SANTA FE — A House-approved plan to generate more state revenue by taxing internet sales, raising cigarette taxes and creating new personal income tax brackets for higher-earning New Mexicans was scaled back Thursday by a Senate committee.
The vote left the tax package in limbo with just two days left in this year’s 60-day legislative, as backers suggested they would resist the changes to the legislation.
They also said the tax measure, House Bill 6, is necessary to ensure the state has a stable revenue base to help pay for a proposed spending increase on New Mexico teacher salaries and other education initiatives.
“I’m not just trying to tax for the sake of taxing,” said Rep. Jim Trujillo, D-Santa Fe, the bill’s sponsor, during the Thursday meeting of the Senate Corporations and Transportation Commission.
But critics of the bill have questioned the wisdom of raising taxes while the state has an unprecedented $1.2 billion budget surplus — mostly from an oil drilling boom in southeast New Mexico.
“How we raise more revenue for the state (is by) raising the economy of the state,” said Sen. William Sharer, R-Farmington, during a previous committee hearing on the bill.
In its revised form, the tax package would increase some tax rates — specifically on cigarettes and motor vehicle purchases — while also broadening tax breaks for families.
It would also allow the state and local governments to start levying a tax on online sales — a 2018 U.S. Supreme Court ruling allowed states to do so — and would require nonprofit hospitals to pay the same gross receipts tax rate that other hospitals do.
But the Senate committee spiked a provision that called for the creation of new personal income tax brackets for individuals making more than $23,500 annually. New Mexico’s top bracket would jump to 6.5 percent from 4.9 percent under that change, essentially undoing a 2003 income tax cut signed into law by then-Gov. Bill Richardson.
In addition, the Senate Corporations and Transportation Committee reduced in size both the proposed tax rate on motor vehicle purchases — from 4.2 percent to 3.5 percent — and the proposed expansion of the working families tax credit from the House-approved version.
Those changes mean the tax bill would generate roughly $93 million per year — down from more than $300 million annually as initially written. But economists cautioned that projection could be altered after further study.
Cabinet secretaries in Gov. Michelle Lujan Grisham’s administration have testified in support of the original House version bill, and two high-ranking Governor’s Office staffers attended Thursday’s hearing.
But the Senate panel forged ahead with its changes, which were crafted by the committee’s chairman, Democratic Sen. Clemente Sanchez of Grants.
After being approved via a 5-2 vote, the downsized tax package now advances to another Senate committee and, if approved there, would go to full Senate.
If the Senate approves the revised version, it would be up to the House to decide whether to accept it or reject it.
If it’s rejected, that could lead to a conference committee in which representatives from both chambers would try to hammer out a compromise.
And backers of the initial bill suggested the Senate’s changes go too far.
“If we don’t raise a little bit of revenue … we won’t be able to honor our word for teachers,” Trujillo told reporters after Thursday’s hearing.
Meanwhile, House Speaker Brian Egolf, D-Santa Fe, said one part of a potential deal could be limiting personal income tax increases to affect only New Mexico residents who earn $250,000 or more per year.