BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  2

DATE:  March 2, 2001	Submitted by: TAXATION AND REVENUE DEPT.
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER: HB-946 

SPONSOR: Representative Heaton

BILL SHORT TITLE: Authorizing counties to impose resource excise or "ad valorem" taxes, and creating an intergovernmental tax credit.

DESCRIPTION:  The point of this bill is to divert most of the state’s severance taxes (oil and gas and hard minerals) to counties for economic development purposes.  The bill is quite convoluted; see the section-by-section summary.

EFFECTIVE DATE:  July 1, 2001

FISCAL IMPACT (Thousands of dollars): No attempt has been made to estimate fiscal impacts of the proposed measure for a number of reasons. First, it is unclear whether  taxes envisioned by the proposal would be similar to the ad valorem production and production equipment taxes currently in statute, or whether they would be similar to resources excise taxes currently allowed by statute, or what specific products they would apply to. In either case, little if any amounts of revenues would flow to the State of New Mexico as a result of what would probably be local option taxes. Secondly, since it is unclear what the nature of taxes would be under the proposal, it is also not feasible to estimate the impacts of the proposed credits against state revenue sources.

ADMINISTRATIVE IMPACT  (Thousands of Dollars):
For reasons similar to the ones discussed in above, it is not feasible to estimate Department costs associated with administering the proposed credits and taxes. It seems clear that some costs would accrue to the Department from administering the proposed taxes and credits, however.

TECHNICAL ISSUES:
1.	Section 1 authorizes counties to impose a local severance tax on all products severed and sold in the county.  “Products”, a critical term, is undefined.  
2.	As written, the measure seems to create an intergovernmental credit against county taxes for county resource excise tax obligations. This seems the reverse of the thrust of the rest of the bill.    Basically counties would be able to divert at most 25% of the state’s tax.
3.	Several sections use the term “county resource excise tax”’ although it is never defined.  Presumably it refers to the tax authorized by subsection A of Section 1.
4.	The proceeds of both the severance tax and the oil and gas severance tax are pledged to the repayment of bonds.  Diverting approximately half of the proceeds of these two taxes to other purposes without replacement with another revenue source will unquestionably violate the bond covenants.  Litigation would be virtually instantaneous if this bill became law.  It is doubtful that it could ever go into effect.  

SECTION BY SECTION DESCRIPTION:
Section 1	Under the heading "Resource Excise Tax" -- would apparently allow counties to impose ad valorem taxes at the rate of up to 3 percent "of the value on all products that are severed and sold from lands within the county other than tribal lands". 
	
Section 2	States that all revenues from the taxes are earmarked for economic development programs under the Local Economic Development Act. 
	
Section 3	Subsection A states that any person liable for severance tax under Chapter 7,  Articles 26 or 29 NMSA 1978, is allowed credits deducted from the payment of  "the county resource excise tax" -- apparently the ad valorem taxes referred to in Section 1. Hence the proposal allows county tax obligations to be reduced by credits for taxes paid to the State of New Mexico. 
Subsection C states that the tax credits are to be 75 percent of the lesser of obligations from 1) county resource excise taxes (apparently referring to taxes listed in Section 1 of the bill) or 2) the total amount of severance tax and surtax due under Chapter 7, Article 26 and 29 NMSA 1978. Option 1) above seems to allow a reduction in county taxes due to county tax payments.
Section 3 also authorizes the Taxation and Revenue Department to promulgate rules and instructions pertaining to how "a taxpayer may allocate credit for a tax imposed by a county... against the monthly amounts of the severance tax and surtax due". The Department is also given authorities to promulgate procedures for collection and disbursement of funds due to counties.  	
Section 4	Allows the Department to enter into cooperative agreements with counties for "administration, collection, remittance and audit of tax revenues of the party jurisdictions." 
of the measure 
	
Section 5	Establishes the effective date -- July 1, 2001.