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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

1/23/08

2/09/08 HB

SHORT TITLE Health Care Practitioner Gross Receipts

SB 158

ANALYST Schardin

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

(3,821.1)

Recurring

General Fund

(8,446.6)

Recurring

Federal Funds

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

(32,258.0)

(35,483.8) Recurring General Fund

(28,050.0)

(30,855.0) Recurring

Local

Governments

(Parenthesis ( ) Indicate Revenue Decreases)

Relates to SB342

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY08

FY09

FY10 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

45

45 Nonrecurring General

Fund

30

30

60 Recurring General

Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Senate Bill 158 – Page

2

Responses Received From

Department of Health (DOH)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 158 provides a gross receipts tax deduction for receipts from certain health

practitioner services that are not otherwise deductible pursuant to Section 7-9-93 NMSA 1978 or

any other provision of the gross receipts and compensating tax act. Under current law, the

deduction in Section 7-9-93 NMSA 1978 applies to receipts of health care practitioners from

payments by a managed health care provider or health care insurer for commercial contract

services or Medicare Part C. Receipts from fee-for-service payments are not eligible for the

deduction in Section 7-9-93 NMSA 1978.

The effective date of these provisions will be July 1, 2008.

FISCAL IMPLICATIONS

TRD indicates that taxable gross receipts of all physicians eligible for the proposed gross receipts

tax deduction be about $854.5 million in FY09. It is assumed that nearly all of these services will

be provided in municipalities, where the average tax rate is 7.06 percent. Multiplying the base by

7.06 percent yields a revenue impact of $60.3 million in FY09. About 54 percent of that impact,

or $32.3 million, will come from the general fund. The remaining 46 percent, or $28.1 million,

will come from local governments. These receipts are expected to grow by 10 percent per year.

About 22 percent of the $60.3 million gross receipts tax reduction, or $13.3 million, will be

attributable to receipts paid by Medicaid. Therefore, the bill will allow Medicaid appropriations

to be reduced by $13.3 million in FY09. It is estimated that 71.2 percent of that appropriation

reduction will be from federal funds and the remaining 28.8 percent will be from the general

fund. The state share of this appropriation reduction is expected to grow slightly over time as the

state’s Medicaid match rate falls. The fiscal impacts for the bill over the next four fiscal years are

summarized in the table below.

Appropriation Impacts

FY09

FY10

FY11

FY12

General Fund

(3,821.1) (4,276.2) (4,784.1) (5,350.8)

Federal Funds

(9,446.6) (10,318.3) (11,269.9) (12,308.6)

Revenue Impacts

General Fund

(32,258.0) (35,483.8) (39,032.2) (42,935.4)

Local Governments

(28,050.0) (30,855.0) (33,940.5) (37,334.6)

Summary of Fiscal Impacts for Senate Bill 158 (dollars in thousands)

SIGNIFICANT ISSUES

The bill defines health care practitioners that are eligible to receive the new deduction in the

same way health care practitioners are defined in Section 7-9-93 NMSA 1978, the medical

services deduction enacted in 2004. Practitioners include chiropractors, dentists, dental

Senate Bill 158 – Page

3

hygienists, doctors or oriental medicine, optometrists, osteopaths, physical therapists, physicians

and physician assistants, podiatrists, psychologists, midwives, nurses, occupational therapists,

respiratory care practitioners, speech-language pathologists, audiologists, mental health

counselors, marriage and family therapists, art therapists and social workers.

ADMINISTRATIVE IMPLICATIONS

The bill is expected to cause moderate to high administrative impacts for TRD. The bill’s

requirement that the proposed deduction be separately stated on tax returns will require a new

gross receipts filing special code, additional lines on CRS forms, programming changes to the

Gentax system, additional processing resources, revision of instructions and publications,

taxpayer education, and new audit procedures. TRD estimates the revenue processing division

would require 2 FTEs. One FTE would cost $45 thousand nonrecurring in FY09 and would

handle taxpayer errors in the first year. A recurring FTE costing $30 thousand would process the

deduction on an ongoing basis.

RELATIONSHIP

Senate Bill 158 relates to Senate Bill 342, which expands the medical services deduction enacted

in 2004 to include receipts from co-payments or deductibles paid by an insured person to a health

practitioner.

TECHNICAL ISSUES

TRD notes that on page two, lines one and two, the proposed deduction would be stated

separately on tax returns. Similar bills introduced inn recent years required this separate

reporting because TRD needed to calculate a hold harmless distribution for local governments.

Because there is no hold harmless provision associated with this deduction, requiring the

deduction to be separately stated may be overly burdensome on TRD and taxpayers.

SS/bb