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Tax overhaul high on legislative list

Copyright © 2019 Albuquerque Journal

SANTA FE – Overhauling New Mexico’s tax code has proved to be a tall task in recent legislative sessions.

But top-ranking lawmakers say there’s an appetite to enact sweeping changes to the state’s “broken” tax system during the 60-day session that starts next week, partly because unprecedented state revenue could provide a buffer if estimates of the financial impact of tax revisions prove to be off the mark.

“We have a bipartisan desire to tackle tax reform, and we have a little cushion to do so,” said Senate Majority Leader Peter Wirth, D-Santa Fe.

Several proposals are being drafted that would lower the state’s base 5.25 percent gross receipts tax rate, which functions similarly to a sales tax, and eliminate existing tax exemptions and loopholes.

A personal income tax increase for top wage-earners could also be part of the package, along with a tax on internet sales.

Gov. Michelle Lujan Grisham, a Democrat who was sworn into office this month, has indicated she would consider supporting tax overhaul legislation but would closely scrutinize the impact of any such bill on New Mexico families and local governments.

“She’s open to having a robust discussion on the subject of GRT reform,” her spokesman, Tripp Stelnicki, said Wednesday.

Although some previous tax overhaul proposals have been engineered to be revenue-neutral, two of the tax bills in the works for this year’s session would be aimed at increasing recurring revenue levels.

Rep. Jim Trujillo, D-Santa Fe, chairman of the House Taxation and Revenue Committee, said his legislation, not yet filed, could help pay for increased teacher salaries in future years, as most of the state’s current revenue uptick is due to a recent boom in the historically volatile oil industry.

“We better have the recurring revenue coming in (to pay for that), or else we’re going to be in trouble,” Trujillo told the Journal.

He said his bill would lower the gross receipts tax base rate by nearly 1 percentage point, repeal roughly 20 existing tax breaks, add a new personal income tax bracket for high-income New Mexicans and allow the state – along with cities and counties – to collect taxes on internet sales.

Because the bill has not been introduced, it’s unclear how much annual revenue it might generate. But reducing the state’s gross receipts tax rate by just 0.6 percentage point could mean a loss of $430 million in revenue in the coming budget year, according to recent Legislative Finance Committee estimates.

House Minority Whip Rod Montoya, R-Farmington, accused Democrats of using the “tax reform” label as political cover to raise taxes.

“In reality,” he said Wednesday, “it’s just a comprehensive tax increase.”

The focus, Montoya said, should be on crafting a broad package of tax changes that would simplify New Mexico’s tax system and make it more business-friendly, but without raising revenue overall.

To that end, he said, Republicans and Democrats might be able to reach consensus on some ideas, such as taxing online sales and not-for-profit hospitals as part of broader changes.

Food tax

One sticking point in the tax overhaul debate will be whether to reinstate the gross receipts tax on food.

There has been fierce opposition to previous proposals to reinstate the food tax – after such a tax was repealed in 2004 – but a tax overhaul bill expected to be filed by Sen. Carlos Cisneros, a Questa Democrat, would do just that, likely starting in 2021.

The bill would be similar in other ways to the legislation that’s expected to be introduced by Trujillo, which would not include a food tax provision.

Although Cisneros acknowledged that bringing back the food tax is not a politically popular idea, he said doing so would allow for a larger reduction in the base gross receipts tax rate.

Meanwhile, Wirth said he has asked senators not to draw a line in the sand before studying the various tax proposals.

“It just gets hard to govern when you take things off the table,” he told the Journal.

The New Mexico Municipal League, which represents cities and towns statewide, has advocated for at least a partial reinstatement of the tax on groceries, but other organizations have staunchly opposed such a proposal.

A 2010 plan to impose city and county gross receipts taxes on most food items – approved by the Democratic-controlled Legislature in the midst of a state budget crunch – was dubbed a tortilla tax by opponents and ultimately vetoed by then-Gov. Bill Richardson.

Proposed tax breaks

Even as lawmakers discuss eliminating existing tax exemptions, new tax breaks are being proposed at the Roundhouse.

Pre-filed bills include measures to give property tax exemptions to certain seniors and disabled New Mexicans, as well as a proposal to bring back an income tax credit for those who install solar energy panels at their homes or businesses.

Senate GOP Whip Bill Payne of Albuquerque said most gross receipts tax exemptions are well-intended, but he said their net impact has caused overall tax rates to surpass 8 percent in some New Mexico cities, including Las Cruces, Santa Fe and Farmington.

“I suspect there will have to be some kind of tax reform, because the gross receipts tax is getting out of whack,” Payne said.

Meanwhile, Senate Majority Leader Wirth said there could be more wiggle room in this year’s tax debate because Lujan Grisham has not pledged to veto any tax increases, as former Gov. Susana Martinez did.

“I think tax reform is an important issue that can’t wait,” Wirth said. “We’ve carved out so many exemptions and loopholes that we’ve created big winners and big losers.”

He and other legislators say it’s high time to get to work on fixing that.

“This is probably our best shot at any reform if we’re going to do it,” Cisneros said.

Journal Capitol Bureau reporter Dan McKay contributed to this report.

 

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