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Legislators Explore DOE Laboratories’ Uncertain Gross Receipts Tax Status

on September 29, 2016 - 5:10pm

Andrea Romero, executive director of the Regional Coalition of LANL Communities and Jack Jekowski, board member of the Regional Economic Development Initiative, petition the Legislative Finance Committee Wednesday in the Roundhouse. Photo by Roger Snodgrass/ladailypost.com

 

By ROGER SNODGRASS
Los Alamos Daily Post

Members of the New Mexico Legislative Finance Committee agreed Wednesday to look into the tax implications of impending contract changes at New Mexico’s two major Department of Energy laboratories, depending on whether one or both contractors should become non-profits.

The committee was briefed by Andrea Romero, executive director of the Regional Coalition of LANL Communities (RCLC) and Jack Jekowski, a principal partner of Innovative Technology Partnerships and board member of the Regional Economic Development Initiative. They warned legislators that state and local governments could lose gross receipts tax (GRT) revenues on the order of $200 million a year, depending on the outcome of new contract procurements underway at Los Alamos.

A Sandia National Laboratory acquisition process is currently bidding a new contract timed to kick in May 1, 2017, and a competition for the LANL management and operating contract is scheduled to be finalized by Oct. 1, 2018. The current contracts are both managed by for-profit, limited liability companies, which are required to pay GRT, but the new contract solicitations reopened the question of profit vs. non-profit management structures.

In a hand-out prepared for the legislative committee, RCLC provided data on annual GRT paid by the two weapons labs from 2006 (the year the current LANL contract began) to 2015, as reported by the National Nuclear Security Administration in a letter last week responding to the finance committee’s request.

SNL’s annual total reached a high-point in 2015, at $76 million. LANL’s state gross receipt taxes peaked in 2011 at $101 million. RCLC noted that LAN’s combined state and local tax impact, as estimated by UNM’s Bureau of Business and Economic Research for that year, including indirect activities, totaled about $136 million in that year.

Many elements of state and local governments have come to rely on what seemed at first to be a windfall from the restructuring, but has gradually been taken for granted.

During a brief discussion, Sen. Carlos Cisneros (D-Los Alamos, Rio Arriba, Santa Fe and Taos) asked if the tax exemption was included in the request for proposal as a criterion for awarding the bid.

Jekowski explained that the RFPs recognize receipts taxes as a legitimate payable, but that the controlling policy has to do with the state’s exemption of non-profits. He quoted the contract language in the current RFP for Sandia. “The offeror shall be a university or consortium of universities, or other non-profit, not-for-profit or non-profit organizations or an industrial firm as an autonomous organization.”

“They almost put a preference in there by putting the non-profit or university organization ahead of the industrial one,” Jekowski noted, adding that “individuals have suggested that they go back to the public interest model, but they are not specifically specifying a preference.”

Cisneros also asked if there were any precedents from other states that have had national facilities that have gone from for profit to non-profit, and if so, did that state implement an exception.

Jekowski said it was difficult to answer directly because of the complexities and differences and complexities between New Mexico’s unique GRT policy and facilities like the Hanford Site in Washington State and Oak Ridge in Tennessee, both of which have faced similar issues, but not the same situation of having to lose the revenue.

Would it not be an incentive for the Department of Energy to contract with a non-profit that would not have to pay the taxes, asked Sen. James White (D-Bernalillo, Sandoval, Santa Fe and Torrance).

“It was a hurdle in 2006, when LANS took over,” Jekowski said.

At that time there was something like $60 million to $70 million in additional costs, but no new money to pay for it. In theory the money was supposed to be the greater efficiency of the for-profit organization. 

“DOE would really like to see that money go into program rather than taxes,” Jekowski agreed, but added that there was no formal criteria for that in the solicitation.

In concluding the agenda item, Cisneros said that the Legislative Council Service, responsible for legislative drafting and legal research, would look into it.

The RCLC is an organization that includes eight cities, counties and pueblos neighboring Los Alamos. The governmental entities contribute to the group’s operating budget, which also is supported by funding from the Department of Energy.


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