Tax system is an absolute mess

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By Sherry Robinson

Legislators are generous in passing tax incentives to bring new companies and jobs to the state. And that’s the problem. They have to be.
“If you’re in business in New Mexico and you’re paying taxes, come to the Legislature and get a tax credit,” said Sen. Jerry Ortiz y Pino, D-Albuquerque, during a debate on one particular credit. “Pretty soon nobody will be paying taxes.”
Said Sen. Steve Neville, R-Aztec, “If we don’t offer the tax credit, pretty soon we’ll have no businesses.”
Pass another credit, problem solved. But not really.
Increasingly, we’re forced to look at the bigger picture, which is painful. New Mexico’s byzantine tax system is a mess. And we’ve had three governors in a row whose idea of “tax reform” is a few illusory fixes because nobody has the stomach for real reform.
Before the session, in speech after speech, the governor made scary references to a study that placed New Mexico last in competitiveness. Last year Ernst & Young ranked states by tax burden on new investment. The study focused on location of manufacturing plants, research and development facilities, call centers, and corporate headquarters.
Maine and Oregon were the least burdensome, while New Mexico imposed the greatest burdens because of its corporate income apportionment system, its above-average corporate tax rate, and the gross receipts tax on goods and services. The accountants missed our tax credits or incentives; when a second study included them, it found us competitive.
Isn’t that special.
The fact remains that for private industry here, the tax burden is uneven. One of the current governor’s “reforms” is to spare the smallest businesses from the gross receipts tax. I wrote in support because it benefits me and thousands of other small players, but is it fair? Is it an incentive that will do anything? We don’t know.
In this last session, lawmakers introduced 95 tax-related bills; 14 passed and await signatures (or vetoes), according to the nonpartisan New Mexico Tax Research Institute. Richard Anklam, executive director, has said the breaks for specific groups are “how we managed to end up with record high gross receipts rates and a Swiss-cheese-like tax base to begin with.” The gross receipts tax is so often maligned that Senate Finance Committee Chairman John Arthur Smith introduced a measure repealing the tax. Treated as a joke, it didn’t go anywhere. Too bad it didn’t trigger a serious discussion of how we pay for state government.
A major tax measure this year was Sen. Tim Wirth’s bill to require combined reporting. Wirth calls it a loophole that some multi-state companies are allowed to choose the basis for taxation, when others – particularly local businesses – don’t have that choice. “It’s really about fairness, whether it’s a large business or small business,” he said.
The Santa Fe Democrat, who’s crusaded on this issue for years, moved a long way toward the middle in focusing on big box stores instead of all businesses, and he reduced the tax rate a bit. By the day before adjournment, Republicans had moved from frosty to lukewarm but still voted against it, and it will probably be vetoed.
In the Roundhouse, this counts as progress. Maybe next year. At least there’s growing recognition that we need more than quick fixes.
Sherry Robinson
New Mexico News Service