SANTA FE – A high-profile plan to overhaul New Mexico’s tax code won’t be passed during a special session that gets underway today at the state Capitol, due to lingering concerns about whether it might end up eroding an already shaky state revenue base.
House Speaker Brian Egolf, D-Santa Fe, made the announcement Tuesday, saying the Legislature will instead focus on restoring vetoed funding – for legislative branch agencies and New Mexico colleges and universities – and several tax-related bills in what’s expected to be a short special session.
“It’s not fair to the public,” Egolf said of the timing of a proposal to revamp the state’s gross receipts tax system. “It’s not fair to the affected businesses. It’s not fair to the media. It’s not fair to the legislators to ask them to vote on something they haven’t read.”
Gov. Susana Martinez, a Republican, included the tax overhaul legislation on the special session’s to-do list, describing it as a way to balance the state’s budget for the coming year and make the tax code fairer.
She threatened on Tuesday to veto any tax increases that aren’t linked to a broader overhaul of the tax system.
The tax overhaul bill’s architect, Rep. Jason Harper, R-Rio Rancho, released an overview of the revised version of the legislation Tuesday that did not include a reimposition of the gross receipts tax on food items – a major sticking point for top-ranking Democrats.
He described the bill as a “hybrid” of his original proposal and a Democratic-backed tax package and said he was “confused” by Egolf’s comment that it would be dead on arrival.
“I think we should be able to see it before they conclude they can’t do it,” Harper told the Journal. “We’re not introducing any radically new concepts.”
But Democratic lawmakers have balked at the plan, a previous version of which stalled in the Senate during the 60-day legislative session that ended in March.
“Doing this at the last minute without the time for analysis can lead to really bad things,” said Rep. Bill McCamley, D-Mesilla Park. “These are complicated issues – they deserve thorough debate.”
The governor and top Democratic leaders met last week about the tax proposal and other special session issues, but the bill’s exact contents were not known until Tuesday – and could still change.
The measure would accomplish its original goal of eliminating dozens of gross receipts tax breaks and then reducing the base rate – including both state and local tax rates – from around 7 percent to roughly 6 percent.
Other provisions include:
• Increasing the tax on health insurance premiums by 1 percentage point.
• Doubling the state vehicle excise tax – from 3 percent to 6 percent.
• Removing certain types of tax “pyramiding” – or taxes on business-to-business transactions.
• Taxing purchases and sales by large nonprofit groups.
Harper said some of the revenue-generating provisions would take effect in February, and the overall rate would not be lowered until January 2019.
That would allow roughly $100 million in additional revenue to be generated before the rates were lowered. The bill is intended to be revenue-neutral eventually.
Other revenue bills could move quickly during the special session.
House Taxation and Revenue Committee Chairman Jim Trujillo, D-Santa Fe, said he would propose a bill imposing a gross receipts tax on internet sales – online giant Amazon has already begun collecting tax from in-state customers – and reducing the tax break for nonprofit hospitals.
That measure could generate more than $100 million in additional annual revenue for the state, but it’s unclear if Martinez would approve it.
“If the governor wants to veto the revenue bills, that’s her prerogative,” Trujillo told the Journal . “I’m not at all optimistic about what she’ll do, but I’m not pessimistic, either.”
The two-term Republican governor has vowed to oppose any tax increases approved by the Legislature, although she’s signaled an openness to raising revenue by closing tax “loopholes.”
A Martinez spokesman said Tuesday that the governor is “committed to balancing the budget without raising taxes” and will veto any attempt otherwise.
“If the speaker doesn’t want to consider tax reform, then he shouldn’t waste time passing tax hikes, because they will all be vetoed,” Martinez spokesman Michael Lonergan said. “Unfortunately, Speaker Egolf is already demonstrating for the state his refusal to work together towards any kind of compromise and instead is once again trying to jam the same old tax hikes through the Legislature.”
Vetoed tax hikes
Both the online sales and hospital tax provisions were included in a $350 million package of tax and fee increases the governor vetoed in April.
That package was intended to help pay for a $6.1 billion budget – for the fiscal year that starts July 1 – that would keep state spending largely flat after two consecutive years of budget cuts.
Meanwhile, both Egolf and Trujillo said they will support a $400,000 appropriation to study the state’s gross receipts tax system, with the goal of working with Harper to develop a bipartisan proposal. It could be considered in a later special session, Egolf said, or in next year’s regular 30-day session.
However, Harper said the study plan would represent the Legislature’s “punting” on the issue.
“It’s clear to me the Legislature only makes big changes like this when there’s a gun to its head,” he said.
Martinez called the special session earlier this month, after using her line-item veto authority to ax big chunks – roughly $779 million in all – from the spending bill passed by lawmakers.
She has also called on the Democratic-controlled Senate to confirm several of her regent nominees, but Senate President Pro Tem Mary Kay Papen, D-Las Cruces, ruled out that request earlier this week.
Egolf said he expects the House to move quickly today to restore funding for higher education and the Legislature itself.
In addition to the Democratic-backed revenue bills, a proposal to create a “rainy day” fund to help cover spending in years when oil and natural gas prices plummet will also be considered, he said.
Those proposals – which are similar to legislation considered during the regular 60-day session earlier this year – could be passed by the House and sent to the Senate as early as today, Egolf said.