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committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports
if they are used for other purposes.
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F I S C A L I M P A C T R E P O R T
SPONSOR Silva
ORIGINAL DATE
LAST UPDATED
2/13/07
HB 683
SHORT TITLE Financial Management Fee Gross Receipts
SB
ANALYST Schardin
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY07
FY08
FY09
(125.0)
Recurring General Fund
(85.0)
Recurring
Local
Governments
(Parenthesis ( ) Indicate Revenue Decreases)
Duplicates SB 801
SOURCES OF INFORMATION
LFC Files
Responses Received From
State Investment Council (SIC)
Regulation and Licensing Department (RLD)
Economic Development Department (EDD)
Taxation and Revenue Department (TRD)
SUMMARY
Synopsis of Bill
House Bill 683 creates a gross receipts tax deduction from receipts from fees received for
performing management or investment advisory services for a mutual fund, hedge fund, or real
estate investment trust (REIT).
The bill defines a “hedge fund" as a private 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 Securities and Exchange Commission accredited
investors. “Mutual fund" is defined as an entity registered pursuant to the federal Investment
Company Act of 1940. “Real Estate Investment Trust" is defined as an entity described in
Section 856(a) of IRS code of 1986, with investments limited to interests in mortgages on real
property and shares of or transferable certificates in an entity described in Section 856(a) of the
same federal code.
pg_0002
House Bill 683 – Page
2
The effective date of these provisions will be July 1, 2007.
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 $4.2 million in gross receipts
tax from investment advisory service providers. Only about 5 percent of this amount is expected
to be eligible for the new deduction because the other 95 percent is believed to be attributable to
“retail" level services, not services provided to fund managers. 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, EDD, and RLD, the bill may 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
environment.
However, any hedge and mutual fund management firms currently located in New Mexico will
also receive the tax deduction. LFC is aware of one company already located in New Mexico,
Thornburg Investment Management, which will benefit from the proposed deduction.
According to EDD, because most shares in New Mexico-based funds are owned by non-New
Mexicans, the types of management services addressed in this bill have generally been regarded
as provided outside of New Mexico, and therefore are not subject to gross receipts tax. EDD
states that this bill is largely a symbolic act that signals New Mexico’s desire to attract financial
services companies. The LFC cautions against altering the tax code for symbolic reasons because
doing so unnecessarily complicates tax statutes and makes tax administration more difficult.
ADMINISTRATIVE IMPLICATIONS
TRD will be able to administer the provisions of this bill with existing resources.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
House Bill 683 duplicates Senate Bill 801.
ALTERNATIVES
If the intent of the bill is to encourage firms to relocate to New Mexico, the bill could be
amended so that the deduction is only received by firms beginning operations in New Mexico
after a certain date. Such an amendment would make the deduction more efficiently targeted.
SS/csd