We’re fortunate to have Sandia and Los Alamos National Laboratories, the Air Force Research Laboratory as well as White Sands Missile Range and several Air Force bases that are each developing cutting-edge technologies.
This work attracts the best and brightest minds to our state. Moreover, it clears a path for local businesses to capitalize on commercial spin-offs.
However, New Mexico’s tax code can strangle these high-tech companies, forcing high-skill jobs and contracts to other states.
This economic drain is particularly devastating to new technologies – like revolutionary new directed energy devices and optics being developed by numerous large and medium sized companies as well as small businesses like mine – that show enormous potential for long-term growth.
The problem lies with New Mexico’s type of sales tax – known as a Gross Receipts Tax (GRT) – which taxes the seller instead of the buyer. New Mexico is nearly the only state to tax the federal government. Of the few GRT states, most provide a tax exemption for federal contracts.
Of course, this makes it more expensive – by roughly 7 percent – to do federal contract work in New Mexico.
The extra cost hardly mattered in years past, when limited communications capabilities virtually required companies dealing with New Mexico’s National Laboratories to be close by. But the explosion of web conferencing, online file-sharing and virtual collaboration through the Internet has made it much easier to locate such work in any state.
And cost-conscious federal agencies are increasingly awarding the contracts to companies in other states that don’t pay the extra 7 percent tax.
This is sapping New Mexico’s leadership in key technology fields like directed energy weapons and optics products.
Thanks to the presence of the national laboratories and military facilities like White Sands Missile Range and Kirtland Air Force Base, New Mexico has the highest concentration of directed energy workers in the entire U.S., with more than 25 companies and small businesses employing hundreds of workers. As it grows, the industry could create thousands of jobs in New Mexico and generate millions of dollars in investment.
We need to stop these high-tech jobs from slipping through our fingers.
By amending our Gross Receipts Tax to allow a deduction for federal directed energy and optics work, the Legislature can bring New Mexico into step with nearly every other state and restore our ability to compete for these jobs and federal dollars.
Some local governments oppose such a deduction because they say it would reduce their tax revenue. This is like asking for a larger piece of a shrinking pie.
Without the deduction, many directed energy and optics companies would inevitably be forced to close or move out of state, slashing tax revenues and jobs for the entire state.
On the other hand, passing the deduction could bring more dollars and jobs to New Mexico, boosting property, income and other gross receipts tax revenues for all.
Jim McNally is director of strategic development at Applied Technology Associates, a high-tech company specializing in optics and directed energy systems.