Too many exemptions and loopholes have created a tax code that’s like “swiss cheese,” as Rep. Jason Harper, R-Rio Rancho, put it.
Agreeing on how to eliminate those exemptions – the key to lowering the state’s overall tax rate – is a monumental task.
But the House Taxation and Revenue Committee inched a little forward Saturday toward that goal. In a four-hour hearing at the Roundhouse, members pored over the details of a 347-page bill crafted by Harper and co-sponsored by two colleagues across the aisle: Democratic Sens. John Arthur Smith of Deming and Carlos Cisneros of Questa.
It was the first hearing for House Bill 412, an incredibly complex proposal to reform New Mexico’s tax system. Much of Saturday’s discussion focused on the gross receipts tax, which is applied to the sale of most goods and services.
The committee heard from broadcasters, health care companies, nonprofit groups and others who expressed concern about what they viewed as the unintended consequences of removing one exemption or another, especially the bill’s move to re-impose a tax on food and medical items.
Harper, in turn, said it was important to tax as many things as possible – because that’s what gives the state a broad enough tax base to lower the rate overall.
In other words, New Mexico ought to tax everything a little rather than just a few things a lot. The goal is to come up with a system that’s “revenue neutral,” Harper said, not resulting in more or less money for governments than what they get now.
“I’ve been looking forward to this day for a long time,” Harper told the committee. “We have to modernize our tax code – we have to.”
Groups across the political spectrum questioned the details.
Terri Cole, president and CEO of the Greater Albuquerque Chamber of Commerce, said the state’s gross receipts tax structure is bewildering for companies looking to move to New Mexico. Simplifying it would help, she said, but her organization has serious reservations about re-imposing the tax on food, which was lifted in 2005.
Nevertheless, Cole urged lawmakers to keep the discussion open and continue working on tax reform. She noted that Harper’s bill proposes exempting the poorest New Mexicans from the re-imposed food tax, a potential way to help the people who really need it.
“Broadening the base and lowering the rate is a big, big plus,” Cole said. It’s something “that every single business and every single family will benefit from.”
Fred Nathan of Think New Mexico, a nonpartisan think tank, said it isn’t clear whether the overhaul would result in more, less or the same revenue, despite the goal of being neutral. The details hinge on estimates of the tax base, he said.
“This creates massive uncertainty for businesses that do not know in advance what their tax rates will be, as well as state and local government,” Nathan said.
Committee members plan to hold a second hearing to continue going over the bill, but they haven’t set a date yet.