BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  2

DATE:  February 19, 2001	Submitted by: TAXATION AND REVENUE DEPT.
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER: SB-645

SPONSOR: Senator Aragon

BILL SHORT TITLE: Corporate Income Tax Credits for Community Development Projects

CONFLICTS, DUPLICATES, COMPANIONS: SB-325

DESCRIPTION: This legislation would allow credits against corporate income tax obligations for contributions to community development projects. The credits would be for half of contributions made for community development projects and could not exceed $200,000 annually for any one firm in any tax year. For a firm to receive a credit, the Department of Finance and Administration's Local Government Division would be required to certify that the taxpayer has made a contribution to a community development project. Taxpayers would only be allowed to claim credit amounts certified by the Division. The total credits claimed by all taxpayers would be limited to $10 million in any one tax year. Unused portions of credits would be allowed to be carried forward for five consecutive tax years. Other responsibilities for administering the program established by the proposed legislation would be assigned to the Local Government Division.

EFFECTIVE DATE:  Applicable to tax years beginning on or after January 1, 2001

FISCAL IMPACT (Thousands of dollars):  	Note: Parenthesis ( ) indicate a revenue loss:
				
	Estimated Impact on Revenues	Recurring or Nonrecurring	
Funds 	
		Full Year  	     Impact     t     	             Affected          .             	
		(*)	Recurring	General Fund	
					
*Uncertain; depends on the extent of participation by corporations. Approximately 100 firms currently pay $200,000 or more in New Mexico corporate income taxes annually. Their obligations comprise about 80 percent of total New Mexico corporate income tax revenue -- typically about $160 million to $180 million per year. Roughly 800 additional firms pay corporate income taxes in excess of $10,000 annually, but less than $200,000. Their obligations average about $45,000 annually. The two groups pay over 90 percent of total corporate income taxes paid to the State of New Mexico. If all firms in the first group received credits totaling $200,000 each, the resulting impact on the General Fund would be a loss of approximately $2 million. If all members of the second group claimed credits averaging, say $1,000, the General Fund would lose an additional $800,000. Hence the total loss to the General fund from the proposed program would be approximately $3 million annually. This number could, be slightly higher due to interaction of the credits with federal corporate income tax liability. Actual loss to the General Fund would most likely be substantially less than $3 million, however, and probably well  under $1 million annually -- less than 1 percent of annual corporate income tax revenues. 

ADMINISTRATIVE IMPACTS: Relatively modest administrative costs would be imposed on the Taxation and Revenue Department by the proposed measure, hence the credits could be administered with resources currently available to the Department. Substantial administrative costs would probably be imposed on the Local Government Division if the proposal were enacted, however.

TECHNICAL ISSUES: 
1) Whether the $200,000 limit applies to the contributions or the credits listed in the proposed legislation is a little unclear. Impacts discussed above assume the limit applies to the credits. 
2) The proposed measure makes no distinction between a corporation and its affiliates. The $200,000 limit seems to apply to any one taxpayer identification number. Due to presence of various subsidiaries and other factors, however, firms often have more than one identification number. In any case, presence of subsidiary firms would probably allow a corporation to claim more than $200,000 in annual credits.

OTHER IMPACTS AND ISSUES: Under the propose measure, the State of New Mexico would forego $1 in corporate income taxes in exchange for every $2 contribution to community development programs.