Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance
committees of the Legislature. LFC does not assume responsibility for the accuracy of these reports if they
are used for other purposes.
F I S C A L I M P A C T R E P O R T
SPONSOR Gonzales/Sanchez/Mejia/Vincent/Herrera
LAST UPDATED
ORIGINAL DATE 2/14/2025
SHORT TITLE Small Business Disaster Relief Tax Credit
BILL
NUMBER House Bill 326
ANALYST Gray
REVENUE*
(dollars in thousands)
Type FY25 FY26 FY27 FY28 FY29
Recurring or
Nonrecurring
Fund
Affected
PIT $0 ($19,000) ($19,0 00) ($19,000) ($19,000) Recurring General Fund
Parentheses ( ) indicate revenue decreases.
*Amounts reflect most recent analysis of this legislation.
ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT*
(dollars in thousands)
Agency/Program
FY25 FY26 FY27
3 Year
Total Cost
Recurring or
Nonrecurring
Fund
Affected
EDD $0 $416.7 $416.7 $833.4 Recurring General Fund
Parentheses ( ) indicate expenditure decreases.
*Amounts reflect most recent analysis of this legislation.
Sources of Information
LFC Files
Agency Analysis Received From
Economic Development Department (EDD) New Mexico Attorney General (NMAG) Agency Analysis was Solicited but Not Received From
Taxation and Revenue Department (TRD)
SUMMARY
Synopsis of House Bill 326
House Bill 326 (HB326) creates the small business disaster relief income tax credit which allows
a small business in a governor-declared disaster area to claim a $5,000 refundable tax credit. To
qualify for the credit, a business must be in an area designated by the governor as a disaster area,
and:
Have been in business for at least two taxable years prior, including the year of the claim.
Have had “annual gross revenue” below $2 million in that taxable year.
Have experienced a 30 percent decline in gross revenue due to the disaster.
The bill requires the Economic Development Department (EDD) to certify the taxpayer. House Bill 326 – Page 2
This bill does not contain an effective date and, as a result, would go into effect 90 days after the
Legislature adjourns, or June 20, 2025, if enacted. The provisions of the bill apply to tax years
beginning 2025.
FISCAL IMPLICATIONS
This bill creates a tax expenditure. Estimating the cost of tax expenditures is difficult.
Confidentiality requirements surrounding certain taxpayer information create uncertainty, and
analysts must frequently interpret third-party data sources. The statutory criteria for a tax
expenditure may be ambiguous, further complicating the initial cost estimate of the fiscal impact.
Once a tax expenditure has been approved, information constraints continue to create challenges
in tracking the real costs (and benefits) of tax expenditures.
This analysis uses business establishment data from the Bureau of Labor Statistics’ Quarterly
Census of Employment and Wages to estimate the number of businesses who could benefit from
HB326. This data reports the number of establishments by the number of employees and reports
the total wages of these establishments.
First, this analysis estimates the number of businesses with annual revenue of $2 million or less.
This analysis uses the total wages to simulate gross revenue by assuming a share of revenue that
goes to support employment. Using this methodology, this analysis estimates that about 87
percent of businesses with nine or fewer employees have annual gross receipts less than $2
million, totaling 44.4 thousand business that meet the first prong of the bill’s four-pronged
eligibility criteria.
Second, this analysis estimates the number of these businesses who are in areas that face disaster
risk. In 2023, the Energy, Minerals, and Natural Resources Department (EMNRD) published the
Communities at Risk Assessment Plan, based on Community Wildfire Protection Plans. In that
assessment, the agency concluded that 82.8 percent of communities face a moderate or high risk
of wildland fire. Using that assessment, of the businesses who meet the first prong of eligibility
criteria, about 36.8 thousand are also in communities that face moderate or high wildland fire
risk. Wildland fire is not the sole risk communities face, meaning this estimate may
underestimate the total true fiscal impact.
Third, this analysis estimates the share of these businesses are in areas that will be declared a
disaster by the governor. From FY22 to FY24, the governor issued 450 executive orders, of
which 371 (82 percent) declared disasters. This analysis estimates that these disasters spanned 50
discrete areas, although some regions had multiple emergency declarations over that period (i.e.,
due to the South Fork and Salt Fires). On average, this translates to an average of approximately
15 areas that were declared a “disaster area” per year. See Significant Issues for discussion of
this terminology. Generally, these declarations refer to the county in which the emergency is
taking place, meaning about 45 percent of counties on average had an emergency declaration.
Lastly, this analysis estimates the share of those businesses that will see a 30 percent decrease in
gross revenues because of a disaster that triggers a disaster declaration. The economic impact of
natural disasters like wildfires and flooding is vast, but the specific impact on business revenues
is challenging to estimate but likely very significant. Some businesses are far more susceptible to
sudden, dramatic downturns because of a local natural disaster, including retail, accommodation, House Bill 326 – Page 3
and food services which make up about 20 percent of businesses. This analysis assumes 90
percent of these businesses and 5 percent of all other businesses could face a 30 percent decrease
in gross revenues because of a natural disaster in a year.
Using these assumptions, this analysis assumes that about 3,800 small businesses in regions
designated as “disaster areas” by the governor could see a 30 percent decline in revenue in any
given year. This is about 7 percent of all businesses with less than nine employees. Assuming
businesses maximize profits and uptake is uniform, total cost could be $19 million per year.
Risks. The bill’s impact could far exceed the cost presented in this analysis. Consider the
pandemic, wherein the governor declared a series of public health emergencies that would
invoke the standards created by HB326. One survey estimated that 43 percent of small
businesses closed just several weeks after the pandemic’s onset. Under HB326, the state would
be responsible for at least $150 million in credit payments, an over eightfold increase in the
average expected annual costs. This would occur concurrently with a significant economic
downturn that could sharply impact revenues, potentially causing a situation in which the state is
unable to pay businesses without entering a deficit.
Emergency orders have proliferated in recent years. This analysis uses data from FY22 to FY24
to estimate potential impacts. However, should disaster-related emergency orders continue to
grow, the impact could be significantly higher.
Operating budget impact. This analysis assumes EDD would need to add at least three new
personnel (FTE) to meet the administrative burden created by HB326. The operating budget
impact on page one assumes three new FTE at the agency’s current average total compensation,
for a recurring operating budget impact of $416 thousand per year. This analysis estimates about
3,800 businesses could qualify and apply for the credit each year. Assuming each application
takes one hour of staff time to review, this would add 1.8 full-time equivalent staff hours of work
each year. Additional staff resources would be required to stand up the program, respond to
public questions, and coordinate with state agencies.
House Bill 326 – Page 4
HB326 contemplates creating a potentially complex review process, but EDD analysis did not
note the potentially significant administrative burden this would place on the agency. Without a
thorough review, there could be an increase in fraudulent claims being approved, especially in
situations where a business is in a disaster area but did not face a revenue decline because of the
disaster. Additionally, EDD would likely be unable to process the volume of applications if there
were a widespread emergency, like the pandemic, impacting the timeliness of credit processing.
Additional information about the administrative burden may be updated after receipt of analysis
from the Taxation and Revenue Department (TRD).
SIGNIFICANT ISSUES
There are several significant issues with the legislation. First, the bill does not define a “disaster
area.” The legislation may intend to only allow businesses in the immediate geographical area of
a natural disaster to qualify. However, the legislation could intend to allow all businesses
throughout a county to qualify if any part of that county received an emergency declaration. The
term “disaster area” is not defined elsewhere in statute.
Similarly, the bill does not appear to align with the process by which the governor can use
emergency powers. The governor’s emergency powers are defined in Chapter 12, Articles 10,
10A, 11 and 12 NMSA 1978. These sections of statute define clearly the powers conferred to the
governor in the case of a “man-made or natural disaster causing or threatening widespread
physical or economic harm that is beyond local control,” that requires state intervention. This
analysis assumes the bill intends on invoking this section of law, but it does not do so explicitly.
Implementation may be piecemeal, or even unworkable, unless it is specified.
Analysis from the New Mexico Attorney General (NMAG) notes:
Section 1(C)(1) provides that “to be eligible for the credit, the taxpayer shall be an owner
of a business that: (1) is located in an area declared by the governor as a disaster[.]”
Utilizing the word “located” does not necessarily encompass a commonly used phrase in
business law: “principal place of business.” By utilizing the word “located,” Section
1(C)(1) does not address a scenario where an LLC’s registered office address is
physically located in a disaster zone, but the business operations are not impacted by the
disaster. However, Section 1(C)(3) partially addresses this by requiring an eligible
business owner to demonstrate a 30 percent decline in gross revenue.
The agency suggests a potential amendment to clarify this language. See Technical Issues.
The bill contemplates offering a $5,000 credit for impacted businesses. To meet the credit’s
criteria, the business could have experienced up to a $600 thousand reduction in annual gross
revenues. Few businesses have the necessary cash on hand to sustain this kind of impact without
enacting layoffs or closures. The timing of the $5,000 credit may also be too late to prevent
closures or layoffs. On the other hand, the $5,000 thousand credit may exceed revenue lost due
to a disaster. A very small business with annual gross revenue equal to $10 thousand may
experience a revenue decline of $3,000. The credit under HB326 would provide a windfall of
$2,000 more than actual business losses.
House Bill 326 – Page 5
NMAG analysis notes that HB326 requires a business to “demonstrate that it has sustained a 30
percent decline in gross revenue due to the disaster,” but that the term “demonstrate” does not
“provide uniform metrics that can be routinely reference by the individuals charged with
assessing the requests for the tax credit.”
The Economic Development Department (EDD) analysis of the bill notes that the credit must be
claimed in the taxable year in which the disaster occurs. “In cases where a disaster is declared
late in the taxable year,” the agency writes, “businesses may not experience the full financial
impact, including the 30 percent revenue decline, until the following year.” This may reduce the
benefit to business owners, the agency notes.
TECHNICAL ISSUES
NMAG notes:
Section 1(G), as currently written, only applies to “a business entity that is taxed for
federal income tax purposes as a partnership or limited liability company[.]” Partnerships
and LLCs do not pay entity-level tax; rather, the business income passes through to the
owners and is reported on the owner’s individual tax returns. Notably S-Corporations can
elect to be taxed like partnerships. Section 1(G) did not include business entities
structured under Subchapter S of the Internal Revenue Code (even though they can be
taxed like the partnership entity referenced in Section 1(G)). Accordingly, the effect of
Section 1(G) is unclear.
The agency also suggests that policymakers consider the following amendment:
Change “an area declared as a disaster area by the governor” to “an area in which the
governor has proclaimed that a state of disaster or state of emergency exists.”
OTHER SUBSTANT IVE ISSUES
In assessing all tax legislation, LFC staff considers whether the proposal is aligned with
committee-adopted tax policy principles. Those five principles:
Adequacy: Revenue should be adequate to fund the needed government services.
Efficiency: Tax base should be as broad as possible and avoid excess reliance on one tax.
Equity: Different taxpayers should be treated fairly.
Simplicity: Collection should be simple and easily understood.
Accountability: Preferences should be easy to monitor and evaluate
House Bill 326 – Page 6
In addition, staff reviews whether the bill meets principles specific to tax expenditures. Those
policies and how this bill addresses those issues:
Tax Expenditure Policy Principle Met?
Vetted: The proposed new or expanded tax expenditure was vetted
through interim legislative committees, such as LFC and the Revenue
Stabilization and Tax Policy Committee, to review fiscal, legal, and
general policy parameters.
Targeted: The tax expenditure has a clearly stated purpose, long-term
goals, and measurable annual targets designed to mark progress toward
the goals.
Clearly stated purpose
Long-term goals
Measurable targets
Transparent: The tax expenditure requires at least annual reporting by
the recipients, the Taxation and Revenue Department, and other relevant
agencies
Accountable: The required reporting allows for analysis by members of
the public to determine progress toward annual targets and determination
of effectiveness and efficiency. The tax expenditure is set to expire unless
legislative action is taken to review the tax expenditure and extend the
expiration date.
Public analysis
Expiration date
Effective: The tax expenditure fulfills the stated purpose. If the tax
expenditure is designed to alter behavior – for example, economic
development incentives intended to increase economic growth – there are
indicators the recipients would not have performed the desired actions
“but for” the existence of the tax expenditure.
Fulfills stated purpose
Passes “but for” test
Efficient: The tax expenditure is the most cost-effective way to achieve
the desired results.
?
Key: Met Not Met ? Unclear
BG/hj/SR