New Mexico’s Democratic-controlled Legislature recently sent her a tax-hiking budget bill – House Bill 202 – to which she quickly responded, “I will never allow lawmakers to raise taxes on our families to bail out big government.”
Gov. Martinez is likely to veto HB 202 in the coming days, and for good reason. From the gas tax increase to the car excise tax increase, the various cash-grabbing measures in HB 202 would be detrimental to the economic health of the state.
Of the many anti-growth provisions included in HB 202, the internet sales tax is among the worst. This provision would force out-of-state businesses to collect and remit gross receipts taxes to New Mexico – including local option taxes.
Though New Mexico residents may feel removed from this tax on out-of-state businesses, they shouldn’t. The internet sales taxes would have a number of negative consequences in store for them as well.
While the out-of-state businesses would be doing the collecting and remitting, New Mexico consumers would be the ones carrying the financial burden. Businesses subject to HB 202’s internet sales tax would pass the associated costs on to customers in the form of higher prices. Or, New Mexico consumers may be left with fewer choices, as out-of-state retailers may determine the complexities and liabilities of the internet sales tax are too great to justify doing business in New Mexico.
HB 202’s internet sales tax could also stifle investment and job growth in New Mexico. Time and time again, business owners and site selectors explain that state tax structures are among the primary considerations of companies seeking out locations to launch or expand their operations. As such, piling an internet sales tax – which sends out hostile, anti-innovation signals to not only tech companies, but business across all industries – on top of New Mexico’s already-unimpressive tax code would be counterproductive.
In addition to chasing off businesses and increasing consumer costs, HB 202’s internet sales tax is also likely to result in hard-earned taxpayer dollars being wasted on costly legal challenges. The Commerce Clause of United States Constitution only requires businesses to collect and remit taxes on sales in states where they have a sufficient “nexus,” or connection. In a 1992 Supreme Court Case, Quill v. North Dakota, the court ruled that “nexus” sufficient for taxation means physical presence inside state borders.
States that have attempted to flout the court’s ruling by implementing their own “nexus” standards, such as Alabama, Illinois, New York and South Dakota, typically end up wasting scarce taxpayer resources on expensive lawsuits. Why would anyone assume New Mexico’s fate would be different?
Unfortunately, lawmakers often mask all of these costs and consequences with alleged concerns about “fairness,” falsely claiming the internet sales tax would “level the tax playing field” between brick-and-mortar shops and online retailers. But concerns of an unlevel playing when it comes to tax are illogical.
The employers and employees of businesses with no physical presence in New Mexico would neither use nor benefit from any public services, programs or projects funded by the state’s gross receipts tax, so there is no justification for lawmakers targeting them as a source of revenue. Indeed, the internet sales tax is just another way for money-hungry lawmakers to rake in more hard-earned tax dollars instead of focusing on the spending side of the ledger.
New Mexico’s spending has drastically outpaced the growth of both population and inflation. But, until lawmakers acknowledge this fact and start cutting back on bloated government, New Mexico’s economy will continue heading down the drain.
Fortunately for taxpayers, Gov. Martinez remains committed to a pro-growth agenda and is likely to protect them from HB 202, as well as any other tax the Legislature tries to impose on the state.
Margaret Mire manages state affairs at Americans for Tax Reform.