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(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates/Conflicts with/Companion to/Relates to SB599

SOURCES OF INFORMATION

Taxation and Revenue Department

Economic Development Department

Department of Labor

Synopsis of Bill

House Bill 786 proposes to create a new credit that can be applied against the personal income tax, the corporate income tax and modified combined tax liability. Modified combined liability includes the state gross receipts tax, compensating tax, withholding tax, interstate telecommunications gross receipts tax and surcharges. The new credit is based upon the salaries of new hires in a rural area.

The bill allows an eligible employer to apply for the credit up until June 30, 2004 for each qualifying job created between July 1, 1998 through June 30, 2003. The amount of the credit for each qualifying job is:

• •Six and one-fourth percent of the first $16,000 in wages in a twelve month period for a maximum of 4 periods if the job is performed or based in a tier one area, where a tier one area is a rural municipality with a population under 20 thousand.

• •Six and one-fourth percent of the first $16,000 in wages in a twelve month period for a maximum of 2 periods if the job is performed or based in a tier two area, where a tier two area is a rural municipality with a population under 30 thousand.

The bill requires the economic development department to certify the amount of wages paid to each eligible employee during each qualifying period, the number of weeks during the qualifying period the position was occupied and if the qualifying job is in a "tier one" or "tier two" area. The economic development department is also required to report the listing of eligible businesses to the taxation and revenue department.

To receive the credit the employer must apply to the taxation and revenue department. Once the credit has been approved and numbered the credit can be sold, exchanged or transferred and can be carried forward for three years. The taxation and revenue department must be notified of such a transaction. Section 2 permits any unused credit to be carried forward after July 1, 2004 for a maximum of three years from when the credit was approved.

The secretaries of the economic development department, the taxation and revenue department and department of labor are to meet annually and evaluate the effectiveness of the rural job tax credit and make a joint report to the legislature so long as the credit is in place.

There is a delayed repeal of Section 1 of July 1, 2004 and an effective date of July 1, 1999.

FISCAL IMPLICATIONS

The first year impact of the bill depends critically on how many jobs would be affected by the credit. The credit is tied to the in plant training program which is currently limited to manufacturing jobs. The UNM Bureau of Business and Economic Research has estimated that manufacturing employment in rural areas of the state is growing by a little over 200 jobs per year, which would imply a relatively modest fiscal impact. However, newspaper accounts have reported that a large uranium processing plant may locate in New Mexico, creating 1,200 jobs. If, that plant did locate in New Mexico and the rest of rural New Mexico's manufacturing job base grew by 200 jobs, there would be 1,400 jobs eligible for the credit. Assuming that all jobs paid at least $16 thousand per year would imply a potential general fund loss of $1.4 million. The $1.6 million loss shown in the following year assumes that the first year impact carries over and that there are an additional two hundred jobs created in rural New Mexico.

To the extent that the credit is the factor tipping a decision to locate in the state, the revenue loss would be partially offset by other revenue increases.

ADMINISTRATIVE IMPLICATIONS

TRD reports that administering the credit would require 5 full time equivalent employees, costing $200 thousand.

Neither the Department of Labor nor the Economic Development Department reported administrative impacts that would require additional resources.

BT/njw