SANTA FE – A sweeping proposal to overhaul New Mexico’s gross receipts tax by getting rid of most exemptions and lowering base rates gets its first hearing today at the state Capitol.
Rep. Jason Harper, R-Rio Rancho, the bill’s primary sponsor, has been working for months on the 347-page legislation, which he claims would improve the state’s business climate and make taxes fairer and easier to administer.
“This bill is not designed to address the (state’s) current budget woes, but it is designed to make sure we’re never in this budget situation again,” Harper said Friday.
While two top Democrats have signed onto the bill, several others are expressing wariness about it, due largely to a provision that would reinstate the gross receipts tax on food and medical items. The tax on food was removed in 2005.
Rep. Carl Trujillo, D-Santa Fe, acting chairman of the House Taxation and Revenue Committee, said the legislation in its current form will likely not pass the Democratic-controlled House.
“In its entirety, in my opinion, it’s off the table because of the food tax,” Trujillo told the Journal.
However, he vowed to give the bill a fair hearing and said some of its other provisions could be palatable.
Although no vote is expected to be taken during today’s meeting of the Taxation and Revenue Committee, the hearing will allow business groups and members of the public their first chance to weigh in on the bill since it was filed earlier this week.
The legislation, House Bill 412, would get rid of more than 100 exemptions and deductions to the state’s gross receipts tax, though it would leave some in place. That would include some recently enacted exemptions and tax breaks aimed at addressing the issue of “pyramiding,” in which taxes are levied several times on the same product or service.
Repealed exemptions would include tax breaks for livestock sales, boat sales and horse-racing profits.
Harper said Friday that he’s been approached by multiple lobbyists seeking to get certain exemptions spared but has stood firm against doing so.
“If I open the door for one, all of the rest are going to walk through,” he said.
Some critics have described New Mexico’s current gross receipts tax structure as “Swiss cheese” due to all the carve-outs, and Harper’s bill would rebrand the gross receipts tax as a sales tax, which most other states impose.
He also said that doing away with most gross receipts tax exemptions would make the tax code more equitable.
“Tax policy should not pick winners and losers; it should generate revenue to fund government,” he said in an interview Friday.
New Mexico levies a 5.125 percent gross receipts tax rate on most goods and services, and some of that revenue is distributed back to local governments. Cities and counties can also levy local taxes on top of the base rate. In Santa Fe, for instance, a total gross receipts tax of 8.3125 percent is levied.
Though the bill being pushed by Harper would not specifically set a new state base rate, he said the rate likely would drop from 5.125 percent to 2.7 percent, based on a formula, due to the repeal of the various exemptions.
Unlike most other tax bills pending at the Roundhouse, the legislation is intended to be revenue-neutral. If any additional dollars were to be generated, they would be set aside in a temporary fund for county and city budget shortfalls, Harper said.
Although some Democrats have opposed parts of the legislation, two prominent Senate Democrats – Senate Finance Committee Chairman John Arthur Smith of Deming and Vice Chairman Carlos Cisneros of Questa – have signed on as co-sponsors. Democrats hold the majority in both chambers.
The legislation would also have to gain approval from Gov. Susana Martinez, who has vowed to veto any tax increases approved by the Legislature.
But Harper said staffers with the Governor’s Office have told him there’s a good chance the governor would sign the bill.
It’s also unclear how the bill would be affected by the passage of other tax measures. Proposed tax increases on cigarettes, vehicle sales, gasoline and more have also been filed during this year’s session, which ends March 18.
If approved, the gross receipts tax overhaul would not take effect until July 2018, giving tax officials plenty of time to prepare for the changes.