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-SENATE BILL 182
-
-57th legislature - STATE OF NEW MEXICO - second session, 2026
-
-INTRODUCED BY
-
-Joshua A. Sanchez and Crystal Brantley and Pat Woods
-
-AN ACT
-
-RELATING TO TAXATION; PROVIDING A GROSS RECEIPTS TAX DEDUCTION
-FOR DYED DIESEL; REPEALING A GROSS RECEIPTS TAX CREDIT FOR DYED
-DIESEL USED FOR AGRICULTURAL PURPOSES.
-
-BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:
-
-     SECTION 1.  A new section of the Gross Receipts and
-Compensating Tax Act is enacted to read:
-
-     "[NEW MATERIAL] DEDUCTION--GROSS RECEIPTS TAX--DYED
-DIESEL.--
-
-          A.  Prior to July 1, 2031, receipts from the sale of
-special fuel dyed in accordance with federal regulations may be
-deducted from gross receipts.
-
-          B.  A taxpayer allowed a deduction pursuant to this
-section shall report the amount of the deduction separately in
-a manner required by the department.
-
-          C.  The deduction provided by this section shall be
-included in the tax expenditure budget pursuant to Section
-7-1-84 NMSA 1978, including the annual aggregate cost of the
-deduction."
-
-     SECTION 2.  REPEAL.--Section 7-9-58.1 NMSA 1978 (being
-Laws 2024, Chapter 67, Section 15) is repealed.
-
-     SECTION 3.  EFFECTIVE DATE.--The effective date of the
-
-provisions of this act is July 1, 2026.
-
-- 2 -
+Fiscal impact reports (FIRs) are prepared by the Le gislative Finance Committee (LFC) for standing finance
+committees of the Legislature. LFC does not assume responsibility for th e 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
+
+BILL NUMBER: Senate Bill 182
+SHORT TITLE: Dyed Diesel Deduction
+SPONSOR: Sanchez/Brantley/Woods
+LAST
+UPDATE:
+ ORIGINAL
+DATE:
+
+2/2/2026
+
+ANALYST: Faubion
+
+REVENUE*
+(dollars in thousands)
+Type FY26 FY27 FY28 FY29 FY30 Recurring or
+Nonrecurring
+Fund
+Affected
+GRT $0.0 ($68,600.0) ($73,100. 0) ($75,400.0) ($80,100.0)  Recurring General Fund
+GRT $0.0 ($45,700.0) ( $48,700.0) ($50,300.0) ($53,400.0) Recurring Local
+Governments
+Parentheses indicate revenue decreases.
+*Amounts reflect most recent analysis of this legislation.
+
+Sources of Information
+
+LFC Files
+
+Agency or Agencies Providing Analysis
+NM Department of Agriculture
+NM Municipal League
+Taxation and Revenue Department
+
+Agency or Agencies That Were Asked for Analysis but did not Respond
+Department of Transportation
+NM Counties
+
+SUMMARY
+
+Synopsis of Senate Bill 182
+
+Senate Bill 182 (SB182) creates a temporary gro ss receipts tax (GRT) deduction for receipts
+from the sale of dyed diesel fuel , as defined under federal regul ations, allowing the deduction to
+be claimed through June 30, 2031. The bill also repeals the existing gr oss receipts tax credit for
+dyed diesel used for agricultura l purposes enacted in 2024, replaci ng that credit with the broader
+deduction. The effective date of this bill is July 1, 2026.
+
+FISCAL IMPLICATIONS
+
+Estimating the fiscal impact of this bill is inheren tly difficult due to the lack of current, detailed,
+and New Mexico–specific data on dyed  diesel use. Dyed diesel, a fu el dyed red to indicate it is
+Senate Bill 182 – Page 2
+
+intended for off-highway uses such as agriculture, construction, and rail, is not consistently
+tracked in available data sources. Available data sources do not consistently identify the volume
+of dyed diesel sold in the state by end use, purchas er type, or tax district, nor do they distinguish
+between these off-highway uses. In addition, public ly available data on dyed diesel prices and
+volumes are typically national or  regional in scope a nd must be adapted to New Mexico using
+assumptions that may not reflect current market conditions or compliance behavior. Because the
+deduction is self-reported and applies broadly to dyed diesel sales, the degree of utilization,
+potential misclassification, and ov erlap with the repealed agricu ltural credit are uncertain,
+making any fiscal estimate subject to significant variability and risk.
+
+LFC estimated the fiscal impact by first using U.S. Energy Information Administration (EIA)
+data to determine the historical  relationship between dyed diesel and on-highway diesel use in
+New Mexico. Projected gallons of on-highway special  fuels were taken from the New Mexico
+Department of Transportation’s fuel tax forecast , and the historical EI A share was applied to
+those forecasts to estimate future  gallons of dyed diesel sold in  the state. LFC applied the EIA’s
+2025 diesel price to the estimate d dyed diesel volumes to calcula te taxable rece ipts and then
+grew those receipts forward usi ng an inflation factor to reflec t expected price growth over the
+forecast period. The estimated receipts were mu ltiplied by the statewide weighted-average gross
+receipts tax rate, and the resul ting revenue impact was allocated between the stat e general fund
+and local governments using statewide GRT distributions.
+
+The Taxation and Revenue Department (TRD) co llected data on dyed special fuel reported
+during FY25 for the special fuels supplier tax that is deducted and reported under Section 7-16A-
+10 NMSA 1978. TRD estimated future  volumes of dyed special fuel  by applying the rate of
+growth of the special fuels tax from the NM Department of Transportation’s (DOT) January
+2026 state road fund forecast. For the price estimates, TRD averaged PADD 3 (Gulf Coast
+District) diesel sales prices in FY25 as re ported by the EIA and produced a price projection
+based on the S&P global chained price index for ecast for consumer fuel. A statewide effective
+GRT rate of 6.94 percent was applied to calculate  the estimated revenue impact and then the
+revenue impact was split as 60 percent general fund and 40% local governments.
+
+TRD notes when the GRT credit for dyed diesel that this bill will repeal was enacted in 2024, the
+credit was estimated to have a significant genera l fund fiscal impact. Since that time, GRT credit
+claims have been minimal and the December 2025 GRT forecast of the Consensus Revenue
+Estimating Group reflects minimal costs associated with the GRT credit repealed in this bill.
+TRD assumed that all sales of dyed special fuel can be deducted from GRT. Currently, taxpayers
+may claim a GRT credit for selling special fuel dyed for use primarily  in agriculture. The fiscal
+analysis assumes that the revenue loss will be larger than it currently is under this deduction, as it
+removes the restriction on use for agricultura l purposes. Moreover, as separately reported
+deductions are less burdensome to claim than cr edits, the bill provides incentives and a much
+simpler process for taxpayers to obtain the fiscal benefit.
+
+This bill creates or expands a ta x expenditure with a cost that is  difficult to determine but likely
+significant. LFC has serious conc erns about the substantial risk  to state revenues from tax
+expenditures and the increase in revenue volat ility from erosion of the revenue base. The
+committee recommends the bill a dhere to the LFC tax expenditure policy principles for vetting,
+targeting, and reporting or action be postponed until the implications can be more fully studied.
+
+Senate Bill 182 – Page 3
+
+SIGNIFICANT ISSUES
+
+Under current law, New Mexico taxes motor fuel s differently depending on whether the fuel is
+intended for on-road or off-road  use. Clear fuels—gasoline a nd undyed diesel—are subject to
+federal and state motor fuel excise taxes, which function as road-use fees. Because those excise
+taxes are paid, receipts from sale s of clear fuels are generally ex empt from the gross receipts tax
+(GRT). In contrast, dyed fuels are chemically ma rked under federal regulations to indicate they
+are intended for off-highway uses such as agricu lture, construction equipment, generators, rail,
+and other non-road applications . Dyed fuels are exempt from motor fuel excise taxes, but
+because no excise tax is paid, receipts from sale s of dyed special fuels are currently subject to
+GRT.
+
+As a result, dyed fuels are presently taxed thr ough the GRT system, except for agricultural use
+which are currently able to appl y an offsetting credit. This bill  would alter this structure by
+allowing a deduction for receipts from the sale of all dyed diesel, eff ectively removing dyed
+diesel from both the motor fuel excise tax base  and the GRT base. This would create a category
+of fuel that is not subject to either form of  taxation, raising equity and neutrality concerns
+relative to other fuels that perform similar functions but remain taxed.
+
+TRD explains that, under current law, receipts from special fuels are exempt from the gross
+receipts and compensating tax only when the speci al fuels excise tax has been paid; because
+dyed special fuels are exempt from the excise tax, receipts from their sale are currently subject to
+GRT. TRD notes that this bill would allow receipts from dyed di esel to escape both the excise
+tax and GRT, raising tax policy concerns by narrow ing the tax base, distor ting fuel markets, and
+violating horizontal equity by favoring certain fuel s that are otherwise similar in use. TRD also
+cautions that allowing a deduction for dyed diesel  increases the risk of miscategorization and
+misreporting and could add audit complexity. At the same time, TRD indicates that replacing the
+existing dyed diesel credit with a separately stat ed deduction would be administratively simpler,
+eliminating the need for appl ications and manual reviews and improving transparency and
+evaluation of the deduction’s cost and effectiveness.
+
+The New Mexico Municipal League  reports that the gross receip ts tax deduction in this bill
+would substantially reduce munici pal GRT revenues, which account for more than two-thirds of
+total municipal general fund reve nue and are a primary source of funding for essen tial services
+such as public safety, operations, and employee compensation. The Municipal League notes that
+the bill does not include a cap on the amount of GRT that may be deduc ted, increasing fiscal
+uncertainty and limiting municipa lities’ ability to plan for or  mitigate revenue losses. Although
+the deduction includes a July 1, 2031 sunset date, the Municipal League cautions that sunsets are
+often extended or removed, poten tially resulting in permanent r ecurring revenue reductions. The
+Municipal League further indicates that munici palities have limited alternative revenue options,
+and continued erosion of the GRT base could n ecessitate tax increases that disproportionately
+affect lower-income residents,  particularly amid uncertainty  in federal funding. Finally, the
+Municipal League raises concerns that redu ced GRT revenues could w eaken municipal debt
+service coverage ratios and ne gatively affect bond ratings, incr easing borrowing costs for local
+governments.
+
+This bill narrows the gross receipts tax (GRT) base. Many New Mexico tax reform efforts over
+the last few years have focused on broadening th e GRT base and lowering the rates. Narrowing
+the base leads to continually rising GRT rates, in creasing volatility in the state’s largest general
+Senate Bill 182 – Page 4
+
+fund revenue source. Higher rates compound tax pyramiding issues and force consumers and
+businesses to pay higher taxes on all other purchases without an exemption, deduction, or credit.
+
+PERFORMANCE IMPLICATIONS
+
+The LFC tax policy of accountability is met with the bill ’s requirement to report annually to an
+interim legislative committee regarding the data compiled from the reports from taxpayers taking
+the deduction and other information to determine whether the deduction is meeting its purpose.
+
+ADMINISTRATIVE IMPLICATIONS
+
+The Taxation and Revenue Department would incur administrative costs to implement this bill,
+including updating tax forms, inst ructions, publications, and info rmation systems to allow for
+separate reporting and verification of the dyed diesel gross receipts tax deduction.
+
+OTHER SUBSTANTIVE ISSUES
+
+In assessing all tax legislati on, LFC staff considers whether th e 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 whethe r the bill meets principles speci fic 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 records of an
+interim committee
+hearing could 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 Rev enue Department, and other relevant
+agencies
+
+The deduction must
+be reported annually
+in the public Tax
+Expenditure Report.
+
+There is a sunset.
+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 ? There are no goals
+or targets by which
+Senate Bill 182 – Page 5
+
+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.
+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/dw/sgs