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 Cote

ORIGINAL DATE

LAST UPDATED

1/24/08

2/09/08 HB 269/aHEC

SHORT TITLE Classroom Supply Tax Credit

SB

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

($5,700.0)

($5,700.0) Recurring –

three years General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Public Education Department (PED)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of HEC Amendment

The House Education Committee amended House Bill 269 to repeal the credit on January 1,

2012, rather than January 1, 2009. This extends the credit three years.

Synopsis of Original Bill

House Bill 269 creates a personal income tax credit for expenditures on classroom supplies. The

credit is available to kindergarten through 12

th

grade teachers licensed by PED and who are

employed at a public or accredited private school. The credit ranges from $50 to $250 as shown

in the table below:

Classroom Supply Credit Schedule

Modified

Gross Income

Maximum

Credit

$ 71,000 $ 250

72,000

220

73,000

150

74,000

100

75,000

50

House Bill 269/aHEC – Page

2

The credit is effective for tax year 2008 and is repealed on January 1, 2009. Any portion that

exceeds taxpayer liability can be carried forward for up to four consecutive years.

FISCAL IMPLICATIONS

According to the NM Public Education Department 2004 annual report, there were estimated to

be 21,000 teachers in NM public schools. Combined with private school teachers, there are

expected to be 23,500 teachers in 2008. Assuming that 20 percent of teachers are married and

will qualify only for the $100 average credit due to the combined income of the household and

the remaining 80 percent are single and qualify for the maximum credit, the fiscal impact is $5.7

million in tax year 2008. For most teachers, the credit would be less than their tax liability and

only a small group of teachers would need to carry the credit forward. The repeal provision

effectively makes the credit nonrecurring because it will only be available in tax years 2008 to

2011.

According to Quality Education Data (QED), a marketing agency, 45 percent of teachers in their

market trends survey report spending over $500 on their classrooms. The average reported

expenditure in the survey was $475 per year.

SIGNIFICANT ISSUES

There is considerable evidence of teachers using their own funds to purchase materials that they

consider necessary for teaching, such as art supplies and project materials. Many states have

taken steps to provide tax breaks or, in some cases, cash payments or gift cards to teachers

recognizing these expenditures. The federal government allowed a teacher to deduct up to $250

from their income but that deduction expired with the 2006 tax year and so teachers can no

longer deduct these expenses.

The bill allows private school teachers to take the tax credit which may violate the Establishment

clause of the US Constitution.

TECHNICAL ISSUES

PED notes that the bill does not provide a mechanism for verifying these expenditures, nor does

it require a taxpayer to itemize the expenditures claimed. Also, the bill arguably would not apply

to licensed teachers working in most charter schools. This is because the bill allows the credit

for expenditure by licensed teachers in a school “that provides instruction for grades

kindergarten through twelve…" Most charter schools do not cover all 12 grades.

TRD reports the following concerns:

•

Page 2, line 2, The bill specifies the amount that the credit cannot exceed, however, it

may be better to state “the credit claimed shall be up to…" which implies that the

taxpayer could only take a credit for what was actually spent.

•

It is unclear why such expenditures should not be directly reimbursed by the schools,

rather than through an income tax credit. The proposed credit overlaps a similar

federal tax benefit for a “Deduction for Certain Expenses of Elementary and

Secondary School Teachers" under §62(a)(2)(D) of the Internal Revenue Code which

allows a deduction not in excess of $250. The $250 maximum is not limited by the

taxpayer’s income. This federal deduction is scheduled to expire after 2008.

House Bill 269/aHEC – Page

3

ADMINISTRATIVE ISSUES

TRD reports that new forms will have to be prepared as well as rules promulgated determining

what are eligible “classroom supplies."

ALTERNATIVES

If the intent was to include charter school teachers, an amendment addressing PED’s concern

raised in “Technical Issues" above should be considered.

NF/bb:nt