PUB. 18 2021 ISSUE 3

Issue 3 • 2021 9 cited as one of the top reasons individuals choose not to open bank accounts. A reporting program of this magnitude would potentially undermine our local banks’ efforts to reach people suspicious of working with regulated financial institutions and would push those households on the tip of banking services back into the unbanked and underbanked. Despite assertions that his proposed program would be simple to execute and represent a low-cost mechanism to help narrow the tax gap, designing system capabilities to capture account inflows and outflows and other information is complex, expensive, and will take years. Having the raw data in a bank system does not mean it is easily complied with or produced to government specifications. The reporting system would need to apply across most, if not all, bank products – including many that do not currently require any IRS reporting and consequently do not have even the baseline analytical and reporting infrastructure needed to support this type of reporting. Additional representatives will then be necessary on an ongoing basis to assist customers and their income tax preparers in understanding this new data. This would be a significant operational undertaking, especially for community banks often dependent on third-party service providers for their system updates. Financial institutions already report a tremendous amount of data to the IRS. It is not clear that the reported information would improve the IRS’s ability to identify tax evaders or to deter evasion over and above the tools already at the IRS’s disposal. Hopefully, Congress will see the light and not include the reporting measure in the reconciliation package. But rest assured, this issue will continue to reappear in future Congressional discussions. Cannabis Banking Bill Included in National Defense Authorization Act: Let’s hope lightning will strike. I say that because a critical legislative committee in the U.S. House of Representatives has included the SAFE Banking Act, which provides clarity to financial institutions seeking to serve legitimate business as an amendment to the National Defense Authorization Act. The Act, which passed in the House in the last Congress but was not considered by the Senate, would provide a safe harbor for depository institutions serving cannabis businesses in states where such activity is legal. Currently, more than 35 states have legalized cannabis for medical or adult use. But current federal law prevents banks from safely banking cannabis businesses, including ancillary businesses that provide them with goods and services. State Issues Tax Deduction for Uniformed Retirees: Many bills have been introduced in the past several years to provide a deduction not to exceed $25,000 for uniformed services retirees to the State Income Tax Act. This deduction would be available for former members of the U.S. Army, Navy, Air Force, Marine Corps, and Coast Guard, and the commissioned officer corps of the National Oceanic and Atmospheric Administration. The deduction applies to uniformed services retirees who qualified either by years of service or disability to separate from the military service with lifetime benefits. The purpose of the proposed legislation is to encourage uniformed service retirees to make the state their place of residency. Proponents argue that there are many reasons why states may exclude some income for retirees, such as lessening the economic burdens for individuals on fixed incomes and trying to attract retirees to the state. Military retirees, in particular, may be skilled workers who have retired from a first career in the military but seek a second career in civilian service. Opponents indicated that exempting retirement income from income taxation may not necessarily help attract more military retirees. For example, Texas does not tax any income, yet the state features as one of the least tax-friendly states for retirees in the country because of its high property and sales taxes. Notably, New Mexico’s property taxes are among the lowest in the nation. It is, therefore, necessary to take a holistic look at New Mexico’s tax code, and attempts should be made to make the tax structure more simple, broad-based, and equitable, without being punitive to any segment of the population. It is estimated that the cost of the deduction, when fully implemented, could reach $24 million. New Mexico is one of eight states that fully tax military pensions. Twenty states do not tax military pensions but do have a personal income tax. Thirteen more states provide partial deductions or exemptions. State Bank: There have been rumors and discussions that state bank legislation may be introduced again. You may recall, legislation (HB 236-2021) was introduced during the 60-day Legislature and defeated soundly in the House n STATE LEGISLATIVE ISSUES continued on page 10 While we support adequate funding and resources to promote compliance with our tax laws, we do not support a proposal that would generate a new trove of data that the IRS is unlikely to use or protect and impact privacy for many Americans.