Summary:

 House Bill 324 (HB 324) proposes the authorization of school tuition organizations to award educational scholarships to eligible low-income students for attending private schools in New Mexico. The bill establishes an Educational Scholarship Income Tax Credit for individual taxpayers and an Educational Scholarship Corporate Income Tax Credit for corporate entities contributing to school tuition organizations. HB 324 takes effect on January 1, 2025. 

Legislation Overview:

 House Bill 324 (HB 324) authorizes school tuition organizations to award scholarships to eligible students to attend private schools in New Mexico. The New Mexico Public Education Department (PED) will oversee the authorization process, ensuring compliance with eligibility and operational requirements. School tuition organizations must allocate at least 90% of annual contributions toward scholarships and are prohibited from limiting awards to a single school or facilitating donor-specified designations. These organizations must also submit annual reports detailing their contributions, scholarship distributions, and financial audits.

HB 324 creates two tax credits to incentivize contributions to school tuition organizations. The Educational Scholarship Income Tax Credit allows individual taxpayers to claim a tax credit for contributions made to such organizations, with a cap of $700 for single filers and $1,400 for joint filers, adjusted for inflation beginning in 2026. The Educational Scholarship Corporate Income Tax Credit permits corporate taxpayers to claim credits up to $1,400 for contributions to school tuition organizations, also subject to inflation adjustments. Both credits are non-refundable but may be carried forward for up to three consecutive tax years.

The bill mandates financial audits for school tuition organizations receiving at least $500,000 in contributions annually and financial reviews for those receiving less than $500,000. The Public Education Department must maintain a public registry of authorized organizations and publish annual reports summarizing the scholarship awards and financial data. HB 324 applies to taxable years beginning on or after January 1, 2025.

Implications

HB 324 has direct fiscal implications for the state due to the introduction of two new tax credits. The Educational Scholarship Income Tax Credit and the Educational Scholarship Corporate Income Tax Credit will reduce the amount of revenue collected under the state’s income tax system. The actual fiscal impact will depend on the number of taxpayers claiming these credits and the total contributions made to school tuition organizations.

The requirement for financial audits and reviews may impose administrative costs on school tuition organizations, particularly those with significant revenue. Additionally, PED will need resources to oversee the authorization process, maintain compliance monitoring, and manage the public registry. The bill does not specify a cap on the aggregate amount of tax credits available, which could result in substantial revenue reductions if participation is high. However, the requirement to report annual fiscal impacts in the tax expenditure budget ensures legislative oversight of the program’s financial effects.
 

Current Law:

 Under current New Mexico law, there is no authorization for school tuition organizations to provide scholarships using private contributions, nor are there tax credits for donations to such organizations. Existing tax policy does not include a dedicated income tax credit mechanism for educational scholarship contributions. Private school tuition is not currently subsidized through direct tax incentives, and financial oversight requirements for private scholarship organizations are not in place at the state level. HB 324 establishes a new regulatory framework for these organizations and introduces tax benefits for donors contributing to private school scholarships.