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Journal North: Home | Sports | Opinion | Obits | Entertainment
Tuesday, October 19, 2010
Candidates Clash on Corporate Tax
By Sean Olson
Journal Staff Writer
Democratic candidate Diane Denish called it the "defining moment" of the New Mexico gubernatorial campaign, but odds are it probably was a mystery to most viewers of her Sunday night debate with Republican Susana Martinez.
Denish asked Martinez if she favored closing a tax "loophole" she said would raise $70 million from out-of-state corporations for New Mexico's cash-strapped budget.
Denish confirmed later that she was referring to a complicated proposal to change corporate income taxation by New Mexico and adopt what is often referred to as "combined reporting."
Opponents say combined reporting would "impose substantial tax obligations on successful businesses simply for establishing New Mexico subsidiaries."
There also are much lower estimates of how much revenue combined reporting would generate — to as little as $14 million.
Combined reporting would apply mostly to big-box retailers and manufacturers such as Intel.
It has been introduced in the New Mexico Legislature but has never passed despite Democratic majorities in both houses and a governor in the Roundhouse.
Combined reporting would require a corporation that does business in New Mexico, but is based in another state, to combine earnings from all its subsidiaries in the same line of business, regardless of which state they are in, for tax purposes.
The company would then pay corporate income taxes to New Mexico on a portion of those earnings.
Martinez's response to Denish's question was that combined reporting would amount to a tax increase — something both candidates have promised not to do, at least during their first year in office.
"The answer's, 'No.' No more taxes, Diane," Martinez said.
The Denish-Martinez exchange during the Sunday night KOAT-TV/Journal debate was framed by Denish as a litmus test on whether Martinez is in the pocket of large out-of-state corporations.
Proponents say the changes would stop legal tax avoidance schemes, which allow companies to switch assets to subsidiary companies in other states with lower or nonexistent corporate income taxes.
Opponents say corporations already pay the taxes on their in-state earnings and combined reporting is a device to capture tax revenues from earnings in other states.
Sen. Peter Wirth, D-Santa Fe, who has sponsored combined reporting legislation for at least five years without success, wrote in a Journal opinion piece last year that the current corporate income tax laws were putting a heavier tax burden on local businesses and individuals. He said most western states have already passed combined reporting legislation.
"The same big-box and chain stores that operate in Arizona, California and Oregon pay corporate income taxes on the profits they make in those states," Wirth wrote. "Yet here in New Mexico we give those companies taking advantage of our law a free ride."
Dick Minzner, an Albuquerque lawyer, former legislator and former state tax secretary wrote in a Journal opinion piece last year that there were other ways to protect against companies that avoid paying state income taxes.
Minzner, a Democrat who lobbies for two companies that oppose combined reporting, said it would have "a negative impact on economic development without any substantial benefit to the state."
Denish, in the debate, said Martinez's answer proved she would be a puppet for big corporations.
"There you have it, that's the defining moment" Denish said. "She'll come down on the side of those big out-of-state corporations every single time. She won't close that tax loophole."
Martinez framed her opposition to the proposal as being against what she thinks is good economic philosophy.
"I do not support raising taxes," Martinez said. "Let me be very clear: I do not support raising taxes to recover economically."
Estimates for how much in revenues combined reporting would generate for the state have been all over the map.
Wirth said in his opinion piece that it would raise $40 million to $50 million. Minzner said it would only raise about $25 million.
Fiscal impact reports, prepared by the Legislative Finance Committee to evaluate the combined reporting legislation, have given estimates ranging from $14 million to more than $100 million, with many of the estimates depending on how strong the economy and retail markets are.
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