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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 Anderson
ORIGINAL DATE
LAST UPDATED
2/6/07
HB 541
SHORT TITLE Armed Forces Income Tax Exemption
SB
ANALYST Francis
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY07
FY08
FY09
($3,000.0)
($12,000.0)
($10,000.0) Recurring General Fund
(Parenthesis ( ) Indicate Revenue Decreases)
Related Bills:
HB 207 Cote ARMED FORCES INCOME TAX EXEMPTION
HB 368 Sandoval ARMED SERVICE RETIREE INCOME TAX EXEMPTION
HB 497 Foley MILITARY RETIREMENT PAY TAX EXEMPTION
SB 43 Robinson MILITARY PENSION INCOME TAX EXEMPTION
SB 492
Carraro ARMED SERVICES INCOME TAX EXEMPTION
SB 493
Carraro MILITARY PENSION INCOME TAX EXEMPTION
SOURCES OF INFORMATION
LFC Files
Taxation and Revenue Department (TRD)
Responses Received From
Taxation and Revenue Department (TRD)
Department of Military Affairs (DMA)
SUMMARY
Synopsis of Bill
House Bill 541 exempts income earned as active duty members of the US armed forces. The
effective date is January 1, 2007.
pg_0002
House Bill 541 – Page
2
FISCAL IMPLICATIONS
TRD:
The $10 million annual fiscal impact is based on the following assumptions: 1) the average
salary of military service people is approximately $45,000, 2) approximately 70% or $31,500
would be taxable after allowance for present law exemptions and deductions, 3) the tax
reduction to service members would be approximately $1,350 annually, and 4).
approximately 7,000 New Mexico taxpayers or roughly .5% of the 1.4 million total U.S.
active service members receive the exemption. The estimate also assumes obligations of
approximately 3,000 national guard and army reserve members receiving income from
weekend meetings and summer camp would generate approximately $400,000 in reduced tax
obligations.
Due to the timing of the exemption, it’s assumed that 30 percent of the 2007 impact will fall in
FY07 and 70 percent in FY08. For tax years 2008 and beyond, it is assumed that half of the
impact will fall in each fiscal year.
ADMINISTRATIVE IMPLICATIONS
Provisions of the proposed measure would impose relatively minor administrative impacts on the
Taxation and Revenue Department. Provisions of the proposal could be administered with re-
sources currently available to the Department.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
There are several bills that have been introduced to exempt active duty military pay, military
retirement income, and earned income of military retirees. SB492 exempts all income for active
duty military. HB 368 exempts earned income by military retirees up to $50 thousand. SB 43, SB
493 and HB 497 exempt military pension income.
TECHNICAL ISSUES
According to the Department of Defense, “Active Duty" refers to “Full-time duty in the active
service of a Uniformed Service, including fulltime training duty, annual training duty, and atten-
dance while in the active service at a school designated as a Military Service school by law or by
the Secretary concerned."
NM Department of Military Affairs reports that this bill does not cover members of the full-time
National Guardsmen.
TRD notes that, as written, the measure could be interpreted to include an exemption for federal
personal income tax obligations. It should be amended to clarify that it does not.
OTHER SUBSTANTIVE ISSUES
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 $1,575 per claimant mentioned above. The $1,575 in
state tax sav-ings would, for example, be reduced to $1,260 ($1,575 x .8) for a taxpayer in the
20% federal tax bracket.
NF/nt