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

SPONSOR Campos

ORIGINAL DATE

LAST UPDATED

1/25/06

HB

SHORT TITLE Health Facility Construction Gross Receipts

SB 200

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

(2,362.0)

(2,410.0) Recurring General Fund

(1,575.0)

(1,606.0) Recurring Local Govern-

ments

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates HB8.

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 200 creates two new deductions from the gross receipts tax that apply to construction

of a sole community provider hospital in a federally designated health professional shortage area.

The first deduction is for receipts from engineering, architectural and construction services used

to construct such a hospital. The second deduction is for receipts from the sale of construction

equipment and materials used to construct such a hospital.

To qualify for these deductions, the services must be sold to a foundation or nonprofit organiza-

tion that has signed a written agreement with a county to pay at least 95 percent of the hospital

construction costs. This foundation or nonprofit organization will also have to give the seller of

these services the appropriate nontaxable transaction certificate.

The effective date of these provisions in July 1, 2006.

Senate Bill 200 – Page 2

FISCAL IMPLICATIONS

TRD notes that total construction spending on hospital remodeling in areas eligible for the pro-

posed deductions exceeds $50 million per year. TRD’s fiscal impact estimate also assumes $10

million per year of new hospital construction per year. Using these assumptions, TRD estimates

that the new deductions will decrease general fund revenue by about $2.4 million per year, and

decrease local government revenue by about $1.6 million per year.

SIGNIFICANT ISSUES

The U.S. Public Health Service Act defines a “health professional shortage area” as an area

which the federal Health and Human Services Department determines to have a shortage of

health professionals. Areas with less than one physician per 3,500 people can receive a health

professional shortage designation. The restriction that a hospital eligible for these new deduc-

tions is built in a “federally designated health professional shortage area disqualifies only two

counties in New Mexico.

The deductions could apply to new construction as well as renovation of a hospital.

ADMINISTRATIVE IMPLICATIONS

TRD reports the administrative impact will be minimal. The department will change forms, in-

structions, publications, and compliance procedures.

TECHNICAL ISSUES

The terms “health professional shortage area,” “sole community provider hospital,” “public

health care facility,” “foundation,” and “nonprofit” are not defined. If these terms are federally

defined, federal definitions should be cited. Otherwise, definitions should be added.

The bill requires that a nonprofit or foundation sign a written agreement with a county to pay at

least 95 percent of construction costs. First, it is unclear if the bill should be amended so that the

nonprofit or foundation agrees to pay at least 95 percent of engineering, architectural and con-

struction costs. Second, the bill should explain what will happen if a nonprofit or foundation

does not fulfill its written agreement to pay at least 95 percent of costs.

SS/nt