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F I S C A L I M P A C T R E P O R T
SPONSOR Ortiz y Pino
ORIGINAL DATE
LAST UPDATED
2/4/08
HB
SHORT TITLE Soft Drink Sale Gross Receipts
SB 431
ANALYST Schardin
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY08
FY09
FY10
5,735.8
5,879.2 Recurring General Fund
(Parenthesis ( ) Indicate Revenue Decreases)
Duplicates HB619, Relates to HB238, Conflicts with SB162
SOURCES OF INFORMATION
LFC Files
Responses Received From
Taxation and Revenue Department (TRD)
Health Policy Commission (HPC)
Department of Health (DOH)
SUMMARY
Synopsis of Bill
Senate Bill 431 amends Section 7-9-92 NMSA 1978 to remove “soft drinks" from the list of
foods eligible to receive a gross receipts tax deduction for retail food that was enacted in 2004.
Soft drinks are defined as nonalcoholic flavored beverages commonly referred to as soft drinks
that contain a sweetener additive or are made from powder, syrup concentrate or other base
product.
The effective date of this provision will be July 1, 2008.
FISCAL IMPLICATIONS
According to TRD, the Beverage Marketing Corporation cites that in 2005, the average
American consumed 54.3 gallons of beverages commonly referred to as soft drinks per year
(carbonated beverages, not including fruit beverages or sport drinks). With a 2005 population of
1.8 million, this assumes that New Mexicans consumed about 97.8 million gallons of soft drinks
pg_0002
Senate Bill 431 – Page
2
per year in 2005. TRD assumes that soft drink consumption per person has remained flat but that
New Mexico’s population grows about 2.5 percent per year. Growing that figure for population
growth yields an estimated 108 million gallons consumed in FY09. About 77 percent (83.1
million gallons) of soft drink products are packaged and likely to be sold in retail food stores, but
only about half of those 83.1 million gallons (41.6 million gallons) are sold in stores that qualify
for the gross receipts tax deduction created in Section 7-9-92 NMSA 1978. Assuming each
gallon of soft drink costs $2, the bill excludes about $83.1 million of receipts from the food tax
deduction. Taxed at a statewide rate of 6.9 percent, the bill would increase general fund revenue
by about $5.7 million in FY09 (108 million gallons X 77% packaged X 50% sold at food stores
X $2 per gallon X 6.9% tax). Since local governments are held harmless from the food deduction
created in Section 7-9-92 NMSA 1978, this entire revenue increase would benefit the general
fund.
SIGNIFICANT ISSUES
The bill discourages consumption of soft drinks by increasing their price relative to other
beverages. A 12 ounce can of soda contains 10 teaspoons of sugar. According to DOH, US
consumption of sweetened beverages has doubled in adults and tripled in adolescents since the
1970s. Since the same time, milk consumption has declined by 30 percent.
By broadening the gross receipts tax base slightly, the bill would allow a lower tax rate to
generate the same amount of revenue.
PERFORMANCE IMPLICATIONS
DOH reports that the bill relates to Task 3.2 of the governor’s performance and accountability
plan, which is to reduce the prevalence of obesity and diabetes.
ADMINISTRATIVE IMPLICATIONS
TRD reports that implementing the food and medical deductions has been unusually complicated
and expensive due to programming necessary to distribute hold-harmless payments to local
governments. Currently, the definition of food items eligible for the food deduction is the same
as the definition for the federal Food Stamps program. Changing the definition will cause
administrative problems to grow.
Retail food stores will also experience administrative impacts. Food stores will need to
reprogram their systems to include receipts from soft drink sales in the taxable portion of sales.
CONFLICT, DUPLICATION, RELATIONSHIP
Senate Bill 431 duplicates House Bill 619.
Senate Bill 431 conflicts with Senate Bill 162, which amends the same section to expand the
definition of retail stores to include establishments with over 75 percent of sales attributable to
sales of bottled water, ice, and coffee.
Senate Bill 431 relates to HB238, which would impose a new soft drink tax on soft drink sales
and distribute most of the revenue generated to a newly-created soft drink dialysis fund for
dialysis equipment and training.
pg_0003
Senate Bill 431 – Page
3
TECHNICAL ISSUES
TRD notes the definition of a soft drink should be improved. The phrase “commonly referred to
as a soft drink" is troublesome because it could be construed to include any drink that does not
contain alcohol. Also, it is unclear whether some juices, energy drinks, fruit-flavored drinks,
sports drinks, flavored water, bottled teas and coffees that contain a sweetener would be taxable
under the proposal. The bill could be amended to stipulate that a soft drink “contains artificial
carbonation" could eliminate much of this ambiguity.
SS/mt