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F I S C A L I M P A C T R E P O R T
SPONSOR Salazar
ORIGINAL DATE
LAST UPDATED
1/20/06
1/25/06 HB 128
SHORT TITLE
ADVANCED ENERGY PRODUCT TAX CREDIT
ACT
SB
ANALYST Schardin
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY06
FY07
FY08
(175.0)
Increasing Recurring General Fund
(25.0)
Increasing Recurring Local Govern-
ments
(Parenthesis ( ) Indicate Expenditure Decreases)
Relates to HB200 and duplicates SB254.
SOURCES OF INFORMATION
LFC Files
Responses Received From
Taxation and Revenue Department (TRD)
Energy Mineral and Natural Resources Department (EMNRD)
Economic Development Department (EDD)
Environment Department (NMED)
SUMMARY
Synopsis of Bill
House Bill 128 creates the Advanced Energy Product Manufacturers Tax Credit for businesses
that manufacture advanced energy products, which are defined as motor vehicles propelled in
whole or in part by electricity, fuel cell systems, renewable energy systems, or any component of
hybrid vehicles, fuel cell systems, renewable energy systems, or clean coal technologies.
A credit of up to 5 percent of a taxpayer’s expenditures on advanced product manufacturing
equipment may be deducted from a taxpayer’s total liability from state gross receipts tax, com-
pensating tax, withholding tax, interstate telecommunications gross receipts tax, 911 emergency
surcharge, network and database surcharge, and telecommunications relay service surcharge.
Any unused tax credit may be carried forward for three years.
pg_0002
House Bill 128 – Page
2
To qualify for the credit, the manufacturer must employ at least one more full-time employee
than in the previous year for every $500 thousand of equipment expenditures up to $30 million,
and at least one more full-time employee than in the previous year for every $1 million of ex-
penditures over $30 million. Existing employees can count toward the employment requirements
if the taxpayer trained the existing employee, or the employee was hired to use the qualified
equipment.
Advanced energy product manufacturers may apply for the credit any time within the calendar
year following the calendar year in which they purchased qualified manufacturing equipment.
If a taxpayer who receives this credit ceases operations in New Mexico for 180 or more consecu-
tive days within two years after applying for the credit, the taxpayer rights to the credit and must
pay all taxes for which the credit was awarded.
The effective date of this bill is July 1, 2006.
FISCAL IMPLICATIONS
TRD assumes that investments eligible for the new tax credit will total $4 million each year.
With a gross receipts tax of 5 percent, this means credits will total $200 thousand per year. TRD
anticipates that tax liability for claimants of the credit will be large enough to absorb the entire
$200 thousand.
The credit will primarily impact the general fund, but several other funds will experience small
impacts. Claims against the gross receipts and compensating taxes will impact the general fund
and local governments. Overall, general fund revenue will be reduced by about $175 thousand
and local government revenue will be reduced by about $25 thousand.
SIGNIFICANT ISSUES
According to EMNRD and EDD, this bill will create jobs in and generate revenues from the ad-
vanced energy technology sector. The bill encourages the recruitment and retention of an ad-
vanced energy cluster economy. They note that in combination with New Mexico’s world-class
renewable energy resources and the technical expertise existing at New Mexico’s universities
and national laboratories, this incentive will make the state more attractive for the relocation of
advanced energy businesses. Further, jobs created by this bill will tend to be in economically de-
pressed rural and semi-rural parts of the state.
PERFORMANCE IMPLICATIONS
EMRND states that recruitment and retention of advanced energy businesses would significantly
assist the Energy Conservation and Management Division in achieving targets relating to renew-
able energy, energy efficiency and clean-burning alternative transportation fuels.
NMED states that recruitment of advanced energy manufacturers would help the Air Quality Bu-
reau achieve two performance measures related to improved visibility and air quality by decreas-
ing the likelihood that new dirtier power sources will be constructed. In addition, the bill pro-
pg_0003
House Bill 128 – Page
3
motes two of Governor Richardson’s priority goals, increasing New Mexico’s use of clean en-
ergy and reducing greenhouse gas emissions.
ADMINISTRATIVE IMPLICATIONS
TRD reports that the bill would require 1/8 FTE to evaluate applications and maintain logs of
credits approved and claimed.
TECHNICAL ISSUES
TRD believes that the employment requirements stated in Section 5 of the bill should be clarified
so that all of a taxpayer’s employees must be counted in determining the calculation, and so that
the replacement of one worker by another does not count as adding an employee.
TRD also believes the word “not” should be added to page 6, line 24 after the word employee so
that the tax credit is contingent on increases in employment.
The credit states that advanced energy products that will be eligible for the credit include com-
ponents of “integrated gasification combined cycle coal facilities.” However, the proposed credit
will not be available for such equipment because the credit is only available for equipment used
to “manufacture” advanced energy products. Modifying the credit to include purchases of inte-
grated gasification combined cycle coal facilities would greatly increase the fiscal impacts of the
bill.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
House Bill 128 Duplicates Senate Bill 254.
OTHER SUBSTANTIVE ISSUES
TRD notes that a presentation sponsored by Sandia National Laboratories on state and local tax
incentives and wage subsidies for manufacturers estimated that existing subsidies, such as the
technology jobs tax credit, renewable energy production tax credit, and industrial revenue bonds,
are enough to offset between 55 and 67 percent of initial capital investment. To prevent exces-
sive subsidies, TRD recommends limiting eligibility for the advanced energy manufacturer tax
credit to expenditures not eligible for other credits and incentives.
SS/nt:mt