New Mexico taxpayers have invested millions for the construction and operation of its commercial spaceport, for which the state has been promised returns in the form of high-paying aerospace jobs, related economic development and tourism.
What New Mexico does not get, however, is any tax revenue from sales of high-priced tickets to fly to space with Virgin Galactic, the spaceport’s anchor tenant.
A bipartisan bill introduced in the state Legislature seeks to close a loophole that excluded spaceflight passenger tickets from gross receipts taxes. The move aims to harvest revenue from ticket sales as Virgin Galactic prepares to begin regular commercial service later this year.
House Bill 72 would amend a statute that excludes receipts “from launching, operating or recovering space vehicles or payloads in New Mexico” from gross receipts taxes, clarifying that sales “for transporting any person into or near space” would be taxable.
A 2019 ruling by the state Taxation and Revenue Department on the question of taxing flights to space essentially treated passengers as freight, stating: “It seems reasonable to consider passenger revenues as receipts received for the operation of a space vehicle.”
“When those exemptions were drafted, it was not in anyone’s mind that people would be a payload,” state Rep. Jason Harper, R-Rio Rancho, told the Las Cruces Sun-News. Harper is a co-sponsor of the bill.
The language “into or near space” points to a potential argument about where the beginning of space is defined. Virgin Galactic flights typically exceed 50 miles above sea level, the threshold recognized by NASA. International agencies put the line higher, at 62 miles.
Potential tax revenue from ticket sales
“If the flights really became regular, that could be a nice source of income, not only for the state but also from the GRT shared with the local communities,” the bill’s other sponsor, Democratic Rep. Matthew McQueen, said.
The potential impact appears to be large indeed.
Virgin Galactic told investors last fall it had approximately 700 reservations for flights as of last November, with the total price of a ticket at $450,000.
Gross receipts taxes vary among different locations in New Mexico because they combine the state rate of 5.125% plus local gross receipts tax imposed by counties and some municipalities.
Virgin Galactic conducts flight operations from the spaceport, in Sierra County outside of Truth or Consequences, and maintains business offices in Las Cruces.
McQueen said it wasn’t clear where GRT would apply but that he assumed it would be where services are performed.
Assuming the GRT would be applied in Sierra County, the GRT would be 6.9375%. That would add $31,218.75 to the full price of each ticket at its current price, of which more than $23,000 would go to the state and over $8,000 would go to Sierra County.
If taxed in Las Cruces as the point of sale, the GRT would be higher: 8.3125%, adding $37,406.25 to the price including $14,343.75 in local GRT.
“I can’t think of a particularly good reason why we wouldn’t tax this activity,” McQueen said.
McQueen recalled asking about gross receipts taxes while visiting the spaceport with fellow lawmakers. “No one seemed to know the answer, which I thought was weird,” he recalled.
When McQueen followed up with Taxation and Revenue, the department showed him the 2019 ruling. Harper argued the question should have come to the Legislature in the first place, but said he was pretty sure human passengers are not “payloads.”
“New Mexico taxpayers have paid $220 million for a spaceport and … about $4 million a year toward running the spaceport,” Harper said. “Charging sales tax for these tickets is not really asking that much in return.”
The Sun-News reached out to Virgin Galactic to ask if the company was aware of the proposal, had taken a position on it or anticipated adjusting its prices if the bill becomes law.
A spokesperson did not respond directly to those questions except to say the spaceline company was “aware of the bill,” and added: “With Virgin Galactic’s spaceflight in May 2021, New Mexico became only the third state ever to send humans to space. We continue to work with the state on policies that support our combined goal of growing aerospace in New Mexico.”