Lawmakers taking cautious approach to plan to cut GRT - Albuquerque Journal

Lawmakers taking cautious approach to plan to cut GRT

New Mexico’s gross receipts tax — applied to the sale of both services and goods — has been a focus of debate for years. The state’s base rate would be cut by 0.25 percentage points under a bill backed by Gov. Michelle Lujan Grisham. (Eddie Moore/Journal)

Copyright © 2022 Albuquerque Journal

SANTA FE – With the impacts of past New Mexico tax changes still reverberating, lawmakers are taking a cautious approach to a plan to lower the state’s gross receipts tax rate.

A Senate committee discussed the proposal to cut the tax rate from 0.25 percentage points – from 5.125% to 4.875% – for about an hour Thursday, but held off on a vote so they could see how the reduction might fit into a still-developing spending plan for the budget year that starts in July.

Several senators pointed out that the tax cut proposed by Gov. Michelle Lujan Grisham would cost the state at least $183.7 million in the coming budget year, while generating relatively small savings for New Mexicans.

The tax levied on the purchase of a $50 pair of shoes, for instance, would decrease by just 12 cents.

“It’s easy to vote for these bills; it’s really hard to vote for bills that raise revenue,” said Senate Majority Leader Peter Wirth, D-Santa Fe, during Thursday’s meeting of the Senate Tax, Business and Transportation Committee.

Wirth also questioned whether cities and counties would increase the local tax rates they levy on top of the state rate if the tax cut is approved. Current total tax rates have crept above 9% in some parts of New Mexico.

That would “defeat the purpose” of the proposal by effectively keeping taxes flat for residents and businesses alike, Wirth said.

But backers of the legislation, Senate Bill 5, said the tax cut would be the first reduction in the state’s gross receipts tax rate in 40 years. They also argued it would help New Mexico businesses compete with out-of-state businesses.

“We see this as a significant help both to businesses and consumers both at this critical time,” said Gallup-McKinley County Chamber of Commerce Chief Executive Officer Bill Lee.

The tax cut discussion at the Roundhouse comes as New Mexico is rolling in record-high revenue levels, generated by surging oil and natural gas production, and an uptick in consumer spending.

New Mexico is projected to have $1.6 billion in “new” money available during the coming budget year, a figure that represents the difference between estimated revenue collections and current spending levels.

Several legislators have said the reduction in the gross receipts tax, which functions like a sales tax, but is also levied on services, should be part of a broader package that could also include tax rebates for low-income New Mexicans.

Meanwhile, some lawmakers also cited past tax changes, such as a 2003 personal income tax cut and a 2004 exemption of food from taxation. Some of those tax changes ended up costing the state more in foregone revenue than originally estimated.

Senate Minority Whip Craig Brandt, R-Rio Rancho, said he’d like to see more sweeping changes to New Mexico’s tax code, including reducing or eliminating the state’s income tax.

This year’s gross receipts tax cut measure is sponsored by Sen. Roberto “Bobby” Gonzales, D-Ranchos de Taos.

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