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

SPONSOR SFL

ORIGINAL DATE

LAST UPDATED

8/16/08

8/19/08 HB

SHORT TITLE Refundable Personal Income Tax Credit

SB 24/CS/SFL/aHTRC/aHAFC

ANALYST Gutierrez

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY09

FY10

$750.0

Non-recurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY09

FY10

FY11

($87,612.3)

Non-Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Relates to SB1 and SB16

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department (TRD)

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of HAFC Amendment

The House Appropriations and Finance Committee amended Senate Bill substitute for Senate

Bill 24 to reduce the amount appropriated to the Taxation and Revenue Department from $1

million to $750 thousand.

Senate Bill 24/CS/SFL/aHTRC/aHAFC – Page

2

Synopsis of HTRC Amendment

The House Taxation and Revenue Committee amended Senate Bill substitute for Senate Bill 24

to change the total rebate amount from $55.8 million to $87.6 million. The credit would be as

follows.

For married taxpayers filing jointly:

AGI

Taxpayer Credit

Dependent Credit (each)

Under $60,000

$180

$36

$60,000 - $70,000

$120

$24

$70,000 and over

$0

$0

Source: Taxation and Revenue Department

For taxpayers filing as single, head of household, married filing separately or as a surviving

spouse:

AGI

Taxpayer Credit (each)

Dependent Credit (each)

Under $60,000

$90

$36

$60,000 - $70,000

$0

$0

$70,000 and over

$0

$0

Source: Taxation and Revenue Department

Synopsis of SFL Substitute

The Senate Floor substitute for Senate Bill 24, the Refundable Personal Income Tax Credit, will

replace the amount of rebate from $120.5 million to $55.8 million.

The credit would be as follows:

AGI

Taxpayer Credit (each)

Dependent Credit (each)

Under $30,000

$50

$50

$30,000 - $50,000

$40

$40

$50,000 - $70,000

$25

$25

$70,000 and over

$0

$0

Source: Taxation and Revenue Department

The bill includes an appropriation of one million dollars from the General Fund to the Taxation

and Revenue Department to administer this credit.

Synopsis of Original Bill

The bill provides a refundable personal income tax credit for the 2007 taxable year. A taxpayer

who files a New Mexico Personal Income Tax Return for the 2007 taxable year, is a resident of

New Mexico, is not a trust, estate, or dependent of another taxpayer, and is not an inmate of a

public institution for more than six months during the 2007 taxable year would be eligible for the

credit. The credit would be issued as a refund to taxpayers who had already paid any 2007

liability. For taxpayers with an outstanding 2007 liability, the credit would be given as a

reduction in the liability.

FISCAL IMPACT

The amended SB 24/CS is expected to reduce nonrecurring general fund revenue by $87.6

Senate Bill 24/CS/SFL/aHTRC/aHAFC – Page

3

million. There is an additional appropriation to TRD for $750 thousand from the general fund to

process and administer the credit. Approximately 20 percent of all tax filers—those with

adjusted gross income above $70 thousand per year for married joint filers and above $60,000

for single, head of household filers—will not receive a credit.

Distribution of the Cost of Living Personal Income Tax Credit

Number

of Number of

Number

of

Total Benefits Average

Joint Single/HOH Returns Amount

Percent

of Benefit

Returns Returns TOTAL

AGI

(000)

(000)

(000)

($

millions) Total ($)

Under $10,000 19.5

136.9

156.4

$18.3 20.8%

$117

$10,000 - $20,000 27.1

116.3

143.4

$19.3 22.0%

$135

$20,000 - $30,000 31.3

80.9

112.2

$16.4 18.7%

$146

$30,000 - $40,000 29.6

54.4

84.0

$12.5 14.3%

$149

$40,000 - $50,000 27.4

33.2

60.6

$9.6 11.0%

$158

$50,000 - $60,000 26.3

20.7

47.0

$7.9 9.1%

$169

$60,000 - $70,000 24.7

12.8

37.5

$3.6 4.1%

$96

Subtotal

185.9

455.2

641.1

$87.6 100.0%

$137

$70,000 and over 118.0

27.4

145.3

$0.0 0.0%

$0

Total

303.9

482.6

786.5

$87.6 100.0%

$111

Italicized items are for married taxpayers filing jointly only

August 18, 2008

Source: Taxation and Revenue Department

SIGNIFICANT ISSUES

According to TRD, the new refundable personal income tax credit for 2007 will not be taxable

directly to taxpayers. However, those taxpayers who itemize their deductions for income tax

purposes and who receive a rebate due to the credit will need to follow the standard federal

income tax rule that requires a refund of an itemized tax to be included in income the year the

refund is received.

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

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

difficulty 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

nonrecurring uses in the 2009 session.

Senate Bill 24/CS/SFL/aHTRC/aHAFC – Page

4

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

The Taxation and Revenue Department stated that information systems will need to be

modified. Checks will need to be printed and mailed. Phone inquiries concerning rebates will

need to be answered. Significant outreach efforts to Native Americans, active members of the

military, retirees, and low-income residents, who might not have filed a 2007 New Mexico

income tax return, will need to be undertaken. A notice in English and Spanish describing tax

rebates and credits and HSD programs for low- and middle-income taxpayers will be inserted in

all rebate checks. Also, to simplify filing for individuals who would otherwise not file a 2007

New Mexico income tax return, TRD will create a highlighted PIT-1 form, which will be the

same as the current form but with the necessary entries that need to be completed for the rebate

(name, address, SSNs, residency, dependents, filing status, AGI, and signatures) highlighted.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

SB 1 and SB 16 are similar to the amended SB 24/CS but would have a fiscal impact of $55.8

million and $62.8 million respectively and have an appropriation to TRD for $1 million.

BLG/svb:mt