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 Robinson

ORIGINAL DATE

LAST UPDATED

2/13/07

HB

SHORT TITLE Financial Management Fee Gross Receipts

SB 801

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

($125.0)

Recurring General Fund

($85.0)

Recurring

Local

Governments

(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates HB 683

SOURCES OF INFORMATION

LFC Files

Responses Received From

State Investment Council (SIC)

Regulation and Licensing Department (RLD)

Economic Development Department (EDD)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 801 creates a gross receipts tax deduction from receipts from fees received for

performing management or investment advisory services for a mutual fund, hedge fund, or real

estate investment trust (REIT).

The bill defines a “hedge fund" as a private investment fund or pool, the assets of which are

managed by a professional management firm that trades or invests, is not an investment

company, and is comprised of investments by Securities and Exchange Commission accredited

investors. “Mutual fund" is defined as an entity registered pursuant to the federal Investment

Company Act of 1940.

Senate Bill 801 – Page

2

“Real Estate Investment Trust" is defined as an entity described in Section 856(a) of IRS code of

1986, with investments limited to interests in mortgages on real property and shares of or

transferable certificates in an entity described in Section 856(a) of the same federal code.

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

FISCAL IMPLICATIONS

TRD’s fiscal impact estimate of the amended bill is based on the Report 80, Analysis of Gross

Receipts Tax by Industrial Classification. The state collects about $4.2 million in gross receipts

tax from investment advisory service providers. Only about 5 percent of this amount is expected

to be eligible for the new deduction because the other 95 percent is believed to be attributable to

“retail" level services, not services provided to fund managers. About 60 percent of this revenue

decrease will accrue to the general fund, while about 40 percent will accrue to local

governments.

SIGNIFICANT ISSUES

According to SIC, EDD, and RLD, the bill may help attract hedge and mutual fund managers to

New Mexico because most other states do not tax this type of activity. These types of investment

firms provide high-wage jobs and improve the investment and financial planning sector

environment.

However, any hedge and mutual fund management firms currently located in New Mexico will

also receive the tax deduction. LFC is aware of one company already located in New Mexico,

Thornburg Investment Management, which will benefit from the proposed deduction.

According to EDD, because most shares in New Mexico-based funds are owned by non-New

Mexicans, the types of management services addressed in this bill have generally been regarded

as provided outside of New Mexico, and therefore are not subject to gross receipts tax. EDD

states that this bill is largely a symbolic act that signals New Mexico’s desire to attract financial

services companies. The LFC cautions against altering the tax code for symbolic reasons because

doing so unnecessarily complicates tax statutes and makes tax administration more difficult.

ADMINISTRATIVE IMPLICATIONS

TRD will be able to administer the provisions of this bill with existing resources.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate Bill 801 duplicates House Bill 683.

ALTERNATIVES

If the intent of the bill is to encourage firms to relocate to New Mexico, the bill could be

amended so that the deduction is only received by firms beginning operations in New Mexico

after a certain date. Such an amendment would make the deduction more efficiently targeted.

SS/nt