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F I S C A L I M P A C T R E P O R T

SPONSOR Arnold-Jones

ORIGINAL DATE

LAST UPDATED

1-27-2006

HB 384

SHORT TITLE Managed Tax Audit Payments & Reporting

SB

ANALYST Dearing

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

($0.1)*

Recurring General Fund

*Please See Narative

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates SB319

Conflicts HB380

House Bill 380 also contains an amendment to Section 7-1-71.2, setting up a possible conflict if

both bills are passed.

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Health (DOH)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

House Bill 384 introduced for the Revenue Stabilization and Tax Policy Committee, proposes

technical changes that would increase time frames relating to taxpayer payment extension of

time, tax payment due dates and exemption from tax penalty for a taxpayer participating in a

managed audit.

Three changes are proposed to the Tax Administration Act:

1.

The Secretary of Taxation and Revenue would be authorized to extend the due date for

payment of income tax or filing of the return by up to six months rather than four months

House Bill 384 – Page

2

under present law.

2.

The interest-free period for payment of tax liability identified through a managed audit

would be extended from 30 days to 180 days.

3.

The double local option penalty for mis-reporting of food and medical services deduc-

tions under the gross receipts tax would not apply to taxpayers who participate in a man-

aged audit.

FISCAL IMPLICATIONS

HB384 is a proposal that came out of the interim work of the Legislative Revenue Stabilization

and Tax Policy Committee. HB384 contains technical changes that could have a minimal impact

on revenues. The legislation extends the penalty free time-frame that those taxpayers within a

managed-audit are allowed from thirty to one-hundred and eighty days. Additionally this bill

extends the automatic extension in Section 7-1-13 e.) NMSA 1978 from four months to six

months.

In general, those taxpayers that have entered into a managed-audit agreement, under certain cir-

cumstances, will accrue no interest on some tax deficiencies. Accordingly, there could be a

minimal, indeterminate fiscal impact, due to lost interest on these delinquent tax accounts. The

level of lost revenue associated with this interest could be substantial however, depending on the

number of those taxpayers who enter into a managed-audit agreement.

SIGNIFICANT ISSUES

According to the Taxation and Revenue Department, enactment of this bill should incur no sig-

nificant impacts on state or local revenues. Although the extension of an interest-free period for

managed audits has potential to reduce revenue, this could be offset by encouraging more man-

aged audits, which encourage taxpayers to identify liabilities that the Department has not yet

identified and therefore increasing revenue.

ADMINISTRATIVE IMPLICATIONS

1.

Allowing the Secretary to extend the due date for income tax returns will enable state

taxpayers to file state income tax returns at the same time as they file their federal income

tax returns.

2.

Extending the period in which a person must pay tax assessed in a managed audit from

30 days to 180 days and eliminating the penalty for misreporting food and medical de-

ductions for persons in a managed audit, should encourage more managed audits. Man-

aged audits provide taxpayers an opportunity to identify and report liabilities that have

not yet been identified by the Department. Thus, they encourage payment of taxes that

might otherwise not be paid.

TECHNICAL ISSUES

Because the effective date is July 1, 2006, taxpayers filing a 2005 return will be limited to 4

months. It would be best to make this effective for returns due on or after January 1, 2005, so the

provision will apply to the tax year 2005 returns being processed this year

House Bill 384 – Page

3

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

Deadlines and penalties during tax audits will remain the same.

PD/mt