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

SPONSOR Stewart

ORIGINAL DATE

LAST UPDATED

2/22/07

HB 996

SHORT TITLE Solar Energy System Gross Receipts

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

($158.4)

Recurring General Fund

($105.6)

Recurring

Local

Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Economic Development Department (EDD)

Energy Minerals and Natural Resources Department (EMNRD)

SUMMARY

Synopsis of Bill

House Bill 996 creates a gross receipts tax deduction for receipts from the sale and installation of

solar energy systems. The bill defines a solar energy system as an installation to provide space

heat, hot water or electricity to the property in which it is installed and is 1) an installation that

utilizes solar panels that are not also windows, 2) dark-colored water tank exposed to sunlight, or

3) a non-vented trombe wall.

The deduction will be effective from July 1, 2007 until June 30, 2017, when it will sunset.

FISCAL IMPLICATIONS

Based on historic claims of the solar market development tax credit and estimated receipts from

additional solar costs that will be eligible for the proposed deduction (trombe walls and

commercial systems), TRD estimates that the value of solar energy system purchases and

installation activity will be about $4 million per year. Taxed at a statewide rate of 6.6 percent, the

deduction would reduce gross receipts tax collections by about $264 thousand. About 60 percent

House Bill 996 – Page

2

of that revenue reduction will accrue to the general fund and the remaining 40 percent to local

governments. EMNRD believes receipts eligible for this tax deduction will grow by about 10

percent per year.

SIGNIFICANT ISSUES

EDD estimates that about 0.22 percent of households in New Mexico had solar energy systems

as of 2005.

EDD and EMNRD assert that the bill encourages use of solar energy systems by making them

more affordable. The bill will help reduce New Mexico’s dependency on fossil fuels and help

meet the governor’s goal of increasing usage of renewable energy.

LFC notes that while individual deductions from the gross receipts tax may have small fiscal

impacts, their cumulative effect significantly narrows the gross receipts tax base. Narrowing the

gross receipts tax base increases revenue volatility and requires a higher tax rate to generate the

same amount of revenue.

The bill will reduce local government gross receipts tax collections. Many of New Mexico’s

local governments are highly dependent on gross receipts tax revenue.

ADMINISTRATIVE IMPLICATIONS

The bill will have a minimal administrative impact on TRD.

TECHNICAL ISSUES

EMNRD notes that the bill does not require solar energy systems to meet a minimum quality

standard to receive the deduction. The deduction could be applied to poorly performing systems

or to solar systems that are part of fossil fuel-based systems.

EMNRD also notes it may be difficult to differential trombe wall materials from other wall

construction materials.

SS/nt