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F I S C A L I M P A C T R E P O R T
SPONSOR Balderas
ORIGINAL DATE
LAST UPDATED
2/1/06
HB 395
SHORT TITLE Biomass-Related Material Tax Deduction
SB
ANALYST Schardin
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY06
FY07
FY08
(200.0)
(240.0) Recurring General Fund
(130.0)
(150.0) Recurring Local Govern-
ments
(Parenthesis ( ) Indicate Expenditure Decreases)
Conflicts with SB469.
SOURCES OF INFORMATION
LFC Files
Responses Received From
Energy Minerals and Natural Resources Department (EMNRD)
Taxation and Revenue Department (TRD)
SUMMARY
Synopsis of Bill
House Bill 395 amends the renewable energy production tax credit by changing the definition of
“biomass” to match the definition for “biomass material” found in Section 7-9-98 NMSA 1978,
which provides a compensating tax deduction for biomass equipment and materials.
The bill amends the existing compensating tax deduction found in Section 7-9-98 NMSA 1978 to
include equipment for harvesting, transportation, composting or mulching. The bill also creates a
new deduction from the gross receipts tax for biomass equipment and materials to match the
amended compensating tax deduction in Section 7-9-98 NMSA 1978.
The bill repeals amendments to the credit that were included in the omnibus tax bill of 2005
(HB410) because they were signed one day before HB950, which contained identical amend-
ments to the renewable energy production tax credit.
pg_0002
House Bill 395 – Page
2
The effective date of these provisions is July 1, 2006.
FISCAL IMPLICATIONS
The new gross receipts tax deduction will reduce revenue. TRD estimates that about $5 million
worth of sales will be eligible for this deduction each year. Taxed at an effective statewide rate of
6.6 percent, the gross receipts tax deduction will reduce revenue by about $330 thousand. About
60 percent of this deduction will accrue to the general fund, and about 40 percent to local gov-
ernments.
SIGNIFICANT ISSUES
According to EMNRD, the gross receipts tax deduction for biomass equipment and materials
will level the playing field for New Mexico businesses who compete with out-of-state businesses
for the sale of biomass equipment.
EMNRD states that New Mexico has significant biomass resources. However, the majority of
these resources are unused. Encouraging biomass development encourages job and revenue
growth in the state’s rural areas. Further, economic incentives to use forest thinnings and dairy
waste reduce the likelihood of forest fires and groundwater contamination.
Currently, the renewable energy production tax credit defines biomass as animal waste, forest
thinnings less than 15 inches in diameter, slash and brush, lumbermill and sawmill residues, and
salt cedar and other phreatophytes removed from watersheds or river basins.
The new definition of biomass that matches the definition in Section 7-9-98 NMSA 1978 these
includes these items as well as 1) the following forest-related materials: logging residues, low-
commercial-value materials or undesirable species, woody vegetation removed for the purpose of
forest fire fuel reduction, forest health, or watershed improvement; 2) the following agricultural-
related materials: orchard trees, vineyard, grain or crop residues, aquatic plants and agricultural
processed co-products and waste products; 3) the following solid woody waste materials: tree
trimmings, range land maintenance residues, waste pallets, crates and other wood wastes, exclud-
ing pressure-treated or otherwise treated wood contaminated with plastic; 4) landfill gas, waste-
water treatment gas and biosolids; and 5) segregated municipal solid waste excluding tires,
medical and hazardous waste.
ADMINISTRATIVE IMPLICATIONS
Administrative impacts on TRD would be minor.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
House Bill 395 conflicts with Senate Bill 469, which proposes different amendments to the re-
newable energy production tax credit.
SS/yr