BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  2

DATE:  February 18, 2001	Submitted by: TAXATION AND REVENUE DEPT.
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER: HB - 837

SPONSOR: Representative Heaton

BILL SHORT TITLE: Technical Amendment to Rural Jobs Credit

DESCRIPTION: This bill slightly modifies the pilot “rural jobs credit” enacted in 1999, with an effective date of July 1, 2000. One change is to remove a requirement that the Economic Development Department certify wages paid to employees by employers that qualify for the rural jobs credit by having been approved for in-plant training funds. The employer is required to certify wages as part of the process of seeking approval for the credit. Once the business has been approved for in-plant training funds, the remaining administration of the rural jobs credit is up to the Taxation and Revenue Department working with the employer.  Another is that the job will no longer have to be selected for in-plant training assistance.  

EFFECTIVE DATE: July 1, 2001

FISCAL IMPACT: none. The cost of this program is included in the revenue estimate at $3.8M for FY 2002. The Department has yet to receive an application for credit. In the meantime, the estimate for jobs in qualifying areas has decreased to about 3,500 from 7,900 jobs estimated a year earlier. This decreases the estimate for the general fund’s maximum exposure to the rural jobs credit to under $12M, and with a likely amount of 200 jobs @ $2,000 = 400K. However, see OTHER ISSUES AND IMPACTS below. 

ADMINISTRATIVE IMPACT: TRD will have to confirm the employer’s wage certification rather than EDD as intermediary. However, the Department would have done this verification in any event and this bill simplifies the process.

OTHER IMPACTS AND ISSUES:
1.	In-plant training assistance through the Economic Development Department reimburses 65% of up to 1040 hours worth of training wages in rural areas.  Therefore, assuming full-time employment, an employer could be reimbursed for over 71% of the wages paid in the first half of every qualifying period. The bill could create incentives for the creation of jobs that are not sustainable after the credit is taken or the training period expires. This is significantly exacerbated by the overlap of tax credit and in-plant training reimbursement in the first six months of employment.  The state’s experience with the solar and ethanol credits suggests this is a real issue.

2.	This credit will not be available for jobs in: Albuquerque; Los Ranchos; Corrales; Rio Rancho; possibly Tijeras; Santa Fe; Las Cruces; portions of Bernalillo County within 10 road miles of Albuquerque; portions of Sandoval County within 10 road miles of Rio Rancho; portions of Santa Fe County within 10 road miles of City of Santa Fe; portions of Dona Ana County within 10 road miles of Las Cruces; La Mesilla; Los Alamos County

3.	Tier 2 credits (lower amounts) for jobs in Roswell; Clovis; Carlsbad; Hobbs; Gallup; Alamogordo; Farmington; and Las Vegas. 

4.	Tier 1 credits (higher amounts) for jobs in all other municipalities not listed above; portions of Bernalillo remainder greater than 10 road miles from Albuquerque; portions of Sandoval remainder greater than 10 road miles from Rio Rancho; all of Valencia remainder; portions of Santa Fe County remainder; portions of Las Cruces remainder; all other county remainder areas except for Los Alamos.

5.	A credit applicable to six different taxes and two surcharges entails high transactions costs for both the department and the tax payer. Applying the credit to either income or CRS taxes and allowing it to be carried forward until exhausted would ensure the ability of employers to take full advantage of it while significantly diminishing processing and reporting costs. Because the credit is transferable, there in even less reason to make it applicable to both income and gross receipts taxes.  The cost of administering a credit under Corporate Income Tax is a fraction of the same credits processed through the Combined Reporting system (CRS) and credited against gross receipts tax liability.

6.	Reducing participation of the Economic Development Department in determining qualifying jobs shifts administrative and enforcement burden to Taxation and Revenue Department’s audit staff.