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New Mexicans to start paying more taxes next week

Copyright © 2019 Albuquerque Journal

SANTA FE – Starting Monday, New Mexicans will face new taxes when they shop online at national retailers – part of a broad package of tax changes approved in the final hours of this year’s legislative session.

Buying a car or a pack of cigarettes will cost more, too.

But the tax on some cigars will go down.

Supporters of the complex tax measure, House Bill 6, say the legislation will help provide a stable revenue source to cover the cost of increased education spending, in addition to paying for road improvements to accommodate the oil boom in southeastern New Mexico.

Sen. Gay Kernan, a Hobbs Republican who voted for the legislation, said she had mixed feelings about the bill. She objected to some of the tax increases but saw the legislation as a necessary step for road projects in southeastern New Mexico, home to the Permian Basin.

For the next two years, the extra revenue generated by raising the tax on motor vehicle sales from 3% to 4% – about $50 million a year – will go toward road projects in the southeastern part of the state, with an emphasis on addressing emergency road conditions related to oil field activity.

Kernan said people are dying on the roads in her part of the state every other week. But the tax increases made it a tough vote, she said.

“It’s very dangerous down there,” Kernan said. “If I take a hit on the other (parts of the bill), so be it.”

Legislative analysts said that depending on the jurisdiction, vehicle excise tax rates in Texas, Colorado and Arizona are double the 3 percent rate New Mexico has been charging.

The tax package won Senate approval 15 minutes before the session ended in March – the product of intense negotiations the final night before adjournment.

Online tax

The bill will reshape the tax system for New Mexicans who shop online.

Businesses with sales over $100,000 a year to New Mexico customers will have to start charging the statewide gross receipts tax of 5.125%. The city and county portions of that tax – which can push the overall rate above 8% – will have to be collected starting in 2021.

Supporters say it will help level the playing field for local businesses that compete with out-of-state retailers. Until now, a business physically located in New Mexico would have to pay the tax but a national retailer wouldn’t, with some exceptions.

“Extending gross receipts taxes to e-commerce businesses that don’t have a physical presence here eliminates an unfair competitive advantage those companies enjoyed at the expense of homegrown, New Mexico-based businesses,” state Taxation and Revenue Secretary Stephanie Schardin Clarke said in a written statement.

State officials say the change is an important way to keep up with consumers’ changing behavior.

The tax change “is an important move that will also ensure the State’s revenues will grow along with the economy and the need for public services into the future,” Schardin Clarke’s statement said.

Cigarette tax

Smoking will also be taxed at a higher rate Monday.

The typical tax on a pack of cigarettes will climb to $2, up from $1.66. There will also be new taxes on e-cigarettes and related products.

There are also changes to cigar taxes, with a new limit of 50 cents of taxes per cigar.

Sandra Adondakis, New Mexico government relations director for the American Cancer Society Cancer Action Network, said the tax increase on cigarettes isn’t enough to discourage people from smoking.

“Taken as a whole, we are disappointed,” she said of the tax changes. “We think they largely favor the industry.”

Income taxes

The legislation also makes a variety of changes to income taxes, although those won’t be immediately felt next week, when much of the bill goes into effect to coincide with the start of the fiscal year. Some of the income taxes, in fact, may never go into effect because they’re contingent on how high state revenue climbs from other sources.

Terri Cole, president and CEO of the Greater Albuquerque Chamber of Commerce, said her organization was pleased that lawmakers opted against raising corporate income taxes. And she likes the idea of dedicating some new revenue to road projects.

But Cole said the chamber will continue to push lawmakers to overhaul New Mexico’s complex system of gross receipts taxes – a longtime battle that has focused on simplifying the tax code, broadening the base of what’s taxed and reducing rates.

“We continue to be very disappointed that (lawmakers) haven’t been able to make any progress on reforming the gross receipts tax structure in the state,” she said. “We feel in this last session, it was largely abandoned.”

Rep. Javier Martinez, an Albuquerque Democrat and co-sponsor of the tax legislation, said this year’s bill was “the first step among many.” It will help the local economy, he said, and is a good start toward future changes.

“New Mexico is in dire need of tax reform,” he said. “Middle-class New Mexicans have been hit especially hard by an unfair tax system.”

Car dealerships and online retailers have been warning consumers about the tax changes in recent weeks, urging people to buy now to avoid the taxes.

•Motor vehicle excise tax climbs to 4% from 3%

•Cigarette tax rises to $2 a pack from $1.66

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