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Changing one word in tax credit law could save NM millions

ALBUQUERQUE, N.M. — What a difference a single word can make.

In the case of New Mexico’s high-wage tax credit law, simply changing the word “or” to “and” could save the state tens of millions of dollars, according to a recent Legislative Finance Committee report.

Enacted in 2004 and amended several times during the following decade, the high-wage tax credit provides eligible companies up to $12,000 per employee making at least $60,000 in urban areas and $40,000 in rural ones, with no limit on the number of credits claimed.

The statute currently reads as follows: ” ‘Eligible employer’ means an employer that: (a) made more than fifty percent of its sales of goods or services produced in New Mexico to persons outside New Mexico during the applicable qualifying period; or (b) is certified by the economic development department to be eligible for (the Job Training Incentive Program).”

Changing “or” to “and” in the statute would require companies to be eligible for the Job Training Incentive Program, which has guidelines that specifically exclude extractive industries like oil and gas companies.

Those companies are among the top recipients of the credit in recent years, even though such companies are “not an intended recipient for the credit,” the report said.

The committee has said the credit, which is meant to attract out-of-state companies to New Mexico, and encourage new and expanding companies to pay their employees relatively high wages, is unlikely to alter the behavior of an extractive company, which operates where the resources are available and bases employee wages on macroeconomic factors.

A spokesman for Gov. Susana Martinez said she is willing to consider changing the statute.

“As she has in the past, the Governor is open to considering legitimate changes to the credit in order to preserve and honor its original intent: to help attract the creation and development of new, high-paying positions in New Mexico,” said Chris Sanchez in an email. “So long as the intent of legislators is to make it work better, and not to kill this jobs incentive completely, we believe we can agree on certain improvements.”

Jon Clark, one of the economists who wrote the report, said the “or” versus “and” issue has resulted in “tens of millions of dollars going out the door to unintended recipients.”

The report estimates that change could save the state as much as half of what it is currently spending on the high-wage credit.

Information provided to the committee by the state’s Taxation and Revenue Department showed that in fiscal year 2015, 46 percent of the $65.8 million high-wage tax payout went to extractive industries, or about $30 million. In fiscal year 2016, 43 percent of the $58.2 million high-wage tax credit payout went to extractive industries, or about $25 million. For fiscal year 2017, that number is currently 51 percent of $25.5 million, or about $13 million, which only reflects pending payouts and not all the credits likely to be distributed over the rest of the fiscal year.

Jason Espinoza, president of the New Mexico Association of Commerce and Industry, said the decision to cut an entire sector out of a tax credit should not be taken lightly.

“Credits are necessary to make New Mexico competitive in an unfavorable tax environment,” said Espinoza. “If there’s a chance that the credit incentivizes a company to move a job from the Permian Basin, we should take that into consideration.”