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F I S C A L I M P A C T R E P O R T
SPONSOR Feldman
ORIGINAL DATE
LAST UPDATED
1/27/07
HB
SHORT TITLE Indian Health Service Payment Gross Receipts
SB 11
ANALYST Schardin
APPROPRIATION (dollars in thousands)
Appropriation
Recurring
or Non-Rec
Fund
Affected
FY07
FY08
(72.0)
Recurring
General Fund
(Parenthesis ( ) Indicate Expenditure Decreases)
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY07
FY08
FY09
(188.0)
Recurring General Fund
(125.0)
Recurring
Local
Governments
(Parenthesis ( ) Indicate Revenue Decreases)
Duplicates HB 245
SOURCES OF INFORMATION
LFC Files
Responses Received From
Taxation and Revenue Department (TRD)
Department of Health (DOH)
Indian Affairs Department (IAD)
SUMMARY
Synopsis of Bill
Senate Bill 11 will allow receipts from payments by or on behalf of the Indian Health Service
(IHS) of the United States Department of Health and Human Services for the provision of
medical and other health services by medical doctors and osteopathic physicians to be deducted
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Senate Bill 11 – Page
2
from gross receipts.
The bill also eliminates outdated language regarding the phase-in of a gross receipts deductions
for certain health providers and clinical laboratories that occurred from FY04 to FY06.
The effective date of these provisions will be July 1, 2007.
FISCAL IMPLICATIONS
TRD reports that a 2004 Legislative Council Service study showed total IHS spending in New
Mexico for FY02 was $228.3 million. Adjusted for growth in the national IHS budget, TRD
estimates total IHS spending in New Mexico to be $270 million in FY08. Federal survey data
suggest that 22 percent of all health care spending is for physician services, suggesting payments
of $60 million per year for IHS physician services. Some of these receipts are already eligible for
gross receipts tax deductions under Sections 7-9-93 and 7-9-77.1 NMSA. After subtracting
receipts eligible for these other deductions, TRD estimates a remaining tax base of $4.7 million
in FY08. Based on a statewide tax rate of 6.6 percent, the bill will reduce revenue by about $313
thousand. Sixty percent of that revenue loss will accrue to the general fund and 40 percent will
accrue to local governments.
Because the gross receipts tax deduction created reduces billing by providers to the Medicaid
program the state will see budget savings in the Medicaid program. New Mexico’s average share
of Medicaid spending is 23 percent, so Medicaid savings are expected to be 23 percent of the
$313 revenue impact explained above, or $72 thousand.
SIGNIFICANT ISSUES
According to DOH and IAD, the gross receipts tax deduction created in this bill would make it
more profitable for medical providers to serve Native American populations in New Mexico.
Currently, 31 of New Mexico’s 33 counties are designated as health professional shortage areas
for primary care physicians.
IAD reports that Indian Health Service and tribal health care programs currently face difficulties
in recruiting health care practitioners due to below-average salaries.
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.
LFC notes that receipts of health practitioners have historically grown faster than receipts of
other industries. Removing receipts from high-growth sectors from the gross receipts tax base
makes it more difficult for tax revenue to keep pace with inflation.
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.
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Senate Bill 11 – Page
3
ADMINISTRATIVE IMPLICATIONS
The administrative impact on TRD will be minimal.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
Senate Bill 11 duplicates House Bill 245.
TECHNICAL ISSUES
IAD recommends adding a definition of the term “covered beneficiaries." A suggested definition
may be found in the federal Indian Health Care Improvement Act, Public Law 94-437, which
defines the term “Indian."
SS/mt