BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  2

DATE:  February 17, 2001	Submitted by: TAXATION AND REVENUE DEPT.
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER: SB-631

SPONSOR: Senator Griego

BILL SHORT TITLE: GRT Deduction for 100% of Aviation Jet Fuel

DESCRIPTION: This expands 1993’s 40% deduction for aviation jet fuel to 100%. No gross receipts or compensating tax will be imposed on the sale of aviation jet fuel.

EFFECTIVE DATE: July 1, 2001

FISCAL IMPACT (Thousands of dollars):  		Note: Parenthesis ( ) indicate a revenue loss:
		Recurring or		
Estimated Impact on Revenues	Nonrecurring	Funds 	
	 FY 2002 	Full Year	     Impact     t     	             Affected          .             	
	(250)	(270)	Recurring	General Fund	
	(250)	(270)	Recurring	Aviation Fund	
	(460)	(460)	Recurring	Local Governments	

This estimate is based on the value of the current 40% GRT deduction for aviation jet fuel. It further assumes the 40% deduction amount is derived from the amounts reported as sold for the purposes of distributing the tax pursuant  to 7-1-6.7 NMSA 1978. Industry sources and cross-compliance by Aviation Division of SHTD indicate that compliance with the reporting requirement may be spotty – as poor as 50% of the fuel sold at the Albuquerque Sunport, for example, may be unreported for the purpose of distribution. The estimate above, then assumes that this 50% ratio will probably persist when there is no tax at all against which to conduct cross compliance. The reporting requirement then becomes strictly voluntary by the suppliers. This lack of reporting creates the loss for the aviation fund.

ADMINISTRATIVE IMPACT: minimal. The 7-1-6.7 NMSA 1978 reporting forms must still be processed and aviation division distribution calculated each month. Over time, the voluntary reports will cease be filed and the distribution will fall to zero. There is no coercion the Department can apply if companies fail to report. This report is not considered a “tax return” for the purpose of imposing a failure to file penalty.

TECHNICAL ISSUES: the distribution of 3.59% of taxable gross receipts attributed to the sale of aviation jet fuel under 7-1-6.7 NMSA 1978 becomes somewhat nonsensical if this bill passes. The original rational for this earmarked distribution – the only earmark of state gross receipts tax that has persisted for any length of time – was to distribute to the state aviation division (then of the old Transportation Department) all of the state gross receipts tax, net of local share. At the time it was enacted, the state rate was 3.5% and the state share for municipalities was 1.35%. The net of 2.15% was locked in statute until the 1993 change. If there is no gross receipts tax on aviation jet fuel, then the earmark should be also repealed and the aviation division should then become a generally funded (or state road funded) agency.

OTHER IMPACTS AND ISSUES:
1.	Testimony at the time of the 1993 change enacting a 40% deduction indicated that New Mexico was losing fuel sales to Arizona, because of the gross receipts tax. Careful perusal of the chart shown below can be most readily interpreted that the 40% deduction, beginning at the beginning of FY 1994, had no effect whatsoever in stemming the leakage of fuel sales out of state. It is unlikely that another 60% deduction from the gross receipts tax rate of 5.8125% (over 90% of the sale of aviation jet fuel is at Albuquerque Sunport) will make any difference to the amount of fuel sold. The chart should be viewed with some caution, as previously mentioned, since industry sources impugn its accuracy. However, if the data from the reporting forms understates total sales, then the cost of this deduction measure is proportionately larger. Thus, if industry sources report that only 50% of fuel is reported for distribution purposes, then the fiscal estimate should be multiplied by the reciprocal of the misreporting percentage – in this example, by a factor of two.