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Gov. Looking at Tax Cuts for Businesses

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SANTA FE – Republican Gov. Susana Martinez’s administration is considering a wide range of business-friendly tax proposals for next year’s legislative session in hopes of improving New Mexico’s economy.

Among the possibilities is reducing or eliminating the gross receipts tax on small businesses with a tax liability of less than $200 a month. That proposal could help about half of the 80,000 businesses in the state.

Scott Darnell, a spokesman for Martinez, said no final decisions have been made on what tax and economic development legislation will be recommended to lawmakers when they meet in January for a 30-day session.

“The governor’s focus will be on creating jobs for New Mexicans, and she hopes to work in a bipartisan way to grow the state’s economy and enact reforms that will create opportunities for businesses to hire new workers,” Darnell said in a statement.

Finance and Administration Secretary Tom Clifford said the administration is exploring corporate income tax revisions, including rate reductions and revamping a formula that determines how much of a multistate corporation’s income will be taxed in New Mexico.

“State taxes matter. If you manage your tax policy poorly, it’s going to make your economy less competitive,” Clifford told a legislative committee last week.

The gross receipts tax is imposed on the sales of services within New Mexico along with goods and equipment. Most states don’t tax services, but New Mexico’s tax applies to most transactions between businesses.

The tax averages about 7 percent statewide, and it has long been a target of criticism from New Mexico businesses because they say the tax makes them less competitive with companies outside of the state.

Small businesses contribute less than 2 percent of the money generated from the gross receipts tax, Clifford said, so it may be possible to lessen their administrative tax filing burden without a large cost to the state from reduced revenues.

The gross receipts tax is a main source of money for public education and other government operations, accounting for about a third of the $5.5 billion in revenues expected to flow into the state’s main budget account this year.

Mostly because of the gross receipts and corporate income tax structure, New Mexico imposes the highest tax burden on new business investment of any state in the nation, according to a study this year by the accounting firm Ernst & Young in conjunction with the Council on State Taxation, a Washington-based business association.

Clifford said the study is being updated to factor in tax incentives available to businesses to try to better assess New Mexico’s competitiveness with other states. The revised study also will consider the effects of possible policy changes by New Mexico, such as revisions to the corporate income and gross receipts taxes.

The New Mexico Tax Research Institute and Ernst & Young are working on the study, and Clifford said the findings will help the administration decide about tax proposals for next year’s legislative session.

Budget considerations also will play a role in what tax measures are proposed next year. Clifford said some tax proposals could be phased in over several years to minimize the immediate revenue loss to the state.

Terri Cole, president and CEO of the Greater Albuquerque Chamber of Commerce, said Monday that she hadn’t reviewed the tax proposals under consideration by the Martinez administration but that conceptually they “look very good and exactly on target.”

“Business, especially small business, will recover from this recession quicker if they are helped rather than hurt,” Cole said.
— This article appeared on page A1 of the Albuquerque Journal

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