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

SPONSOR Snyder

ORIGINAL DATE

LAST UPDATED

8/16/08 HB

SHORT TITLE Senior Citizen Prescription Drug Tax Credit

SB 26

ANALYST Gutierrez

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY09

FY10

FY11

($240,499)

($175,408) ($189,441.0)

Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department (TRD)

Responses Received From

Taxation and Revenue Department

SUMMARY

Synopsis of Bill

Senate Bill 26 provides a refundable personal income tax credit for New Mexico residents who

are 65 years of age or older and who file an individual New Mexico income tax return to claim a

credit for prescription drugs. The credit amount cannot exceed 75% of the taxpayer’s actual un-

reimbursed expenditures for prescription drugs during the taxable year for which the return is

filed. Taxpayers cannot “double dip,” i.e., claim the credit for expenses already claimed for

federal or state income tax purposes.

FISCAL IMPLICATIONS

Estimated Revenue Impact*

FY2009 FY2010 FY2011 FY2012 FY2013 FY 09-13

R or

NR**

Fund(s) Affected

(240,499) (175,408) (189,441) (204,596) (220,963) (952,822) R General Fund

* In thousands of dollars. Parentheses ( ) indicate a revenue loss.

** Recurring (R) or Non-Recurring (NR).

Source: Taxation and Revenue Department

Senate Bill 26 – Page

2

SIGNIFICANT ISSUES

Out of pocket expenditures for prescription drugs were $669 per year for insured individuals and

of $858 for uninsured individuals under 65 in 2007.

1

The Consumer Expenditure Survey

indicates that individuals over 65 years old spend $4,176 per year in health care expenditures, of

which about 20% are spent on prescription drugs, which results in $835 per year. For the TRD

estimate, an average of $800 per capita was used.

According to the Taxation and Revenue Department, about 241,000 New Mexicans are 65 years

of age or older. If the number of eligible New Mexicans is multiplied by $800 per year spent on

un-reimbursed prescription drug purchases per capita, the total amount spent by this population

on un-reimbursed prescription drug purchases would be $192.8 million in 2007. The credit

proposed in this bill cannot exceed 75% of the taxpayer’s actual un-reimbursed expenditures for

prescription drugs; therefore the revenue loss would be $144.6 million

2

in 2007. According to

Mathematica, health costs are increasing at an average rate of 8% per year. This growth rate was

applied to the revenue loss estimate.

ADMINISTRATIVE IMPLICATIONS

This bill would have a minimal impact on the Taxation and Revenue Department. TRD would

need to modify the personal income tax (PIT) forms, instructions, and publications; develop

audit and compliance procedures associated with verifying claims for the proposed credits.

TECHNICAL ISSUES

TRD:

Page 1, line 20 of the bill should read “any New Mexico resident…”

Under Section 7-2-5.9, un-reimbursed purchases of prescription drugs are also subject to a credit,

but with some restrictions, for example medical expenses have to exceed $28,000 per year.

BLG/svb

1

“Quantitative and Comparative Analysis of Reform Options for Extending Health Care Coverage in New Mexico.”

Mathematica Policy Research Inc. Draft Final Report, June 19, 2007.

2

A taxpayer presumably would take the proposed credit, instead of itemizing these expenses at the federal level or

use them under 7-2-5.9.