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(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates/Conflicts with/Companion to/Relates to HB-105

SOURCES OF INFORMATION

Taxation and Revenue Department (TRD)

Energy, Minerals and Natural Resources Department (ENMRD)

Legislative Finance Committee files

SUMMARY

Synopsis of Bill

SB45 was introduced on behalf of the Water and Natural Resources Committee. It proposes a tax credit for the purchase and installation of water conservation equipment as a means to promote water conservation in drought stricken areas of the state. The credit, which could be applied against corporate or personal income taxes, would be equal to 75 percent of the costs of the project up to a maximum of $50 thousand per year. In cases where the credit is higher than taxes due or the taxpayer owes no taxes, the credit may be carried forward to offset income taxes. The carry forward provision is limited to five consecutive years. The Energy Minerals and Natural Resources Department (EMNRD) is charged with developing rules and regulations to implement the program and to establish guidelines that would determine which projects would qualify for the credit. The provisions of the bill would apply to taxable years beginning on or after January 1, 2000.

Significant Issues

1. TRD suggested that given the uncertainty as to the level of participation this credit might attract, consideration should be given to capping it at some level and awarding the credits to the best projects.

1.  TRD noted that while the aim of the credit is water conservation, it helps pay for water conservation equipment and not water conservation. The water conservation systems, by lowering the cost of water, could result in expanded water use.

1. Last year, EMNRD's FIR claimed that under certain drought conditions, some areas would qualify for state and federal disaster relief. They suggest that providing the credit and disaster relief to these areas may be inappropriate.

FISCAL IMPLICATIONS

TRD reported that the program would cost $5.5 million in FY99 and $22 million in FY 2000. The estimate is based on the assumption that there would be 500 projects per year, each costing $50 thousand. However, they say that they are unsure as to how many projects would actually result from the credit, and thus the estimate is employed to illustrate the potential cost to the General Fund.

ADMINISTRATIVE IMPLICATIONS

TRD suggested that administering this program would be labor intensive, requiring verification of at least 25 percent of claims. They say they will need one full time equivalent (FTE), which will cost $35 thousand.

BT/njw