SANTA FE — New Mexico’s tax rates on tobacco products and corporate income would rise, while the state’s gross receipts tax rate would be reduced under sweeping changes proposed Thursday by a top Senate Democrat to an already wide-ranging tax package.
The amendments, if ultimately approved, would represent the newest round of changes to a state tax code that legislators have long complained is complicated and confusing.
Senate Majority Leader Peter Wirth, D-Santa Fe, who proposed the amendments to a House-approved tax measure, said the changes were intended to be revenue neutral — or to increase revenue for the state.
“The idea here is to not be doing additional reductions in taxes without being able to pay for them,” Wirth said during a meeting of the Senate Taxation, Business and Transportation Committee.
However, committee members ultimately held off on voting on the proposed changes, with several senators saying they needed more time to digest their financial impact.
“I’m a little bit confused and I think we need that information before we move this bill on,” said Sen. Gay Kernan, R-Hobbs.
She also said the legislation would not replace oil and gas revenue collected by the state , saying instead that lawmakers would be “just shifting the burden” of taxes.
The original tax measure, House Bill 291, would expand two different tax credits for low-income New Mexico workers while setting a higher tax rate for top-earning state residents.
Those provisions would remain in the bill under the proposed changes, though some income thresholds under the new tax rates would be altered.
For instance, annual income of more than $311,000 would be taxable at a new 6.5% personal income tax rate for New Mexicans filing individually, down from a proposed $415,000 cut-off for the proposed new top rate under the House-approved bill.
New Mexico’s top personal income tax bracket is currently set at 5.9% under a 2019 law, but had been at 8.2% before a 2003 tax cut pushed by then-Gov. Bill Richardson took effect.
Backers of the bill say it would make New Mexico’s tax code more progressive, while also diversifying the state’s revenue base. Taxes and royalties paid by the oil and natural gas industries, a historically volatile revenue source, currently make up more than 40% of total state revenues.
In addition to the personal income tax changes, the bill would make it easier to qualify for both the Low Income Comprehensive Tax Rebate and the Working Families Tax Credit, which is currently available to those who make less than $15 an hour.
The changes would allow New Mexicans ages 18 to 24 and those working legally who are not U.S. citizens to qualify for the tax benefits.
And several workers testified in Spanish during Thursday’s committee hearing the changes would help them pay bills and other basic expenses.
However, critics said increasing the personal income tax rate on top earners and limiting a capital gains tax break, primarily for investment income, would hurt many New Mexicans.
“The state shouldn’t be raising taxes on families and small businesses, especially during a pandemic,” said Greater Albuquerque Chamber of Commerce President and CEO Terri Cole.
Meanwhile, the proposed amendments to the Roundhouse tax bill would scrap a provision dealing with homeowners’ property tax bills.
In its current form, the House bill would more than triple an annual property tax evaluation limit — from 3% to 10% — for residential properties that are not their owner’s primary place of residence.
But Wirth said that provision, targeted at second-home owners in the Santa Fe area who have benefited from a 2000 law that limited annual property tax increases for homeowners, should be debated in stand-alone legislation.
He also said the changes were proposed Thursday in an attempt to avoid a conference committee, where House and Senate appointees try to hammer out a compromise on legislation, in the final hours of this year’s session, as occurred in 2019.
But that could still happen, as the tax bill would still have to be approved by a second Senate committee and the full Senate if approved Saturday by the taxation committee.
It would then be up to the House to vote on whether to approve the amendments before the session’s March 20 end date.