“We know if we can provide relief, that will translate into more jobs, better salaries and more money in our economy,” Martinez told a large crowd attending an Albuquerque Economic Development luncheon at the Sandia Resort and Casino.
Pyramiding occurs when a business supplier’s gross receipts tax becomes part of the cost of the business’s product. The sale of that product triggers another gross receipts tax. By the time a product is sold to its ultimate consumer, gross receipts taxes could be paid several times.
Bill Baglee, site manager of Intel’s New Mexico chip manufacturing plant, pledged to help Martinez in any way he can.
“It’s a major step in the right direction,” Baglee said. “It’s a further reduction of the barriers to continued investment in New Mexico. I’m excited.”
Economic development officials and businesses have complained that GRT can make doing business too expensive and make attracting companies to New Mexico more difficult. First Solar, a Phoenix company courted earlier this year, told city officials that one reason it decided against locating a plant in Albuquerque was the GRT it would have had to pay for electricity, a major input to its production process. Apartment developers say taxes can be twice as much as they would pay for a similar project in other states.
Finance and Administration Secretary Tom Clifford told the Journal in an interview the administration hopes to exempt from gross receipts taxation some inputs used by manufacturers and builders and to eliminate GRT on some of the state’s smallest businesses, which pay very few gross receipts taxes anyway.
Clifford said some experts estimate as much as half of state GRT collections are the result of pyramiding, so changing tax treatment carelessly could result in unintended budget shortfalls. He said the administration decided to focus on business sectors known to have problems competing with businesses in other states because of pyramiding.
Gross receipts taxes are levied on sellers of goods and services but are usually passed on to the buyer. Manufacturers pay GRT on electricity used to make products, then pass on that cost plus the GRT on the products they sell to the final customer. Materials used in construction are generally exempt from GRT, but inputs to building projects like architecture and engineering services, subcontractors’ costs and leased equipment do pay GRT.
Richard Anklim, president of the New Mexico Tax Research Institute, said a study his group has nearly completed shows that, absent incentives, New Mexico has the least competitive tax structure in the nation.
With incentives such as tax credits for high wage job creation or locating operations in rural areas and the Job Training Incentive Program, New Mexico ranks in the middle of the pack.
New Mexico applies GRT to many more things than most other states, but GRT affects some sectors of the economy more than others, Anklim said. When taking incentives into account, some businesses pay no taxes at all, he said.
Other businesses achieve acceptable returns on investment in New Mexico despite taxation, because of the state’s work force, available land, lower costs of doing business and other factors, Anklim said.
As a matter of policy, Anklim said, “We don’t like the fact that we are so reliant on incentives. We are Band-Aid-ing a structure that is not ideal.”
— This article appeared on page A1 of the Albuquerque Journal