BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  1

DATE: February 16, 2001	Submitted by: TAXATION AND REVENUE DEPT.       
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER:  SB-559

SPONSOR:  Senator Tsosie for the Indian Affairs Committee

BILL SHORT TITLE:  Tribal Special Fuels Tax Deduction

CONFLICTS, DUPLICATES, COMPANIONS:  HB-616, HB-807 (duplicate)

DESCRIPTION:  This bill proposes a new deduction under the Special Fuel (supplier) Excise Tax for fuel sold at retail from a location on reservation, pueblo grant, or trust land by a registered Indian tribal supplier.  All registered Indian tribal suppliers would have to be certified as a corporation or enterprise wholly owned by the tribe or tribal members.

EFFECTIVE DATE:  July 1, 2001

FISCAL IMPACT (Thousands of dollars)   Parenthesis ( ) indicate a revenue loss:

Estimated Impact on Revenues    	Recurring or		
			Nonrecurring	Funds	
	(FY 2001-2002)	(FY 2002-2003)	     Impact     	         Affected         	
	(1,112)	(1,213)	Recurring	State Road Fund (88.89%)	
	(138)	(151)	Recurring	Local Governments Road Fund (11.11%)	

The amount of revenue loss is unpredictable, but probably not large.  A recurring revenue loss would be associated with sales of diesel for automobiles and light trucks, and an additional loss would be associated with so-called “pirate” truckers – those who attempt to operate outside tax rules and normal tax compliance.  Although substantial, automobile, light truck and “pirate” diesel is not the large portion of total diesel sales. The department is not aware of any large scale truck stop operations within the state operated by tribal entities, so large revenue losses attributable to heavy commercial trucks would probably not occur in the first year or so.

Over the longer term, the majority of special fuel sold in the state is sold to heavy commercial trucks along the state’s two interstate highways.  The significant amount of tribal land along I-40 west of Albuquerque and I-25 north of Albuquerque may present the opportunity for significant Indian retail activities.  Most of the sales, however, involve heavy trucks subject to filing special fuel user tax returns or filing under the International Fuel Tax Agreement (IFTA).  The department would identify retailers selling diesel on which tax has not been paid, and would notify other states to disallow all trucker claims for credit against tax for those purchases.  IFTA audits and New Mexico resident audits would disallow credit for untaxed fuel purchases, and truckers would be assessed the unpaid tax as well as penalty and interest.  As word got around the trucking community that such audits and assessments were occurring, it is likely commercial truckers might start to avoid reservation retail stations.  The ultimate revenue impact, and the business impact on tribal retailers, would depend on the ebb and flow of the intensity of audit effort spent on this issue.

ADMINISTRATIVE IMPACT:  A minor adverse administrative impact would result from the need to revise Special Fuel Excise Tax reporting forms and the computer processing system to accommodate the new deduction. This can be accomplished with existing resources and would impose a minor, but noticeable, opportunity cost on other initiatives and improvements to the division’s computer systems.  There would be no affect on processing of special fuel user tax returns. 

OTHER IMPACTS AND ISSUES:
•	The bill includes no requirement that the tribe impose any special fuel tax for the fuel to qualify for the state tax deduction (as is the case for the current law gasoline tax deduction).  While sharing of taxing authority among governmental jurisdictions could be considered reasonable policy, it is probably not in the state’s best interest to simply abandon the imposition of state tax in such an open-ended manner.