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

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

SPONSOR SFC

DATE TYPED 3-01-2005 HB

SHORT TITLE Department of Health Hospital Gross Receipts

SB 643/aSFC

ANALYST Taylor

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

($2,900)

($5,000)

($6,300) Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates House Business and Industry Committee Substitute for HB 904

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department

SUMMARY

The Senate Finance Committee Substitute for Senate Bill 643 provides a gross receipts tax credit

for gross receipts taxes from hospitals licensed by the Department of Health. The credit is ap-

plied against the state’s portion of gross receipts tax from providing commercial contract or

medicare part A,B or C services. The credit is phased in over three years, beginning on July 1,

2005. In municipalities the rate in calendar year 2005 is 1.258 percent, in 2006 it is 2.516 per-

cent and in 2007 it is 3.75 percent. For hospitals located in the unincorporated areas of a county,

the rate in 2005 is 1.67 percent; in 2006 the rate is 3.34 percent; and in 2007 the rate is 5 percent.

FISCAL IMPLICATIONS

The New Mexico Hospital Association’s survey on hospital gross receipts payments for the last

12 month period indicates that investor owned hospitals paid total gross receipts of $15.2 mil-

lion. Assuming a state-wide average gross receipts tax rate of 6.6 percent, this implies a tax base

of about $230 million. The hospital association also reported that about 32 percent of this was

due from Medicare payments (parts A, B and C) and 34 percent from commercial contracts.

These are the two sources that would benefit from the credit, and together they account for two-

thirds, or $152 million of the $230 million tax base. The remaining one-third comes from Medi-

caid and self pay.

Senate Bill 643/aSFC-- Page 2

The bill phases in the credit beginning on July 1, 2005. Although the phase-in schedule begins

on the fiscal year, the rates change each calendar year. The result is that the phase-in rates on a

fiscal year basis are the average of the calendar year rate reductions. In FY06, the credit would

equal 1.887 percent of gross receipts, in FY07 3.146 percent, and in FY08 3.775 percent.

The fiscal impacts of the bill (revenue loss) apply to the state general fund only; they were de-

termined as follows:

1.

FY06: $2.9 million. The impact is calculated by multiplying the $153 million tax base

by 1.887 percent.

2.

FY07: $5.0 million. The calculation is $160 million ($152 million plus 5 percent

growth) times 3.146 percent.

3.

FY08: $6.3 million. The calculation is $168 million ($160 million base plus 5 percent

growth) times 3.775 percent.

ADMINISTRATIVE IMPLICATIONS

TRD’s analysis included this administrative impact:

High impact. System coding and troubleshooting must be performed; forms and instruc-

tions must be revised; taxpayer education materials and instruction publications must be

prepared; and personnel must be trained. A new special rate code would have to be im-

plemented in the Department’s tax computer system. Audit processes and compliance is-

sues would increase the cost of handling this credit

TECHNICAL ISSUES

TRD’S report noted the following technical issue:

The bill states that a credit can be taken against the “state portion” of gross receipts tax.

This language should probably read: “The credit shall be applied against the State Gen-

eral Fund distribution of the net receipts attributable to the Gross Receipts Tax.”

BT/lg