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Tax overhaul bill hits dead end in special session

SANTA FE – A proposal to retool New Mexico’s gross receipts tax code – and rebrand it as a sales tax – hit a special session dead end in a House committee Thursday.

While the vote to table the 430-page tax change bill was expected after majority Democrats ruled out passage of the bill before this week’s special session, it still represented a stinging disappointment for Rep. Jason Harper, R-Rio Rancho, who worked for weeks to cobble it together.

“We are so risk-averse and so scared of reform,” Harper told reporters after a party-line vote in the House Labor and Economic Development Committee. “I felt like this was something the left and right could shake hands on.”

He also lamented the proposal having become a political hot potato, saying, “It’s very disappointing to me that this has turned into a partisan issue.”

But Democratic lawmakers expressed concern about the potential for unforeseen consequences, with Rep. Bill McCamley, D-Mesilla Park, saying the bill could have actually caused state revenue levels to plummet in the coming year.

“This bill would have created a further deficit … and I’m not ready to vote to cut schools any more,” McCamley said.

All six Democrats on the committee voted in favor of tabling the bill, which essentially represented its demise for the special session. All five Republicans on the panel voted against tabling the measure.

The bill was similar in intent to a similar tax measure that passed the House in this year’s 60-day legislative session and then stalled in the Senate, but it contained key differences.

It was added to the special session agenda by Gov. Susana Martinez, who has said it could make the state’s tax system fairer and easier to understand, while also generating short-term revenue to help stabilize the state’s financial footing.

The two-term Republican governor blasted the Democratic-controlled Legislature on Thursday for not having the “courage to pursue comprehensive tax reform” that she said would allow families to keep more of what they earn.

However, Democrats disputed the assertion, with Rep. Miguel Garcia, D-Albuquerque, saying it could hurt low-income New Mexico residents.

“Under this plan, health care costs would rise for working families, but there is nothing here to offset those new costs,” Garcia said.

In its special session form, the bill would have eliminated more than 70 gross receipts tax breaks and lowered the overall state and local base rate by about 1 percentage point – from around 7 percent to 6 percent.

It would have also removed some of the business-on-business taxes, while increasing the tax rate on vehicle sales and health insurance premiums.

Unlike a previous version of the bill, it would not have reimposed a tax on food items. A food tax exemption was enacted in 2004, and the state pays a subsidy to city and county governments to offset the forgone revenue.

John Monforte, the acting secretary of the state Taxation and Revenue Department, said a tax overhaul could help bolster New Mexico’s anemic economy, which has had the nation’s highest jobless rate for three consecutive months.

“If that is going to change, one of the key pieces to that puzzle is tax reform,” Monforte said during Thursday’s hearing.

But more than a dozen lobbyists, advocates and union leaders testified against the legislation, saying the bill could impose a greater tax burden on New Mexico’s health care system and had not been thoroughly analyzed.

And a legislative analysis of the bill, which was not publicly released until Wednesday, said it was “impossible to score precisely” its financial impact due to limitations in data.

“This is not ready for prime time,” said Dan Weaks, a policy consultant for the New Mexico Hospital Association. “I think it needs a lot more work.”