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Bipartisan talks focus on NM tax overhaul

House Speaker Brian Egolf

Copyright © 2019 Albuquerque Journal

SANTA FE – House Speaker Brian Egolf is working on legislation aimed at shaving half a percentage point off New Mexico’s gross receipts tax rate – a bipartisan bill he hopes to have ready for the 2020 legislative session.

Overhauling the state’s complex system of gross receipts taxes has been a priority of Democrats and Republicans alike for years, but they have failed repeatedly to reach agreement on broad changes to the tax code.

The latest attempt – involving Egolf, D-Santa Fe, and Rep. Jason Harper, R-Rio Rancho – would focus on two longtime goals: reducing the tax rate overall and providing tax relief to small businesses that hire outside firms to handle accounting or similar professional services.

Egolf said reducing the gross receipts tax rate would be an important way to help low- and middle-income families. The tax is similar to a sales tax, paid by consumers purchasing goods and services.

“It’s the most regressive tax we have,” Egolf said in an interview.

New Mexico’s base gross receipts tax rate is 5.125%, and cities and counties can levy additional taxes on top of that. The rate is 7.875% in Albuquerque but above 8% in some cities, including Santa Fe and Las Cruces.

Egolf said he hopes to craft a proposal that would reduce the rate by half a percentage point.

Harper, in turn, wants the legislation to address “pyramiding,” or the taxation of business-to-business transactions. It drives up costs for smaller companies that can’t afford to hire their own accountants and lawyers, he said, because they have to pay gross receipts taxes on work handled by an outside firm.

It isn’t certain, however, that Harper and Egolf will reach agreement on a proposal in time for the 30-day legislative session, which begins Jan. 21.

“I’m fairly optimistic,” Harper said Thursday.

Reducing the tax rate and addressing pyramiding would cost New Mexico hundreds of millions of dollars in annual revenue. The goal in past proposals has been to offset the lost revenue by eliminating some of the tax breaks that riddle the gross receipts tax code.

Supporters of overhauling the tax system say that the current version is too complicated and that a simpler tax code would make New Mexico more attractive to business owners.

But there’s uncertainly about how much some tax breaks that were intended to spur economic development actually cost the state. In recent sessions, lawmakers have clashed over how far to go in reshaping the tax code.

Nonetheless, supporters of simplifying the gross receipts tax code say the timing is right. An oil boom has helped push New Mexico’s revenue to record highs, and the state’s basic operating budget has grown to about $7 billion this year.

The extra revenue, supporters say, could provide a cushion to help offset any unintended damage to state revenue.

For example, Jim Peach, a retired economics professor at New Mexico State University, has suggested taking advantage of the revenue windfall to simplify the tax system. He is often invited to speak before legislative committees.

Harper said he hopes a bill overhauling the tax code makes it through this session, even if the proposal doesn’t go as far as he’d like.

“This GRT relief bill would get us several more steps in the right direction,” he said in an interview.

It’s unclear whether such a proposal would require Gov. Michelle Lujan Grisham’s authorization to be heard in the 2020 session. In even-numbered years, the state Constitution generally limits the legislative agenda to “budgets, appropriations and revenue bills,” although the governor may add other topics.

In October, Lujan Grisham established two advisory committees to study New Mexico’s tax system and recommend changes. The groups meet every quarter.

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