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|
SPONSOR: |
Cervantes |
DATE
TYPED: |
2/6/03 |
HB |
275 |
||
|
SHORT
TITLE: |
Change
Definition of “Manufacturing” |
SB |
|
||||
|
|
ANALYST: |
Smith |
|||||
REVENUE
|
Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
|
|
FY03 |
FY04 |
|
|
|
|
|
(300.0) |
(750.0) |
Recurring |
General Fund |
|
|
|
|
|
|
(Parenthesis
( ) Indicate Revenue Decreases)
Relates
to HB 43 and HB 179.
Responses
Received From
TRD
SUMMARY
Synopsis of Bill
House
Bill 275 amends the Investment Credit Act (Section 7-9A NMSA 1978) to remove
the exception in that statute that makes farming an ineligible activity. Thus, farming would become eligible for the
investment credit if the taxpayer meets the other requirements of the Act.
FISCAL
IMPLICATIONS
TRD notes the fiscal impact
was derived from investment credit records maintained by the department, and
the 1997 Census of Agriculture in New Mexico published by the United States Department
of Agriculture—Table 12: Selected
Machinery and Equipment on Place; and Table 13: Value of Machinery and Equipment
on Place.
Since taxpayers
must first apply for, and be approved by the department, the fiscal year 2004 impact
is less than the annual impact after eligible taxpayers have had the
opportunity to make the necessary applications and to be approved.
HB-43 increases the
percentage applied to the value of qualified equipment for determining credit
amounts, and HB-179 reduces the investment credit employment requirements.
TECHNICAL
ISSUES
The bill should clarify
any limitations on the products farmers “manufacture” that would qualify for
the credit. For example, should cattle
feedlots and ranches be considered “manufacturing” for the purposes of
qualifying for the credit?
OTHER
SUBSTANTIVE ISSUES
TRD
makes the following tax policy observations:
·
Small
farmers may not receive much benefit from this proposal. Their gross receipts, compensating and
withholding tax liabilities tend to be small, and it would probably be
difficult for them to meet the employment requirements of Section
7-9A-7.1.
·
Large
farms could be entitled to significant benefits. In addition to the value of the credit which can be applied
against the taxpayer’s combined gross receipts, compensating and withholding
tax liabilities, Section 7-9A-8 allows a refund of unclaimed investment credit
if: (1) the taxpayer’s available credit is less than $500 thousand, and (2) the
combined tax liability for the previous calendar year was less than 35% of the
taxpayer’s available credit, but more than $10,000.
·
The
Gross Receipts and Compensating Tax Act statutes currently allow numerous exemptions
and deductions related to farming, including: 1) an exemption from selling agricultural
products, 2) an exemption for feeding livestock, 3) a deduction for feed and
fertilizers, 4) a deduction for growing, cultivating and processing
agricultural products, and 5) a 50% deduction for farm tractors and agricultural
implements.
·
Currently, approximately
35 taxpayers actively claim investment credits totaling $10 to 12 million
annually. Approximately 65% of the
credits are applied to withholding tax, 32% to compensating tax, and 3% to
gross receipts tax liabilities.
Taxpayers have more than $30 million in credit balances still
outstanding, which can be carried forward and applied against future year’s tax
liability.
SS/njw:sb