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

 

 

 

SPONSOR:
Nunez

 

DATE TYPED:

01/21/02

 

HB

46

 

SHORT TITLE:

Agricultural Water Conservation Tax Credit

 

SB

 

 

 

ANALYST:

Neel

 

(Parenthesis ( ) Indicate Expenditure Decreases)  

 

 

APPROPRIATION

 

Appropriation Contained

Estimated Additional Impact

Recurring

or Non-Rec

Fund

Affected

FY02

FY03

FY02

FY03

 

 

 

 

 

$40.0

Recurring – See Narrative
General Fund

 

(Parenthesis ( ) Indicate Expenditure Decreases)

 

REVENUE

 

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY02

FY03

 

 

 

 

($2,500.0)

($10,000.0)

Recurring

General Fund

 

SOURCES OF INFORMATION

 

LFC Files

New Mexico Department of Agriculture

Tax and Revenue Department (TRD)

 

SUMMARY

 

House Bill 46 amends statute to allow taxpayers to claim a credit of up 75 percent of incurred expenses up to $50,000 for improvements in irrigation or water management methods if: (1) the tax payer possesses a water right in New Mexico, (2) files an individual New Mexico income tax return, and (3) is not the dependent of another individual. 

 

An individual would be eligible for a credit if improvements to irrigation systems and water management methods are verified and approved by the local soil and water conservation district.  The same rules would apply to tenants of a taxpayer, shareholders in an S corporation, partners in a

 

House Bill 46 – Page 2

 

 

partnership, and limited liability corporations, etc., growing agricultural products on land in New Mexico.   Other requirements include that expenses must be incurred after January 1, 2003, and the improvements are in compliance with a water conservation plan filed with local soil and water conservation districts.  The effective date of this legislation is July 1, 2003.

 

SIGNIFICANT ISSUES

           

According to the Department of Agriculture, New Mexico has a forfeiture law, which does not complement the idea of conservation.  Conservation of water resources by all sectors is an important concept; agricultural users face a potential loss of water rights under most conservation schemes due to nonuse.   Therefore, encouraging the voluntary conservation of water may require other statutory changes.

 

FISCAL IMPLICATIONS

 

According to TRD, the FY 2003 estimate reflects payments for the first six months of tax year 2003, comprising 25% of the full year effect. 

 

TRD’s assumptions include data from: (1) the Water Use and Conservation Bureau of the Office of the State Engineer, that indicates that there is over 1 million acres of irrigated cropland in New Mexico;  (2) the USDA Economic Research Service indicates that farms in New Mexico spend about $70 million per year on repair and maintenance of capital items;  (3) the USDA estimates that that net farm income was approximately $500 million in 2000. 

 

These data make it clear that irrigation expenditures are a major category of spending for farm operations in New Mexico.  The revenue estimate assumes these expenditures comprise roughly one-fifth of the total capital and maintenance budget, or about $13 million per year.  The annual value of the credit would then be 75% of this amount, or about $10 million per year.  This estimate should be viewed as only an approximation of the order of magnitude of the potential impacts of the proposal. 

 

ADMINISTRATIVE IMPLICATIONS

 

TRD states that provisions in HB 46 would require development of mechanisms to verify that the tax basis of the equipment is decreased by the amount of the credit. The mechanisms would be manual by nature.  Modifications will be required in forms and instructions for both personal income tax and corporate income tax, systems and training for department personnel.  Therefore, TRD recommends an additional FTE at approximately $40.0.

 

SN/ar

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