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

SPONSOR Jennings

ORIGINAL DATE

LAST UPDATED 08/15/08 HB

SHORT TITLE Refundable PIT Credit

SB 1

ANALYST Francis

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY09

FY10

1,000.0

Nonrecurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to Executive proposal

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY09

FY10

FY11

(55,800.0)

Nonrecurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department (TRD)

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 1 provides a credit against personal income tax liability for the 2007 tax year. The

credit is refundable and so the amount over the tax liability will be refunded.

Senate Bill 1 – Page

2

Married Filing Jointly

Single

Head of Household

Married Filing Separately

Dependent

Credit

0-30,000

100

50

50

30,000-50,000

80

40

40

50,000-70,000

50

25

25

70,000 +

0

0

0

Rebate

FISCAL IMPLICATIONS

SB 1 is expected to reduce nonrecurring general fund revenue by $55.7 million. There is an ad-

ditional appropriation to TRD for $1.0 million from the general fund to process and administer

the credit. Approximately 18 percent of all tax filers—those with adjusted gross income above

$70 thousand per year—will not receive a credit.

Number of

Average

Returns Amount Percent of Benefit

AGI

(000) ($ millions) Total

($)

Under $10,000

156.4

$12.2

21.8%

$78

$10,000 - $20,000

143.4

$14.0

25.1%

$98

$20,000 - $30,000

112.2

$12.0

21.6%

$107

$30,000 - $40,000

84.0

$7.1

12.7%

$85

$40,000 - $50,000

60.6

$5.4

9.6%

$89

$50,000 - $60,000

47.0

$2.8

5.0%

$59

$60,000 - $70,000

37.5

$2.3

4.2%

$62

Subtotal

641.1

$55.8 100.0%

$87

$70,000 and over

145.3

$0.0

0.0%

$0

Total

786.5

$55.8 100.0%

$71

Taxation and Revenue Department

August 16, 2008

Office of Tax Analysis, Research and Statistics

Total Benefits

Distribution of the Cost of Living Personal Income Tax Credit

SIGNIFICANT ISSUES

This rebate is similar in form to the tax rebate approved in 2005 at the 2005 special session. Only

the value of the credit has changed. That credit was designed to help New Mexicans cope with

high gasoline and heating prices with the surge in energy prices following the Katrina and Rita

hurricanes in the Gulf of Mexico. Now, there are many indications that the economy is slowing

down and the national economy is either in recession or very near to it. Combined with the crash

in the housing markets, high gasoline prices, and declines in manufacturing employment, the

Senate Bill 1 – Page

3

economic conditions are such that consumers may ratchet back their expenditures and have diffi-

culty paying bills.

The credit will be funded by general fund reserves. The latest consensus revenue estimate shows

that reserves are sufficient for the credit but that there will be much less available for nonrecur-

ring uses in the 2009 session.

PERFORMANCE IMPLICATIONS

In 2005, TRD was able to process the rebates in a timely fashion and most tax filers had rebate

checks prior to the December Holidays.

ADMINISTRATIVE IMPLICATIONS

SB1 appropriates $1 million to administer and process the credits. TRD does not report any ex-

pected problems with issuing the refund and has indicated that they have the authority to process

the credits without any additional action by the taxpayers.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

This credit is similar to a rebate proposed by the executive but that proposal has a fiscal impact

of $120 million.

NF/svb