SANTA FE — New Mexico lawmakers will get their first peek Tuesday at the results of a $400,000 study aimed at helping them analyze how to overhaul the state tax code.
Supporters say it should give the Legislature much more confidence that changing the state’s complex system of gross receipts taxes wouldn’t create unintended consequences that damage state revenue.
Democratic legislative leaders have warned that the coming 30-day session probably won’t provide enough time for a broad rewrite of New Mexico’s tax code — a priority of Republican Gov. Susana Martinez.
But Rep. Jason Harper, R-Rio Rancho, said Monday that he believes the
Legislature and governor can find common ground on some important components of “tax reform.” The key is to make sure that, as a whole, the changes “revenue-neutral,” he said, and a computer model developed by the study could help provide that information.
Harper has repeatedly pushed to address “pyramiding” — the taxation of business-to-business transactions. Eliminating or reducing those taxes, of course, would cut into state revenue.
Democrats, on the other hand, have pushed to increase tax rates or remove exemptions on commercial trucks, some hospitals and gasoline, which would boost revenue.
There’s been intense debate over how much each change would affect the state’s bottom line.
The computer model that lawmakers will hear about today may help answer those questions.
Sen. William Sharer, R-Farmington, said he’s hopeful that now is the time New Mexico will move toward a much simpler tax system. He favors a flat 2 percent gross receipts tax on a broad base of services and products — the key, of course, being that it must raise enough revenue to pay for government services.
“Plain and simple, there is nothing simple about our current system,” Sharer said. “The new tool gives us hope for fairness.”
The Legislature’s Revenue Stabilization and Tax Policy Committee, meanwhile, heard a presentation on Monday from Tom Clifford, a former chief economist for the Legislative Finance Committee and a former Cabinet secretary for finance and administration under Martinez.
He said that, broadly speaking, New Mexico relies more heavily on gross receipts and sales taxes to pay for government services than the average state and less on property taxes.
There’s some potential, then, to shift more of the financial burden to property taxes, he said, while reducing gross receipts taxes.
“There’s very strong policy arguments for making that switch,” he said.
The reliance on gross receipts taxes — which generally cover business-to-business transactions, such as when a small shop hires an accounting firm to do handle its bookkeeping — may discourage private investment.