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

SPONSOR Taylor

ORIGINAL DATE

LAST UPDATED

3/08/07

3/9/07 HB

SHORT TITLE Small Wine Maker Gross Receipt

SB 1131

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

(442.0)

(450.0) Recurring General Fund

(233.0)

(238.0) Recurring DWI Grant

Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 1131 makes the following changes to the Liquor Excise Tax Act:

•

redefines “wine" as an alcoholic beverage other than cider made by fermenting fruit or

other agricultural products that does not contain more than 20 percent alcohol by volume;

•

redefines “person" to include institutions;

•

defines “winegrower" as a person who has received a winegrowers business license from

the state;

•

changes the threshold to be taxed as a small winegrower to 950 thousand liters;

•

allows winegrowers to transfer wine to each other for the purpose of processing, bottling

or storage without the transfer volume being taxed provided the wine is returned to the

original owner;

The effective date for the changes is July 1, 2007.

Senate Bill 1131 – Page

2

FISCAL IMPLICATIONS

The fiscal impact shown here has been revised to more accurately account for out-of-state

wineries that will be able to take advantage of the lower excise tax.

TRD reports that the increase in production level to be included at the small winer rate will lower

liquor excise revenues by $675,000. 65.43 percent of this is a reduction in general fund revenue

and the balance is a reduction in the local DWI grant fund.

SIGNIFICANT ISSUES

TRD reports that the increase in the production level will allow the two largest wine producers in

New Mexico to qualify as “small winers." They have also expressed concern that the fiscal

impacts may be understated because wholesalers can pay the lower tax on wine they pay on wine

they buy from small wineries, regardless of where the winery is. This higher level of production

increases the number of wineries nationwide that qualify for wholesale purposes.

The federal government provides a credit for small producers. The threshold for receiving the

federal credit is 250,000 gallons or 950,000 liters. This would match the definition proposed here

but the federal credit is only on the first 375,000 liters for these producers. [Section 5041(c)(1) of

the Internal Revenue Code of 1986 (26 U.S.C. 5041(c)(1))]

TECHNICAL ISSUES

TRD:

House Bill 1145 makes several clarifications that will improve administration of the

Liquor Excise Tax as it applies to small wineries. In particular, adding the definition of

“winegrower" and clarifying the treatment of wine transferred from a small winery to a

wholesaler for distribution are useful clarifications. Several provisions of the bill raise

concerns however.

Page 3 & 4 section G. Intent of the proposed changes to the definition of “Person" is

unclear. As amended, the definition states that it “includes" various governmental

entities, but it doesn’t state whether it applies to any non-governmental entities. On its

face, it would appear that no private wholesaler would match the definition. Since this

definition is used in the Liquor Excise Tax to define terms like “wholesaler," which in

turn define who is subject to tax, the implication would be that no private wholesaler is

subject to the tax. Effectively the whole tax base would be eliminated. If this is not the

intent of the legislation, the definition of person should be clarified to indicate that it

continues to include various types of private business entities.

Page 7 paragraph B. The proposed new deduction – for wine received from another New

Mexico winegrower for processing, bottling or storage and subsequent return to the

transferor – would be more correctly treated as an exemption than a deduction for the tax.

The receiver is performing a service, not producing wine and this service should not

count toward the service provider’s wine production numbers. The exemption might be

better placed in a new section 7-17.9.1

NF/csd