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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

3/07/07

HB

SHORT TITLE Soft Drink Sale Gross Receipts

SB 957

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

$5,082.0

Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Conflicts with SB 530

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Health (DOH)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 957 amends Section 7-9-92 NMSA 1978 to remove nonalcoholic flavored beverages

containing a sweetener additive such as corn fructose, sugar, or aspartame from the list of foods

eligible to receive the gross receipts tax deduction for retail food that was enacted in 2004.

The effective date of this provision will be July 1, 2007.

FISCAL IMPLICATIONS

TRD reports that according to the American Beverage Association, the average American

consumed 52 gallons of soft drinks per year in 2004. Given New Mexico’s population, that

means about 100 million gallons of soft drinks are consumed in New Mexico each year. About

77 percent (77 million gallons) of soft drink products are packaged and likely to be sold in retail

food stores, but only about half of those 77 million gallons (38.5 million gallons) are sold in

stores that qualify for the gross receipts tax deduction created in Section 7-9-92 NMSA 1978.

Assuming each gallon of soft drink costs $2, the tax base the bill excludes about $77 million of

Senate Bill 957 – Page

2

sales from the food tax deduction. Taxed at a statewide rate of 6.6 percent, the bill would

increase general fund revenue by about $5,082 thousand (100 million gallons X 77% packaged X

50% sold at food stores X $2 per gallon X 6.6% tax). Since local governments are held harmless

from the food deduction created in Section 7-9-92 NMSA 1978, this entire revenue increase

would benefit the general fund.

SIGNIFICANT ISSUES

The bill discourages consumption of soft drinks by increasing their price relative to other

beverages. A 12 ounce can of soda contains 10 teaspoons of sugar. According to DOH, US

consumption of sweetened beverages has doubled in adults and tripled in adolescents since the

1970s. Since the same time, milk consumption has declined by 30 percent.

PERFORMANCE IMPLICATIONS

DOH reports that the bill relates to Task 3.2 of the governor’s performance and accountability

plan, which is to reduce the prevalence of obesity and diabetes.

ADMINISTRATIVE IMPLICATIONS

TRD reports that implementing the food and medical deductions has been unusually complicated

and expensive due to programming necessary to distribute hold-harmless payments to local

governments. Currently, the definition of food items eligible for the food deduction is the same

as the definition for the federal Food Stamps program. Changing the definition will cause

administrative problems to grow.

Retail food stores will also experience administrative impacts. Food stores will need to

reprogram their systems to include receipts from soft drink sales in the taxable portion of sales.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate Bill 957 conflicts with Senate Bill 530, which amends the same section to expand the

definition of retail stores to include establishments with over 75 percent of sales attributable to

sales of bottled water, ice, and coffee.

TECHNICAL ISSUES

TRD notes that the original intent of Section 7-9-92 NMSA 1978 was for receipts from all food

that may be purchased with Food Stamps to be deductible from the gross receipts tax.

TRD notes the definition of a soft drink should be improved since some juices, fruit-flavored

drinks, sports drinks, flavored water, bottled teas and coffees contain corn fructose, sugar or

aspartame. According to the American Beverage Association, regular soft-drinks contain 7 to 14

percent sugars, the same as some juices.

SS/csd