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

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

SPONSOR Ingle

ORIGINAL DATE

LAST UPDATED

2/13/07

HB

SHORT TITLE Dyed Special Fuel Gross Receipts

SB 665

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

(20,047.5)

Recurring General Fund

(13,365.0)

Recurring

Local

Governments

(Parenthesis ( ) Indicate Revenue Decreases)

Conflicts with HB 775

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

Energy Minerals and Natural Resource Department (EMNRD)

Department of Transportation (DOT)

SUMMARY

Synopsis of Bill

Senate Bill 665 adds special fuel dyed in accordance with federal regulations to the list of fuels

that qualify for gross receipts and compensating tax exemptions. Under current law, special dyed

fuel is exempt from the special fuels supplier tax but not the gross receipts tax.

Because the bill has no effective date its provisions are assumed to become effective 90 days

after the legislature adjourns on June 15, 2007.

FISCAL IMPLICATIONS

TRD estimates that 225 million gallons of special fuel will be eligible for the exemptions created

in this bill in FY08. Assuming an average price of $2.25 per gallon results in a tax base equal to

$506.3 million. With a statewide gross receipts tax rate of 6.6 percent, the bill will reduce

Senate Bill 665 – Page

2

revenue by about $33.4 million. About 60 percent of that revenue loss will accrue to the general

fund, while the remaining 40 percent loss will accrue to local governments.

The bill may have a small fiscal impact on FY07 because it will become effective for half of

June 2007.

SIGNIFICANT ISSUES

According to EMNRD, dyed diesel fuel is the only motor fuel currently referred to as “dyed

special fuel" and is used primarily in agricultural, off-road applications such as tractor fuel. Due

to this type of fuel’s high sulfur content, the Environmental Protection Agency (EPA) requires it

to be dyed red for identification so it can’t be used for on-road purposes. The red dye also helps

the Internal Revenue Services (IRS) identify whether fuel is taxable or not.

TRD reports there is no clear policy rationale for the proposed exemption. LFC notes the

proposed exemption 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.

ADMINISTRATIVE IMPLICATIONS

The bill will have a moderate administrative impact on TRD. Instructions and publications will

be revised, and taxpayers and employees will be educated. TRD reports that the bill would be

easier to administer if it became effective on July 1, 2007, since that is when revisions to tax

instructions are normally sent.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate Bill 665 conflicts with House Bill 775, which suspends fuel taxes for one year.

TECHNICAL ISSUES

Consider amending the bill to include a July 1, 2007 effective date.

SS/mt