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

SPONSOR Griego

DATE TYPED 02/22/05 HB

SHORT TITLE Tax Credit For Businesses Near Road Projects

SB 312

ANALYST Padilla-Jackson

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

($9,500.0)* ($19,000.0)*

Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 312 would create a section in the Income Tax and Corporate Income Tax Act to al-

low tax credits for New Mexico businesses adversely affected by road construction projects. The

allowed tax credit against personal and corporate income tax would be equal to a reduction in the

taxpayer’s income resulting from highway construction by the Department of Transportation

(DOT) within one mile of the taxpayer’s business.

The provisions of the bill would apply to taxable years beginning on or after January 1, 2005.

FISCAL IMPLICATIONS

*Estimating the fiscal impact of this bill is difficult, since it would require that one estimate the

amount of lost sales that eligible businesses will claim or how many DOT road construction pro-

jects that will take place in a given year.

The -$19 million estimate in the table is a rough approximation by TRD of the bill’s potential

full-year fiscal impact to the general fund. To provide this estimate, TRD assumed that there are

150,000 businesses in the state, and that two percent of business owners (or 3,000 owners) would

Senate Bill 312 -- Page 2

have their income reduced by 20 percent due to road construction projects. TRD concluded that

the resulting impact on state revenue would be the $19 million, which implies total impacted

revenue of approximately $292 million. TRD cautions that the DOT undertakes projects in

many locations near businesses in high-population areas and that fiscal impacts of the proposed

measure, although highly uncertain, could be very substantial.

ADMINISTRATIVE IMPLICATIONS

The bill would reportedly impose moderate administrative impacts on TRD, including develop-

ing a new claim form, changing tax forms and publications, taxpayer outreach, staff education,

and development of new audit and compliance procedures.

TECHNICAL ISSUES

It would be difficult for the taxpayer to measure and prove that a specific amount of lost sales

were attributable to the road construction. The bill might be easier and less costly to implement

by establishing a maximum percentage of lost sales that can be claimed for the tax deduction.

OTHER SUBSTANTIVE ISSUES

TRD notes that by reducing state tax obligations, the proposed measure would tend to increase

federal tax liability because state tax obligations are deductible against federal liability. Hence

the net taxpayer benefit would be less than the amount of credits claimed. Credits providing

$1,000 in state tax savings would, for example, be reduced to $800 for a taxpayer in the 20 per-

cent federal tax bracket.

OPJ/lg