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committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

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

SPONSOR Strickler

ORIGINAL DATE

LAST UPDATED

2/27/07

2/28/07 HB 1149/aHBIC

SHORT TITLE Public Utility Water & Sale Gross Receipts

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

($79,200.0)

Recurring General Fund

($52,800.0)

Recurring

Local

Government

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Finance Authority (NMFA)

Youth Conservation Corps (YCC)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of HBIC Amendment

The House Business and Industry Committee amendment to House Bill 1149 strikes Section 1 of

the original bill, which would have removed water and wastewater receipts from the

governmental gross receipts tax base. Removing those receipts from the governmental gross

receipts tax would have violated the non-impairment clause of bonds issued by NMFA and DCA

secured by governmental gross receipts tax revenue (Section 7-1-6.38 NMSA).

Synopsis of Original Bill

Section 1 of the original bill deletes language in Section 7-9-3.2 so that receipts from the sale of

water by a utility owned or operated by a county, municipality or other state political subdivision

will no longer be subject to the governmental gross receipts tax.

Section 2 of the original bill creates a new gross receipts tax deduction from receipts from the

sale of electricity, natural gas or water by a public utility. A public utility eligible for the

deduction is defined as a person that owns, operates, leases or controls a plant, property or

House Bill 1149/aHBIC – Page

2

facility 1) for the generation, transmission or distribution, sale or furnishing of electricity to the

public; 2) for the manufacture, storage, distribution or furnishing to the public of natural,

manufactured or liquefied petroleum gas; 3) for the supplying, storage, distribution or furnishing

of public water for manufacturing, municipal or domestic uses (not including irrigation systems).

The effective date of these provisions will be July 1, 2007.

FISCAL IMPLICATIONS

TRD estimates that the tax base eligible for the proposed gross receipts tax deduction, while

volatile, will be about $2 billion per year. Taxed at a statewide rate of 6.6 percent, the proposed

deduction would decrease gross receipts tax collections by about $132 million per year. About

60 percent of that loss would accrue to the general fund and the remaining 40 percent to local

governments.

SIGNIFICANT ISSUES

LFC cautions against gross receipts tax deductions that significantly narrow the 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 significantly reduce local government gross receipts tax collections. Many of New

Mexico’s local governments are highly dependent on gross receipts tax revenue.

ADMINISTRATIVE IMPLICATIONS

There will be no major administrative impacts on TRD.

SS/nt