As we have written and spoken about in the past, House Bill 6 was passed by the New Mexico Legislature in 2019, but it did not go into effect until 2021. The bill’s basic goal was for internet sales to be taxed by the gross-receipts tax (GRT), which was a great change in terms of providing additional financial support to local communities.
However, the bill includes a provision that has had a devastating effect on Carlsbad and Hobbs. This provision changed taxes to be levied based on destination sourcing rather than origin-based sourcing. The reason it has such a negative impact on Carlsbad and Hobbs directly is because of the energy (oil and gas) sector. For example, an office and shop may be located in Carlsbad, but all the work out of that business is performed outside the city limits. Under the new law, the tax would be paid where the work takes place, resulting in Carlsbad receiving nothing in GRT distribution.
We tried unsuccessfully at last year’s legislative session to get a bill through, but it died at the end of the 30-day session. We have been working hard all year meeting with legislators to educate them on this bill and its devastating effects on our community.
We recently completed a comprehensive review covering five years of GRT’s from Fiscal Year 2018 through projected Fiscal Year 2023. The review includes GRT taxes distributed to the city, county and state.
In FY 2018, the state of N.M. received approximately 75% of the total GRT collected for Carlsbad and Eddy County. Carlsbad received 16% and Eddy County received 9% of the total. In FY 2023, we project that the state of NM will receive 80% of the GRT collected for Carlsbad and Eddy County (a 5% increase). Carlsbad is expected to receive 8% (a reduction of half compared to the 2018 average) and Eddy County is expected to receive 12%. As you can see, Carlsbad suffered the greatest financial loss because of HB6, with the larger portion going to the state. On a yearly basis, Carlsbad is expected to lose upwards of $18 million in GRT revenue distributions, which Carlsbad relies upon to provide all essential services.
Companies that are paying gross-receipts taxes in Eddy County, but whose office is located in Carlsbad, still receive all the essential services provided by the city. Some examples are roads and road maintenance, the library, museum, water and sewer, recreational facilities, fire protection, and police protection, just to name a few.
In fact, over the past five years, Carlsbad’s share of responsibilities and costs have continued to increase – even as we are projected to receive half of the percentage of GRT allocation that we received prior to HB6.
We are not just sitting back accepting these devastating effects in Carlsbad. We are going back to the upcoming January 2023 state legislative session to attempt to resolve this problem. We hope to work with all legislators. Our staunchest allies in this struggle are Sen. Gay Kernan and Rep. Cathrynn Brown. They are working hard to revise HB6, along with Rep. Jim Townsend, Rep. Larry Scott, Sen. David Gallegos, Rep. Randy Pettigrew, and Sen. Ron Griggs.
All we are asking is that we be treated fairly. Carlsbad deserves its rightful share of gross-receipts tax revenue distributions.