BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  2

DATE:  February 15, 2001	Submitted by: TAXATION AND REVENUE DEPT.
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER: HB - 771

SPONSOR: Representative Sanchez

BILL SHORT TITLE: Income Tax Credit for Marriage Counseling

CONFLICTS, DUPLICATES, COMPANIONS: HB – 646 and SB – 497 propose a $100 income tax credit for anyone who completes a six hour/three session course of premarital education and counseling or “marriage maintenance”. 

DESCRIPTION: This bill provides a one-time personal income tax credit of $500 for each married couple that “receive” counseling from an accredited marriage counselor.

EFFECTIVE DATE: not stated – 90 days after adjournment (June 17); the Department would interpret this to mean that the counseling event or events must take place after the effective date of the bill; since this determination will be difficult, the Department may choose to implement this provision only for tax years beginning on or after January 1, 2002. To avoid such definitional problems, the Department recommends making the provisions applicable for tax years beginning on or after January 1, 2001.

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          .             	
	(1,000)	(10,000)	Recurring	General Fund	

About 200,000 married returns are filed showing at least $500 in liability. This bill exposes the state in $100M in potential lose of revenue. If the credit could be limited to its intended recipients – those people who would actually participate in pre-divorce counseling except for the cost – then it might cost the general fund only $1M or so. The incentive provided for tax avoidance, however, suggests the more realistically high “full year” figure.  The fiscal impact estimated in HB – 646 and SB – 497 is (1,000)/(5,000) (after revision) and thence to the final estimate. The population for this bill is smaller – restricted to currently married taxpayers and the therapist pool smaller (excluding “official of religious institutions”), but the amount of the credit is 2 ½ times as large. 

ADMINISTRATIVE IMPACT: minimal. Forms and instructions are changed annually, as is the automated processing system. The Department does not have the resources, however, to investigate the issuers of false certificates or problem tax preparers.

TECHNICAL ISSUES:
1.	The Department recommends the provisions of the bill be applicable to tax years beginning on or after January 1, 2001.

2.	The catch line  reads, “Married couples considering divorce – income tax credit”, however, the text does not restrict the credit to pre-divorce counseling. Since the intent of the bill is to support keeping marriages together, making the consideration of divorce a requirement for the credit seems unwise. In any event, it is unenforceable.

3.	There are no instructions as to whether this credit is refundable or non-refundable. In the absence of instructions, the Department will instruct that this is a non-refundable credit and any amount in excess of liability cannot be carried over to subsequent tax years.

4.	The definition of “accredited marriage counselor” has two defects: (1) “counseling” is not sufficiently well defined in common parlance to be able to distinguish, for example, between services provided by a MSW and an MA (pyschology); and (2) “specializes” is not sufficiently well defined to distinguish between a counselor that spends 49% of time with couples and one that spends 51% with couples.

5.	Many therapists will object to characterizing their services as “received counseling”. In many cases, the role of the therapist is not counsel but mediation. 

6.	Most couples would have no way to distinguish between an accredited marriage counselor and a non-accredited marriage counselor. The Department could administer the provisions if Department of Health provided a list of approved and accredited counselors. However, since the definition is not tied to licensure, even this will prove to be cumbersome and complex. 

OTHER IMPACTS AND ISSUES:
1.	It is rare that the tax system and a tax credit are the preferred and efficient vehicles for implementing social policy. The purpose of a tax system is primarily to raise revenue to fund essential government services. 

2.	Because this is a non-refundable credit (see TECHNICAL ISSUE #3 above), it will not benefit the 23% of the state’s married population or the 41% of the state’s single and head of household population who do not have any tax liability.

3.	This credit is ideal for quasi-legal tax avoidance. For example, unlicensed (but “accredited” therapists) from outside the state could sell certificates attesting to “counseling” $100, whether the taxpayer attended counseling sessions or not. Taxpayers would attach these certificates to their tax returns and benefit through the tax credit mechanism by a net $400. The Department has no possible means of verifying the accuracy of the certificate, since attendance at sessions is largely a confidential matter. We would have no option but to accept the certificate at face value.

4.	The 1997 New Mexico Economic Census reports 110 establishments known generically as “out-patient mental health clinics (except physicians)” employing 399 persons and $18 M in sales. 

5.	The public purpose of this bill is apparently to keep couples who are considering divorce from consummating the divorce through counseling. Thus, it would be reasonable protection of the public purpose that only couples that actually stay together get the credit.