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

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

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 Papen

DATE TYPED 2/21/05

HB

SHORT TITLE Military Research Gross Receipts

SB 566

ANALYST Padilla-Jackson

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

(*) ($7,030.0)

Similar Recurring

General Fund

(*) ($4,690.0)

Similar Recurring Local Governments

(Parenthesis ( ) Indicate Revenue Decreases)

(*) Indeterminate due to lack of effective date

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate bill 566 would provide a gross receipts tax deduction for receipts from research and de-

velopment, testing and evaluation of devices and equipment under contracts entered into with

organizations operated by the U.S. Department of Defense (DOD). The tax deduction does not

apply to receipts of a prime contractor operating facilities designed as a national lab.

The bill defines “testing and evaluation” to mean planning, preparing or conducting tests of ma-

terials, components, systems or assemblages of missiles.

There is no effective date provided for this bill.

Senate Bill 566 -- Page 2

FISCAL IMPLICATIONS

The total fiscal impact, according to TRD’s analysis, is estimated to b -$11,720.0, of which

-$7,030.0 will impact the general fund, and -$4,690.0 will impact local governments. TRD’s

analysis assumes that total contract revenue from the DOD for research, development testing,

and evaluation in New Mexico is estimated to be $257 million annually, based on information

provided by industry representatives. They note that the tax base is further reduced because ap-

proximately 10 percent of the contract revenue goes to out-of-state service providers, and 20 per-

cent is passed through to sub-contractors who are assumed not to be eligible under the bill. The

resulting tax base is estimated at $180 million annually. $180 million multiplied by a gross re-

ceipts tax rate of 6.5 percent would generate $11,720.0 in tax credits.

ADMINISTRATIVE IMPLICATIONS

Minimal impacts are anticipated for TRD.

TECHNICAL ISSUES

According to TRD, it is easier to implement new gross receipts tax provisions with an effective

date of either July 1 or January 1 since that is when the new rate schedules and instructions are

published.

OPJ/yr