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

SPONSOR Gonzales

ORIGINAL DATE

LAST UPDATED

1/22/08

1/25/08 HB 24

SHORT TITLE Capital Outlay Gross Receipts Tax Eligibility

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

See Narrative

Recurring

Counties

See Narrative

Recurring Municipalities

(See Narrative)

Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Corrections

New Mexico Municipal League (NMML)

New Mexico Association of Counties (NMAC)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

House Bill 24 amends sections 7-19D-12 and 7-20E-21 NMSA 1978 to allow all counties and

municipalities to impose a local option capital outlay gross receipts tax in increments of 1/16

percent, not to exceed ¼ percent. Under current law, only those local governments that have

fully imposed their local option gross receipts tax and local infrastructure gross receipts tax

increments may do so.

The bill also amends language regarding restriction of the use of county capital outlay gross

receipts tax revenue to match language pertaining to use of municipal capital outlay gross

receipts tax revenue.

The bill’s provisions will become effective July 1, 2008.

House Bill 24 – Page

2

FISCAL IMPLICATIONS

The fiscal impact of this bill depends on if and when local governments choose to impose the

capital outlay gross receipts tax. To illustrate the potential fiscal impacts of the bill, the tables

below show the amount of revenue that could be generated by each municipality and county if

the full ¼ percent capital outlay gross receipts tax were imposed in FY09. About $101.4 million

could be generated by counties and about $77.2 million could be generated by municipalities if

all were to fully impose the tax in FY09.

The tables below also indicate the potential general fund revenue loss that would occur if all

local governments fully imposed the tax in FY09. The food and medical gross receipts tax

deductions enacted in 2004 include “hold harmless" provisions to protect local governments

from associated revenue losses. In 2007, legislation froze the tax rate at which some local

governments are held harmless from the food and medical deductions. However, in smaller cities

and counties, the general fund hold harmless distribution grows larger when higher local option

taxes are imposed. The tables below shows that the general fund revenue loss would be about

$1,423.4 million in FY09 if all local governments chose to impose the tax. Fiscal impacts are

expected to grow by 3.1 percent in FY10, which is the rate at which the December 2007

consensus revenue estimate expects gross receipts tax collections to grow.

County

Potential Revenue: 1/4%

County Capital Outlay

GRT Increment

Potential General Fund Loss Due

to Hold Harmless Distribution:

1/4% County Capital Outlay GRT

Increment

Bernalillo

43,679,561

Hold Harmless Rate Frozen

Catron

85,723

(3,412)

Chaves

2,886,210

Hold Harmless Rate Frozen

Cibola

725,937

(71,895)

Colfax

844,495

(38,376)

Curry

1,982,460

(181,593)

De Baca

60,140

(5,623)

Dona Ana

8,363,636

Hold Harmless Rate Frozen

Eddy

5,509,913

Hold Harmless Rate Frozen

Grant

1,309,462

(139,051)

Guadalupe

Already Imposed

Already Imposed

Harding

31,126

(919)

Hidalgo

235,383

(8,305)

Lea

7,216,975

Hold Harmless Rate Frozen

Lincoln

1,258,738

(93,851)

Los Alamos

4,162,851

(124,108)

Luna

Already Imposed

Already Imposed

McKinley

Already Imposed Hold Harmless Rate Frozen

Mora

63,187

(5,988)

Otero

2,048,969

Hold Harmless Rate Frozen

Quay

353,132

Hold Harmless Rate Frozen

Rio Arriba

1,539,580

(135,031)

Roosevelt

642,101

(61,701)

San Juan

10,210,651

Hold Harmless Rate Frozen

San Miguel

Already Imposed

Already Imposed

Sandoval

4,550,985

Hold Harmless Rate Frozen

Santa Fe

Already Imposed Hold Harmless Rate Frozen

Sierra

373,510

(21,006)

Socorro

497,760

(52,715)

Taos

Already Imposed

Already Imposed

Torrance

537,464

(20,721)

Union

306,787

(14,125)

Valencia

1,959,477

Hold Harmless Rate Frozen

Total

101,436,215

(978,419)

Source: Taxation and Revenue Departm ent, Office of Research and Statistics

Illistration of Potential Revenue from Additional County

Local Option Increments - Fiscal Year 2009

House Bill 24 – Page

3

Municipality

Potential Revenue:

1/4% Municipal

Capital Outlay GRT

Increment

Potential General Fund Loss

Due to Hold Harmless

Distribution: 1/4% Municipal

Capital Outlay GRT Increment Municipality

Potential Revenue:

1/4% Municipal

Capital Outlay GRT

Increment

Potential General Fund Loss Due

to Hold Harmless Distribution:

1/4% Municipal Capital Outlay

GRT Increment

Alamogordo

Already Imposed Hold Harmless Rate Frozen Las Cruces

6,136,891

Hold Harmless Rate Frozen

Albuquerque

37,259,572

Hold Harmless Rate Frozen Las Vegas

Already Imposed Hold Harmless Rate Frozen

Angel Fire

Already Imposed Hold Harmless Rate Frozen Logan

Already Imposed

Already Imposed

Artisia

1,240,252

Hold Harmless Rate Frozen Lordsburg

138,781

(8,365)

Aztec

Already Imposed

Already Imposed Los Alamos

4,162,851

Hold Harmless Rate Frozen

Bayard

50,531

(6,318)

Los Lunas

998,665

Hold Harmless Rate Frozen

Belen

468,758

(79,717)

Los Ranchos De Albuq.

251,944

(10,433)

Bernalillo

356,014

(18,459)

Loving

20,416

(2,234)

Bloomfield

Already Imposed

Already Imposed Lovington

572,442

(38,849)

Bosque Farms

101,713

(4,289)

Magdalena

27,336

(3,129)

Capitan

33,671

(8,962)

Maxwell

2,497

-

Carizozo

33,991

(1,543)

Melrose

15,369

(880)

Carlsbad

1,563,960

Hold Harmless Rate Frozen Mesilla

Already Imposed

Already Imposed

Causey

1,033

-

Milan

207,509

(13,307)

Chama

51,760

(8,412)

Moriarty

195,353

Hold Harmless Rate Frozen

Cimmaron

23,955

(154)

Mosquero

2,270

(638)

Clayton

Already Imposed

Already Imposed Mountainair

22,648

(1,275)

Cloudcroft

55,818

Hold Harmless Rate Frozen Pecos

30,398

(1,766)

Clovis

Already Imposed Hold Harmless Rate Frozen Portales

502,282

Hold Harmless Rate Frozen

Columbus

17,972

(983)

Questa

31,528

(2,827)

Corona

4,987

(320)

Raton

355,770

(28,672)

Corrales

211,534

(1,153)

Red River

Already Imposed Hold Harmless Rate Frozen

Cuba

48,862

Hold Harmless Rate Frozen Reserve

10,652

(2,105)

Deming

617,241

Hold Harmless Rate Frozen Rio Rancho

3,181,489

Hold Harmless Rate Frozen

Des Moines

12,517

Hold Harmless Rate Frozen Roswell

2,362,917

Hold Harmless Rate Frozen

Dexter

61,615

(3,382)

Roy

6,479

(910)

Dora

5,532

Hold Harmless Rate Frozen Ruidoso

622,922

(25,021)

Eagle Nest

15,024

-

Ruidoso Downs

225,019

Hold Harmless Rate Frozen

Edgewood

177,095

Hold Harmless Rate Frozen San Jon

Already Imposed

Already Imposed

Elephant Butte

55,512

(764)

San Ysidro

9,135

(1,533)

Elida

6,204

(974)

Santa Clara

10,148

(9)

Encino

2,653

-

Santa Fe

Already Imposed Hold Harmless Rate Frozen

Espanola

Already Imposed Hold Harmless Rate Frozen Santa Rosa

Already Imposed Hold Harmless Rate Frozen

Estancia

89,547

(3,360)

Silver City

688,952

Hold Harmless Rate Frozen

Eunice

299,919

Hold Harmless Rate Frozen Socorro

354,526

(48,668)

Farmington

5,448,374

Hold Harmless Rate Frozen Springer

32,198

(619)

Floyd

6,233

Hold Harmless Rate Frozen Sunland Park

285,319

Hold Harmless Rate Frozen

Folsom

896

-

Taos

877,450

Hold Harmless Rate Frozen

Fort Sumner

32,912

(5,559)

Taos Ski Valley

Already Imposed Hold Harmless Rate Frozen

Gallup

1,548,360

Hold Harmless Rate Frozen Tatum

33,978

(3,442)

Grady

1,795

-

Texico

11,571

(1,203)

Grants

408,238

(57,250)

Tijeras

85,069

Hold Harmless Rate Frozen

Grenville

1,298

-

Truth or Consequences

223,192

(19,266)

Hagerman

21,825

(1,122)

Tucumcari

Already Imposed

Already Imposed

Hatch

65,067

(11,550)

Tularosa

64,784

(6,993)

Hobbs

3,933,359

Hold Harmless Rate Frozen Vaughn

21,385

(1,574)

Hope

2,468

-

Virden

560

-

House

6,345

Hold Harmless Rate Frozen Wagon Mound

3,801

(165)

Hurley

10,515

-

Willard

2,378

(0)

Jal

67,415

(6,143)

Williamsburg

8,611

-

Jemez Springs

12,233

(708)

Lake Arthur

6,434

-

TOTAL ALL MUNIS

77,238,495

(445,003)

So urc e: T a xa ti on an d R e ve nu e D e pa rt me n t, Of f ic e o f R e se arc h a nd St a t ist i cs

Illistration of Potential Revenue from Additional Municipal Local Option Increments - Fiscal Year 2009

SIGNIFICANT ISSUES

Under current law, only counties and municipalities that have fully imposed their local option

gross receipts tax and their local option infrastructure gross receipts tax may impose a capital

outlay gross receipts tax. Imposition of the capital outlay gross receipts tax requires voter

approval.

The New Mexico Municipal League and the New Mexico Association of Counties support the

bill because they contend that local governments should not be required to fully impose the local

option gross receipts tax of 1.5 percent in municipalities and 7/16 percent in counties, when they

may need capital outlay revenue instead of general revenue.

Revenues raised by a county or municipality through a capital outlay gross receipts tax may be

restricted for use to build, acquire or improve public buildings and their grounds, water and

wastewater systems, firefighting equipment, local roads and bridges, airport facilities,

House Bill 24 – Page

4

recreational facilities and open space, or repayment of revenue bonds issued for infrastructure

purposes. County revenue may also be used for county correctional and juvenile detention

facilities.

The table below indicates that as of January 2008, 16 municipalities and six counties currently

impose the capital outlay gross receipts tax. The counties of Cibola and Torrance are currently

eligible to impose the tax, but no additional municipalities are eligible. Notably, several

municipalities were eligible to impose the capital outlay gross receipts tax until January 1, 2008,

when new legislation increased the maximum increment of municipal gross receipts tax from

1.25 to 1.5 percent.

Counties Currently Imposing

Alomogordo

Logan

Guadalupe

Angel Fire

Mesilla

Luna

Aztec

Red River

McKinley

Bloomfield

San Jon

San Miguel

Clayton

Santa Fe

Santa Fe

Clovis

Santa Rosa

Taos

Espanola

Taos Ski Valley

Las Vegas

Tucumcari

Counties Currently Eligible but not

Imposing

none

Cibola

Torrance

Source: TRD, Enactment Dates of Local Option Taxes

Local Option Capital Outlay Gross Receipts Tax

Municipalities Currently Imposing

Municipalities Currently Eligible but not

Imposing

New Mexico’s municipalities and counties are authorized to impose over 4 percent of local

option gross receipts taxes (that figure excludes several additional local option taxes that have

been authorized for selected local governments). On average, a local option gross receipts tax of

about 1.9 percent is actually imposed by local governments statewide. Combined with the state

gross receipts tax of 5 percent, the statewide tax rate is therefore 6.9 percent.

ADMINISTRATIVE IMPLICATIONS

The administrative impact on TRD will be minimal.

TECHNICAL ISSUES

TRD notes that the current law may not sufficiently limit local option capital outlay gross

receipts tax revenue for use in infrastructure.

OTHER SUBSTANTIVE ISSUES

New Mexico Department of Corrections reports that by allowing Bernalillo County to impose

the capital outlay gross receipts tax, the county could use funds to ease crowding at the

Metropolitan Detention Center. This, in turn, could allow the Department of Corrections to more

easily house its offenders there on a short-term basis when necessary.

House Bill 24 – Page

5

POSSIBLE QUESTIONS

The county and municipal gross receipts taxes contribute to general revenue. Is there any reason

a local government that has not yet fully imposed its local option gross receipts tax could not,

under current law, impose additional increments of that tax to use for the same capital outlay-

related purposes.

SS/bb