‘Game changer’ tax deal signed

A sweeping tax bill intended to spark job creation by reducing corporate tax rates, encouraging TV shows to produce in New Mexico and exempting manufacturers from taxes on out-of-state sales was signed into law Thursday by Gov. Susana Martinez.

Meanwhile, in provisions intended to offset state revenue losses from tax cuts, the bill requires large retailers to pay state taxes and starts a 17-year phaseout of state payments to counties and municipalities for lost gross receipts taxes on food and medicine.

The tax package became the biggest headline of the state’s 2013 legislative session after it was negotiated by the governor and lawmakers in the last days of the session and passed by the Senate and House in the final 45 minutes.

Martinez on Thursday called the tax legislation a “game changer” for New Mexico’s economy. She said the changes will diversify the state’s economy and help New Mexico compete with neighboring states in trying to attract new business.

“This is reform,” the governor said during a bill-signing ceremony at a the University of New Mexico. “This is what New Mexicans have demanded of us. This is competing for jobs, and it’s good for New Mexico’s economy.

“It’s not a perfect package, and not everyone got everything that they wanted, but it was a team effort, and I’m proud of how so many put aside differences to do what’s right by New Mexico,” Martinez said.

Sen. John Arthur Smith, D-Deming, chairman of the Senate Finance Committee, which cobbled together most of the tax bill, said the tax plan is intended to help companies hire more workers.

“We need jobs now,” said Smith, who attended the bill signing with Martinez. “This is a start for New Mexico. It’s not the sole answer. We have lots of other work we need to do.”

The bill lowers the corporate income tax rate from 7.6 percent to 5.9 percent over the next five years.

The corporate income tax reduction is estimated to cost the state nearly $63 million in annual revenues by 2017. The projection, however, does not account for potential economic growth and additional taxes that would be generated by new companies relocating to the state.

Martinez said the corporate income tax reduction was necessary to help lure big companies to join the state’s small-business base.

“Those are the companies that are hiring hundreds of employees,” Martinez said. “Why wouldn’t we want that?”

Martinez said she would continue efforts to expand small-business incentives as well.

Critics have charged that the corporate income tax reduction amounts to a state giveaway for big companies that will not create noteworthy gains for the state economy.

“Giving tax breaks to corporations with no performance accountability attached to them will not serve the interests of New Mexico’s children and working families,” New Mexico Voices for Children Director Veronica García said in a news release. “These tax-cuts-for-jobs schemes are known to be ineffective at creating jobs and growing an economy that works for everyone.”

The “single-sales factor” portion of the bill, allowing corporations to calculate their taxes entirely on the amounts of the their sales within New Mexico, is intended to support New Mexico’s fastest-in-the-nation growth in the manufacturing sector, Martinez said.

The single-sales factor provision is estimated to cost the state about $40 million in lost revenues by 2017.

House Speaker Ken Martinez, D-Grants, praised the effort to expand the state’s manufacturing exports as a tool to bring out-of-state revenues back to support New Mexico jobs.

“When you export goods from the state, you’re importing dollars,” Martinez said.

To help offset lost tax revenues, the bill phases out millions of dollars subsidies the state pays each year to local governments since the state ended taxation on food an medicine in 2004.

Starting in 2016, the state’s largest 12 counties and 21 municipalities will lose about 6 percent of their annual food-and-medicine tax subsidy each year.

Some municipalities and counties have said the cut will force them to raise local taxes or cut services, but supporters say the long, 17-year phaseout will insulate local governments from abrupt changes.

The bill adds new rules on so-called “combined reporting” for out-of-state retailers with stores in New Mexico, requiring those companies to pay state taxes on New Mexico sales.

Martinez last year vetoed a version of combined reporting that targeted “big-box” retailers, such as Walmart. The version signed into law Thursday exempts companies that expand New Mexico operations by opening regional distribution centers or other nonretail operations that employ a lot of workers.

The tax bill also tightens rules to limit excessive use of the established High Wage Jobs Tax Credit and restricts some manufacturing tax deductions.

Meanwhile, Martinez signed 20 other bills from the legislative session that ended March 16. They include:

⋄  Ending “double dipping” on water rights by barring new subdivisions from using domestic wells on land where agricultural water rights have already been sold; sponsored by Sen. Peter Wirth, D-Santa Fe.

⋄  Creating an exception in the state’s open container laws so that passengers traveling in chartered buses and limousines, but not via public transportation, can consume alcohol; sponsored by Sen. John Sapien, D-Corrales.

⋄  Enacting a loan repayment program for teachers in certain schools designated by the Public Education Department that are in high-poverty areas and have unacceptable academic proficiency levels; sponsored by Rep. Sheryl Williams Stapleton, D-Albuquerque.

⋄  Requiring school boards to come up with cyberbullying prevention policies by August 2013; sponsored by Rep. Sheryl Williams Stapleton, D-Albuquerque.

⋄  Requiring courts handling civil cases to give scheduling preference to claims of unpaid or underpaid wages; sponsored by Rep. Phillip Archuleta, D-Las Cruces.

⋄  Increasing the family income cap for eligibility for the New Mexico Scholars college scholarship program from $30,000 annually to $60,000; sponsored by Sen. Craig Brandt, R-Rio Rancho.
— This article appeared on page A1 of the Albuquerque Journal