Higher taxes on the horizon

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Lawmakers develop $230M tax increase package

By Barry Massey

SANTA FE — New Mexicans will pay higher taxes on goods and services they buy, including food, under a compromise, budget-balancing package in the Legislature.

Proposals approved by the House and Senate will increase taxes by more than $230 million next year to help finance public schools and government programs.

Lawmakers hope to finish work on the budget package and wrap up a special legislative session Wednesday. Each chamber must approve the same tax and budget measures before the proposals can go to Gov. Bill Richardson.

“I think this is a good compromise even though I really don’t care for it much. But it’s something that we can all live with,” Senate President Tim Jennings, a Roswell Democrat, said of the tax increases.

The House worked past midnight to approve a proposed 75-cents-a-pack cigarette tax increase. The higher tax will remain in place for four years. It will generate $33 million next year, with a third of the money earmarked for public schools. The current state tax is 91 cents and the federal government imposes a tax of $1.01.

The cigarette tax passed on a 41-26 vote and was sent to the Senate. Three House

Democrats opposed the measure and one Republican supported it.

The Senate approved a measure Tuesday night that will provide about $200 million from several taxes, including a one-eighth cent increase in the gross receipts tax on goods and services.

The state levies a 5 percent tax. Cities and counties impose additional levies, which vary from place to place but average about 2 percent statewide. The proposed increase will provide about $60 million for the state.

The tax measure passed the Senate on a 25-15 vote and was sent to the House for consideration. One Democrat joined Republicans in opposing the measure, which will:

• Reinstate part of the gross receipts tax on food, generating nearly $70 million. The tax levied by local governments will apply to groceries, but the state’s 5 percent rate will not. The state stopped taxing food in 2005, but has provided cities and counties with the same amount of money that they would have collected if the food tax remained in place. The bill eliminates the so-called hold harmless provision, freeing up revenue for the state.

• Eliminate an income tax deduction for some taxpayers, which will raise $66 million. New Mexico’s personal income tax system allows the same itemized deductions that are used for federal tax purposes. The bill stops that. New Mexico income taxes deducted on a federal return will be counted as income for state tax purposes.

• Improve tax compliance by clarifying that the compensating tax applies to most goods and services purchased by New Mexico businesses from out-of-state vendors. The state is expected to gain about $12 million next year.

• Expands a tax rebate for low-income New Mexicans by $5 million to partially offset the higher taxes on food and other goods.

The House voted 39-27 to approve a $5.6 billion budget bill to finance public schools, colleges and government programs in the fiscal year that starts in July. Spending next year will be 1.8 percent lower than the current state budget. Lawmakers were able to minimize cutbacks by using more than $200 million in federal economic stimulus money to pay for education and health care for the needy.