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F I S C A L I M P A C T R E P O R T
SPONSOR Robinson
ORIGINAL DATE
LAST UPDATED
1/20/06
HB
SHORT TITLE Military Retirement Pension Tax Exemptions
SB 115
ANALYST Francis
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY06
FY07
FY08
(6,700)
(13,400)
(13,400) Recurring General Fund
(Parenthesis ( ) Indicate Expenditure Decreases)
Relates to HB 44, SB 210
SOURCES OF INFORMATION
LFC Files
Taxation and Revenue Department (TRD)
New Mexico First
Responses Received From
Taxation and Revenue Department (TRD)
SUMMARY
Synopsis of Bill
Senate Bill 115 exempts the military pension of any person retired from the US armed forces and
who served at least 90 consecutive days on active duty. The exemption is for pension income
received on or after January 1, 2006.
FISCAL IMPLICATIONS
According to TRD (who uses data from Military.Com, a military service resources website),
there are estimated to be 21,300 retirees in NM in 2006 receiving an average of $21,000 per year
in payments from their pension. The exemption for the retirees would reduce personal income
tax collections by $13.4 million. Assuming tax years break evenly over fiscal years, the FY06
reduction in taxes is $6.7 million and $13.4 million in FY07 and subsequent years.
pg_0002
Senate Bill 115 – Page
2
SIGNIFICANT ISSUES
There are also economic “feedback” impacts that are not captured in the fiscal impact analysis.
Military personnel make a significant contribution to New Mexico’s economy while they are sta-
tioned here and encouraging them to retire in New Mexico is an important economic develop-
ment goal. A 2005 New Mexico First Townhall report (NM Townhall #33) indicated that 12
jobs are supported by every million dollars of federal retirement payments (both civilian and
military) in New Mexico. That means that military retirement spending in New Mexico supports
over 4,600 jobs in NM.
The amount that would be available due to the proposed exemption does not necessarily share
the properties of retirement spending as a whole since the savings from the exemption would be
considered marginal income. If it is more likely to be saved than spent, New Mexico would not
enjoy any benefit from the current retirees. To the extent that more people retire in NM due to
the exemption, NM will receive the benefit of all of their spending. It is uncertain whether the
spending of the retirees (current and newly arrived) would offset the foregone expenditure of the
state government due to the lower revenues.
TRD notes:
• Individuals with incomes and other circumstances similar the military retirees receiving
the proposed exemption are likely to view it as unfair, especially when they compete with the
retirees for jobs, and when the retirees have relatively high incomes. According to the “mili-
tary.com” website (http://usmilitary.about.com/) military retirement pay can be over $9,000
monthly for high-ranking officers retiring in 2004.
• By reducing state tax obligations, the proposed measure would tend to increase federal
tax liability because state tax obligations are deductible against federal liability for taxpayers
who itemize. Hence the net taxpayer benefit would be less than the $565 per claimant mentioned
above. The $565 in state tax savings would, for example, be reduced to $452 ($565 x .8) for a
taxpayer in the 20% federal tax bracket.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
SB 115 is similar to SB 210 and HB 44 except that this bill does not include a provision for the
spouses of retirees.
TECHNICAL ISSUES
TRD reports:
Provisions of the proposed measure would impose relatively minor administrative impacts on the
Taxation and Revenue Department. Provisions of the proposal could be administered with re-
sources currently available to the Department.
ALTERNATIVES
To address TRD’s note above regarding high ranking officers, the exemption could be written
with a phase-out at higher income levels.
pg_0003
Senate Bill 115 – Page
3
WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL
Military retirees’ pensions will still be subject to NM personal income tax.
NF/yr