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F I S C A L I M P A C T R E P O R T
SPONSOR Feldman
ORIGINAL DATE
LAST UPDATED
2/18/07
HB
SHORT TITLE Solar Market Tax Credit Eligible Properties
SB 795
ANALYST Francis
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY07
FY08
FY09
(667.0)
(1,089.0) Recurring General Fund
(Parenthesis ( ) Indicate Revenue Decreases)
SOURCES OF INFORMATION
LFC Files
Taxation and Revenue Department
Responses Received From
Energy Minerals and Natural Resources Department (EMNRD)
SUMMARY
Synopsis of Bill
Senate Bill 795 amends the solar market development tax credit in the following ways:
•
Clarifies that the residence, business or agricultural enterprise where a solar thermal or
photovoltaic system is installed can be owned by the taxpayer or a limited liability or
other business association of which the taxpayer is an owner.
•
Makes the solar credit refundable for low income taxpayers defined as those with
modified adjusted gross income of less than 150 percent of the federal poverty level.
•
Clarifies that husband and wife that file separately are only entitled to half of the credit
each.
The effective date is January 1, 2007.
FISCAL IMPLICATIONS
The fiscal impact estimated by the Taxation and Revenue Department (TRD) is $667 thousand in
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Senate Bill 795 – Page
2
FY08 growing to $1.1 million in FY09. The estimate is based on assumptions about the
adoption rate of the two solar systems. Recent history suggests that the growth rate has been an
extraordinary 30 percent. TRD has not completed their formal analysis but has provided
preliminary information. There is an increase in the claims due to eligibility being broadened to
include buildings owned by businesses. Depending on the interpretation of the expanded scope,
there may be significantly more credits claimed than assumed here. See technical issues below
for more information.
Table 1: Fiscal Impacts
2006
2007
2008
2009
2010
Present law:
Growth rate
30%
30%
Total credits approved
150,000
2,223,228
2,890,196
3,757,255
60%
20%
10%
5%
3%
Credit claims
90,000
1,363,937
2,193,763
3,062,215
Amounts claimed by fiscal year
90,000
1,363,937
2,193,763
3,062,215
SB 795: (2007 Session)
Increased claims by businesses <1>
1.5
1.5
1.5
Total credits approved
150,000
3,334,841
4,335,294
5,000,000
Credit claims
60%
20%
10%
5%
3%
Credit claims
90,000
2,030,905
3,283,145
4,208,043
Amounts claimed by fiscal year
90,000
2,030,905
3,283,145
4,208,043
Difference
(666,968)
(1,089,382)
(1,145,828)
Source: TRD
SIGNIFICANT ISSUES
According to data from TRD, a typical solar system that is eligible for the credit costs almost $25
thousand. Even with a 30 percent refundable credit, taxpayers with modified gross income of
less than 150 percent of the federal poverty level will likely be unable to purchase and install a
solar system.
EMNRD:
The first provision of SB 795 will allow builders and developers that form limited
liability companies to include solar in speculation projects and, by using the tax credit as
the builder/developer, keep the price of the home lower for the consumer. Solar systems
become more accessible to New Mexico citizens when they are included in home
mortgages because it does not require a homeowner to pay out-of-pocket or secure a
short-term loan and the cash flow of mortgage plus the utility bill is typically lowered.
By allowing homebuilders to receive this credit, the number of solar systems that are
installed should increase, thereby meeting the original objectives of the Solar Market
Development Tax Credit.
The second provision could make it easier for low income citizens to participate in this
tax credit, making it more comprehensive and equitable.
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Senate Bill 795 – Page
3
TECHNICAL ISSUES
The intent of the new language appears to allow, as EMNRD suggests above, builders and
developers to form limited liability companies which will increase the adoption of solar systems
but the phrase “other business associations" (page 2, line 11) is vague and open to a broader
interpretation. An investor in a company that installs a solar system would be eligible for the
credit regardless of the amount of the investment. In an extremely loose interpretation, any
shareholder of a company could qualify for the credit as an owner.
Another technical issue is there is no provision for prorating the credit by the share of ownership.
It is not inconceivable that several owners could apply for the full credit amount. An amendment
to clarify the terms of the credit is advised. Below is an example of language from SB607 that
illustrates this issue:
C. A taxpayer who otherwise qualifies for and claims a credit
pursuant to this section for blended biodiesel fuel on which
special fuel excise tax has been paid by a partnership or other
business association of which the taxpayer is a member may claim
a credit only in proportion to the taxpayer's interest in the
partnership or business association. The total credit claimed in
the aggregate by all members of the partnership or business
association shall not exceed the amount of credit
NF/nt