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

SPONSOR Cisneros

ORIGINAL DATE

LAST UPDATED

2/1/06

HB

SHORT TITLE Biomass-Related Material Tax Deduction

SB 640

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.

Duplicates HB395.

SOURCES OF INFORMATION

LFC Files

Responses Received From

Energy Minerals and Natural Resources Department (EMNRD)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 640 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.

Senate Bill 640 – 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 that 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

Senate Bill 640 conflicts with Senate Bill 469, which proposes different amendments to the re-

newable energy production tax credit.

SS/mt