BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  2

DATE:  February 22, 2001	Submitted by: TAXATION AND REVENUE DEPT.
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER: SB – 428 (Revised after Discussions with Industry Representatives)

SPONSOR: Senator Maes

BILL SHORT TITLE: Imposing State Tax on Rural Electric Cooperatives for Unrelated Business Income

DESCRIPTION: This “level playing field” bill clarifies that special tax treatment of rural electric cooperatives is limited to the core business of buying and selling electrical power to cooperative members. Any receipts and profits derived from business unrelated to the core business is subject to all appropriate state and local taxes. This includes state, school district, municipal and county property taxes, corporate income tax as well as gross receipts tax. Because this new business would be unregulated, it would not generate PRC fees. Counsel for one of the rural electrical cooperatives points out that that the industry has been paying property taxes for thirty years. The provision in Subsection A of 62-15-28 NMSA 1978 which charges $10 per hundred members in lieu of everything but gross receipts tax is “clearly unconstitutional” with respect to property tax and the co-ops have not tried to hide behind it. 

From information available on the Internet, one of the unrelated businesses that may develop is the lease of the extensive in-house communications facilities owned by the electric utilities, including rural electric cooperatives. Under Section B of this bill, one of the taxes that co-ops would have to match is the income tax. If some of their competitors are pass-through entities or sole proprietorships and some are corporations, what income tax do they pay? Suppose a competitor is a 501(c)(12); is the co-op free of any tax obligation? 

EFFECTIVE DATE: not stated – 90 days after adjournment (June 17)

FISCAL IMPACT: Receipts of establishments engaged in electric power distribution totaled nearly $800M in 1997. The portion of that total attributed to cooperatives is about 20% at the retail level. However, the Department has no means of estimating the portion of annual receipts of cooperatives that might be unrelated to the core electric power business. 

ADMINISTRATIVE IMPACT: Utility property is centrally assessed, so this change will affect assessment policies and practice. 

TECHNICAL ISSUES: As pointed out in the description, one of the taxes the rural cooperatives would have to match would be the income tax. The question becomes whether the rural cooperatives would be considered pass-through entities or regular corporations. At least in the short run, until the Department proposed a regulation and solicited comment from the industry, taxes would be assessed on a case by case basis. 

OTHER IMPACTS AND ISSUES:
Table 9. Utility Retail Sales Statistics, 1988, 1993, and 1998				
Item	Investor-Owned	Public	Federal	Cooperative	Total	
	1988					
Number of Utilities	4	8	1	20	33	
Number of Retail Customers	458,119	60,483	1	128,742	647,345	
Retail Sales (MWh)	9,337,166	1,043,345	74,460	2,300,350	12,755,321	
Percentage of Retail Sales	73.2	8.2	0.6	18	100	
Revenue from Retail Sales	863	96	1	230	1,190	
(million 1998 dollars)d						
Percentage of Revenue	72.5	8	0.1	19.3	100	
 	1993					
Number of Utilities	4	8	1	20	33	
Number of Retail Customers	505,833	63,458	3	147,097	716,391	
Retail Sales (MWh)	10,759,571	1,328,637	151,870	2,686,801	14,926,879	
Percentage of Retail Sales	72.1	8.9	1	18	100	
Revenue from Retail Sales	858	106	4	220	1,188	
(million 1998 dollars)d						
Percentage of Revenue	72.3	8.9	0.3	18.5	100	
 	1998					
Number of Utilities	4	8	1	21	34	
Number of Retail Customers	568,708	72,975	5	171,179	812,867	
Retail Sales (MWh)	12,794,451	1,587,396	194,399	3,596,874	18,173,120	
Percentage of Retail Sales	70.4	8.7	1.1	19.8	100	
Revenue from Retail Sales	878	109	4	241	1,233	
(million 1998 dollars)d						
Percentage of Revenue	71.3	8.9	0.3	19.5	100