Legislators recognize the need for tax reform, and multiple proposals were considered during the 2018 session. But tax reform is complicated, and as we’ve learned from previous tax changes, repercussions can be catastrophic and long-lived because no one knows what the effects will be until the proposed changes have been codified and put into practice.
That’s why I’m urging that cities and counties have a seat at the negotiating table when tax policies are discussed and proposed legislation is amended.
These are the issues that should be in the forefront and part of any tax overhaul proposal:
• New Mexicans should benefit from online sales. Purchases made over the internet or through catalogs hurt small local businesses that are legally obligated to remit gross receipts taxes to the N.M. Tax and Revenue Department. The state cut a deal with Amazon to collect its portion of tax on certain kinds of internet sales, but cities were left out. The 2018 U.S. Supreme Court decision S. Dakota v. Wayfair made clear that it’s up to the New Mexico Legislature to create a path for local government to obtain its fair share of all remote transactions. Internet sales are growing; let’s find a way to level the playing field for our local businesses and encourage shoppers to purchase from main street stores that are the social fabric of our communities.
• Be true to the GRT system. The gross receipts tax system was designed to keep tax rates low by including more items – products and services – in the tax base. When the Legislature removed food from the tax base, it unleashed a series of proposed fixes that only exacerbated problems. Today, GRT rates are more than nine percent in some of New Mexico’s poorest communities, hurting the people the exemption was supposed to help. Many academics, including Robert J. Desiderio, emeritus professor of law at the University of New Mexico, who spoke at the July Revenue Stabilization and Tax Policy committee meeting, asserted that exempting food provided a greater benefit to upper income people than it did for those with lower incomes. Sen. John Arthur Smith, D-Deming, added that communities outside of metropolitan areas have been hurt the most because food is the primary merchandise sold by mom-and-pop stores that serve their communities. If New Mexico wants to retain its system of taxing gross receipts, it must include a wide variety of taxable items to enable the tax rate to go down. We advocate for an overall tax-rate reduction combined with a small local tax on food so that taxes generated by food purchases are returned to the community from which they were collected.
• Diversify the local tax base. Municipal budgets obtain up to 85 percent of their income from GRT. When oil is flowing, cities in oil-rich regions see a GRT revenue windfall, while towns without these assets can see their revenue plummet when workers leave for the new jobs or owners of a beloved local store retire and the store closes. By substituting a small portion of personal income tax revenue for an equally small portion of GRT, small communities would be protected. This revenue-neutral adjustment has the added benefit of encouraging small communities to attract out-of-state retirees whose incomes could contribute to the local economy through both GRT and income tax.
The New Mexico Municipal League is ready to assist legislators with forecasts and proformas that model potential municipal outcomes of proposed legislation. We look forward to working with the state of New Mexico 54th Legislature to protect and enhance residents across the state.