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SANTA FE — A proposal to temporarily increase New Mexico’s gross receipts tax to help balance the state budget cleared its first hurdle in the Legislature on Thursday.
The measure would provide about $238 million next year by raising the tax by one-half cent to 5.5 percent. The tax rate would then decline annually until it returned to 5 percent starting in July 2014.
The House Business and Industry Committee endorsed the measure on a party-line 7-4 vote, with Republicans opposing it. The panel shelved several other bills to raise revenues, including one to increase the tax on cigarettes by $1 a package.
The gross receipts tax proposal has a powerful supporter in the Legislature with House Speaker Ben Luján, D-Santa Fe, as its main sponsor.
Luján’s backing greatly improves the chances for the bill to win approval in the Democratic-controlled House. However, tax increases are expected to run into stronger opposition in the more conservative Senate.
Luján told committee members that higher taxes were necessary for New Mexico to plug a budget shortfall next year and prevent cutbacks in public schools and government services.
“We don’t take pride in coming to increase revenues or taxes,” he said.
Business groups claim higher taxes could prevent companies from hiring workers and might trigger layoffs by increasing operating costs. The gross receipts tax is paid on many business-to-business transactions.
“Unemployment is at a 22-year high,” said Art Hull of the Association of Commerce and Industry. “An increase of this amount will be a significant burden on business.”
New Mexico imposes the gross receipts tax — a form of sales tax — on goods and services. Cities and counties impose local gross receipts levies on top of the state rate.
The legislation would restrict some cities and counties from raising their local rates while the higher state tax was in place. Local government associations told the committee they are trying to negotiate a compromise with Luján. The gross receipts tax is the main revenue source for cities and counties.
“We’re concerned about balancing our budgets as well,” Bill Fulginiti, executive director of the New Mexico Municipal League said.
The bill goes to the Taxation and Revenue Committee for consideration and must clear that panel before it goes to the House for debate and a vote.
The gross receipts tax increase is HB119; the cigarette tax measure is HB35.