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

SPONSOR Lujan, B.

ORIGINAL DATE

LAST UPDATED

1/30/08

HM 37

SHORT TITLE Study Manufacturing Incentives

SB

ANALYST Earnest

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

NFI

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

SUMMARY

Synopsis of Bill

House Memorial 37 requests that the Economic Development Department and the Taxation and

Revenue Department examine the effectiveness of current tax incentives and other incentives to

attract and retain manufacturing operation to the state. The memorial also requests that these

departments report the results of their examination and their recommendations for any new

legislation to the legislative finance committee and the interim revenue stabilization and tax

policy committee no later than November 1, 2008.

FISCAL IMPLICATIONS

No significant fiscal impact. There may be some administrative impact on TRD and EDD to

carry out the examination.

SIGNIFICANT ISSUES

According to the final report of the Tax Incentive and Accountability Task Force, released by

EDD in April 2006, among the most frequently used and costly incentives are the manufacturing

investment tax credit, high wage job tax credit, rural jobs tax credit, technology jobs tax credit,

and research and development small business tax credit. The report laid out a plan for

evaluating tax incentives biannually.

LFC proposed legislation in the 2007 session to address tax expenditures and tax incentive

accountability. The bill on tax incentive accountability, House Bill 697, failed to pass and the bill

House Memorial 37 – Page

2

on tax expenditures, House Bill 235, was vetoed through the governor’s inaction. In the 2007

interim, LFC joined with the Taxation and Revenue Department (TRD) and the Economic

Development Department to educate members and the public on the importance of monitoring

the tax structure. The main thrust of the presentations was the need for accountability and

adherence to sound tax principles:

•

Adequacy: Revenue should be adequate to fund government services.

•

Efficiency: Tax base should be as broad as possible to minimize rates on any group.

•

Equity: Tax should be fairly applied across similarly situated taxpayers and incomes.

•

Administrability: Tax collection should be simple and easily understood by taxpayers to

maximize compliance.

•

Accountability: Deductions, credits, and exemptions should be easy to monitor and evaluate.

Each new tax proposal should be evaluated on these principles to determine how the proposal fits

into the existing tax structure. The appendix includes a sample of “tax expenditures," or

deviations from established tax policy, and TRD has begun a multi-year study of tax

expenditures beginning with a review of existing business tax credits. One major step was the

creation of a tax form for corporate income tax credits similar to the one for personal income tax.

BE/bb