BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  2

DATE:  March 9, 2001	Submitted by: TAXATION AND REVENUE DEPT.
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER: HB-946 as amended by House Government and Urban Affairs Committee

SPONSOR: Representative Heaton

BILL SHORT TITLE: Authorizing counties to impose county resource excise taxes, and creating an intergovernmental tax credit.

DESCRIPTION: The measurer's intent seems to be 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): Lots and lots of millions. No attempt has been made to estimate the precise fiscal impacts of the amended bill. 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. 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. It does seem clear that the bill permits counties to impose severance-type taxes at a rate of no less than 0.75% of the value of whatever is being taxed. It also seems clear that the intent is to allow counties imposing this local tax to take up to 75% of the state’s severance tax revenues.

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 the costs will be significant.

TECHNICAL ISSUES:
1.	Section 1 authorizes counties to impose a local severance tax on all products and natural resources severed and sold in the county.  Critical terms “products” and “natural resources” are undefined, not even by reference to the state taxes.  
2.	The proceeds of both the severance tax and the oil and gas severance tax are pledged to the repayment of bonds. Diverting any portion, let alone the sizeable fraction proposed here, 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

Section 1
continued	Under the heading "County Resource Excise Tax" -- Subsection A would allows counties to impose ad valorem taxes at the rate of up to 3 percent "of the value on all products and natural resources that are severed and sold from lands within the county other than tribal lands".
    Subsection B states that "A county that imposes a county resource excise tax shall provide a credit against the tax equal to the lesser of seventy-five percent of the tax imposed by the county on the products and natural resources severed and sold from land other than tribal land within the county or twenty-five percent of the aggregate amount of oil and gas severance tax and severance tax due the state pursuant to the Oil and Gas Severance Tax Act and the Severance Tax Act on products and natural resources severed and sold from land other than tribal land within the county.". 	
Section 2	States that all revenues from the county resource excise taxes are earmarked for economic development programs under the Local Economic Development Act.	
Section 3	As amended, Subsection A states that "Any person who is liable for the payment of the oil and gas severance tax pursuant to the Oil and Gas Severance Tax Act from land other than tribal land within a county or for the payment of the severance tax pursuant to the Severance Tax Act on natural resources severed and sold from land other than tribal land within a county shall be entitled to a credit to be computed under this section and to be deducted from the payment of the indicated taxes with respect to the products or natural resources. ". 
    Subsection C states that the tax credits against state taxes are to be 75 percent of the lesser of obligations from 1) county resource excise taxes or 2) the total amount of severance tax and surtax due under Chapter 7, Article 26 and 29 NMSA 1978. 
    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 authority 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." 	
Section 5	Establishes the effective date -- July 1, 2001.