BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  2

DATE:  February 19, 2001	Submitted by: TAXATION AND REVENUE DEPT.
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER: HB-684 (Revised)

SPONSOR: Representative Taylor

BILL SHORT TITLE: Distribution of Compensating Tax to Municipalities

DESCRIPTION: The bill proposes a new distribution to municipalities funded by compensating tax collections. The amount of new funding for the cities is $1,500 per month per city or $18,000 per year or a share of a pot equal to 24.5% of net compensating tax collections, whichever is larger. This distribution consumes about 27% of net compensating tax collections to add to the current law 10% distributions of comp tax collections to small cities and another up to 10% distribution to small counties. In general, this bill would bring the state share of compensating tax to somewhat greater than the comparable state share of gross receipts tax. This FIR has been revised for fiscal impact. In the original estimate, only 1.225% of comp tax was distributed to the larger municipalities. Under this misinterpretation, only four cities came in for more than $18,000 per year. The correct formula is that 24.5% of compensating tax, which is 1.225% divided by 5%, is to be distributed not subject to the floor amount.

EFFECTIVE DATE: July 1, 2001. Since this is a distribution change, comp tax collections for July, attributed to June economic activity will be distributed to munis on August 15 to 20th. Per accounting rules, this will be booked as a general fund loss and a municipal revenue gain for July. Thus no proration is required for fiscal year.i

FISCAL IMPACT (Thousands of dollars):  		Note: Parenthesis ( ) indicate a revenue loss:

		Recurring or		
Estimated Impact on Revenues	Nonrecurring	Funds 	
	 FY 2002 	Full Year	     Impact     t     	             Affected          .             	
	(11,300)	(11,300)	Recurring	General Fund	
	11,300  	11,300 	Recurring	Municipalities	

An exhibit of expected distribution amounts is included under OTHER ISSUES AND IMPACTS. An estimated 65 municipalities will be paid $18,000 per year under the de minimis standard and the remainder a calculated amount. Because the above estimate has been calculate using annual data, it should be regarded as a lower bound of the true amount in practice. Generally, gross receipts tax distributions rise and fall for all municipalities in concert. However, it will always happen that the tax return information for one gross receipts taxpayer in a particular community might, for one reason or another, be unperfected for a particular month. For that month, then, the share of gross receipts tax will be artificially and temporarily less. However, that might be a month in which the $1,500 de minimis is greater than the share calculated based on relative amounts of taxable gross receipts. The following month, the return information is perfected, the taxable gross receipts enters the calculation stream. In this case, the share based on relative amounts of taxable gross receipts is greater than the de minimis amount. However, the formula does not expect the municipality in this case to give back the excess amount. Fortunately, only Clayton, Santa Rosa and Milan are in a position to benefit from this windfall, and that only in the range of $4.0 thousand.

ADMINISTRATIVE IMPACT: substantial. While this could and will be implemented as a stand-alone, after-the-fact distribution and mailed in a separate warrant with virtually no increase in resources, it is far more preferable to include this amount in the regular gross receipts tax warrant. The Department will probably include the $1,500 per month per municipality in the regular warrant and calculate the exact amount -- after the fact -- for the 37 larger municipalities that claim a share of the net comp tax. The warrant for this makeup amount will be received up to ten days after the main gross receipts tax warrant.

TECHNICAL ISSUES:
1.	As pointed out in several bills this session, “Taxable gross receipts” is not actually defined in this bill or in statute. We all know what it means, but it should be carefully spelled out. Gross receipts is carefully defined. Some definitional exclusions are explicitly mirrored in the exemptions section of the GR&CTA; others are not. Thus, a definition of taxable gross receipts is somewhat more than just gross receipts less any appropriate and allowable deductions. Exemptions must also be excluded.

2.	From time immemorial, the Department has distributed the 1.225% share of state gross receipts tax to Los Alamos. However, since Los Alamos is incorporated as a class-H county, it might actually not fit the (undefined) characteristic of “municipality” for the statutory purpose of 7-1-6.3 NMSA 1978 and of the new section 7-1-6.42 NMSA proposed in this bill. This might be an appropriate time to set to rest this worry and define “municipality” to include class-H counties for all purposes of the TAA. The appended exhibit assumes Los Alamos is included in this bill’s provisions.

OTHER IMPACTS AND ISSUES:
1.	If this distribution is argued on tax policy grounds – that cities share in the gross receipts tax through local option and through state shared gross receipts tax – it is difficult to see why the counties shouldn’t also come in for a share.

2.	Estimated FY 2002 distribution is:
   Albuquerque	4,621,892	   Espanola (6)	102,857	   Truth  or Consequences	34,204	
   Santa Fe	1,060,896	   Las Vegas	92,276	   Ruidoso Downs	33,632	
   Las Cruces	623,337	   Artesia	91,173	   Bloomfield	27,643	
   Farmington	585,999	   Ruidoso	86,085	   Moriarty	25,411	
   Roswell	287,820	   Belen	84,385	   Los Ranchos de Albuq.	25,316	
   Hobbs	278,674	   Deming	75,249	   Bernalillo	24,890	
   Los Alamos	238,086	   Los Lunas	72,971	   Corrales (3)	23,707	
   Gallup	230,179	   Grants	61,214	   Angel Fire	22,776	
   Rio Rancho (4)	222,700	   Portales	53,455	   Sunland Park	22,379	
   Clovis	204,320	   Raton	50,420	   Santa Rosa	19,849	
   Alamogordo	186,914	   Lovington	42,526	   Clayton	19,787	
   Carlsbad	178,452	   Socorro	41,722	   65 Other Munis	 1,170,000	
   Taos	121,440	   Tucumcari	38,247			
   Silver City	105,153	   Aztec	36,068	    Total	 11,324,104