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F I S C A L I M P A C T R E P O R T
SPONSOR Anderson
ORIGINAL DATE
LAST UPDATED
1/28/08
HB 525
SHORT TITLE Municipal Gross Receipts Payment Tax Credit
SB
ANALYST Schardin
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY08
FY09
FY10
(182,651.0)
(188,876) Recurring General Fund
(Parenthesis ( ) Indicate Revenue Decreases)
Duplicates SB196
SOURCES OF INFORMATION
LFC Files
Responses Received From
Taxation and Revenue Department (TRD)
SUMMARY
Synopsis of Bill
House Bill 525 creates a new gross receipts tax credit that will benefit taxpayers located in
municipalities that have imposed at least 0.25 percent of the maximum 1.5 percent municipal
gross receipts tax authorized in 7-19D NMSA 1978.
The provisions of the bill will become effective on July 1, 2008.
FISCAL IMPLICATIONS
As of January 1, 2008, every municipality in the state has imposed a municipal gross receipts tax
in excess of 0.5 percent. Therefore, the bill would allow a credit against the state gross receipts
tax rate of 0.5 percent in all municipalities. Data provided by TRD suggests taxable gross
receipts will total $36.5 billion in municipalities in FY09. Multiplying that tax base by 0.5
percent yields a general fund revenue reduction of $182.7 million in FY09. The credit is
expected to grow by 3.4 percent in FY10 and 3.6 percent in FY11 and beyond.
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House Bill 525 – Page
2
SIGNIFICANT ISSUES
In 2004, a credit identical to the one proposed in this bill was repealed as a way to offset the
general fund revenue losses associated with the food and medical gross receipts tax deductions
enacted that year (HB625). That credit was created in 1995 to help alleviate the burden of higher
taxes in municipalities, where both county and municipal local option taxes are imposed.
New Mexico’s municipalities and counties are currently 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. The proposed credit would decrease the statewide effective gross receipts tax from
about 6.9 to 6.5 percent in FY09.
A principle of sound tax policy is to tax as broad a base as possible at as low a rate as possible to
pay for services that are best provided by the government. While this proposal lowers the tax
rate, and therefore decreases the economic distortion caused by the gross receipts tax, the
associated fiscal impact may be large enough that necessary government services will suffer.
DUPLICATION
House Bill 525 duplicates Senate Bill 196.
ALTERNATIVES
Consideration may be given to offsetting the revenue impacts of the credit by simultaneously
broadening the tax base by repealing some of the less beneficial deductions and exemptions
found in the gross receipts and compensating tax act that are targeted to a very narrow
population. While some existing tax expenditures do result in economic growth, others may
reduce revenue without increasing economic activity.
WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL
The statewide effective gross receipts tax rate will remain at about 6.9 percent in FY09.
SS/bb