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 De La Cruz/Terrazas/Gallegos/Duncan
LAST UPDATED
ORIGINAL DATE 03/04/2025
SHORT TITLE Hotel Renovation Tax Credit
BILL
NUMBER House Bill 506
ANALYST Faubion
REVENUE*
(dollars in thousands)
Type FY25 FY26 FY27 FY28 FY29
Recurring or
Nonrecurring
Fund
Affected
PIT/CIT -
Up to
($60,000.0)
Up to
($60,000.0)
Up to
($60,000.0)
Up to
($60,000.0)
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
TRD $0.0 $49.4 $0.0 $49.4 Nonrec urring General Fund
Parentheses ( ) indicate expenditure decreases.
*Amounts reflect most recent analysis of this legislation.
Sources of Information
LFC Files
Agency Analysis Received From
Taxation and Revenue Department
Economic Development Department
Agency Analysis was Solicited but Not Received From Tourism Department
SUMMARY
Synopsis of House Bill 506
House Bill 506 proposes the creation of the hotel renovation personal income tax credit and the
hotel renovation corporate income tax credit for qualifying costs for hotel renovation. The credit
amounts to 30 percent of qualifying costs for hotels achieving LEED-NC silver certification or
20 percent for other qualifying renovations. To be eligible, taxpayers must apply for pre-
certification and certification of eligibility through the Tourism Department (TD). The bill caps
the total annual credits at $60 million and allows unused credits to be carried forward for five
years. It also specifies eligibility requirements and defines qualifying costs, excluding new
construction and expenses already claimed under federal new markets tax credits.
House Bill 506 – 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 tax credit applies to taxable years 2025
through 2034.
FISCAL IMPLICATIONS
The bill imposes an annual cap of $30 million on the hotel renovation personal income tax (PIT)
credit and another $30 million on the hotel renovation corporate income tax (CIT) credit,
resulting in a maximum potential impact of $60 million on the general fund each year. Although
the credit is set to expire at the end of tax year 2034, it is considered recurring since the sunset
date extends beyond the current forecast period. Taxpayers with credits exceeding their tax
liability can carry the remaining balance forward for up to five years.
Assessing the potential utilization of this credit is challenging due to limited data on hotel
renovation investments. It is unclear how many hotels will undertake renovation projects or the
scale of those projects. Additionally, LFC cannot accurately predict the level of investment
taxpayers will make in renovations or the amount of credit they may claim against their income
or corporate tax liabilities, as this depends on the effectiveness of the credit in incentivizing such
projects. The credit is calculated as either 30 percent or 20 percent of the total renovation costs,
depending on the hotel's LEED certification level. Due to these uncertainties, LFC estimates the
impact of this credit at the credit cap.
The Taxation and Revenue Department (TRD) faced similar challenges in estimating the fiscal
impact of this bill. Some unknown aspects do not allow TRD to estimate a precise fiscal impact.
First, it is unknown how many hotels will initiate renovation projects and the size of those
projects. Second, TRD cannot anticipate how much taxpayers will invest in renovation projects
and therefore how much credit they may potentially claim against either their income tax or
corporate tax liability, since it depends on whether the process to claim a credit and the amount
of the final credit will incentivize projects. Finally, the credit is dependent on the total cost of the
renovation project and then equal to either 30 percent or 20 percent of the expenditure,
depending on the hotel’s LEED certification. Based on these limitations of information and
ability to make assumptions, TRD determined the fiscal impact might be negative but unknown.
Per the bill, the maximum amount of the credits would not exceed $30 million each for credits
claimed under PIT and CIT.
TRD will update forms, instructions, and publications and make information system changes. This
bill will have an impact on TRD’s Information Technology Division (ITD) of approximately 4
months and 680 hours for an estimated staff workload cost of $45,315. Additionally, TRD’s
Administrative Services Division (ASD) will be required to test the system changes. It is anticipated
this work will take approximately 80 hours, split between two existing full-time employees (FTE).
SIGNIFICANT ISSUES
The potential of the hotel renovation tax credits lies in their ability to stimulate investment in the
hospitality sector, driving economic growth and enhancing tourism infrastructure. By offering a
financial incentive, the credits can encourage hotel owners to undertake significant renovation
projects they might otherwise postpone. The emphasis on LEED-NC silver certification further
encourages sustainable practices, positioning New Mexico as a leader in green tourism and
aligning with broader environmental goals. If utilized effectively, the credits could lead to
revitalized hotel properties, enhanced community appeal, and long-term economic growth. House Bill 506 – Page 3
The Economic Development Department (EDD) notes that this bill can incentivize investment in
renovations for outdated, dilapidated, and shuttered hotels throughout the state, not only leading
to job creation in the construction and hospitality sectors but could also contribute to the
preservation and revitalization of our downtowns and MainStreet Districts. Shuttered hotels and
vacant buildings are one of the biggest impediments to downtown revitalization, especially in
rural communities where hotel accommodation can be extremely limited. There are also a
number of shuttered or outdated historic hotels along I-40/Route 66 that could greatly benefit
from renovations leading up to the Route 66 Centennial Celebration that will be drawing
countless national and international visitors in 2026. By modernizing accommodation and
increasing the number of rooms available to travelers, it can enhance tourism appeal, increase
visitor spending, number of nights stayed, local tax revenues, and overall economic activity in
the region.
EDD also notes the tax credits, however, may favor larger hotel operators with greater access to
capital and a higher tax liability, potentially disadvantaging smaller businesses that may struggle
to finance renovations or may not see a benefit in the tax credit incentive. The tax credit, for
instance, is non-refundable, meaning smaller hotel operators may not have enough tax liability to
claim the full benefits of the credit over the allotted five years they have to claim the credit.
The size of the hotel renovation tax credit poses a significant risk of waste if not carefully
monitored. One of the primary concerns is the possibility of over-subsidizing projects that would
have occurred without the tax incentive. If hotel owners were already planning to renovate, the
credit would effectively be a windfall rather than an encouragement for new investment. This
would result in a substantial revenue loss for the state without generating additional economic
activity, contradicting the intended purpose of the incentive.
Additionally, the high percentage of qualifying costs—30 percent for LEED-NC silver-certified
hotels and 20 percent for others—could lead to an over-allocation of state funds. The generous
credit rate might incentivize hotel owners to inflate renovation costs or undertake lavish
upgrades that do not necessarily contribute to economic growth or increased tourism. This
scenario creates the risk of wasteful spending, as the credit could subsidize luxury enhancements
rather than necessary renovations that improve the overall visitor experience or energy
efficiency.
TRD notes the following policy issues:
The bill aims to stimulate hotel renovation and, therefore, the tourism industry. The
economic impact of these renovation projects will also be seen in the local construction
industry, as different industries boost general economic activity and employment. New
Mexico’s tourism industry makes a sizable contribution to local income and tax revenue,
so it is reasonable to attend to this industry, and particularly hotels. However, the full
extent of both the costs and benefits of this credit is unknown.
According to data from New Mexico Economic Development Department, the
Accommodation, and Food Services industry contributes significantly to the gross
receipts tax base. The New Mexico Department of Workforce Solutions reports that New
Mexico’s Accommodation and Food Services industry employed just under 95,000
workers in 2023, contributing over $2.4 billion in total wages that contribute to personal
income tax revenue. Accommodation and food services is the state’s third largest
industry sector in terms of employment. The positive economic impact of these credits House Bill 506 – Page 4
will be felt only if the proposed tax incentive is sufficient to trigger generalized
renovation projects and if it is accompanied by other strategies.
Since the credit is non-refundable, it is possible that a taxpayer may not receive the
benefit of the entire credit. Taxpayers will have little additional incentive to undertake a
renovation project as a result of this credit if they have little or no New Mexico tax
liability to offset. During a large renovation project, a hotel may have negative taxable
income and net operating losses that reduce or eliminate their tax liability, causing the
incentive to go unused. However, the credit may be carried forward for up to five years,
and so be available if the hotel has positive taxable income in future years.
The credit has a defined aggregate claim limit and an end date of tax year 2035. TRD
supports fiscal limits and sunset dates for policymakers to review the impact of tax
expenditures before extending them. This is critical to this bill as at the current moment
the fiscal impact is unknown.
While tax incentives may support particular industries or encourage specific social and
economic behaviors, the proliferation of such incentives complicates the tax code.
Adding more tax incentives: (1) creates special treatment and exceptions to the code,
growing tax expenditures or narrowing the tax base, with a negative impact on the
general fund; and, (2) increases the burden of compliance on both taxpayers and TRD.
Adding complexity and exceptions to the tax code does not comport generally with the
best tax policy.
This bill creates or expands 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.
PERFORMANCE IMPLICATIONS
The LFC tax policy of accountability is met with the bill’s requirement to report annually in the
tax expenditure budget regarding the data compiled from the reports from taxpayers taking the
credit.
ADMINISTRATIVE IMPLICATIONS
There will be administrative costs for both the Tourism Department (NMTD) and the Taxation
and Revenue Department to administer this credit.
TECHNICAL ISSUES
TRD notes the following technical issues:
These credits are separate under Income Tax and Corporate Income Tax acts. However, it
is unclear whether the Tourism Department must be able to determine which tax credit
the taxpayer is eligible for or intends to take. Also, the bill does not state that a taxpayer
that claims a hotel renovation income tax credit pursuant to the Income Tax Act shall not
also claim a hotel renovation corporate income tax credit pursuant to the Corporate House Bill 506 – Page 5
Income Tax Act for the same renovation project. TRD suggests in Section 1(D) on pages
2 and 3, and Section 2(D) on pages 6 and 7, that the language specifies one credit
certification per project. Such language might read: “A taxpayer that has submitted an
application for a hotel renovation corporate income tax credit with respect to a hotel
renovation project may not submit an application for a hotel income tax credit with
respect to the same hotel renovation project” for Section 1(D), and “A taxpayer that has
submitted an application for a hotel renovation income tax credit with respect to a hotel
renovation project may not submit an application for a hotel renovation corporate income
tax credit with respect to the same hotel renovation project” for Section 2(D).
TRD also recommends the following additions on page 3, line 10 and page 7, line 15,
after “approved.”:
The certification must include the taxpayer identification number, first eligible tax
year, and shall be numbered for identification and declare its date of issuance and
the amount of the tax credit allowed. The tourism department shall provide the
taxation and revenue department electronic certification information for all
eligible taxpayers to whom certificates are issued in a secure and regular manner
as agreed upon by both the taxation and revenue department and the tourism
department.
There is a time limit for when a taxpayer must apply for the certification of the credit
from the Tourism Department, but there is no limit on when the taxpayer must claim the
credit on a tax return. Adding that deadline will help keep the $30 million certification
cap for both PIT and CIT claimed consistent over each tax year. TRD suggests adding
language at page 3, line 11, stating that the tax credit must be claimed starting in the year
that the credit is certified as eligible by NMTD. TRD suggests the following language as
a new subsection: “A taxpayer who receives a certificate of eligibility shall claim the
credit commencing in the first eligible tax year stated in the certificate of eligibility.”
On page 3, line 10, and page 7, line 15, applications for certification of the credit will not
be approved if NMTD has already approved $30 million in certifications in that calendar
year. But this only affects the approval process; it fails to limit what may be paid out in
any given fiscal year because the credit can be carried forward to future tax years. More
certainty, control, and accountability could be achieved through an amendment reflecting
language found in Section 7-2-18.32(E).
On page 5, line 3 and page 8, line 20, the definition of “qualifying costs” states that the
taxpayer has not received a federal credit for the same project. The bill does not detail
what information will be provided to NMTD to verify this condition in determining final
qualifying costs and therefore the amount of the credit.
It is unclear if this hotel renovation tax credit is only available for the hotel owner or if
the credit extends to a contractor who incurs “qualifying costs” as defined on page 5, line
3, and page 8, line 20. TRD suggests adding an additional condition to the definition,
specifying that only “the hotel owner or principle of the ownership group” may apply for
and claim the credit.
In Section 1(C), a hotel shall apply for pre-certification of their project from NMTD.
TRD notes that a hotel that has been pre-certified for the tax credit may not receive the
final certification for a credit if the maximum annual amount has been met per Subsection House Bill 506 – Page 6
D and is thus not approved. This has the potential of uncertainty for the taxpayer as the
pre-certification does not guarantee final certification.
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 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
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? Comments
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.
No record of an
interim committee
hearing can be
found.
Targeted: The tax expenditure has a clearly stated purpose, long-term
goals, and measurable annual targets designed to mark progress toward
the goals.
There are no stated
purposes, goals, or
targets.
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
The credit must be
reported publicly in
the TER.
The credit does
have an expiration
date.
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.
?
There are no stated
purposes, goals, or
targets with which to
measure
effectiveness or
efficiency.
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
JF/hj/SL2