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 – 784

SPONSOR: Representative Garcia

BILL SHORT TITLE: Personal Income Tax Exclusion for Employees of Manufacturing Plants Located Within 15 Miles of an International Border.

CONFLICTS, DUPLICATES, COMPANIONS: SB –541 is identical.

DESCRIPTION: This bill allows employees of a manufacturing plant located in the state but near the border with Mexico to apportion their income to their resident state. If a new plant were built in Santa Teresa, for example, employees from Texas would be permitted through the action of this bill, to apportion all their wages and salaries to Texas, which does not have a personal income tax. Further qualifications are that employment of New Mexico residents be at least 10% greater in the tax year than in the previous year or that the firm hire New Mexico residents for its first year of operation in the state. Further, a business must employ at least five full-time employees in New Mexico. 

EFFECTIVE DATE: 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          .             	
	(30)	(60)	Non-recurring*	General Fund	
	to	to 			
	(1,000)	(1,000)	Recurring	General Fund	

The loss of revenue under this bill is estimated at $1,200 per Texas employee per year employed at a manufacturing plant in Santa Teresa that meets all the requirements of this bill. This assumes $700 per week as the average weekly wage (this is the New Mexico average weekly wage for manufacturing employment) and a 3.3% average tax rate. The lower fiscal impact above assumes one plant employing 25 workers relocates each year and keeps its tax preference in place for two years. This should be considered quasi-nonrecurring because each individual firm is likely to be eligible for only a few years. The higher fiscal impact assumes a major plant relocation, construction or expansion, involving hundreds or even thousands of employees.

ADMINISTRATIVE IMPACT: minimal. Forms and instructions must reflect the provisions of this bill, but there is no systems or processing impact.

TECHNICAL ISSUES:
1.	The bill is not clear on the exact time for the employment comparison. “… total payroll in New Mexico for New Mexico residents for the calendar year in which the taxable year begins that is at least 10% greater than the prior calendar year.” For precision, this should be amended to read “total payroll in New Mexico for New Mexico residents for the calendar year in which the taxable year begins that is at least 10% greater than on the first of the month, 12 months prior to beginning of the taxable year.” This makes precise the date of comparison for the 10% employment increase and specifies the date when there is a change of fiscal year. This subtlety can probably be regulated, however. The evasion technique of hiring New Mexicans for one day to meet the 10% qualification can also be regulated.

2.	This bill is so specific, it has the mark of special legislation needed to recruit one firm to New Mexico. Thus, it may violate the constitutional prohibition on local or special legislation (Article IV, Section 24). 

OTHER IMPACTS AND ISSUES:
1.	This bill sets up something of a cruel promise for employees. The year a company moves to New Mexico, the Texas employees that came with the plant relocation would clearly qualify for tax breaks. The second year, the Texas employees would probably qualify in avoiding New Mexico income tax. In subsequent years, unless the company grows by at least 10% in payroll per year and all new hires are New Mexico residents, the Texas employees would lose the privilege of apportioning income to Texas. The presence or absence of deduction will be known on the first day of the company’s tax year, allowing timely application of New Mexico personal income tax withholding.

2.	This bill sets a precedent for exempting the wages of non-New Mexicans who work here.  If this bill is enacted, eventually all of the other non-New Mexicans will be covered.  Why is this good policy?

3.	A general rule about applying taxes to non-residents is that the tax-imposing state may not treat non-residents more severely than residents.  If a state wants to discriminate against its own citizens, federal jurisprudence won’t stand in its way.