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).

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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 Beffort

ORIGINAL DATE

LAST UPDATED

2/1/06

2/6/06 HB

SHORT TITLE Mutual or Hedge Fund Fee Gross Receipts

SB 457/aSFC

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

(105.0)

Recurring General Fund

(70.0)

Recurring Local Govern-

ments

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to HB 500.

SOURCES OF INFORMATION

LFC Files

Responses Received From

Regulation and Licensing Division (RLD)

State Investment Council (SIC)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of SFC Amendment

The Senate Finance Committee amendment to Senate Bill 457 changes the gross receipts tax de-

duction that will be created by the bill to include receipts from performing management or in-

vestment advisory services for a mutual fund, hedge fund or real estate investment trust (REIT)

located in New Mexico.

The amended bill defines the terms “hedge fund,” “mutual fund,” “investment advisor,” and

“real estate investment trust.”

Synopsis of Original Bill

Senate Bill 457 creates a gross receipts tax deduction for the receipts from fees for management

of a mutual or hedge fund located in New Mexico. The bill defines a “hedge fund” as a private

Senate Bill 457/aSFC – Page

2

investment fund or pool, the assets of which are managed by a professional management firm

that trades or invests, is not an investment company, and is comprised of investments by Securi-

ties and Exchange Commission accredited investors.

The effective date of this bill is July 1, 2006.

FISCAL IMPLICATIONS

TRD’s fiscal impact estimate of the amended bill is based on the Report 80, Analysis of Gross

Receipts Tax by Industrial Classification. The state collects about $2.8 million in gross receipts

tax from securities dealers, investment bankers, securities brokers and other financial companies.

In addition, the amended bill will allow some receipts from banks and insurance companies to

receive the deduction, causing the total revenue decrease to be about $3.5 million per year. Only

about 5 percent of this amount is expected to be eligible for the new deduction because a small

number of these firms are located in New Mexico. About 60 percent of this revenue decrease

will accrue to the general fund, while about 40 percent will accrue to local governments.

SIGNIFICANT ISSUES

According to SIC, Senate Bill 457 would help attract hedge and mutual fund managers to New

Mexico because most other states do not tax this type of activity. These types of investment

firms provide high-wage jobs and improve the investment and financial planning sector envi-

ronment.

ADMINISTRATIVE IMPLICATIONS

The administrative impact on TRD will be minimal.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate Bill 457 as amended by the Senate Finance Committee relates to House Bill 500, which

creates a gross receipts tax deduction for the receipts from fees for management of a mutual or

hedge fund located in New Mexico.

SS/nt:yr