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committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

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

SPONSOR Sanchez, B

ORIGINAL DATE

LAST UPDATED

1/28/08

2/08/08 HB

SHORT TITLE High-Wage Jobs Tax Credit Eligibility

SB 174/aSFC

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

(See Narrative for

FY11 Impact)

Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Conflicts with HB326.

SOURCES OF INFORMATION

LFC Files

Responses Received From

Economic Development Department (EDD)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of SFC Amendment

The Senate Finance Committee amendment to Senate Bill 174 removes language that would

have created a sliding scale with reduced credit offered for jobs with lower wages in larger

municipalities.

Rather than eliminating the deadline for creation of a job to qualify for the credit, the amended

bill would push the deadline back from the current deadline of July 1, 2009 until July 1, 2015.

Finally, the amendment creates a requirement that EDD report each year by November 1 to the

appropriate legislative interim committee on the cost of the high wage jobs tax credit and its

impact on company recruitment and job creation.

Synopsis of Original Bill

Senate Bill 174 amends the high wage jobs tax credit to allow a sliding scale with a reduced

credit offered to jobs with lower wages in municipalities with populations of 40 thousand or

Senate Bill 174/aSFC – Page

2

more. Under current law, a 10 percent credit on wages and benefits is available in municipalities

with populations of 40 thousand or more for jobs with wages of $40 thousand or more. The bill

proposes allowing a 2.5 percent credit for wages and benefits in these municipalities for jobs

paying from $28 to $32 thousand, a 5 percent credit for jobs paying from $32 to $36 thousand, a

7.5 percent credit for jobs paying from $36 to $40 thousand, and the same 10 percent credit for

jobs paying $40 thousand or more.

The bill does not affect the size of the credit in municipalities with populations under 40

thousand or in unincorporated areas, where a 10 percent credit would still be available for wages

and benefits for jobs with wages of at least $28 thousand.

The bill also extends the time frame during which a job must be created for a company to qualify

for the credit. Under current law, the job must be created by July 1, 2009 to qualify for the credit

for the next three years. The bill will allow the credit for a job created at any time in the future.

The proposal would also explicitly require that a job must provide benefits to qualify for the

credit.

Because the bill has no effective date, it will become effective 90 days after adjournment of the

2008 legislative session, on May 14, 2008.

FISCAL IMPLICATIONS

TRD’s fiscal analysis of the amended bill is based on historic claims for the credit. The bill

would reduce general fund revenue starting in FY11 by eliminating the July 1, 2009 deadline for

jobs to be created. The revenue reduction is expected to be $108 thousand in FY11 and $221

thousand in FY12.

SIGNIFICANT ISSUES

Data from TRD indicate that the high wage jobs tax credit resulted in a loss of revenue equal to

$575.0 thousand in FY06, $1,685.5 thousand in FY07, and $977.5 thousand in the first four

months of FY08.

The high-wage jobs tax credit may currently be claimed by an eligible employer who creates a

new economic-based job that is filled for at least 48 weeks of the prior year. The credit may be

claimed against the state gross receipts tax, the compensating tax, withholding taxes, and several

smaller surcharges. To be eligible for the credit, more than half of an employer’s sales in the

previous year must have been made to persons outside of New Mexico. The credit is refundable

and may be claimed for up to four years for each job created.

In 2007, the enactment of House Bill 839, the omnibus economic development tax bill, deleted

the January 1, 2010 repeal date of the high wage jobs tax credit. But although that legislation

made the credit permanent, the credit currently applies only to jobs created before July 1, 2009.

From a tax policy standpoint, allowing the credit to be claimed for four years only for jobs

created before July 1, 2009 leads to an uneven playing field for companies that operate in New

Mexico before and after that date.

Senate Bill 174/aSFC – Page

3

TRD is concerned that both proposed and current law give companies an incentive to locate just

outside the boundaries of municipalities with populations over 40 thousand. Under current law, a

10 percent credit can be claimed in an unincorporated area for wages over $28 thousand, while

wages of $40 thousand would need to be paid to receive the credit in a nearby municipality.

TRD notes that the ability of this credit to stimulate economic development depends on a number

of factors including the elasticity of demand for labor and final products (how responsive

demand is to a change in cost). TRD recommends studying such complicated issues on an

ongoing basis to determine the efficacy of the credit.

LFC notes that while individual credits, deductions and exemptions 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.

PERFORMANCE IMPLICATIONS

EDD asserts that allowing companies to have easier access to the high wage jobs tax credit is

critical to major recruitment projects.

ADMINISTRATIVE IMPLICATIONS

The administrative impact on TRD will be minimal.

CONFLICT

Senate Bill 174 as amended conflicts with House Bill 326. That bill also extends the deadline by

which a job must be created to qualify for the high-wage jobs tax credit from July 1, 2009 to July

1, 2015. However, House Bill 326 does not require EDD to report annually to the legislature on

the cost and impact of the high wage jobs tax credit.

TECHNICAL ISSUES

If the intent of the amendments made on Page 7, lines 17-20 is to require benefits to be provided

for a job to qualify for the credit, the bill should also change the application provisions for the

credit to include proof of benefits provided to the employee.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

EDD reports that current recruitment efforts could be jeopardized if the deadline to create jobs is

not removed or extended.

SS/mt:bb