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

SPONSOR Komadina

ORIGINAL DATE

LAST UPDATED

2/14/07

HB

SHORT TITLE Home Schooling Income Tax Deduction

SB 781

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

(990.0)

Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY07

FY08

FY09 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

37.0

37.0

74.0 Recurring

PED

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Public Education Department

SUMMARY

Synopsis of Bill

Senate Bill 781 provides a deduction from net income for the purposes of calculating income tax

for expenses attributable to tutoring or home schooling. The deduction is allowed for taxpayers

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

public school curriculum, whose dependent 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.

Senate Bill 781 – Page

2

FISCAL IMPLICATIONS

The fiscal impact has been calculated without the benefit of Taxation and Revenue

Department analysis. TRD input may change the fiscal impact upward or downward.

Public Education Department (PED) has reported there are 7,000 home schooled students

recognized by PED. According to a City of University of New York study (cited at

www.bankrate.com/brm/news/advice/20041109a1.asp), the cost of home schooling is

approximately $2,500 for the first child and then slightly less for the next children. Assuming

$2,000 in eligible costs per child, the fiscal impact would be a reduction in taxable income of

$14 million.

For the tutoring deduction, the following assumptions are used:

•

$35 per hour for tutoring

•

25 hours per year per pupil

•

5 percent of pupils will get tutoring

With these assumptions, taxable income is reduced by $14.3 million for allowable tutoring costs.

Using an effective rate of 3.5 percent, personal income tax revenues would decrease by $997,000

in FY08. Since it is a deduction from adjusted gross income, the revenue impact occurs when

the return is filed and so all of the impact for tax year 2007 is in FY08.

These fiscal impacts could be significantly different depending on the interpretation of “actual

expenses."

SIGNIFICANT ISSUES

PED:

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.

ADMINISTRATIVE IMPLICATIONS

PED:

The PED estimates that responding to requests for information and processing

verifications of home school registration will require an additional 1.0 FTE at

approximately 2088 hours of staff time (Office and Admin Support @$13.61/hour X

2088 hours X 30% benefits). Total estimated cost to the PED would be $37.0.

Senate Bill 781 – Page

3

TECHNICAL ISSUES

PED reports that it is not clear how “tutoring" is being used in the bill.

There should be more explicit examples of what expenditures qualify. One interpretation may

allow a high-definition plasma TV that would be used for instructional videos for home

schooling purposes but entertainment at other times.

NF/mt