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 Tobiassen
/Woods/Block/Gallegos
LAST UPDATED
ORIGINAL DATE 2/16/25
SHORT TITLE
10-Year Exempt Health Practitioners From
Tax
BILL
NUMBER Senate Bill 298
ANALYST Graeser
REVENUE*
(dollars in thousands)
Type FY25 FY26 FY27 FY28 FY29
Recurring or
Nonrecurring
Fund
Affected
PIT $0 ($65,400.0) ($68,300.0) ($70,800.0) ($73,600.0) 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
No fiscal
impact
$14.6
No fiscal
impact
$14.6 Nonrecurring General Fund
Parentheses ( ) indicate expenditure decreases.
*Amounts reflect most recent analysis of this legislation.
Conflicts with Senate Bill 296
Sources of Information
New Mexico Health Care Workforce Committee 2023 Annual Report
LFC Files
Agency Analysis Received From
Taxation & Revenue Department (TRD) Department of Health (DOH) Agency Analysis was Solicited but Not Received From
New Mexico Medical Board (NMMB) Department of Finance (DFA)
SUMMARY
Synopsis of Senate Bill 298
Senate Bill 298 (SB298) proposes a 10-year exemption from income tax for a list of health care
practitioners. The exemption is for income derived from providing health care in New Mexico
within the scope of the practitioner’s practice.
Senate Bill 298 – Page 2
The proposed exemptions would apply to licensed:
1. Chiropractic physicians,
2. Dentists,
3. Dental Hygienists,
4. Acupuncturists,
5. Optometrists,
6. Physicians (MDs and DOs),
7. Physician Assistants,
8. Physical Therapists,
9. Podiatrists, and
10. Psychologists
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 are applicable for tax years
beginning January 1, 2025. The exemption would sunset for taxable years ending December 31,
2034.
FISCAL IMPLICATIONS
SB298 creates a tax expenditure with a cost that is difficult to determine but likely significant.
LFC has serious concerns about the substantial risk to state revenues from tax expenditures and
the increase in revenue volatility from erosion of the revenue base.
TRD has provided the revenue estimate for the provisions of this bill:
The Taxation and Revenue Department (TRD) used the 2024 New Mexico Health Care
Workforce Committee (HCWC) Annual Report and the New Mexico Department of
Workforce Solutions’ Occupational Employment and Wage Statistics (OEWS) to estimate
the number of health care practitioners eligible for this exemption and the associated median
incomes. When income was unavailable for New Mexico, the national median income was
used. TRD was unable to obtain the number of health care practitioners for several
subspecialties that would most likely be eligible. These data are either not reported or were
not disclosed for confidentiality.
1
TRD estimates that approximately 8,350 health care
practitioners would be eligible to claim this exemption.
TRD then applied the current tax rates for each income under single tax filing status given
the unknown taxpayer filing status for these taxpayers and calculated the aggregate impact
for each health care practitioner category. Using the University of New Mexico’s Bureau of
Business and Economic Research (BBER) January 2025 forecast, TRD indexed the income
to tax year 2025 and then grew the aggregate estimate annually by BBER’s New Mexico’s
wage and salary growth.
Physicians
2
and dentists constituted 46% of the aggregate estimated revenue impact and 31%
1
Professions included in this analysis not specifically identified in this bill and not included in the physician
category in the HCWC are OB-GYNs, general and other surgeons, psychiatrists, anesthesiologists, neurologists,
pathologists, and radiologists. Data for orthodontists, pediatric or orthopedic surgeons, dermatologists,
ophthalmologists, and cardiologists were not available.
2
As defined by the HCWC include all medical doctors (MDs) and doctors of osteopathy (Dos) that specialize in
Senate Bill 298 – Page 3
of eligible health care practitioners. Some subspecialties have higher average incomes than
physicians or dentists (for example, the estimated average annual income for a dentist is $188
thousand, and $335 thousand for a radiologist), and there are considerably fewer eligible
practitioners for subspecialties.
Implementing this bill will have a low impact on TRD’s Information Technology Division
(ITD), with approximately 220 hours or just over 1 month for an estimated staff workload cost of
$14.6 thousand.
SIGNIFICANT ISSUES
The Department of Health (DOH) supports this bill and notes that New Mexico is significantly
medically underserved.
In 2024, New Mexico had an estimated total population of 2.13 million in 33 counties (U.S.
Census Bureau QuickFacts: New Mexico). Since the demands for healthcare services and
providers continue to increase, providing incentives such as income tax exemptions to health
care providers may help stabilize and improve healthcare services. SB298 could encourage
healthcare providers to stay and provide services in New Mexico if healthcare providers
would be exempt from income tax.
New Mexico continues to experience a shortage of medical providers, particularly in rural
areas. According to the most recent data from 2021, published in a 2024 study by the
University of New Mexico, the state needs an additional 334 primary care providers, 59 OB-
GYNs, 10 general surgeons, and 119 psychiatrists to meet national benchmarks for provider-
to-population ratios. Additionally, New Mexico faces a nursing shortage. Based on 2023
data, the state requires 5,822 more nurses and clinical nurse specialists to reach national
benchmarks. ( New Mexico Health Care Workforce Committee 2024 Annual Report).
Addressing rural healthcare workforce strategies are part of a multi-pronged approach with
no one effort being capable of solving all the issues related to provider recruitment. SB298
could encourage healthcare providers to stay and provide services in New Mexico if
healthcare providers would be exempt from paying income tax for the next 10 years.
However, as it is written, SB298 does little to encourage providers to live and work in
underserved areas of the state, which are already disproportionately affected by the overall
health professional shortage.
Currently, there are no states that offer income tax exemptions specifically for healthcare
providers. SB298 may offer a more competitive environment for recruiting health
professionals from out-of-state as well as incentivizing current residents and students to
remain in New Mexico.
DOH suggests several clarifications:
SB298 proposes an income tax exemption for full-time practitioners. There is no definition of
full-time practice, unlike in similar legislation. Similarly, practice is not clearly defined in
SB298. Practice could include hours spent on research, administration, or supervision rather
family, general, pediatrics, general internal, geriatrics, adolescent, occupational, preventative practice or medicine Senate Bill 298 – Page 4
than direct patient care. These issues could be clarified by additional language in the bill.
Healthcare practitioners are specifically defined in SB298 as primarily doctoral level
practitioners. Given the shortage across healthcare professions, it may be reasonable to
include other categories of practitioners licensed at a doctoral level– e.g. Doctors of
Pharmacy, and nursing practice.
TRD points out similar policy and administrative concerns:
Personal income tax (PIT) represents a consistent source of revenue for many states. For
New Mexico, PIT is approximately 16 percent of the state’s recurring general fund revenue.
While this revenue source is susceptible to economic downturns, it is also positively
responsive to economic expansions. New Mexico is one of 41 states, along with the District
of Columbia, that impose a broad- based PIT (New Hampshire and Washington do not tax
wage and salary income). Like several states, New Mexico computes its income tax based on
the federal definition of taxable income and ties to other statues in the federal tax code. This
is referred to as “conformity” to the federal tax code. The PIT is an important tax policy tool
that has the potential to further both horizontal equity ‘by ensuring the same statutes apply to
all taxpayers, and vertical equity, by ensuring the tax burden is based on taxpayers’ ability to
pay. By basing the credit on a profession, taxpayers in similar economic circumstances are no
longer treated equally.
While tax incentives can support specific industries or promote desired social and economic
behaviors, the growing number of such incentives complicate the tax code. Introducing more
tax incentives has two main consequences: (1) it creates special treatment and exceptions
within the code, leading to increased tax expenditures and a narrower tax base, which
negatively impacts the general fund; and (2) it imposes a heavier compliance burden on both
taxpayers and TRD. Increasing complexity and exceptions in the tax code is generally not in
line with sound tax policy.
Like the nation, New Mexico is experiencing a shortage of medical professionals. The 2024
New Mexico Health Care Workforce Committee Report details the number of providers in
select occupations that are needed to bring New Mexico up to the benchmark provider-to-
population ratio. To bring all counties to benchmarks would require an additional 334
primary care physicians, 59 OB-GYNs, 10 general surgeons, and 88 dentists
3
. If the intent of
this bill is to attract or retain health care practitioners to or in New Mexico, a PIT exemption
may incentivize this. However, because of the nationwide shortage, these physicians may
consider tax benefits offered by other states.
The National Institute of Health’s (NIH), National Center for Biotechnology Information
published a study that predicts that nationwide the demand for doctors will outpace the
supply so that by 2030, 34 of 50 states will have physician shortages
3
. This shortage is more
prominent for states in the South and West regions of which Mississippi and New Mexico
will have the severest shortage. Their study predicts a shortage of 2,118 physicians in New
Mexico by 2030 due in part to a higher percentage of physicians over 60 years of age
3
Zhang X, Lin D, Pforsich H, Lin VW. Physician workforce in the United States of America: forecasting nationwide
shortages. Hum Resour Health. 2020 Feb 6;18(1):8. doi: 10.1186/s12960-020-0448-3. PMID: 32029001; PMCID:
PMC7006215., https://pmc.ncbi.nlm.nih.gov/articles/PMC7006215/ Senate Bill 298 – Page 5
compared to other states. The study discusses solutions that reach nationwide including:
increasing the number of medical school graduates; increasing equitable federal funding for
graduate medical education; attracting foreign-trained doctors; increasing utilization of mid-
level providers and increasing uptake of emerging medical technology. Without a nationwide
solution, New Mexico will continue to compete with other states for a smaller pool of
physicians. This proposal does not place any conditions of remaining in practice in New
Mexico, and thus once exhausting the exemption through 2035, doctors could move out of
state.
PERFORMANCE IMPLICATIONS
The LFC tax policy of accountability may be met. The bill does not explicitly require TRD to
include data concerning this exemption in the annual Tax Expenditure Report, but 7-1-84
NMSA 1978 (Laws 2023, ch. 85, § 1) now requires TRD to analyze all tax expenditures and
report annually to an interim legislative committee regarding the data compiled from the reports
from taxpayers. This PIT exemption will probably be included in the annual report.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
Conflicts with Senate Bill 296, which would create a $50 thousand physicians income tax credit.
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
Senate Bill 298 – 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? 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.
X
Targeted: The tax expenditure has a clearly stated purpose, long-term
goals, and measurable annual targets designed to mark progress toward
the
goals.
The implicit purpose
is to provide one
tactic to ameliorate
the lack of health
care professionals.
No Targets or Goals
Clearly stated purpose ?
Long-term goals X
Measurable targets X
Transparent: The tax expenditure requires at least annual reporting by
the recipients, the Taxation and Revenue Department, and other relevant
agencies
Will be included in
Tax Expenditure
Report
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.
This is only one
tactic to address the
problem. Other
tactics may be
needed.
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
LG/hj/Sl2