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

SPONSOR Griego

ORIGINAL DATE

LAST UPDATED

1/28/07

HB

SHORT TITLE Audit Service Gross Receipts Report Locations

SB 283

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

(See Narrative)

Recurring

Local

Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

New Mexico Board of Architects (BOA)

Department of Transportation (DOT)

SUMMARY

Synopsis of Bill

Senate Bill 283 amends Section 7-1-14 NMSA 1978 so that the “place of business" for services

of architects, engineers, legal or independent audit services will be the location of a project for

which the services are rendered. Under current law, these professionals pay gross receipts tax in

their county or municipality of residence, regardless of where the associated project is located.

The provisions of the bill will become effective on July 1, 2009.

FISCAL IMPLICATIONS

The bill will result in higher gross receipts tax revenue for some counties and municipalities and

lower gross receipts tax revenue for others. LFC expects rural areas to benefit while metropolitan

areas will lose revenue since many architects, engineers, law offices and independent auditors

are located in metropolitan areas but perform services in non-metropolitan areas.

TRD reports that about $82 million per year of gross receipts tax is collected from about 2.3

thousand businesses in the effected industries. TRD expects the proposal would result in a net

Senate Bill 283 – Page

2

revenue decrease across local governments because it would shift gross receipts tax collections

to non-municipal areas, where tax rates tend to be lower.

SIGNIFICANT ISSUES

For gross receipts tax purposes, the place of business for most services is defined as the service

provider’s place of residence. However, since construction work is nearly always done “on site,"

construction services are required to be reported in the area the construction project is located.

The bill would apply this same exception to architect, engineer, legal and independent audit

services. However, services provided by these professionals are normally performed in their

offices rather than “on site" like construction services.

The bill will require architects, engineers, legal professionals and independent auditors to charge

different gross receipts tax rates for projects in different political subdivisions since each county

and municipality have different rates. Increased burden on taxpayers to collect the gross receipts

tax could be passed along to consumers in the form of higher prices for services. Design work is

different than construction work in that it is done in a permanent location - the architect's office -

so the "site" does not vary with the project.

By regulation, the secretary may require any person maintaining one or more places of business

to report taxable gross receipts and deductions for each municipality or county or area within an

Indian reservation or pueblo grant in which the person maintains a “place of business."

Current law for persons engaged in the construction business, the place where the construction

project is performed is a "place of business;" and, for a person engaged in the business of selling

real estate, the location of the real property sold is the "place of business." The bill proposes to

determine the “place of business" as the location of a project for persons engaged in the business

of providing architectural, engineering, legal or independent audit services.

ADMINISTRATIVE IMPLICATIONS

The bill will have a significant administrative impact on TRD, DOT and individuals in the

professions affected by this bill. Taxpayers will shift from filing the short-form Combined

Revenue System (CRS) return to the long-form CRS return. TRD will need to process more tax

lines, more data, and longer forms. An additional scanning machine may be required.

TRD reports it will be difficult to determine which legal and audit services are attributable to

each project location.

TECHNICAL ISSUES

TRD suggests the term “location of project" requires further clarification, especially regarding

legal and audit services. For example, what defines a “project" when legal services are rendered.

SS/mt