and the maximum credit for each class of filer.

For example, a married filer with one child and adjusted gross income of between $8,000 and

$16,500 would receive the maximum federal credit of $2,747 (state credit = $275). The same

filer with income over $34,001 in adjusted gross income would receive no federal credit and,

thus, no state credit.

Table 1: Federal Income Cut-offs for Earned Income Credit

Maximum

Credit

Cut-off

Start Finish

Single

No children

12,120

5,500

6,500

412

One child

32,001

8,500

14,500

2747

More than one child

36,348

11,500

14,500

4536

Married

No children

14,120

5,500

8,500

412

One child

34,001

8,000

16,500

2747

More than one child

38,348

11,500

16,500

4536

Source: IRS 2006 Tax Year

Peak

Adjusted

Gross Income

For filers without children, they must be age 25 to 65, not a qualifying child or dependent of

another person and must have lived in the United States for more than six months. For filers

with children, the children must be younger than 19, younger than 25 if a full time student, or

permanently disabled. The children also have to have lived with the filer for more than six

months and cannot be claimed as a qualifying child or dependent of another person.

Figure Two: Working Families Tax Credit Phase-out

0

50

100

150

200

250

300

350

Source: TRD

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

17

One of the features of the EIC is that it phases-out at higher incomes. Figure two, which is based

on 2005 data, shows the maximum average credit of about $325, which would be $3,250 for the

federal EIC, is reached at an income level of $13,000. This is an average of all tax filers, whether

single or not or childless or not.

Accelerate Income Tax Rate Reductions: In 2003, legislation was enacted lowering the top

rate and collapsing the number of income brackets. In 2002, the top rate on taxable income over

$100,000 for married filers and $65,000 for single filers was 8.2 percent. As a result of the 2003

legislation, by tax year 2007, the top rate would decrease to 4.9 percent and the top income

bracket would begin at $24,000 in taxable income for married filers and $16,000 for single filers.

In the 2005 session, the phase-in schedule for the top rate decrease was delayed until 2008 and

the head-of-household filing status was merged with the married filing jointly status. The

schedule was modified again in the 2005 special session as revenues came in stronger than

expected. This bill restores the final phase-in year to 2007 rather than 2008. See table one for

details about the changes to the personal income tax law over the last four years.

Proposed Rate Schedule

Taxable Income

Married Filing

Jointly,

Surviving

Spouses, Head

of Household

Married

Filing

Separate

Single

2005 2006 2007 2008

<8000

<4000

<5500 1.7% 1.7% 1.7% 1.7%

8000-16000 4000-8000 5500-11000 3.2% 3.2% 3.2% 3.2%

16000-24000 8000-12000 11000-16000 4.7% 4.7% 4.7% 4.7%

24000+

12000+

16000+ 5.7% 5.3% 4.9% 4.9%

Based on 2005 tax return data, a married filing jointly taxpayer reporting $24 thousand in taxable

income has total adjusted gross income (AGI) of about $40 thousand. For singles reporting

taxable income of $16 thousand, their AGI starts at $25 thousand. 311,000 taxpayers will

receive the benefit of the lower rate, all of them above these AGI levels.

Tuition Scholarship Tax Credit: Organizations receiving the contributions must be exempt

from federal taxation due to Section 501(c)(3) of the Internal Revenue Code, provide financial

scholarships to students, and spend 100 percent of their tax-credit-qualifying revenues for

scholarships at qualified schools. A qualified school is defined as “an accredited

nongovernmental elementary or secondary school in New Mexico".

The tuition credit would be for contributions to an organization that provides scholarships for

attendance at private schools, including religious schools. Whether state support of religious and

private schools would pass a constitutional challenge is a significant issue. The Arizona credit

faced such a challenge in 1998 and withstood it. PFAW also reports that 25 of the 35

organizations in Arizona set up to receive contributions provide tuition to religious schools.

According to an Arizona Department of Revenue report on the tuition credit, the largest single

scholarship from one of the organization’s set up to receive contributions went to a school for

emotionally disabled children. The report which includes data on all schools that received

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

18

scholarships from organizations shows that there were 345 private schools who received

scholarships from organizations. The list includes mostly religious schools of all faiths. The

report can be found at

http://www.azdor.gov/ResearchStats/private_schl_credit_report_2006.pdf

.

Agricultural Water Conservation Tax Credits: 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.

Renewable Energy Production Tax Credits: Currently there is no significant electricity

generation based on renewable sources other than wind power. TRD estimates that with this

expanded credit, approximately 35 MW of biomass will come on line in 2009 and 18 MW of

solar power will come on line in 2009 increasing by 10 MW per year. There is considerable

interest in a large scale (at least 50MW) concentrating solar power plant somewhere in New

Mexico due to the excellent solar resource here. A concentrating solar power plant or CSP plant

is a field of solar mirrors that heat a liquid to high enough temperatures to create steam which

turns a turbine. CSP was the subject of one of the renewable energy task forces that met in 2004.

The full report can be found on EMNRD’s website:

http://www.emnrd.state.nm.us

.

[DISCLOSURE: The author of the economic impact section of the EMNRD study is the author

of this FIR]

Building a CSP plant, regardless of size, would have a positive economic impact and

would increase the state’s tax revenues. Creating a CSP manufacturing industry in New

Mexico would add additional jobs and economic activity for the state.

http://www.emnrd.state.nm.us/ecmd/ConcentratingSolarPower/documents/NMCSPFeasi

bilityStudy.doc

Making the credit refundable is probably the most significant factor in increasing the cost and

increasing the application of the credit. Many of the power generation companies do not have

significant tax liability in the initial years and so being able to use the whole credit right away

should have a significant impact on the development of the industry. Lowering the allowed

megawatts to 1 MW is another important factor as many smaller solar power plants, such as dish

collector plants which concentrate solar rays on to photo-voltaic panels, will be able to take

advantage of the credit. Allowing the credit against PIT is another important feature as many

companies are partnerships or configurations other than corporations and so do not file corporate

income tax.

The study cited above mentions “tax appetite" and recommends a refundable credit such as this

one:

Tax reduction incentives can be very effective for improving the cost competitiveness of

CSP projects. A variety of tax incentives are currently used at the state and federal level

to induce investment in alternative energy generation technologies. The effectiveness of

tax incentives is often limited by “tax appetite" limitations. These limitations can be

avoided if tax incentives are transferable or refundable. Tax incentives must also be

constructed to avoid unfavorable interactions. Alternative financing structures are often

developed to maximize tax benefits. Such structures include equity “flip" arrangements

and sale/lease-back structures.

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

19

http://www.emnrd.state.nm.us/ecmd/ConcentratingSolarPower/documents/NMCSPFeasibilityStu

dy.doc

Sustainable Building Tax Credit: Transferability is an important feature of this bill and makes

it a more effective credit by allowing start-ups and other entities that may not have sufficient tax

liability to get immediate funds by trading or selling the credit. This is often how carbon or

pollution taxes work. For example, if a small contractor commits to building sustainable

buildings, it can claim the credit and sell it to a larger contractor who wants to offset its tax

liability. There is no clear mechanism in the Senate Floor amendment to establish a clear and

open market for these credits, such as an exchange similar to the Chicago Climate exchange.

It is important to note that the credit is not applicable to renovations of existing houses. The US

Green Building Council, which established the LEED rating system, established the rating

system to apply to new homes. However, as indicated in the bolded portion of the citation

below, renovations may become part of the rating.

“LEED for Homes was designed to assess and label newly constructed homes. It cannot be

used to assess or label a portion of a home. Only a substantial or “gut" rehab project may be

included in LEED for Homes at this time. Partially renovated homes cannot be rated under

LEED for Homes." (bolding added) - LEED for Homes Program Pilot Rating System,

USGBC Jan 2007

EMNRD:

SB 543 directly influences the impact of climate change and the reduction of greenhouse gas

emissions through reduced fossil fuel consumption. By reducing the overall energy

consumption in a building the cost-effectiveness of using onsite renewable energy increases.

Most significantly, New Mexico lags behind other states in developing a robust supplier base

for green building products, making it expensive to construct green buildings. This is a

largely untapped opportunity for economic development.

The potential for economic benefit for New Mexico is great. New technology, product

manufacturing and energy related specialty consulting businesses will be drawn to the state

when a vibrant green building industry emerges.

The 2030ºChallenge, an initiative that includes the American Institute of Architects, reports data

“from the U.S. Energy Information Administration illustrates that buildings are responsible for

almost half (48%) of all greenhouse gas (GHG) emissions annually; globally the percentage is

even greater. Seventy-six percent of all electricity generated in U.S. power plants goes to supply

the ‘Building Sector’. Immediate action in the Building Sector is essential if we are to avoid

hazardous climate change."

Home Schooling Income Tax Deduction:

PED:

Under the Public School Code, "Home School" means the operation by a parent of a

school-age person who instructs a home study program that provides a basic academic

educational program, including reading, language arts, mathematics, social studies and

science (Section 22-1-2E, NMSA, 1978). Section 22-1-2.1 NMSA, 1978 requires home

school parents to: (1) notify the State Superintendent [Secretary of Education] in writing

of the establishment of a home school; (2) maintain records of student immunization; and

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

20

(3) possess at least a high school diploma or its equivalent.

The burden of proof of home school establishment will be on the parent; however, since

parents turn to the PED for verification of home schooling registration, this bill is likely

to result in a significant increase in staff time needed to respond to home school requests,

search the database and process the verification requests.

Rural Health Care Practitioner Tax Credit: Department of Health reports the Senate Floor

amendment would establish a major new financial incentive for the recruitment and retention of

health care practitioners in rural underserved areas. DOH also reports that thirty-one of New

Mexico’s thirty three counties are designated, entirely or partially, as primary medical care

shortage areas by the Federal government.

Space Program Gross Receipts: The operationally responsive space program, which is part of

the U.S. Department of Defense, will provide space launch and space reconnaissance capability

within days to meet national security requirements. The program will consist of on-call space

launch capability and satellites that can be configured quickly.

According to EDD, Kirtland Air Force Base is currently being considered as a location for the

operationally responsive space program. EDD contends that if Kirtland AFB is chosen as the

location of this program, state gross receipts tax revenues could rise by several million dollars.

Border Zone Gross Receipts: New Mexico’s ports of entry that may benefit from this bill are

located in Santa Teresa and Columbus.

EDD reports that as trade between Mexico and New Mexico grows so will the demand for trade

support services. Customs brokers assist firms that trade internationally with necessary

documentation. Currently, custom broker services are usually performed in El Paso instead of

Santa Teresa. The additional time of stopping in El Paso before Santa Teresa may be a deterrent

to trade in New Mexico.

EDD also reports that the deduction extended in this bill is currently being requested for the first

time since it was enacted by a company moving to Santa Teresa. Another company, Juarez

Customs Brokers’ Association, is reportedly considering constructing a facility in Santa Teresa.

Aircraft Manufacturing Gross Receipts: According to EDD and Eclipse Aviation, this

provision will help aviation manufacturing companies located in New Mexico competitively

provide manufacturing services. New Mexico aircraft service providers compete with providers

in other states that may not be subject to gross receipts or sales tax and that may have more

convenient locations.

The language contained in this provision will benefit Eclipse Aviation’s JetComplete program,

which provides pilot and maintenance training, data services, flight support services, and aircraft

repair and maintenance services on a fixed payment basis. Eclipse asserts that the deduction

creates a favorable business climate for aircraft owners to have services performed in New

Mexico instead of other out-of-state locations.

Eclipse currently plans to develop a national customer and product support headquarters in

Albuquerque. This facility is expected to employ 77 workers at an average annual salary of $42.8

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

21

thousand and a median annual salary of $32 thousand.

For Profit Hospital Gross Receipts: Under current law, for-profit hospitals qualify for a 50

gross receipts tax deduction (Section 7-9-73.1 NMSA 1978). The bill effectively reduces the

gross receipts tax paid by for-profit hospitals from 50 percent of the normal state rate to nothing

once it is fully phased-in in FY12.

About half of New Mexico’s hospitals are for-profit. For-profit hospitals compete with non-

profit hospitals in New Mexico and hospitals in neighboring states that do not pay gross receipts

tax. The New Mexico Hospital Association reports that this bill will remove a competitive

disadvantage against New Mexico’s for-profit hospitals.

According to the NMHA, rural hospitals have no choice but to absorb the costs of

uncompensated care for patients who cannot pay. In addition, it is difficult for for-profit hospitals

to pass gross receipts tax on to consumers because Medicare will not reimburse for it.

DOH believes removing the gross receipts tax from for-profit hospitals will make them more

profitable and could allow them to provide enhanced services in New Mexico.

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.

Military Transition Gross Receipts: The gross receipts tax deduction created in this provision

is targeted for construction projects at Cannon Air Force, which is located near Clovis, New

Mexico. As a result of the Base Realignment and Closure (BRAC) recommendations, Cannon

and the U.S. Department of Defense were directed to find a new mission for Cannon to prevent

its closure. On June 20, 2006, it was announced that the base would transition to a special

operations mission effective October 1, 2007. Cannon AFB’s new special operations mission

will require construction projects in FFY08 to FFY10.

Disabled Street Vendor Gross Receipts: The Division of Vocational Rehabilitation notes that

since vendors are able to pass gross receipts tax on to their customers the provision does not

provide tax relief to disabled vendors. However, it will relieve disabled street vendors of the

responsibility to collect and pay the gross receipts tax.

Small Business Laboratory Partnership Gross Receipts: EDD reports that this credit has

enabled SNL to help New Mexico businesses create 449 jobs with an average salary of $37

thousand per year over the last five years. According to TRD, this credit benefited 278 small

businesses in 2004.

By doubling the cap on assistance a national laboratory may provide to each small business from

$5 to $10 thousand in Bernalillo County and from $10 to $20 thousand in the rest of the state, the

provision is likely to result in a smaller number of businesses receiving assistance, but those that

do receive assistance will receive a larger amount.

Increase Tobacco Products Tax: Of the states that levy a tobacco tax based on value, the

average tax 31 percent. The average for the states near NM is 41 percent. Table 2, compiled by

Campaign for Tobacco-Free Kids shows all of the tax rates by type of non-cigarette tobacco.

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

22

State Tobacco Tax Rates

State

Smokeless & Chewing

Tobacco Tax

Cigar Tax

Smoking Tobacco

Tax

Snuff Tax

Alabama 1.5 cents/ounce

4.0 to 40.5 cents/10 cigars 4.0-6.0 cents/ounce 1.0-12.0 cents/ounce

Alaska 75% wholesale price 75% wholesale price

75% wholesale price 75% wholesale price

Arizona† 22.25 cents/ounce

20.25 to 218 cents/10 cigars 22.25 cents/ounce 22.25 cents/ounce

Arkansas 32% manufacturers price 32% manufacturers price 32% manufacturers

price

32% manufacturers

price

California* 54.89% wholesale price 54.89% wholesale price 54.89% wholesale

price

54.89% wholesale

price

Colorado 40% manufacturers price 40% manufacturers price 40% manufacturers

price

40% manufacturers

price

Connecticut 20% wholesale price 20% wholesale price

20% wholesale price 40 cents/ounce

Delaware 15% wholesale price 15% wholesale price

15% wholesale price 15% wholesale price

DC

12% retail price

12% but not on $2+ cigars 12% but not pipe

tobacco

12% retail price

Florida 25% wholesale price None

25% wholesale price 25% wholesale price

Georgia 10% wholesale price 2.5 cents/10 cigars; 23%

wholesale

10% wholesale price 10% wholesale price

Hawaii 40% wholesale price 40% wholesale price

40% wholesale price 40% wholesale price

Idaho 40% wholesale price 40% wholesale price

40% wholesale price 40% wholesale price

Illinois 18% wholesale price 18% wholesale price

18% wholesale price 18% wholesale price

Indiana 18% wholesale price 18% wholesale price

18% wholesale price 18% wholesale price

Iowa

22% wholesale price 36 cents/cigar

22% wholesale price 22% wholesale price

Kansas 10% manufacturers price 10% manufacturers price 10% manufactures

price

10% manufacturers

price

Kentucky 7.5% wholesale price 7.5% wholesale price

7.5% wholesale price 9.5 cents/unit†

Louisiana 20% manufacturers price 8%-20% manufacturers price 33% manufacturers

price

20% manufacturers

price

Maine 78% wholesale price 20% wholesale price

20% wholesale price 78% wholesale price

Maryland 15% wholesale price 15% wholesale price

15% wholesale price 15% wholesale price

Massachusetts 90% wholesale price 30% wholesale price

30% wholesale price 90% wholesale price

Michigan 32% wholesale price 32% wholesale price

32% wholesale price 32% wholesale price

Minnesota 70% wholesale price 70% wholesale price

70% wholesale price 70% wholesale price

Mississippi 15% manufacturers price 15% manufacturers price 15% manufacturers

price

15% manufacturers

price

Missouri 10% manufacturers price 10% manufacturers price 10% manufacturers

price

10% manufacturers

price

Montana 50% wholesale price 50% wholesale price

50% wholesale price 85 cents/ounce

Nebraska 20% wholesale price 20% wholesale price

20% wholesale price 20% wholesale price

Nevada 30% wholesale price 30% wholesale price

30% wholesale price 30% wholesale price

New

Hampshire

19% wholesale price None

19% wholesale price 19% wholesale price

New Jersey 30% manufacturers price 30% manufacturers price 30% manufacturers

price

75 cents/ounce

New Mexico 25% manufacturers price 25% manufacturers price 25% manufacturers

price

25% manufacturers

price

New York 37% wholesale price 37% wholesale price

37% wholesale price 37% wholesale price

North Carolina 3% wholesale price 3% wholesale price

3% wholesale price 3% wholesale price

North Dakota 16 cents/ounce

28% wholesale price

28% wholesale price 60 cents/ounce

Ohio

17% wholesale price 17% wholesale price

17% wholesale price 17% wholesale price

Oklahoma 60% manufacturers price 36 to 120 cents/10 cigars 80% manufacturers

price

60% manufacturers

price

Oregon 65% wholesale price 65% wholesale price

65% wholesale price 65% wholesale price

Pennsylvania None

None

None

None

Rhode Island 40% wholesale price 40% wholesale price

40% wholesale price 100 cents/ounce

South Carolina 5% manufacturers price 5% manufacturers price 5% manufacturers

price

5% manufacturers

price

South Dakota 35% wholesale price 35% wholesale price

35% wholesale price 35% wholesale price

Tennessee 6.6% wholesale price 6.6% wholesale price

6.6% wholesale price 6.6% wholesale price

Tex as 40% manufacturers price 1 to 15 cents/10 cigars

40% manufacturers 40% manufacturers

Utah

35% manufacturers price 35% manufacturers price 35% manufacturers

price

35% manufacturers

price

Vermont* 41% manufacturers price 41% manufacturers price 41% manufacturers

price

$1.49/ounce

Virginia 10% manufacturers price 10% manufacturers price 10% manufacturers

price

10% manufacturers

price

Washington 75% taxable sales price 75% taxable sales price 75% taxable sales price 75% taxable sales price

West Virginia 7% wholesale price 7% wholesale price

7% wholesale price 7% wholesale price

Wisconsin 25% manufacturers price 25% manufacturers price 25% manufacturers

price

25% manufacturers

price

Wyoming 20% wholesale price 20% wholesale price

20% wholesale price 20% wholesale price

US

Government

1.2 cents/ounce

$1.828 to $48.75/1000 7 cents/ounce 4 cents/ounce

†Effective 5/1/07. *Snuff changed from 41% of manufactures price to $1.49 per ounce on 7/1/06 ; will increase again to $1.69 on 7/1 /08. States in bold type

raised their non-cigarette taxes in 2002; states with cigarette tax rate in bold raised their cigarette tax rates since 1/1/02. Manufactures Price is the price

charged to wholesalers/distributors by the tobacco company that makes the product. Wholesale Price is either the price charged to retailers by the

wholesalers/distributors or, in some states, it is the same as the Manufactures Price. Check state statutes for details. Current price charged by the major

cigarette manufacturers to wholesalers is approximately $2.28 per pack. Economic Resource Service, USDA,

http://www.ers.usda.gov/Briefing/tobacco/Data/table9.pdf. New Jersey lowered its non-cigarette tax from 4 8% of wholesale price to 30% in 2002.

Washington State lowered its non-cigarette tax from 129.42% to 75% in 2005.

Sources: Orzechowski & Walker, The Tax Burden on Tobacco, 2005; Federation of Tax Administrators, 2 004 , http://www.taxadmin.org; press reports; U.S.

Bureau of Alcohol, Tobacco & Firearms, http://www.atf.treas.gov/alcohol/info/faq/subpages/atftaxes.htm. For more information o n state to bacco taxes (and

the benefits from increasing them), see the Campaign's website at http://tobaccofreekid s.org/reports/prices.

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

23

Department of Health:

About 8.5% of New Mexico youth report using smokeless tobacco (2005 NM Youth Risk

& Resiliency Survey) compared to 3.2% of adults (2003 NM Adult Tobacco Survey).

Passage of SB888 may help to eliminate this disparity by preventing youth initiation of

tobacco products and encouraging cessation, as youth are more price-sensitive than

adults.

Tax Incentives for Certain Health Insurers: The Medical Insurance Pool, established by

Chapter 54 of the Insurance Code, is a non-profit corporation operating a high-risk health

insurance pool. The premiums charged to members are not sufficient to cover the costs, and this

shortfall is assessed to health insurance industry. Assessed insurers then receive a 30 percent

premium tax credit for full premium plan losses and a 50 percent premium tax credit for reduced

premium plan losses.

The Pool is projecting increases in the assessments that are being levied on the health insurance

industry. The growth in these assessments is primarily the result of increased membership in the

pool and expansion of the reduced premium plan, which is available to persons with low

incomes. The projected growth is also from the executive’s Insure New Mexico initiatives.

Since the growth in assessments is primarily coming from the low-income subsidy and Insure

New Mexico, this bill proposes that the cost be shifted to government away from the commercial

insurance industry who otherwise would bear the brunt of the increase in assessments.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Working Families Tax Credit: HB436 is a related bill. Similar to SB317, SB 482 creates a

State Earned Income Tax Credit of 10 percent of the federal EIC and SB482 also allows both the

created credit and LICTR.

Accelerate Income Tax Rate Reductions: SB265 and HB788 duplicates this section.

Agricultural Water Conservation Tax Credits: SB291 is closely related to this section.

Renewable Energy Production Tax Credits: SB463 duplicates this section.

Armed Services Income Tax Exemption:

207 H Cote ARMED FORCES INCOME TAX EXEMPTION

368 H Sandoval

ARMED SERVICE RETIREE INCOME TAX

EXEMPTION

497 H Foley MILITARY RETIREMENT PAY TAX EXEMPTION

541 H Anderson ARMED FORCES INCOME TAX EXEMPTION

787 H Foley ARMED FORCES INCOME TAX EXEMPTION

43 S Robinson MILITARY PENSION INCOME TAX EXEMPTION

492 S Carraro ARMED SERVICES INCOME TAX EXEMPTION

493 S Carraro MILITARY PENSION INCOME TAX EXEMPTION

Sustainable Building Tax Credit: SB543 and HB534 are both closely related to this section.

Home Schooling Income Tax Deduction: SB781 is similar.

Rural Health Care Practitioner Tax Credit: SB1057 is similar.

Space Program Gross Receipts: This provision relates to Senate Bill 809 and House Bill 838.

Border Zone Gross Receipts: This provision relates to Senate Bill 701 and House Bill 785.

Aircraft Manufacturing Gross Receipts: This provision relates to Senate Bill 477 and House

Bill 530. It conflicts with House Bill 256, which amends the same section to create a gross

receipts tax deduction for belowground irrigation systems.

For Profit Hospital Gross Receipts: This provision conflicts with House Bill 524, Senate Bill

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

24

326, House Bill 23, and Senate Bill 161.

Military Transition Gross Receipts: This provision relates to Senate Bill 785 and House Bill

839.

Disabled Street Vendor Gross Receipts: SB1138 is a duplicate.

Small Business Laboratory Partnership Gross Receipts: This provision relates to Senate Bill

1 and House Bill 236.

Increase Tobacco Products Tax: SB888 is a duplicate.

Tax Incentives for Certain Health Insurers: SB565 is closely related.

TECHNICAL ISSUES

Armed Services Income Tax Exemption: According to the Department of Defense, “Active

Duty" refers to “Full-time duty in the active service of a Uniformed Service, including fulltime

training duty, annual training duty, and attendance while in the active service at a school

designated as a Military Service school by law or by the Secretary concerned." SB492 refers to

“active service" which is presumed to mean “active duty" though clarification may be a

necessary correction.

TRD notes that, as written, the measure could be interpreted to include an exemption for federal

personal income tax obligations. It should be amended to clarify that it does not.

Disabled Street Vendor Gross Receipts: DVR believes the definition of “disabled" provided in

the provision will exclude individuals earning “substantial gainful activity," as defined by the

Social Security Act, which is equivalent to $900 per month for persons with disabilities and

$1,500 per month for those who are blind, from receiving the proposed gross receipts tax

exemption. DVR recommends amending the bill so the definition of disability matches that cited

in Section 504 of the federal Rehabilitation Act.

Small Business Laboratory Partnership Gross Receipts: TRD notes that to qualify for the

program, small businesses must certify that assistance is not available at a reasonable cost

through private sources. There is currently no mechanism in place to verify these assertions.

OTHER SUBSTANTIVE ISSUES

Armed Services Income Tax Exemption: By reducing state tax obligations, the proposed

measure would tend to increase federal tax liability because state tax obligations are deductible

against federal liability. Hence the net taxpayer benefit would be less than the $1,575 per

claimant mentioned above. The $1,575 in state tax savings would, for example, be reduced to

$1,260 ($1,575 x .8) for a taxpayer in the 20% federal tax bracket.

Sustainable Building Tax Credit: Other States with similar credits:

NEW YORK STATE: New York enacted a green building credit in 2001 and they are

estimating it to cost almost $1 million in 2005.

Effective Date: Effective for costs incurred on or after June 1, 1999 and certified by the

Department of Environmental Conservation prior to 2004. The credit is allowable for tax

years 2001 through 2009.

Description: Taxpayers may claim a credit for the purchase of recyclable building

materials and other environmentally preferable tangible personal property. Credits may

Senate Bill 317/aSCORC/aSFC/aSFL#1 – Page

25

also be claimed for the purchase of fuel cells, photovoltaic modules, and environmentally

sensitive non-ozone depleting refrigerants.

Estimates: 2002: $0.3 million - 2005: $0.9 million

Data Source: Personal Income Tax Clearing House data file

OREGON: Oregon has a Business Energy Tax Credit that is estimated to have cost $22 million

in 2003 but saved $26 million in energy costs to businesses. EcoNorthwest, an economic

consulting firm, prepared a report of the economic impact of Oregon’s credits:

http://www.oregon.gov/ENERGY/CONS/docs/EcoNW_Study.pdf

The bill now excludes residential renovations from the credit not by language but by the current

definition of the LEED for Homes. The US GBC may change this definition in the future and it

would automatically be included in eligible projects. Including renovations would likely

increase the fiscal impact significantly and so if the intent is to exclude renovations, a clearer

definition is necessary.

SS/NF/csd