NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

The LFC is only preparing FIRs on bills referred to the Senate Finance Committee, the Senate Ways and Means Committee, the House Appropriations and Finance Committee and the House Taxation and Revenue Committee. The chief clerks are responsible for preparing and issuing all other bill analyses.

Only the most recent FIR version, excluding attachments, is available on the Intranet. Previously issued FIRs and attachments may be obtained from the LFC office in Room 416 of the State Capitol Building.

(Parenthesis ( ) Indicate Expenditure Decreases)

* Other Funds include local government funds and other TAA funds.

(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates/Conflicts with/Companion to/Relates to

SOURCES OF INFORMATION

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of HAFC Amendments

The HAFC amendments to HB-31 earmarks the first $200 thousand raised by the amnesty to the General Fund to cover the cost of the appropriation; the next $15 million is transferred and appropriated to the Taxation and Revenue Department to pay for the Taxation and Revenue Information Management System (TRIMS). Any remaining money is transferred to the GF. The length of the amnesty is extended by an additional year.

Fiscal Implications of HAFC Amendments

There may be some additional fiscal impact from the amendment provisions providing an extra year for the amnesty, but as of this writing, the Taxation and Revenue Department has not issued an amended FIR. The earmarking of the revenues to the Taxation and Revenue Department should not change the fiscal impacts of the bill.

Synopsis of Bill

House Bill 31 authorizes the Taxation and Revenue Department to declare a tax amnesty for no more than 90 days within in FY 2000. The amnesty would cover all taxes under the Tax Administration Act. It authorizes TRD to waive interest and penalty assessments during the amnesty on taxes that were:

1. due and not assessed prior to the day of the amnesty period begins; and

2. due, assessed and not paid on the day of the amnesty period begins, but that were paid by the taxpayer or that the taxpayer agreed to pay under an installment agreement entered into on or before the last day of the amnesty period.

The bill provides a $200 thousand appropriation to the Taxation and Revenue Department to conduct the amnesty. Unexpended and unencumbered funds at the end of the fiscal year revert to the general fund.

FISCAL IMPLICATIONS

The Taxation and Revenue Department has estimated that the amnesty would yield $34 million in non-recurring revenue to the general fund in FY 2000. The estimated impact is based on a review of amnesties conducted in 16 other states with adjustments made for the size of the state and inflation. The TRD analysis besides providing the $34 million point estimate, also includes a range estimate in the fiscal impact discussion. The range is wide--$3.6 to $80 million, implying a large degree of uncertainty. The impact estimate covers all Tax Administration Account Funds as well as local government funds. However, no estimate is provided as to how various funds would be affected. Such a breakout of the impact among affected funds, particularly the general fund, will become important for tracking the General Fund's financial position.

The TRD analysis also suggests that to a large degree the effect of an amnesty is to change the timing of delinquent taxes by pushing forward payments that would be forthcoming anyway. They estimate that this could reduce tax revenues received in the following year by $22 million, an estimate that assumes that about half of the delinquent payments would have been collected in the following year. The estimate on the size and timing of any future year impacts is highly uncertain, however.

ADMINISTRATIVE IMPLICATIONS

TRD estimates the administrative costs of the amnesty program to be $180 thousand; $90 thousand in FY99 and $90 thousand in FY 2000.

TECHNICAL ISSUES

1. There appears to be a problem with this bill in that the language does not preclude a taxpayer who has either exhausted all of his/hers administrative remedies or who is in the administrative remedy process from taking advantage of the amnesty. That is, a taxpayer who has had a decision and order issued by the Taxation and Revenue Department, or a final decision issued by the courts on the tax liability can take advantage of the no penalty or interest provision by waiting and paying the liability during the amnesty or by entering into an installment agreement to pay the liability during the amnesty period.

2. The Taxation and Revenue Department legal counsel advises that a tax amnesty program that forgives payment of assessed penalty and interest can be challenged on constitutional grounds. The State Constitution (Article IV Section 32 NMSA 1978) states that:

"No obligation or liability of any person, association, or corporation held or owned by or owing to the state, or any municipal corporation therein, shall ever be exchanged, transferred, remitted, released, postponed or in any way diminished by the legislature, nor shall any such obligation or liability be extinguished except by payment thereof into the proper treasury, or by proper proceeding in court."

This section could be interpreted to prohibit the legislature from abating any interest owed the state. A 1958 Attorney General's opinion applied this provision specifically to penalty and interest due on delinquent state taxes.

3. The Taxation and Revenue Department further stated that an amnesty for unpaid taxes, penalties and interest is a civil issue. There is no provision in the bill preventing the Department from using information gained in amnesty filings from prosecuting a criminal action. Of course, due process and self-incrimination warnings would have to enforced. It is hard to imagine a taxpayer who is skirting the edge between negligence and criminal tax evasion, however, persisting in filing a delinquent return in the face of a warning that the filing might be used against the person in a criminal action. This may have been why the 1985 amnesty had apparently no permanent effect on taxpayer filing or payment behavior. For amnesty to work effectively, filers need some assurance that they will not be subject to criminal penalties if they admit their failure to file or under-reporting.

POSSIBLE QUESTIONS

• Based on experience with the last amnesty or some other method, can the Taxation and Revenue Department provide an estimate as to how the expected revenue would be shared between the state and local governments and among the various state funds that might be affected?



• Can a delinquent taxpayer, who has entered into an installment agreement prior to the amnesty be allowed to re-negotiate the assessed liability and re-enter into a new installment agreement during the amnesty period?



• What about a taxpayer already under an installment agreement? Can the taxpayer come in and pay-off the entire liability during the amnesty period and have all penalties and accrued interest waived?



• What about taxpayers under audit at the time of the amnesty period? Can they qualify for the non-assessment of penalty and interest since the liability was due but not assessed prior to the amnesty period commencing?




5. What about taxpayers who are in litigation, who now elect to pay the tax during the amnesty period and save on the penalty and interest? Will this be allowed?





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