The House Business and Industry Committee postponed hearing HB9: ONE PERCENT INCOME TAX SURTAX introduced by Rep. E. Sandoval until today.  This bill adds a one percent personal income tax surtax on married individuals filing separate returns with income over $100,000, on heads of household, surviving spouses and married individuals filing joint returns with income over $200,000 and on single individuals and estates with income over $133,000 for the 2010, 2011 and 2012 tax years.  ACI opposes this bill and encourages you to contact committee members if you haven’t already.

This Committee will also hear several other tax proposals, including:
HB35: HIKES CIGARETTE, TOBACCO PRODUCT TAXES introduced by Rep. B. Egolf increases the cigarette tax by a nickel per cigarette, or one dollar per pack and the tobacco products tax from 25 to 40 percent of the wholesale value of non-cigarette tobacco products. The bill directs the increased tax revenue to Public School Fund. Because a large increase in the cigarette tax will significantly lower taxable sales, distributions to existing beneficiaries (e.g., UNM’s Health Sciences Center) of this tax will be lowered.  It is also not known how many sales would shift to the pueblo smoke shops that are not subject to this tax.  The private sector retailers would be the ones impacted.  ACI will oppose this bill which has two committee referrals.

HB62: MANDATORY COMBINED RETURNS introduced by Rep. R. Begaye that requires almost all corporations operating in New Mexico that are members of a family of corporations engaging in a unitary business to file a combined return for New Mexico corporate income tax purposes. Manufacturers new to the state that have not filed previously a New Mexico corporate income tax return instead may file on a separate corporate entity basis. This bill repeals the existing option for corporate families to file on federal consolidated basis. Offering companies the choice of filing methods is an incentive that economic developers use to attract employers to our state.  ACI will join the Economic Developers in opposing this bill which has two committee referrals in the House, and three in the Senate.

HB119: FOUR-YEAR HIKE IN GROSS RECEIPTS, COMPENSATING TAXES Speaker Lujan raises the rates of both the gross receipts and compensating taxes from 5.0 percent to 5.50 percent for the period July 1, 2010 through June 30, 2011. Thereafter, the rates fall by one-eighth percent at the start of each fiscal year, once again reaching five percent on July 1, 2014. The bill also restricts local governments’ authority to impose local option gross receipts taxes during the four-year period. The bill mandates that no new municipal or county local option gross receipts tax may be imposed during the four-year period if (1) the sum of the state tax increase in effect plus the total of all local option gross receipts taxes in effect exceeds 2.5 percent or (2) would exceed 2.5 percent with its imposition.

The New Mexico Research Tax Institute states:
New Mexico’s Gross Receipts Tax  (GRT) applies to far more transactions than most retail sales taxes, but is imposed at a substantially higher rate than broad-based business activity taxes in other states. The result is a hybrid, and a tax that brings in substantially more revenue than most states’ sales taxes. Much of the broader tax base is due to “pyramiding” of the GRT. Pyramiding is the term given to sales taxes imposed on business inputs. Pyramiding is both unfair and inefficient because some transactions are taxed more heavily than others simply because of the way a business is structured. For example, a company that elects to purchase certain services from an out of state supplier rather than from an in-state supplier can reduce its tax burden without changing the economic substance of its activities. Economic decisions are distorted, not by considerations of efficiency, but by the uneven imposition of taxes. NMTRI has estimated that as much as 1/3 of the GRT base is derived from business-to-business transactions. A 1997 study of business taxes concluded that the GRT on business inputs more than doubles the effective tax rate on business – from less than 4% to more than 8%. New Mexico had the highest sales tax burden of any of the western states, and its sales tax burden caused the overall tax burden to be significantly above the regional average.

Also important to note that in addition to the current state gross receipts tax rate of 5 percent, New Mexico’s municipalities and counties are authorized to impose over 4 percent of local option gross receipts taxes (that figure excludes several additional local option taxes that have been authorized for selected local governments). Due to increasing imposition of local option taxes, the statewide gross receipts tax rate is increasing steadily. On average, a local option gross receipts tax of about 1.34 percent is imposed by municipalities and about 0.86 percent is imposed by counties in FY10. Combined with the state gross receipts tax of 5 percent, the statewide tax rate is therefore 7.2 percent. Assuming no other local option taxes are imposed during this time, this bill would increase the average statewide gross receipts tax rate to 7.7 percent in FY11, 7.575 in FY12, 7.45 in FY13, and 7.325 in FY14.

To oppose tax increase bills, please contact members of the House Business and Industry Committee.