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

SPONSOR Whitaker

DATE TYPED 2-18-2005 HB 807aHTRC

SHORT TITLE Tax Administration Reforms

SB

ANALYST Taylor

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

$1,125.0

Similar Recurring

General Fund

$375.0

Local Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of HTRC amendments

The first House Taxation and Revenue Committee (HTRC) amendment deletes a restriction to a

section of the bill dealing with the taxation and revenue department authority to act on refund

claims 280 days after a claim was filed or mailed. The struck language had the effect of limiting

the department from acting on refund claims to cases where the person had failed to either file a

written protest or commence civil action in Santa Fe district court.

The second amendment deals with interest on tax deficiencies. The struck language had the ef-

fect of waiving interest due on taxes owed resulting from a managed audit, if payment was made

within 30 days. Instead, the inserted language provides that no interest is due if the payment is

made within 180 days of when the department has mailed or made the assessment.

Fiscal Impacts of HTRC amendments

The Taxation and Revenue Department’s analysis suggest that the amendment does not alter the

estimated fiscal impact.

House Bill 807/aHTRC -- Page 2

Synopsis of original bill

House Bill 807 makes the following changes to the Tax Administration Act:

•

TRD is given the power to inform the licensing body for attorneys that an attorney has

failed to file or pay taxes and request the licensing body to initiate disciplinary proceed-

ings.

•

The confidentiality of tax returns and other information provisions are amended to pro-

vide exceptions for the following entities or purposes:

o

for jurisdictions pursuant to an international fuel tax agreement, provided that the

information is used for tax purposes only;

o

any written ruling on questions of evidence or procedure made by a hearing offi-

cer pursuant to Section 7-1-24 NMSA 1978 (tax administrative hearings) pro-

vided that the name and identification number of the taxpayer requesting the rul-

ing shall not be disclosed.

o

to the secretary of labor for use in enforcement of unemployment insurance col-

lections; the labor department and its employees are subject to confidentiality

provisions of the Tax Administration Act.

o

information that the taxation and revenue department is authorized by the Tax

Administration Act to release to professional licensing bodies, pursuant to Chap-

ter 36, Article 2 NMSA 1978 or Chapter 61 NMSA 1978. (Chapter 36 relates to

licensing attorneys; chapter 61 relates to licensing various health sector profes-

sions)

•

TRD is provided the authority to require electronic delivery of any electronic delivery of

any return or payment by regulation, ruling, order or instruction.

•

The method of payment of certain taxes due provision is amended to add taxes and fees

due under various tax acts affecting cigarettes and other tobacco products, gasoline and

other fuels, liquor taxes, workers’ compensation, gaming and telecommunications access.

These provisions currently apply to major taxes including withholding taxes, gross re-

ceipts and compensating taxes, and various taxes related to the oil and gas industry.

•

Administrative hearings procedures are amended to allow taxpayers the option of having

the Rules of Civil Procedure for the District Court apply in hearings before the hearing

officer.

•

The Claims for Refund provision is amended to require TRD to promptly notify the per-

son filing a claim for a refund of gross receipts tax, compensating tax, personal income

tax (excluding the current tax year) or corporate income tax (excluding the current tax

year) that it has received the claim and indicating whether it considers the claim to be

complete. The person filing the claim may agree to designate the claim as protective

claim. A definition for protective claim is added: “protective claim means a claim for a

refund filed by a person asserting that the person’s entitlement to a refund will be estab-

lished by a final decision of a New Mexico court or competent jurisdiction on a claim for

a refund or portents previously filed by that persons or another”. It provides that disposi-

tion of protective claims be postponed until a decision is made on any lead case (previ-

ously filed claims or protests)

•

Authority to Make Refunds or Credit provisions is amended. Currently TRD is provided

the discretion to offset refunds against other tax liability. New language would require

TRD to notify the taxpayer that the refund is being used in this manner; it would also en-

title the taxpayer to interest until the tax liability is credited.

•

Provisions regarding collection of tax debts are amended so that the department or attor-

ney general may pursue agreements in the appropriate courts of other states on final

House Bill 807/aHTRC -- Page 3

judgments, orders or decrees for taxes. Currently, this provision applies only to final

judgments. These provisions are also amended to allow enforcement of final judgments,

orders or decrees by agents retained by the department or attorney general.

•

Penalty provisions are amended as follows:

o

The minimum penalty for failing to file or pay taxes is increased from $5 to $25.

o

The minimum for cases of will intent to evade taxes is increased from $25 to

$150.

o

The minimum for a bad check is increased from $10 to $25.

o

A Penalty for tax preparers who fail to comply with (to be prepared) income tax

regulations is established at $5 per return.

FISCAL IMPLICATIONS

TRD estimates that the increased penalty provisions of the bill would increase general fund reve-

nues by $1.5 million.

ADMINISTRATIVE IMPLICATIONS

TRD reports no administrative implications for this bill.

OTHER SUBSTANTIVE ISSUES

TRD’s analysis included the following substantive concerns:

House Bill 807 contains a number of provisions designed to improve compliance and ad-

ministration of the tax laws. Motivation for some of the specific provisions is described be-

low.

Provisions allowing TRD to share information with licensing bodies should encourage com-

pliance. The provisions allowing license suspension only apply to failure to pay settled tax

liabilities over $1,000.

Expanding electronic filing to additional tax programs is important in enabling TRD to im-

prove the timeliness and accuracy of revenue processing.

Lowering the threshold for monthly payments will allow a number of small businesses to file

less often.

Increasing minimum assessment amounts will streamline the assessment function.

Allowing taxpayers to elect the rules of civil procedure gives them additional options and

more certain and well-defined rules under which to proceed.

TRD would be required to notify taxpayers promptly that their claim for refund has been re-

ceived and, if appropriate, designate the claim a “protective claim.” A protective claim as-

serts that the entitlement to a refund will be established by a pending court decision.

Increasing minimum penalties will encourage compliance

.

BT/yr:njw