Tax bill was major overhaul

The omnibus tax bill approved by the Legislature in the waning hours of its 2013 regular session is perhaps the biggest legislative achievement for Gov. Susana Martinez since she took office.

The bill doesn’t have an official name, but Martinez has given it an unofficial one: the “New Mexico Jobs Package.”

That’s a catchy name, but there is no guarantee the tax bill will create jobs, although that is the hope of Martinez and others who say the legislation will make New Mexico more competitive with neighboring states in attracting businesses and helping existing businesses grow.

There is one guarantee: Businesses will pay lower taxes as a result of the bill, which was approved with bipartisan support before the Legislature adjourned March 16.

The bill includes two major tax initiatives sought by Martinez: a reduction in the top-end corporate income tax rate and a change in tax law to allow manufacturers to use a “single sales factor,” meaning their taxes will be based entirely on New Mexico sales. Their taxes are now based on a combination of sales, payroll and property.

The Legislative Finance Committee has estimated the corporate tax cut and the single sales factor will cost the state nearly $215 million over the next four years.

Also, as part of the bill, the state will phase out its payments to cities and counties to make up for the 2004 elimination of gross receipts taxes on most food items, medicine and medical services.

The phaseout won’t start for two years and will be spread over 15 years, but local governments will lose — and state government will save — an estimated $8.7 million in fiscal year 2016 and $17.9 million in 2017.

Some local governments are saying they may have to raise taxes, but if the omnibus tax bill works as intended, additional tax revenues generated by business creation and expansion could offset the loss of the payments to local governments.

Another provision of the legislation heads off what could have been a costly unintended consequence of an expansion last year in the law that allows manufacturers to avoid paying some gross receipts taxes on goods that are purchased by them, then consumed in the manufacturing process.

There was an anticipation that power-generating companies would use the change in law to escape paying gross receipts taxes on natural gas used in making electricity. Also, there was a fear that oil companies might seek gross receipts tax exemptions for goods and services that they purchase.

The omnibus tax bill specifically says the gross receipts tax break doesn’t apply to goods used in the generation of power or the processing of natural resources.

“We were able to stop that before it got out of hand,” said Senate Finance Committee Chairman John Arthur Smith, D-Deming.

The Legislative Finance Committee had estimated the state would lose $89.7 million in tax revenue over the next four years without the narrowing of the tax exemption for manufacturers.

The omnibus tax bill also will tighten requirements for businesses to qualify for tax credits for creating high-wage jobs and allow some TV shows filmed in New Mexico to receive larger rebates.

Under another provision, some large retailers doing business in New Mexico but based elsewhere will be required to combine their earnings from all subsidiaries for tax purposes. It is a concept known as “combined reporting” and has been a longtime goal of some Democrats.

Tourism dollars

The Legislature gave the Tourism Department much of the money it wanted to expand its “New Mexico True” ad campaign to additional cities.

Under the state budget approved by lawmakers and sent to the governor, the department’s advertising budget would increase from $2.5 million to $4.5 million in the fiscal year beginning July 1. The department had asked for a bump to $5 million.

To help justify the request for more ad money, the Tourism Department had rolled out a study on a $1.2 million New Mexico True campaign last spring and summer in six metro areas in neighboring states.

The study by Longwoods International, a tourism research firm, found that the ad campaign caused 264,000 adults to visit New Mexico and spend $35.1 million while they were here.

The Tourism Department paid Longwoods $60,000 for the study as part of a larger contract between the state and the company.

UpFront is a daily front-page news and opinion column. Comment directly to Thom Cole at tcole@abqjournal.com or 505-992-6280 in Santa Fe. Go to ABQjournal.com/letters/new to submit a letter to the editor.
— This article appeared on page A1 of the Albuquerque Journal