Though the Governor’s Proclamation forbids tax increases or changes to the tax structure to be considered in the Special Session, several bills were introduced in the Senate to do just that.  These bills give us a glimpse of what we can expect in the regular session that begins in January 2010.

Increases to Personal Income Tax (PIT): It is not surprise that legislation has been introduced to either roll back entirely the PIT reduction adopted in the 2003 session or to increase it, at least temporarily.  The following bills were introduced:

SB7: Income Surtax Distribution to Public School and Medicaid introduced by Sen. E. Griego imposes a state income surtax for taxable years 2010 through 2012 on taxable income and earmarks 50% of the receipts for public schools and Medicaid.  The tax would be on incomes in excess of the amounts listed below:

For Married Individuals Filing Separately:
1% in excess of $75,000
2% in excess of $100,000
3% in excess of $150,000
For Heads of Households, Surviving Spouses and Married Individuals Filing Jointly:
1% in excess of $150,000
2% in excess of $200,000
3% in excess of $250,000
For Single Individuals and for Estates and Trusts:
1% in excess of $100,000
2% in excess of $133,000
3% in excess of $166,000

SB9: Higher Income Tax Rates introduced by Sen. L. Lopez would restore the PIT to the pre-2004 rates.  While the Senator says the proposal would only raise tax rates for people in the highest current income bracket, the bill itself would call for a PIT tax increase on income beginning at $7,000. This bill is a perfect example that “high income” is rhetoric that has not been defined and the importance of reading the language of the bill to determine the actual effect versus intent.  The proposed increased rates would be as follows:

For married individuals filing separately:
$20,000 - $42,000:  $864 plus 7.1% on income over $20,000 (increase from 4.9%)

$32,000 - $50,000:  $1716 plus 7.9% on income over $32,000 (increase from 4.9%)

over $50,000:         $3,38 plus 8.2% on income over $50,000 (increase from 4.9%)

For surviving spouses and married individuals filing jointly:
$24,000 - $40,000:  $768 plus 6.0% on income over $24,000 (increase from 4.9%)

$40,000 - $64,000:  $1,718 plus 7.1% on income over $40,000 (increase from 4.9%)

$64,000 - $100,000: $3432 plus 7.9% on income over $64,000 (increase from 4.9%)

over $100,000:       $6.276 plus 8.2% on income over $100,000 (increase from 4.9%)

For single individuals:
$16,000 - $26,000:  $504.50 plus 6,0% on income over $16,000 (increase from 4.9%)

$26,000 - $42,000:  $1,104.50 plus 7.1% on income over $26,000 (increase from 4.9%)

$42,000 - $65,000:  $2,204.50 plus 7.9% on income over $42,000 (increase from 4.9%)

over $65,000:         $4,057.50 plus 8.2% on income over $65,000 (increase from 4.9%)

For heads of households:
$7,000 - $14,000:   $119 plus 3.2% on income over $7,000 (increase from 1.7%)

$14,000 – $20,000: $343 plus 4.7% on income over $14,000 (increase from $269.50)

$20,000 - $33,000:  $625 plus 6.0% on income over $20,000 (increase from 4.9%)

$33,000 - $53,000:  $1,405 plus 7.1% on income over $33,000 (increase from 4.9%)

$53,000 - $83,000: $2,825 plus 7.1% on income over $53,000 (increase from 4.9%)

over $83,000: $5,195 plus 8.2% on income over $83,000

SB11: Higher Tax Rates for High-Income Taxpayers introduced by Sen. B. Sanchez imposes a 1% surtax increase on taxable income of:
$80,000 for married individuals filing separately;

$160,000 for heads of household, surviving spouses, and married individuals filing jointly;

$100,000 for single individuals, estates and trusts.

Increases to the Gross Receipt Tax (GRT):

SB1: Insurance Service GRT Increase introduced by Sen. D. Feldman proposes to increase the GRT on insurance services for administration-only contracts.

SB2: Eliminating Soft Drink Gross Receipt Deduction introduced by Sen. G. Ortiz y Pino proposes that soft drinks not be included in the definition of food.  In 2004, the Legislature made food exempt from GRT and this change would impose the GRT on the sale of soft drinks.

Other Tax Proposals:

SB8: Corporate Income Tax to Public School Fund introduced by Sen. P. Wirth would require unitary corporations in the state of New Mexico to file income tax returns on a combined basis.  During the interim, mandatory combined has received the majority of attention by legislators as the broadest way to fix the need to increase taxes on the business community.

Combined reporting wold be harmful to economic development because it would impose substantial tax obligations on successful businesses simply for establishing New Mexico subsidiaries. Currently, corporations who are members of corporate families (parent and subsidiary corporations) may choose to report on a “separate” or “combined” basis. Separate reporting requires corporations doing business in New Mexico to pay corporate income tax on the income they earn in New Mexico. Advocates have suggested that combined reporting might produce annual state revenues of $40 million to $100 million. These estimates are based on outdated information.  In fact, this method could be revenue neutral or even negative as corporations would be able to report their income losses in other states in New Mexico, thus paying less taxes.

This bill would not effect most small businesses which pay no corporate income tax or similar tax because they are organized as partnerships or sole proprietorships. If they are organized as corporations, the principal owners are likely also to be employees, and they can effectively eliminate all taxable corporate income by paying it to themselves as salaries or bonuses. Finally, there are reduced tax rates on the first one million dollars of taxable net income.

SB10: Raises Liquor Excise Tax introduced by Sen. B. Sanchez would raise the liquor excise tax on spirits from $1.60 to $2.00 per liter, on beer from 41 to 95 cents per gallon and on wine from 45 to 65 cents per liter. The tax on beer produced by a microbrewer rises from 8 to 62 cents per gallon. Wine produced by a small winegrower jumps from 10 to 30 cents per liter on the first 80,000 liters sold and from 20 to 40 cents per liter for production over 80,000 liters.