Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

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attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

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

SPONSOR Rainaldi

DATE TYPED 2/01/2005 HB

SHORT TITLE

Tax Gas At Rack & Gas Tax Filing Requirements

SB 226

ANALYST Moser

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

None

None

None

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

none

See Fiscal Impli-

cations

similar

Recurring

State Road Fund

(76.27%)

none

See Fiscal Impli-

cations *

similar

Recurring Municipal & County

Road Funds (10.38%)

none

See Fiscal Impli-

cations

similar

Recurring

County Roads

(5.76%)

none

See Fiscal Impli-

cations *

similar

Recurring

Municipal Roads

(5.76%)

none

See Fiscal Impli-

cations *

similar

Recurring

Municipal Arterial

Program

(Local Govt

Road Fund)

(1.44%)

none

See Fiscal Impli-

cations *

similar

Recurring State Aviation Fund

(0.26%)

none

See Fiscal Impli-

cations *

similar

Recurring

Motorboat Fuel Fund

(State Park Boating Facili-

ties)

(0.13%)

(Parenthesis ( ) Indicate Revenue Decreases)

Conflict with/duplicates:

HB-424 addresses some of the same issues as this bill.

SOURCES OF INFORMATION

LFC Files

Senate Bill 226 -- Page 2

Responses Received From

Department of Transportation

Responses not received from:

Taxation and Revenue Department

SUMMARY

Synopsis of Bill

Senate Bill 226 revises the imposition of the Gasoline Tax, changing the taxpayer to be the “rack

operator” (currently gasoline “distributors” file tax returns). Distributors and retailers would be

required to file information returns, and a $50 penalty could be imposed for failure to file an

information return. The Gasoline Tax is added to the list of tax programs for which large

taxpayers owing $25,000 or more per month must provide immediately available funds on or

before the tax due date. The exemption from the current taxpayer bond requirement is adjusted

to require a bond for all taxpayers for at least 24 months before new exemptions from the bond

requirement are allowed. Distributors selling gasoline for state tax exempt uses would be

allowed to file for a reimbursement of the tax already paid on that gasoline. A section-by-section

description is provided beginning on page 3.

Significant Issues

The Governor’s “Gasoline Tax Working Group” was convened following the 2003 legislative

session to examine the issues of gasoline tax compliance, including the possibility of moving to a

rack operator (“tax at the rack”) reporting system. The Working Group is comprised of represen-

tatives from industry (rack operators and distributors), state government agencies (TRD and

DOT), tribal governments, and the Governor’s Office. The consensus position reached by the

group was that alternatives exist which would be productive and more attractive than a “tax at

the rack” system. The “tax at the rack” system appeared to be unacceptable to distributors and

tribal interests, presented significant processing challenges to TRD in the processing of tax reim-

bursements to distributors, and presented difficulties for rack operators in complying with nu-

merous tribal tax impositions. The group concluded that an alternative involving electronic fil-

ing of information returns and automated cross-checking for tax compliance would be a prefer-

able approach to deal with the currently undetermined level of gasoline tax evasion.

FISCAL IMPLICATIONS

The amount of potential gasoline tax compliance gain associated with “tax at the rack” is not pre-

dictable, since the extent of current noncompliance and tax evasion is unknown. Other states

have cited the Federal Highway Administration, suggesting that from 3% to 5% of nationwide

gasoline volume may escape state taxation. It is difficult to assess whether tax gains in New

Mexico would approximate this nationwide estimate. For every 1 percent increase in taxable

gallons (i.e., for every 9.4 million additional gallons), the state would realize an additional

$1,600 thousand, allocated to the beneficiaries shown in the table above.

Senate Bill 226 -- Page 3

ADMINISTRATIVE IMPLICATIONS

While the number of taxpayers would be reduced from a few hundred distributors to a lesser

number of rack operators and fuel importers, fuel distributors would be expected to file for a

very large number of gasoline tax reimbursements for fuel used in non-taxable situations. The

Taxation and Revenue Department will probably find the processing of tax reimbursements to

require considerably more resources than the processing of tax returns under current law.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

HB-424 addresses some of the same issues as this bill.

TECHNICAL ISSUES

•

Section 1 provides a penalty for failure to file an information return by a (retailer or distribu-

tor) “taxpayer”. Since the bill revises the gasoline tax taxpayer to be rack operators, the ref-

erence on page 1, line 22 to “taxpayer” might be revised to specify a “person required to file

but”

•

Section 9 of the bill states that “Rack operators shall file gasoline tax returns ...”. This

should probably be reformulated to also provide that importers of gasoline shall file gasoline

tax returns.

•

Section 12 requires distributors file information returns, but does not suggest that the depart-

ment may require electronic filing by distributors as it may in the case of retailer information

returns. Section 12 should probably be revised to include the electronic filing language simi-

lar to that found in Section 11 of the bill.

•

Section 13 of the bill specifies the EFFECTIVE DATE of the bill to be January 1, 2005. The

section probably should have specified July 1, 2005 or January 1, 2006. Language in Section

5 (page 13, line 12) may imply an effective date of July 1, 2005.

•

The bill should also amend Section 7-13-4.4 NMSA 1978 in a manner consistent with Sec-

tion 6 of the bill, since distributors would no longer be paying the tax or claiming deductions.

OTHER SUBSTANTIVE ISSUES

•

Illustration of Taxable and Deductible Gasoline Volume

Gallons of Gasoline Reported

Giant & Navajo Refining Distributors & Others

Total

Total “Received”

215,228,005 19%

945,382,326 81% 1,160,610,331

Export Deductions 105,364,170 40%

155,968,520 60% 261,332,690

Other Deductions

2,284,836 2%

114,668,415 98% 116,953,251

Taxable Gallons

107,578,999 14%

667,655,975 85% 782,324,390

Notes: Navajo Refining’s exports by pipeline are never “received” in New Mexico and are not reported as ex-

port deductions.

Senate Bill 226 -- Page 4

•

Distributors other than the state’s two large refining companies account for 60% of export

deductions and 98% of other deductions. This implies that the administrative impact on TRD

for processing reimbursement claims could be quite substantial

SECTION-BY-SECTION DESCRIPTION

Section 1: Institutes a new $50 penalty for failure to file an information return (see Sections 11

and 12).

Section 2: The Gasoline Tax is added to the list of tax programs for which large taxpayers ow-

ing $25,000 or more per month must provide immediately available funds on or before the tax

due date.

Section 3: Redefines “distributor” (distributors would no longer be the taxpayer and would no

longer “receive” gasoline).

Section 4: Revises the taxpayer from the distributor to be the rack operator or importer.

Section 5: The exemption from the current taxpayer bond requirement is adjusted to require a

bond for all taxpayers for at least 24 months before new exemptions from the bond requirement

are allowed.

Section 6: Existing gasoline tax deductions could be claimed by the taxpayer (rack operator or

importer) only. Distributors and wholesalers generally would no longer claim “deductions” but

would file for a reimbursement of tax for non-taxable use of gasoline (see Section 7). Gasoline

delivered into the fuel tank of a U.S. Government-licensed vehicle would no longer be deducti-

ble, but would be subject to a non-taxable use tax reimbursement (see Section 7).

Section 7: Distributors and wholesalers generally would no longer claim “deductions” but

would file for a reimbursement of tax for non-taxable use of gasoline. Non-taxable uses are de-

fined to be the same as deductible uses under current law.

Section 8: Creates a new “certificate of eligibility” issued by TRD to persons eligible to claim

deductions. It appears this certificate would serve to identify distributors who are fuel importers

and who are actual taxpayers who may legitimately claim a deduction.

Section 9: States that “Rack operators shall file gasoline tax returns ...”. This should probably

be reformulated to also provide that importers of gasoline shall file gasoline tax returns. (see

Technical Issues)

Section 10: changed for technical consistency.

Section 11: Gasoline retailers shall file information returns. Electronic filing of information

returns may be required if there is an exception allowed for small retailers.

Section 12: Gasoline distributors shall file information returns. (No electronic filing provisions

– see Technical Issues).

Section 13: Effective date is January 1, 2005 (see Technical Issues).

EM/lg