Revenue windfall could prompt tax cut talks - Albuquerque Journal

Revenue windfall could prompt tax cut talks

New Mexico’s gross receipts tax — applied to the sale of both services and goods — has been a focus of debate for years. (Eddie Moore/Albuquerque Journal)

Copyright © 2022 Albuquerque Journal

SANTA FE – With New Mexico collecting record-high revenue levels, Gov. Michelle Lujan Grisham is proposing a reduction in New Mexico’s gross receipts tax – a move intended to address a chronic weak point in the state’s unusual tax system.

The tax cut, if successful, would shave one-quarter of a percentage point off the statewide rate, or enough to save a family 25 cents on a $100 purchase. It would cost about $145 million a year in state revenue.

New Mexico’s gross receipts tax – similar to a sales tax but also applied to the sale of services, not just goods – has been a focus of debate for years at the Capitol.

The tax is especially problematic for small businesses, experts say, because they must pay it when hiring outside help for accounting, legal or other services – a cost that builds on itself with each transaction, eventually passed on to the consumer.

Speaking to business leaders in November, the Democratic governor said now is the right time cut the rate. The state is awash in cash, she said, thanks to federal stimulus funds and strong economic growth.

“It has a chilling effect,” Lujan Grisham said of the tax. “We’ve got to do a tax overhaul that can really make a difference. We have the resources.”

A Republican legislator, in turn, said the governor’s proposal was too small to make a real difference.

“While it may be a step in the right direction,” Sen. William Sharer, R-Farmington, said in an interview, “it’s not tax reform.”

Lujan Grisham said the state’s financial reserves now stand at 37% of annual spending, making it a good time to tackle changes to the tax code. The gross receipts tax rate reaches 9% in some parts of the state. In Albuquerque, for example, the rate is 7.875%.

Tax experts say the rate was never intended to be so high. A gross receipts tax is meant to cover a broad base of transactions, with the trade-off being that the rate is low.

Richard Anklam, executive director of the nonpartisan Tax Research Institute, warned legislators in July that the rates had climbed to “the absolute top of our capacity.”

He said in a written statement released by the Governor’s Office that reducing the tax would benefit all New Mexicans.

“New Mexico’s gross receipts tax rates have been increasing for decades, making pyramiding worse, burdening our households and rendering our small businesses less competitive,” he said.

Stephanie Schardin Clarke, the state’s secretary of taxation and revenue, said the reduction would help “provide valuable tax relief to New Mexico families and businesses, while adding a competitive advantage for New Mexico businesses.”

A recent expansion of gross receipts taxes to internet sales, she said, would help pay for the cut.

The governor’s proposal would reduce the state portion of the rate – the amount before cities and counties add their taxes – from 5.125% to 4.875%.

The state’s share of the rate hasn’t fallen since 1981, though a 2004 law repealed the gross receipts tax on food.

Sen. Sharer and Rep. Jason Harper, R-Rio Rancho, have repeatedly proposed overhauling the gross receipts tax code and reducing the rate. Lujan Grisham’s predecessor, Republican Susana Martinez, also pushed for changes to the gross receipts tax system.

The Legislature – where Democrats hold hefty majorities in both chambers – has approved some changes to the gross receipts tax code, though not the broader overhaul sought by Republicans.

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