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F I S C A L I M P A C T R E P O R T

SPONSOR Park

ORIGINAL DATE

LAST UPDATED

2/22/07

3/22/07 HB 981/aSFC

SHORT TITLE Municipal Gross Receipts Maximum Aggregate

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

*See Narrative

Recurring Municipalities

$1,635.7 Recurring Municipalities

$288.3

($703.1) Recurring General Fund

($288.3)

($605.4) Recurring

Local

Governments

($163.6) Recurring Small Cities

Assistance Fund

($163.6) Recurring Small Counties

Assistance Fund

(Parenthesis ( ) Indicate Revenue Decreases)

*Note: Table reflects net effects of freezing local hold harmless distributions, municipal

compensating tax distributions, and allowing municipalities to impose a higher municipal gross

receipts tax.

Conflicts with HB 265, SB 144

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Municipal League (NMML)

Department of Finance and Administration (DFA)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of SFC Amendment

Freeze Local Government Hold Harmless Distributions:

The Senate Finance Committee

Amendment to House Bill 981 amends Sections 7-1-6.46 and 7-1-6.47, which were enacted in

House Bill 981/aSFC – Page

2

2004 as part of the legislation to create gross receipts tax deductions for food and medical

services (HB 625). Those sections hold counties and municipalities harmless from the food and

medical service deductions by requiring TRD to distribute to each local government an amount

equal to what would have been received if the deductions did not exist. The amendment freezes

the hold harmless distributions to some municipalities and counties at the tax rates that were in

effect on January 1, 2007. The amendment would freeze the local government hold harmless

distributions to municipalities with either a population over 10 thousand in the most recent

decennial census or per capita taxable gross receipts above the statewide average in the previous

calendar year at the tax rates in effect on January 1, 2007. The amendment would freeze the hold

harmless distribution to counties with populations over 48 thousand at the tax rates in effect on

January 1, 2007.

Municipal Compensating Tax Distribution:

The amendment creates a phased-in distribution to

each municipality from the compensating tax. The distribution for each municipality will be

equal to the municipality’s monthly taxable gross receipts, multiplied by the ratio of six months

of the municipality’s net compensating tax collections by six months of the municipality’s

taxable gross receipts, multiplied by the ratio of 1.225 percent to the compensating tax rate (5

percent). The distribution to municipalities will be 10 percent of the formula amount described

above in FY09 and 30 percent of the formula amount in FY10 and beyond.

Municipal Gross Receipts Tax:

The amendment changes language pertaining to imposition of the

municipal gross receipts tax, the provision contained in the original bill. The amendment would

allow all municipalities the choice of imposing the tax in 0.125 percent increments. Currently,

municipalities with a population over 45 thousand may impose the tax in 0.125 percent

increments but smaller municipalities must impose the tax in 0.25 percent increments.

The amendment also adds a July 1, 2007 effective date.

Synopsis of Original Bill

House Bill 981 increases the maximum rate of the municipal gross receipts tax that may be

imposed by each municipality from 1.25 percent to 1.5 percent.

FISCAL IMPLICATIONS

Freeze Local Government Hold Harmless Distributions:

The Senate Finance Committee

amendment will cause a gradual shift of revenue from local governments to the general fund as

local option tax rates gradually creep higher. TRD reports that in the recent past, the local option

gross receipts tax rate have increased by about 0.01 percent per year. Statewide, food and

medical deductions are expected to total $3.1 billion in FY08. About 93 percent of those

deductions, or $2.9 billion, are expected to occur in counties and municipalities that will have

hold harmless distribution rates frozen at January 1, 2007 levels. An additional 0.01 percent tax

would cause a shift of about $288.3 thousand ($3.1 billion X 93% X 0.0001). The fiscal impact

will grow over time as local option tax rates creep higher and the size of the deductions grows.

The table above assumes rates continue to increase by 0.01 percent per year and that the

deductions grow by 5 percent per year.

Municipal Compensating Tax Distribution:

Based on the December 2006 consensus revenue

estimate, total compensating tax collections are expected to be $95.4 million in FY09 and $99.5

House Bill 981/aSFC – Page

3

million in FY10. Under current law, 80 percent of those amounts will be transferred to the

general fund, 10 percent to the small cities assistance fund, and 10 percent to the small counties

assistance fund.

Based on data from the “Report 80: Analysis of Gross Receipts by Industry," TRD expects

municipal distributions to total $1,635.7 thousand in FY09 and $5,119.3 thousand in FY10 when

the distributions are completely phased in. The table on the next page details the amount of this

total municipal distribution that will be allocated to each of New Mexico’s municipalities.

As a result of these municipal distributions, general fund revenues will fall by $1,308.5 thousand

in FY09 and by $4,095.4 thousand in FY10. Distributions to both the small cities and small

counties assistance funds will fall by $163.6 thousand in FY09 and $511.9 thousand in FY10.

House Bill 981/aSFC – Page

4

FY 2009 FY 2010

FY 2009 FY 2010

Municipality:

Distribution Distribution Municipality:

Distribution Distribution

Alamogordo

$28,046 $87,778 Lake Arthur

$68

$214

Albuquerque

$673,119 $2,106,696 Las Cruces

$114,061 $356,982

Angel Fire

$3,092

$9,678 Las Vegas

$11,680 $36,555

Artesia

$23,335 $73,034 Logan

$567

$1,776

Aztec

$6,703 $20,980 Lordsburg

$1,957

$6,125

Bayard

$900

$2,817 Los Alamos

$37,054 $115,969

Belen

$8,400 $26,291 Los Lunas

$22,493 $70,397

Bernalillo

$5,886 $18,423 Los Ranchos de Albuq.

$4,796 $15,011

Bloomfield

$8,941 $27,982 Loving

$376

$1,176

Bosque Farms

$2,227

$6,971 Lovington

$10,237 $32,038

Capitan

$679

$2,126 Magdalena

$385

$1,205

Carlsbad

$27,836 $87,121 Maxwell

$81

$254

Carrizozo

$416

$1,301 Melrose

$181

$566

Causey

$19

$60 Mesilla

$1,512

$4,732

Chama

$1,145

$3,583 Milan

$1,565

$4,898

Cimarron

$433

$1,355 Moriarty

$3,441 $10,770

Clayton

$1,587

$4,966 Mosquero

$34

$106

Cloudcroft

$1,006

$3,148 Mountainair

$465

$1,456

Clovis

$33,818 $105,842 Pecos

$381

$1,191

Columbus

$341

$1,066 Portales

$8,108 $25,377

Corona

$87

$273 Questa

$722

$2,260

Corrales

$4,175 $13,067 Raton

$5,648 $17,676

Cuba

$1,163

$3,641 Red River

$1,404

$4,393

Deming

$14,181 $44,382 Reserve

$266

$832

Des Moines

$115

$360 Rio Rancho

$63,056 $197,351

Dexter

$1,063

$3,328 Roswell

$43,663 $136,653

Dora

$219

$686 Roy

$170

$531

Eagle Nest

$266

$833 Ruidoso

$11,358 $35,546

Edgewood

$3,803 $11,902 Ruidoso Downs

$4,462 $13,965

Elephant Butte

$821

$2,568 San Jon

$184

$576

Elida

$174

$544 San Ysidro

$122

$382

Encino

$29

$92 Santa Clara (Central)

$140

$439

Espanola

$14,859 $46,505 Santa Fe

$140,424 $439,491

Estancia

$346

$1,082 Santa Rosa

$3,081

$9,643

Eunice

$5,285 $16,542 Silver City

$12,848 $40,211

Farm ington

$100,048 $313,127 Socorro

$7,841 $24,540

Floyd

$133

$418 Springer

$395

$1,236

Folsom

$27

$84 Sunland Park

$5,668 $17,739

Fort Sumner

$620

$1,939 Taos

$17,357 $54,322

Gallup

$29,421 $92,079 Taos Ski Valley

$1,311

$4,102

Grady

$37

$116 Tatum

$758

$2,372

Grants

$7,140 $22,346 Texico

$225

$705

Grenville

$4

$12 Tijeras

$1,378

$4,312

Hagerman

$432

$1,352 Truth or Consequences

$4,008 $12,545

Hatch

$1,029

$3,222 Tucumcari

$4,281 $13,397

Hobbs

$68,758 $215,196 Tularosa

$927

$2,902

Hope

$36

$113 Vaughn

$383

$1,198

House

$156

$489 Virden

$30

$95

Hurley

$159

$498 Wagon Mound

$71

$222

Jal

$1,210

$3,786 Willard

$45

$141

Williamsburg

$88

$276

Total M uni. Distribution $1,635,681 $5,119,275

Illustration: Estimated Municipal Compensating Tax Distribution:

Municipal Gross Receipts Tax:

The fiscal impact of this provision depends on if and when

municipal governments choose to impose an additional 0.25 percent municipal gross receipts tax

increment. LFC analysis of data provided by TRD indicates that if all municipalities imposed an

additional 0.25 percent tax, municipal gross receipts tax collections would rise by $98.3 million

in FY08 (see table below).

House Bill 981/aSFC – Page

5

FY2008 Taxable Additional GRT

FY2008 Taxable Additional GRT

Municipalit

y

Gross Receipts From 1/4% Tax

Municipality Gross Receipts From 1/4% Tax

Alamogordo

649,276,248

1,623,191

Lake Arthur

1,437,222

3,593

Albuquerque

15,857,185,763

39,642,964

Las Cruces

2,689,528,453

6,723,821

Angel Fire

62,377,897

155,945

Las Vegas

274,695,213

686,738

Artesia

734,584,517

1,836,461

Logan

16,844,581

42,111

Aztec

146,782,037

366,955

Lordsburg

54,212,549

135,531

Bayard

24,655,733

61,639

Los Alamos

918,402,933

2,296,007

Belen

210,091,680

525,229

Los Lunas

522,484,970

1,306,212

Bernalillo

153,982,787

384,957

Los Ranchos de Albuq. 115,889,960

289,725

Bloomfield

222,091,267

555,228

Loving

5,819,707

14,549

Bosque Farms

49,261,295

123,153

Lovington

194,794,893

486,987

Capitan

16,620,251

41,551

Magdalena

6,609,444

16,524

Carlsbad

647,619,016

1,619,048

Maxwell

1,876,155

4,690

Carrizozo

8,693,356

21,733

Melrose

5,129,146

12,823

Causey

405,805

1,015

Mesilla

39,534,582

98,836

Chama

28,706,694

71,767

Milan

29,090,373

72,726

Cim arron

10,532,272

26,331

Moriarty

77,176,313

192,941

Clayton

40,263,087

100,658

Mosquero

812,311

2,031

Cloudcroft

23,238,096

58,095

Mountainair

9,458,232

23,646

Clovis

767,322,483

1,918,306

Pecos

9,404,376

23,511

Columbus

8,456,390

21,141

Portales

195,240,013

488,100

Corona

1,605,485

4,014

Questa

16,665,739

41,664

Corrales

138,392,661

345,982

Raton

145,630,439

364,076

Cuba

34,392,859

85,982

Red River

35,206,129

88,015

Deming

255,006,788

637,517

Reserve

9,726,107

24,315

Des Moines

3,894,433

9,736

Rio Rancho

1,781,075,244

4,452,688

Dexter

23,659,945

59,150

Roswell

1,052,997,939

2,632,495

Dora

11,344,921

28,362

Roy

4,607,160

11,518

Eagle Nest

6,970,647

17,427

Ruidoso

265,240,242

663,101

Edgewood

90,871,768

227,179

Ruidoso Downs

100,411,489

251,029

Elephant Butte

24,771,067

61,928

San Jon

3,023,885

7,560

Elida

8,384,163

20,960

San Ysidro

4,244,586

10,611

Encino

717,495

1,794

Santa Clara (Central)

3,237,931

8,095

Espanola

349,069,084

872,673

Santa Fe

3,340,296,013

8,350,740

Estancia

3,150,359

7,876

Santa Rosa

71,819,802

179,550

Eunice

136,646,171

341,615

Silver City

314,402,040

786,005

Farmington

2,446,279,887

6,115,700

Socorro

176,739,901

441,850

Floyd

1,806,662

4,517

Springer

10,218,014

25,545

Folsom

976,778

2,442

Sunland Park

143,459,105

358,648

Fort Sumner

14,289,626

35,724

Taos

420,175,082

1,050,438

Gallup

695,003,680

1,737,509

Taos Ski Valley

22,064,097

55,160

Grady

640,237

1,601

Tatum

14,393,101

35,983

Grants

154,412,263

386,031

Texico

6,853,415

17,134

Grenville

132,640

332

Tijeras

29,054,081

72,635

Hagerm an

9,959,335

24,898

Truth or Consequences 106,829,962

267,075

Hatch

25,690,363

64,226

Tucumcari

107,043,592

267,609

Hobbs

1,783,821,330

4,459,553

Tularosa

18,934,163

47,335

Hope

2,272,527

5,681

Vaughn

9,314,743

23,287

House

3,237,335

8,093

Virden

1,994,172

4,985

Hurley

2,208,930

5,522

Wagon Mound

843,954

2,110

Jal

30,775,173

76,938

Willard

2,051,671

5,129

Jemez Springs

4,458,325

11,146

Williamsburg

2,399,557

5,999

Total TGR

39,316,384,394

Total Additional GRT

98,290,961

SIGNIFICANT ISSUES

Freeze Local Government Hold Harmless Distributions: Current law requires TRD to transfer to

each county and municipality an amount equal to what would have been received if the food and

medical service deductions enacted in 2004 did not exist. That amount is calculated by

multiplying deductions by the local option tax rate imposed in the area. These distributions are

meant to hold local governments harmless from any revenue loss associated with the food and

House Bill 981/aSFC – Page

6

medical deductions.

As local option tax rates creep higher, the size of the hold harmless distributions the state pays

local governments grow larger. The Senate Finance Committee amendment protects the state

general fund from losing additional revenue as the state’s larger local governments impose

higher local option gross receipts taxes.

Alternatively, the amendment limits larger local governments’ ability to raise revenue through

imposing higher local option gross receipts taxes. All increments imposed after January 1, 2007

would generate less revenue due to the provisions of the Senate Finance Committee amendment.

Therefore, the amendment reduces the state’s 2004 commitment to hold local governments

harmless to the food and medical deductions.

Medical service receipts tend to grow faster than the rest of the gross receipts tax base, and food

receipts are one of the more stable parts of the tax base. The amendment will therefore slightly

reduce the rate of growth in larger local government gross receipts tax revenues and slightly

increase revenue volatility.

Currently, New Mexico’s local governments are authorized to impose up to 4.6875 percent of

local option gross receipts taxes (that figure excludes several additional local option taxes that

have been authorized for selected local governments). On average, a local option gross receipts

tax of about 1.6 percent is actually imposed by local governments statewide. Combined with the

state gross receipts tax of 5 percent, the statewide tax rate is therefore 6.6 percent.

Municipal Compensating Tax Distributions:

According to NMML, this provision addresses the

fact that as more business is conducted via the internet, sales become taxable under the

compensating tax instead of the gross receipts tax. Although municipalities receive a share of

gross receipts tax revenue, they currently do not receive a share of compensating tax revenue.

Municipal Gross Receipts Tax:

Revenue raised by the municipal gross receipts tax is not

restricted, but may be dedicated for a specific purpose including but not limited to police

protection, fire protection, public transportation or street repair and maintenance. Imposition of

the tax requires approval by the majority of a municipality’s voters.

Under current law, New Mexico’s local governments are authorized to impose up to 4.6875

percent of local option gross receipts taxes (that figure excludes several additional local option

taxes that have been authorized for selected local governments). On average, a local option gross

receipts tax of about 1.6 percent is actually imposed by local governments statewide. Combined

with the state gross receipts tax of 5 percent, the statewide tax rate is therefore 6.6 percent.

ADMINISTRATIVE IMPLICATIONS

Freeze Local Government Hold Harmless Distributions:

Implementation of the food and medical

deductions has been unusually complicated and expensive for TRD because of the programming

needed to do hold harmless distributions for local governments. Increasing the list of food items

eligible for the food gross receipts tax deduction will increase the cost of administering the local

hold harmless distributions.

Municipal Compensating Tax Distributions:

According to TRD, municipal compensating tax

House Bill 981/aSFC – Page

7

distributions will create significant administrative impacts and will require reprogramming of the

Combined Revenue System (CRS).

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

The Senate Finance Committee amendment inserts provisions similar to those found in Senate

Bill 1182. Senate Bill 1182 freezes the local hold harmless rate for all

local governments at the

tax rate imposed on January 1, 2007.

House Bill 981 conflicts with House Bill 265 and Senate Bill 144, which also amend Section 7-

19D-9 NMSA 1978 to impose local option compensating taxes that mirror each existing local

option gross receipts tax.

SS/mt