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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

1/29/08

HB 293

SHORT TITLE Temp Staffing Firm Gross Receipts Exemption

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

(1,343.8)

(1,424.5) Recurring General Fund

(933.9)

(989.9) Recurring

Local

Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

House Bill 293 creates a new gross receipts tax exclusion for receipts of temporary staffing firms

paid by customers for employee-related costs of services performed by employees of the

temporary staffing firm including wages, salaries, bonuses, commissions, employee benefits,

expense reimbursements, insurance, and employment taxes.

The effective date of the bill is July 1, 2008.

FISCAL IMPLICATIONS

TRD reports that taxable gross receipts of temporary staffing companies totaled $29.8 million in

FY07, most of which will be excluded from GRT due to this bill. This analysis grows that tax

base by 6 percent per year to estimate the impact in FY09 and assumes an average tax rate of 6.8

percent. About 59 percent of the revenue loss will accrue to the general fund and the remaining

41 percent will accrue to local governments.

House Bill 293 – Page

2

SIGNIFICANT ISSUES

Under current law, temporary employment agency services pay gross receipts tax on the wages

earned by their employees. However, employee-leasing agencies, which are operationally the

same as temporary employment agencies, only pay gross receipts tax on the commissions they

earn, not on the wages earned by leased employees. This bill would level the playing field

between these two similar types of businesses by taxing them equally.

LFC notes that while individual deductions from the gross receipts tax may have small fiscal

impacts, their cumulative effect significantly narrows the gross receipts tax base. Narrowing the

gross receipts tax base increases revenue volatility and requires a higher tax rate to generate the

same amount of revenue.

The bill will reduce local government gross receipts tax collections. Many of New Mexico’s

local governments are highly dependent on gross receipts tax revenue.

ADMINISTRATIVE IMPLICATIONS

The bill will have a minimal administrative impact on TRD.

OTHER SUBSTANTIVE ISSUES

It should be noted that many temporary staffing agencies are nationwide companies located

elsewhere doing business selling professional services in New Mexico.

ALTERNATIVES

In 2003, the final report of the Blue Ribbon Tax Reform Commission’s included a proposal to

make wages of employee leasing agencies taxable. The Blue Ribbon proposal would also level

the playing field between the two types of temporary employment agencies addressed in this bill

but would do so by making them both taxable instead of excluding them both from taxation. This

alternative proposal was expected to increase gross receipts tax collections by about $9 million.

About 59 percent of that increase would benefit the general fund and the remaining 41 percent

would benefit local governments.

SS/mt