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

SPONSOR Gonzales

ORIGINAL DATE

LAST UPDATED

2/23/07

3/16/07 HB 1012/aSFC/aSF#1

SHORT TITLE School Bus Fuel Tax Deductions

SB

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

(6,625)

(6,625) Recurring General Fund

(200)

(200) Recurring

Local

Governments

(13)

(13) Recurring State Road Fund

(2)

(2) Recurring

Local

Government

Road Fund

(0.245)

(0.245) Recurring Municipal

Arterial Fund

(0.044)

(0.044) Recurring Aviation Fund

(0.022)

(0.022) Recurring Motor Boat Fuel

Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Relates to SB317, HB1138, SB284

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Transportation

Public Education Department

Taxation and Revenue Department

Legislative Education Study Committee

SUMMARY

Synopsis of SF#1

House Bill 1012 as amended by the Senate Finance Committee was amended on the Senate Floor

changing the definition of “qualified school" in the tuition scholarship tax credit (section 4) and

House Bill 1012/aSFC/aSF#1 – Page

2

changing the eligibility for the high needs school retention credit for the Level 2 teachers. The

qualified school definition was refined to require schools have academic content and

performance standards at least equal to those adopted by the public education department. The

change also requires a qualified school to be assessed annually by PED provided that the

assessments are not more expensive than those for public schools.

Synopsis of SFC Amendment

The Senate Finance Committee amended House Bill 1012, adding several new tax provisions.

Certain Scholarship Donation Tax Credits. This provision would provide an income tax credit

for contributions to private elementary and secondary schools in New Mexico. Credits totaling

up to $500 would be allowed in any tax year for contributions to organizations who provide

scholarships for non-governmental primary and secondary schools. At least 75 percent of the

scholarships the organization provides must be for low-income students. These are referred to as

“tuition scholarship tax credits" in the proposal. The credit would not be refundable. They would

not be allowed if the associated donations are deducted against federal income tax obligations.

Home Schooling Income Tax Credit. This provision provides a credit against personal income

tax liability of $175 for expenses attributable to tutoring or home schooling. The credit is

allowed for taxpayers whose dependent

•

attended a public school and was also tutored on a subject included in the public school

curriculum,

or

•

was home schooled,

and

•

whose dependent was or would have been claimed as a dependent on the resident’s

federal income tax return.

The effective date is January 1, 2007, and so is applicable to the 2007 tax year.

Teacher Retention Credit. This provision creates a tax credit called the “high-needs schools

teacher tax credit" for licensed teachers who teach at schools identified by the Public Education

Department as “high-needs." The credit is against personal income tax liability and can be

carried forward for up to three years. The credit is $1,500 for teachers who have held a level 2

license at least half of the taxable year and $2,000 for teachers who have held a level 3-A license

for at least half of the taxable year. A teacher must have taught at the school for at least half of

the taxable year. The maximum credit goes to teachers who taught for the entire school year and

half of the credit goes to teachers who have taught at least half of the full school year.

PED will develop criteria for determining high-needs schools based on academic proficiency,

poverty indicators, and other factors to be identified. No more than 1,900 teachers shall be

eligible in a tax year.

Synopsis of Original Bill

House Bill 1012 would exempt gasoline used for school buses when the gasoline is purchased as

part of a contract with the Public Education Department (PED) or with a school district.

Applicable gasoline is also exempt from gross receipts and compensating taxes. The Taxation

House Bill 1012/aSFC/aSF#1 – Page

3

and Revenue Department (TRD) can refund any gasoline tax paid provided that a taxpayer

submit satisfactory proof and the claims are submitted no more frequently than quarterly and for

100 gallons or more.

FISCAL IMPLICATIONS

(000s)

FY08 FY09 FY10

School Bus Fuel Tax Deductions

(300)

(300)

(300)

Recurring General Fund

(200)

(200)

(200)

Recurring Local Governments

(13)

(13)

(13)

Recurring State Road Fund

(2)

(2)

(2)

Recurring Local Government Road Fund

(0.245)

(0.245)

(0.245)

Recurring Municipal Arterial Fund

(0.044)

(0.044)

(0.044)

Recurring Aviation Fund

(0.022)

(0.022)

(0.022)

Recurring Motorboat Fuel Fund

Certain Scholarship Donation Tax Credits (2,100)

(2,100)

(2,100)

Recurring General Fund

Home Schooling Income Tax

(1,225)

(1,225)

(1,225)

Recurring General Fund

Teacher Retention Tax Credit

(3,000)

(3,000)

(3,000)

Recurring General Fund

TOTAL GENERAL FUND

(6,625)

(6,625)

(6,625)

Recurring General Fund

Certain Scholarship Donation Tax Credits. The fiscal impact has been calculated by assuming

that 7,500 of the eligible taxpayers would take the full credit and 6,000 would take half of the

credit. Estimates of numbers of claimants were based partially on New Mexico personal income

tax data. Approximately 200,000 New Mexico returns reported sufficient income to claim at

least a portion of the credit. Roughly four percent of New Mexico’s 360,000 primary and

secondary school students attend accredited non-governmental schools. The Senate Floor

amendment may lower the fiscal impact if they have difficulty getting assessed annually by PED.

Home Schooling Income Tax Credit. Public Education Department (PED) has reported there

are 7,000 home schooled students recognized by PED. The Senate Floor amendment provides a

$175 per pupil credit that is refundable making the impact $1.3 million in FY08.

Teacher Retention Credit. PED estimates that they will be able to identify 1,900 teachers who

would receive the credit. Assuming half are Level 2 and half are Level 3, the full credit will

reduce personal income tax collections by $3.325 million per year. Assuming an average salary

of $43,000, the tax liability is approximately $980 so for most taxpayers they will carry the credit

forward. In FY08, the credit is expected to reduce revenues by $3 million with an insignificant

part of the credit carrying forward to FY09. The Senate Floor amendment does not change the

impact as the cap of 1,900 teachers should be narrow enough to limit eligibility to teachers who

have held the Level 2 license for three or more years.

School Bus Fuel Tax Deduction. Based on data provided by PED, school buses use

approximately 100,000 gallons of gasoline per year that is not already exempted. At a rate of

$0.17 per gallon, the annual fiscal impact is a $17,000 reduction in the gasoline tax revenues.

Gasoline revenues are distributed to a variety of funds as Table one shows.

Fiscal Impact by Fund for Gas Tax (FY08)

State Road Fund

$ 12,966

Counties and Municipalities

1,765

County Govt. Road Fund

979

Municipal Road Fund

979

House Bill 1012/aSFC/aSF#1 – Page

4

Municipal Arterial Fund

245

Aviation Board

44

Motor Boat Fuel Tax Fund

22

$ 17,000

GRT deduction for special fuel:

Based on information provided by the N.M. Public Education Department, total fuel

consumption by private contractors operating public school buses is estimated at 3.0 million

gallons. Assuming an average price of $2.50 per gallon, taxable gross receipts on this fuel is

approximately $7.5 million. At the statewide average tax rate of 6.6%, the new deduction would

reduce GRT collections by about $500 thousand. 60% of this would be General Fund revenue

and the remainder Local Governments.

Fiscal Impact for Diesel Fuel exemption from GRT

FY08

General Fund

$300,000

Local Governments

200,000

SIGNIFICANT ISSUES

Certain Scholarship Donation Tax Credits. The Senate Floor amendment will require PED to

assess the non-governmental schools as well as determine if the educational content is at least

equal since accreditation may or may not meet this criteria alone. An otherwise qualified school

may not want to submit to PED annual assessments which would dampen the fiscal impact. PED

will also have an additional administrative burden as they do not currently assess any school but

rather the state pays for schools to be assessed by third party assessors.

Organizations receiving the contributions must be exempt from federal taxation due to Section

501(c)(3) of the Internal Revenue Code, provide financial scholarships to students, and spend

100 percent of their tax-credit-qualifying revenues for scholarships at qualified schools. A

qualified school is defined as “an accredited nongovernmental elementary or secondary school in

New Mexico".

The tuition credit would be for contributions to an organization that provides scholarships for

attendance at private schools, including religious schools. Whether state support of religious and

private schools would pass a constitutional challenge is a significant issue. The Arizona credit

faced such a challenge in 1998 and withstood it. PFAW also reports that 25 of the 35

organizations in Arizona set up to receive contributions provide tuition to religious schools.

According to an Arizona Department of Revenue report on the tuition credit, the largest single

scholarship from one of the organization’s set up to receive contributions went to a school for

emotionally disabled children. The report which includes data on all schools that received

scholarships from organizations shows that there were 345 private schools who received

scholarships from organizations. The list includes mostly religious schools of all faiths. The

report can be found at

http://www.azdor.gov/ResearchStats/private_schl_credit_report_2006.pdf

.

Home Schooling Income Tax Credit. PED reports (in its analysis of SB 284):

House Bill 1012/aSFC/aSF#1 – Page

5

Under the Public School Code, "Home School" means the operation by a parent of a

school-age person who instructs a home study program that provides a basic academic

educational program, including reading, language arts, mathematics, social studies and

science (Section 22-1-2E, NMSA, 1978). Section 22-1-2.1 NMSA, 1978 requires home

school parents to: (1) notify the State Superintendent [Secretary of Education] in writing

of the establishment of a home school; (2) maintain records of student immunization; and

(3) possess at least a high school diploma or its equivalent.

The burden of proof of home school establishment will be on the parent; however, since

parents turn to the PED for verification of home schooling registration, this bill is likely

to result in a significant increase in staff time needed to respond to home school requests,

search the database and process the verification requests.

Teacher Retention Credit. PED reports:

One significant issue is the determination of criteria identifying a “High Needs School."

PED will utilize data that address academic proficiency, the percent of poverty in the

school population and other factors that will help prioritize the schools and teachers

eligible for the tax credit within the maximum number that can be selected.

Academic proficiency would be determined by the percent of students in the school that

are proficient in reading and mathematics as evidenced by standardized assessments.

Poverty would be identified by the percent of students who are eligible for free-and-

reduced lunch. Other factors could be considered.

A system of collecting data from public K- 12 schools, including charter schools, tribal,

Bureau of Indian Affairs (BIA) schools or BIA contract schools, identified by the PED

will be developed.

The PED’s Educator Quality Division will be responsible for administering the PED roles

and responsibilities related to this bill.

It is unclear how PED will go about selecting the teachers who will be eligible for the credit and

may create confusion if teachers are deemed eligible but do not have the tax liability to take full

advantage of the credit.

School Bus Fuel Tax Deduction. Although most school buses are operated as fleet and buy

gasoline in bulk from wholesalers, there are some that will buy from suppliers who charge the

gasoline tax. The ability to refund to these operators the amount they pay is an important feature

of this legislation.

There are similar provisions for the special fuels tax which covers diesel so with HB1012.

NF/mt