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 Thornton
/Block/Boone/Lanier/Gallegos
LAST UPDATED
ORIGINAL DATE 2/24/25
SHORT TITLE Citizens Tax Rebate
BILL
NUMBER Senate Bill 398
ANALYST Graeser
REVENUE*
(dollars in thousands)
Type FY25 FY26 FY27 FY28 FY29
Recurring or
Nonrecurring
Fund
Affected
PIT $0 ($992,000.0) (1,030,000.0) ($1,067,000.0) ($1,110,000.0) 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 Indeterminate Indeterminate Indeterminate Recurring General Fund
Parentheses ( ) indicate expenditure decreases.
*Amounts reflect most recent analysis of this legislation.
Sources of Information
LFC Files
Agency Analysis Received From
Department of Finance and Administration (DFA)
Agency Analysis was Solicited but Not Received From
Taxation & Revenue Department
SUMMARY
Synopsis of Senate Bill 398
Senate Bill 398 (SB398) provides a "Citizen Income Tax Rebate" for eligible New Mexico
residents of about $500 per person for a seven-year period. The rebate structure includes:
A base rebate of $500 for individual taxpayers,
An additional $500 for each dependent claimed, and
An additional $500 for taxpayers who are married and filing jointly.
The rebate must be claimed on a personal income tax return by May 31 of the year following the
taxable year in which it applies. The rebate can be deducted from the taxpayer's New Mexico
income tax liability. If the rebate exceeds the taxpayer’s liability, the excess will be refunded. Senate Bill 398 – 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 rebate is applicable for tax years 2025
through 2032.
FISCAL IMPLICATIONS
The 2023 American Community Survey Five-Year reports DP02 and DP05 provide the
following data on population in households – presumably qualifying for the $500 citizens
income tax rebate.
1
Persons
$500 per qualifying
individual
Population in households 2,071,840
Householder 825,021 $412,510,500
Spouse 341,603 $170,801,500
Unmarried partner 71,198 $35,599,000
Child 604,918 $302,459,000
Other relatives 172,267 $86,133,500
Other nonrelatives 56,833 $28,416,500
$1,035,920,000
Total Population 2,114,768
Derived ineligible population 42,928
Non-residents > 6 months ?
In prison 5,421
This bill creates a recurring tax expenditure with a significant cost. 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. The committee recommends the bill adhere to the
LFC tax expenditure policy principles for vetting, targeting, and reporting or action be postponed
until the implications can be more fully studied.
The Department of Finance and Administration (DFA) has estimated a significantly lower cost
without fully explaining the methodology. LFC interprets DFA’s methodology to limit the rebate
to taxpayers currently filing. The provisions of the bill will allow any resident to file and claim
the refundable rebate. Using the Taxation and Revenue Department’s (TRD) 2022 Expenditure
Report and additional internal data, DFA projects the cost to be between:
$752 million and $810 million in FY26,
$771 million and $827 million in FY27,
$783 million and $840 million in FY28,
$789 million and $847 million in FY29.
TRD will incur significant expenses in administering these rebates.
SIGNIFICANT ISSUES
DFA discusses some significant features of the provisions of the bill:
Historically, New Mexico has distributed income tax rebates, most notably during
the Covid-19 pandemic and recovery. At the time, the rationale was that, despite the
1
https://data.census.gov/table/ACSDP1Y2023.DP02?q=ACS+DP02&g=040XX00US35&moe=false Senate Bill 398 – Page 3
high cost, these rebates provided critical household economic relief during a period
of uncertainty and then record-high inflation. However, past rebates were structured
as temporary, one-time payments. In contrast, SB398 proposes ongoing rebates
through the early 2030s.
Additionally, previous rebates were issued when the state experienced significant
revenue growth during the COVID-19 recovery. While Personal Income Tax (PIT)
and general fund revenues are expected to continue growing, they will do so at a
much slower pace. According to the December 2024 consensus estimate, projected
general fund recuring growth rates are:
1.7 percent in FY25,
2.6 percent in FY26, and
3.5 percent in FY27.
These rates are significantly lower than the growth observed in previous years:
2.9 percent in FY21,
19.7 percent in FY22,
19.8 percent in FY23, and
12.5 percent in FY24.
Lastly, it is important to consider that the high cost of these rebates to the general
fund’s PIT revenue may limit future opportunities for policy changes, such as
adjustments to tax brackets, credits, or deductions.
PERFORMANCE IMPLICATIONS
The LFC tax policy of accountability is met with the with the requirement include this tax
expenditure in the annual Tax Expenditure Report required by 7-1-84 NMSA 1978 that includes
data compiled from the reports from taxpayers taking the rebate and other information to
determine whether the rebate is meeting its purpose.
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
X
No interim debate. Senate Bill 398 – Page 4
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.
Purpose can be
inferred. Long term
goals cannot.
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
Required by 7-1-84
NMSA 1978.
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 X
Passes “but for” test X
Efficient: The tax expenditure is the most cost-effective way to achieve
the desired results.
X
Key: Met Not Met ? Unclear
LG/hj