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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

1/29/08

1/30/08 HB 311

SHORT TITLE Increase Gross Receipts & Send to School Fund

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

38,019.4

$260,095.2

$269,003.1 Recurring Public School

Fund

(38,019.4)

(264.0)

(264.1) Recurring General Fund

835.0

870.0 Recurring Small Counties

Assistance Fund

835.0

870.0 Recurring Small Cities

Assistance Fund

(Parenthesis ( ) Indicate Revenue Decreases)

*Table reflects combined effects of gross receipts and compensating tax changes. See Fiscal

Implications for further detail.

Relates to HB241

SOURCES OF INFORMATION

LFC Files

Responses Received From

Public Education Department (PED)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

House Bill 311 would increase the state gross receipts tax rate and the compensating tax rate

from the current level of 5 percent to 5.5 percent. The bill would also create a new distribution to

the public school fund in an amount equal to 9.09 percent of state gross receipts tax and

compensating tax collections, prior to any other distributions.

Provisions of the bill will become effective on July 1, 2008 (see Technical Issues).

House Bill 311 – Page

2

FISCAL IMPLICATIONS

The table below details calculations used to estimate the fiscal impact of the proposal.

Gross Receipts Tax

Taxable gross receipts are expected to total $8.1 billion in the last two months of FY08, $50.6

billion in FY09, $52.4 billion in FY10, $54.2 billion in FY11 and $56.2 billion in FY12. By

increasing the gross receipts tax rate by 0.5 percent effective July 2008, the bill will increase

gross receipts tax revenue by $253.2 million in FY09, $261.8 million in FY10, $271.1 million in

FY11, and $280.9 million in FY12.

The bill would create a distribution of 9.09 percent of net receipts attributable to the gross

receipts tax prior to any other distributions to the public school fund. The distribution will first

affect revenue accrued to May 2008. After adjusting gross receipts tax collections for credits,

that amount would be $36.8 million for the last two months of FY08, $251.7 million in FY09,

$260.3 million in FY10, $269.6 million in FY11, and $279.3 million in FY12.

The public school fund will receive 9.09 percent of net gross receipts tax revenues, which will

total $36.8 million in FY08, $251.7 million in FY09, $260.3 million in FY10, $269.6 million in

FY11, and $279.3 million in FY12. Because the amount distributed to the public school fund is

slightly lower than the revenue generated by increasing the gross receipts tax rate, the general

fund will see a slight gross receipts tax revenue increase in FY09 and beyond. However, unless

the bill is amended the general fund will lose $36.8 million in FY08 because distributions to the

public school fund will take effect two months before the tax rate increase is effective.

Compensating Tax

Based on the December 2007 consensus revenue estimate, total receipts subject to the

compensating tax will be $266.7 million in the last two months of FY08, $1.7 billion in FY09,

$1.7 billion in FY10, $1.8 billion in FY11, and $1.9 billion in FY12. By increasing the

compensating tax rate 0.5 percent to 5.5 percent, the bill will increase revenue by $8.4 million in

FY09, $8.7 million in FY10, $9.1 million in FY11, and $9.5 million in FY12.

Under House Bill 311, 9.09 percent of compensating tax revenue would go to the public school

fund, and 10 percent would continue to go to both the small cities and small counties assistance

funds. The general fund would receive the remainder of revenues. Unless the bill is amended to

ensure the new distribution to the public school fund takes effect in the same month the tax rate

increases, the bill will have a fiscal impact in FY08.

House Bill 311 – Page

3

FY08 (2 months) FY09

FY10

FY11

FY12

Current Law

Taxable Gross Receipts

8,146,627.6

$

50,630,245.0

$

52,355,798.4

$

54,226,085.1

$

56,179,367.4

$

Credits

2,409.5

$

15,179.8

$

15,938.7

$

16,735.7

$

17,572.5

$

5% Tax Net of Credits

404,921.9

$

2,516,332.5

$

2,601,851.2

$

2,694,568.6

$

2,791,395.9

$

5.5% Tax Net of Credits

2,769,483.7

$

2,863,630.2

$

2,965,699.0

$

3,072,292.7

$

TOTAL INCREASE GRT REVENUE

253,151.2

$

261,779.0

$

271,130.4

$

280,896.8

$

9.09% of 5.5% Tax to Public School Fund

36,807.4

$

251,746.1

$

260,304.0

$

269,582.0

$

279,271.4

$

Revenue Change to General Fund

(36,807.4)

$

1,405.2

$

1,475.0

$

1,548.4

$

1,625.4

$

Current Law

FY08 (2 months) FY09

FY10

FY11

FY12

Compensating Tax Base

266,666.7

$

1,670,000.0

$

1,740,000.0

$

1,815,000.0

$

1,892,500.0

$

Taxed at 5%

13,333.3

$

83,500.0

$

87,000.0

$

90,750.0

$

94,625.0

$

Public School Fund

-

$

-

$

-

$

-

$

80% General Fund

10,666.7

$

66,800.0

$

69,600.0

$

72,600.0

$

75,700.0

$

10% Small Counties

1,333.3

$

8,350.0

$

8,700.0

$

9,075.0

$

9,462.5

$

10%Small Cities

1,333.3

$

8,350.0

$

8,700.0

$

9,075.0

$

9,462.5

$

HB311 Proposed

FY08 (2 months) FY09

FY10

FY11

FY12

Compensating Tax Base

266,666.7

$

1,670,000.0

$

1,740,000.0

$

1,815,000.0

$

1,892,500.0

$

Taxed at 5.5% (beginning FY09)

13,333.3

$

91,850.0

$

95,700.0

$

99,825.0

$

104,087.5

$

Public School Fund

1,212.0

$

8,349.2

$

8,699.1

$

9,074.1

$

9,461.6

$

80% General Fund

9,454.7

$

65,130.8

$

67,860.9

$

70,785.9

$

73,808.4

$

10% Small Counties

1,333.3

$

9,185.0

$

9,570.0

$

9,982.5

$

10,408.8

$

10%Small Cities

1,333.3

$

9,185.0

$

9,570.0

$

9,982.5

$

10,408.8

$

Net Fiscal Impact

FY08 (2 months) FY09

FY10

FY11

FY12

Public Schools

1,212.0

$

8,349.2

$

8,699.1

$

9,074.1

$

9,461.6

$

80% General Fund

(1,212.0)

$

(1,669.2)

$

(1,739.1)

$

(1,814.1)

$

(1,891.6)

$

10% Small Counties

-

$

835.0

$

870.0

$

907.5

$

946.3

$

10%Small Cities

-

$

835.0

$

870.0

$

907.5

$

946.3

$

FY08 (2 months) FY09

FY10

FY11

FY12

Public School Fund

38,019.4

$

260,095.2

$

269,003.1

$

278,656.1

$

288,733.0

$

General Fund

(38,019.4)

$

(264.0)

$

(264.1)

$

(265.7)

$

(266.1)

$

Small Cities

-

$

835.0

$

870.0

$

907.5

$

946.3

$

Small Counties

-

$

835.0

$

870.0

$

907.5

$

946.3

$

Sources: LFC Files, TRD, December 2007 Consensus Revenue Estimate.

HB311: Fiscal Impacts of Gross Receipts Tax Provisions (in thousands)

HB311: Fiscal Impact Estimate of Compensating Tax Provisions (in thousands)

HB311: Total Change of Gross Receipts and Compensating Tax Provisions

SIGNIFICANT ISSUES

The 2007 funding formula study task force sponsored HB311 as a way of providing additional

funding for a new public school funding formula.

This bill provides for continuing appropriations. The LFC has concerns with including

continuing appropriation language in the statutory provisions, as earmarking reduces the ability

of the legislature to establish spending priorities.

In addition to the current state gross receipts tax rate of 5 percent, 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). Due to increasing imposition of local option taxes, the statewide gross receipts tax

rate is increasing steadily. On average, a local option gross receipts tax of about 1.9 percent will

be imposed by local governments statewide by FY09. Combined with the state gross receipts tax

of 5 percent, the statewide tax rate is therefore 6.9 percent. This bill would increase the statewide

gross receipts tax rate to 7.4 percent in FY09.

House Bill 311 – Page

4

ADMINISTRATIVE IMPLICATIONS

Administrative impacts are expected to be minimal.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

House Bill 311 relates to House Bill 241, which provides for a new public school funding

formula as well as maintenance and periodic recalibration of the formula.

TECHNICAL ISSUES

If the intent is to avoid a fiscal impact in FY08, the bill should be amended to state that

distributions to the public school fund created in the bill apply to revenue earned on a modified

accrual basis after June 30, 2008.

SS/mt:jp