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.

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(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates/Conflicts with/Companion to/Relates to

SOURCES OF INFORMATION

Taxation and Revenue Department

SUMMARY

Synopsis of Bill

HB-178 would extend provisions that provide manufacturing businesses the option of apportioning their business income for corporate income tax purposes using the double weighted sales factor until January 1, 2003. After January 1, 2003, all business income would be apportioned based on the equally weighted factors of sales, payroll and property.

Significant Issues

The double-weighted sales formula has the effect of apportioning half of business income based on the share of sales made in the state, a quarter based on the share of corporate property held in the state, and a quarter based on the share of corporate payroll paid in the state. Since many manufacturers make the vast majority of sales outside the state, this has the effect of decreasing the share of corporate income that is subject to the New Mexico Corporate Income Tax. The double weighted sales factor was implemented as an economic development measure that would make the state a more attractive location to manufacturing businesses.

FISCAL IMPLICATIONS

Extending the double weighted sales factor does not have a fiscal impact because the state's revenue estimate did not account for the sunset. Based on the TRD FIR, it would appear that failing to enact this legislation would increase tax revenues by $12 million in the short-run. TRD notes, however, that it is difficult to determine the overall impact that double weighted sales has had on corporate income tax revenues because they have grown significantly since the double weighted sales factor was enacted, and a significant share of this increase is due to firms benefitting fro the double weighted sales factor.

ADMINISTRATIVE IMPLICATIONS

TRD reports that this legislation would have no significant administrative impacts.

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