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).
Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and
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 Foley
ORIGINAL DATE
LAST UPDATED
2/14/07
HB 788
SHORT TITLE Accelerate Income Tax Exemptions
SB
ANALYST Francis
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY07
FY08
FY09
($19,800.0)
($46,200.0)
NFI Recurring* General Fund
(Parenthesis ( ) Indicate Revenue Decreases)
* This is a nonrecurring impact on recurring revenues so there is no FY09 impact.
Duplicates SB265
SOURCES OF INFORMATION
LFC Files
Taxation and Revenue Department (TRD)
Responses Received From
Taxation and Revenue Department (TRD)
SUMMARY
Synopsis of Bill
House Bill 788 accelerates the current phase-in of the personal income tax rate reductions.
Under current law, the top personal income tax rate will be 5.3 percent in tax year 2007 and 4.9
percent in 2008. This bill would accelerate the schedule so the rate would be 4.9 percent in 2007
forward, a reduction of 0.4 percent in the top personal income tax rate in 2007.
Tax Rate Cut
Tax Year Current Law HB788
2006
5.3%
5.3%
2007
5.3%
4.9%
2008
4.9%
4.9%
pg_0002
House Bill 788 – Page
2
FISCAL IMPLICATIONS
Using a model provided by the Taxation and Revenue Department (TRD), the full year impact
would be a $66 million reduction in personal income tax collections. Thirty percent of the
impact, or $19.8 million, occurs in FY07 because the first quarter of 2007 personal income tax
collections will have been at the current rates. In FY08, the impact is $46.2 million or 70 percent
of the tax year impact. This is a revised methodology from previous estimates agreed upon
by LFC and TRD. While this would reduce current estimates of recurring general fund
revenues, the reduction is only for these two fiscal years and does not recur in the future.
SIGNIFICANT ISSUES
In 2003, legislation was enacted lowering the top rate and collapsing the number of income
brackets. In 2002, the top rate on taxable income over $100,000 for married filers and $65,000
for single filers was 8.2 percent. As a result of the 2003 legislation, by tax year 2007, the top
rate would decrease to 4.9 percent and the top income bracket would begin at $24,000 in taxable
income for married filers and $16,000 for single filers. In the 2005 session, the phase-in schedule
for the top rate decrease was delayed until 2008 and the head-of-household filing status was
merged with the married filing jointly status. The schedule was modified again in the 2005
special session as revenues came in stronger than expected. This bill restores the final phase-in
year to 2007 rather than 2008. See table one for details about the changes to the personal income
tax law over the last four years.
Table 1: Proposed Rate Schedule
Taxable Income
Married Filing
Jointly,
Surviving
Spouses, Head
of Household
Married
Filing
Separate
Single
2005 2006 2007 2008
<8000
<4000
<5500
1.7% 1.7% 1.7% 1.7%
8000-16000 4000-8000 5500-11000
3.2% 3.2% 3.2% 3.2%
16000-24000 8000-12000 11000-16000
4.7% 4.7% 4.7% 4.7%
24000+
12000+
16000+
5.7% 5.3% 4.9% 4.9%
Based on 2005 tax return data, a married filing jointly taxpayer reporting $24 thousand in taxable
income has total adjusted gross income (AGI) of about $40 thousand. For singles reporting
taxable income of $16 thousand, their AGI starts at $25 thousand. 311,000 taxpayers will
receive the benefit of the lower rate, all of them above these AGI levels.
ADMINISTRATIVE IMPLICATIONS
This change would require the Taxation and Revenue Department to modify withholding tables
and instructions for 2007 but otherwise should pose little administrative burden.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
The executive has proposed lowering the rate to 5.1 percent in tax year 2007. SB 265 is a
duplicate bill.
NF/nt