There’s a hidden job killer lurking throughout New Mexico’s economy. It’s called “gross receipts tax pyramiding,” and it harms small businesses, raises the cost of goods and services, and makes it harder for New Mexico companies to compete with businesses from other states for work.
Fortunately, a governor-backed bill, sponsored by Republican Rep. Jason Harper and Democratic Sen. and Tax Committee Chairman Benny Shendo Jr., would take a major bite out of the pyramiding problem. Specifically, House Bill 367 would eliminate the gross receipts tax that businesses currently pay when buying an array of professional services from other businesses.
Why does this matter? Take a local construction company with 15 employees, for example. The business isn’t large enough to justify hiring full-time, in-house accounting, payroll or information technology employees, so it contracts with other companies to provide those services instead — and pays a 7% premium or more, the gross receipts tax — on each and every bill. And when the construction company needs to hire a contract engineer, architect or lawyer, it pays the gross receipts tax on those bills as well.
Each of those layers of taxes inflates the cost structure of the construction company, and therefore the prices it must charge for its work. This plays out daily in every community in New Mexico.
Among states, our tax code is fairly unique in this regard, and it’s not in New Mexico’s best interest to keep it that way.
By eliminating the tax on these business-to-business transactions, House Bill 367 would do the following:
- Level the playing field between small businesses and large corporations. Large employers can afford in-house professional services without paying the special premium for them that small businesses must pay every day.
- Improve the ability of New Mexico companies to compete for work against companies from other states. Too often, our employers can’t offer a competitive price for their work because they face embedded layers of taxes in their cost structure that aren’t present elsewhere.
- Rein in the cost of goods and services across the state. Whether it’s a company that specializes in car washes, construction or climbing walls, our local businesses currently have no choice but to pass much of the expense of pyramided taxes onto their customers.
Coupled with a further reduction in the overall gross receipts tax rate, which is also in House Bill 367, this legislation represents true tax reform, substantial tax relief and smart economic development — all in one. Lower costs and a greater ability to compete will help small businesses grow in every community in New Mexico. Just as it’s supported by the governor and key lawmakers, as well as Republicans and Democrats, it should be embraced and welcomed by the cities and counties where increased economic activity will occur. The process of improving our business climate and tax code is a shared responsibility and economic imperative, and with state and local government revenues growing, now is the time to make it happen.
Lowering the gross receipts tax rate and eliminating layers of business-to-business taxes are critical components of the work to build stronger, more competitive local economies and businesses.
