Today at 1:30 p.m. in Room 317, the House Taxation and Revenue Committee will hear HB9: ONE PERCENT INCOME TAX SURTAX introduced by Rep. E. Sandoval. 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.  While the Governor has said that he will veto roll backs of the Personal Income Tax reduction, he has not gone on the record with a position on a surtax on income.  Only 2% of tax returns are for over $200,000 and only 9% of returns are over $100,000.  Yet those 9% pay 59% of the tax. Note also that the surtax would be retroactive to the beginning of 2010. The fiscal analysis on this bill predicts that it will generate $3.7 million (FY10), $44.4 million (FY11), and $51.3 million (FY12). ACI will oppose this bill which has one committee referral.  Please contact members of the committee to voice your opposition.

The Committee will also hear HB132: PROPERTY TAX LIGHTNING FIX Rep. K. Giannini.  This bill would apply the three percent cap on annual valuation increases to residential property that changed hands in the previous year and to residential property newly constructed in 2002 or subsequent years. For the 2011 and subsequent property tax years, residential property changing hands in the prior year would be valued at its value in the 2004 tax year increased by no more three percent per subsequent year, provided the adjusted value does not exceed the “current and correct” (i.e., market) value for the year in which the property is being re-valued. ACI will support this bill.

Yesterday, several actions were taken on ACI priority bills.

The House Business & Industry Committee unanimously tabled the first of the “sin tax” bills to be heard.  HB34: LIQUOR SURTAX FOR PUBLIC SCHOOLS proposed by Rep. B. Egolf would impose on holders of a retailer’s license a surtax of 2.5 percent of the retail price of alcoholic beverages sold. The surtax would be earmarked for the Public School Fund. This surtax applies to both retail package sales and restaurant and bar by-the-drink sales. The effective date of this bill’s provisions is July 1, 2010. This fiscal impact assumes that 75 percent of liquor sales occur at retail stores and the other 25 percent occur at restaurants or bars. Using data from gross receipts tax returns and assumptions, the tax could generate revenue by $35.6 million.

However, it is noted that this would impose new record-keeping and reporting burdens on businesses and some administrative costs on the Tax and Revenue Department.  The analysis also cannot predict how much of the liquor sales by consumers would be shifted to out-of-state vendors or to the pueblos.  The impact would be to the private in-state retailer and restaurant owner.  ACI opposed this bill.

The House Labor & Human Resources Committee unanimously passed HB8: Appropriation for Economic Development Training (JTIP) sponsored by Speaker Lujan.  This bill appropriates $5.0 million from the General Fund to the Development Training Fund for providing in-plant and classroom training.

This Committee also tabled HB52: Repeal Film Production Tax Credit sponsored by Rep. D. Kintigh.  This bill, true to its name, would repeal the film production tax credits and the provision allowing up to six percent of the market value of the Severance Tax Permanent Fund to be invested in film projects, up to $15 million per project.

“Sin Tax” Increase Proposals:

HB34: LIQUOR SURTAX FOR PUBLIC SCHOOLS proposed by Rep. B. Egolf would impose on holders of a retailer’s license a surtax of 2.5 percent of the retail price of alcoholic beverages sold. The surtax would be earmarked for the Public School Fund. This surtax applies to both retail package sales and restaurant and bar by-the-drink sales. The effective date of this bill’s provisions is July 1, 2010.

This fiscal impact assumes that 75 percent of liquor sales occur at retail stores and the other 25 percent occur at restaurants or bars. Using data from gross receipts tax returns and assumptions, the tax could generate revenue by $35.6 million.

However, it is noted that this would impose new record-keeping and reporting burdens on businesses and some administrative costs on the Tax and Revenue Department.  The analysis also cannot predict how much of the liquor sales by consumers would be shifted to out-of-state vendors or to the pueblos.  The impact would be to the private in-state retailer and restaurant owner.  For this reason, ACI will oppose this bill which has two committee referrals.

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.

SB30: CIGARETTE AND TOBACCO PRODUCTS TAX DOUBLED introduced by Sen. D. Feldman proposes to increase the excise tax on cigarettes by $1.00 per pack and increases the tobacco products tax from 25 percent of the product value to 40 percent of the value. The revenue is earmarked for the county-supported Medicaid fund. The effective date of this bill’s provisions is July 1, 2010.The increase in the state tax would move New Mexico from 31st highest excise tax to 16th. Colorado has an 84 cent tax, Arizona taxes at $2.00, Utah taxes at $0.695, and Texas taxes $1.41per pack. ACI will oppose this bill which has three committee referrals.

SB31: GROSS RECEIPTS TAX IMPOSED ON SOFT DRINKS introduced by Sen. D. Feldman and Rep. D. Picraux proposes a removal of the existing gross receipts tax exemption on beverages commonly known as soft drinks. This bill distributes that portion of the gross receipts tax attributable to the sale of soft drinks to the County-Supported Medicaid Fund created by the Statewide Health Care Act. The bill has three committee referrals on the Senate side and no fiscal analysis yet.  ACI will oppose this bill.

SB121: CIGARETTE TAX INCREASE introduced by Sen. B. Sanchez would increase the excise tax on cigarettes from $.0455 to $.0705 if the cigarettes are packaged in lots of 20 or 25, from $.091 to $.0141 if they are sold in lots of 10 and from $.182 to $.282 if they are packaged in lots of 5. This would have the effect of increasing the tax of on a pack of 20 cigarettes by 50 cents.  The distribution of cigarette taxes will change as follows: For the county and municipality recreational fund 1.35% to 1.08%, to the county and municipal cigarette tax fund 2.69% to 1.85%, to the UNM Cancer Research and Treatment Center 1.35% to 1.08%, to the Finance Authority 2.02% to 1.61%, to the Finance Authority on behalf of and for the UNM Health Sciences Center 14.37% to 11.49%, to the Finance Authority for Department of Health facilities 6.05% to 4.84%, to the Finance Authority for the credit enhancement account 15.79% to 11.49% percent and to the Finance Authority for the Rural County Cancer Treatment Fund 1% to .8%. Provides for an effective date of March 1, 2010 if adopted by two-thirds of both houses,or July 1, 2010 if passed by less than a two-thirds vote of either house. ACI will oppose this bill with three committee recommendations.

SB122: SURTAX ON HIGH-INCOME NEW MEXICO TAXPAYERS introduced by Sen. B. Sanchez would impose a surtax of one percent on taxable income in excess of $80,000 for married individuals filing separate returns; $160,000 for heads of household, surviving spouses and married individuals filing joint returns; or $100,000 for single individuals and for estates and trusts. The increase applies to taxable year 2010 and subsequent taxable years, and contains a temporary provision authorizing initial payment of 2010 estimated New Mexico income tax to be based on provisions of current law. There is no sunset provision in this bill. ACI will oppose this bill that has three committee referrals.

SB126: LIQUOR EXCISE TAX INCREASES introduced by Sen. L. Lovejoy would increase the liquor excise taxes as follows: spirituous liquors, from $1.60 per liter to $2.73; beer, from $.41 per gallon to $.95; wine, from $.45 per liter to $.95; fortified wine, from $1.50 per liter to $1.93; microbrewer beer produced and sold in-state, $.08 to $.62; small winegrower wine produced and sold in-state, from $.10 to $.44 on the first 80,000 liters, and from $.20 to $.54 on all liters above, up to 950,000; and cider, from $.41 to $.95.  Effective July 1, 2010, increases liquor excise tax rates, as follows: on spirituous liquors, from $1.60 to $2.73 per liter; on beer (except that produced by microbreweries) from $0.41 to $0.94 per gallon; on beer produced by microbreweries, from $0.08 to $0.61 per gallon; on fortified wine, from $1.50 to $1.92 per liter; and on cider, from $0.41 to $0.94 per gallon. The revenues would be spent by the Human Services Department for mental health and substance abuse treatment. No fiscal analysis has been completed and it cannot be predicted how much of the liquor sales by consumers would be shifted to out-of-state vendors or to the pueblos.  The impact would be to the private in-state retailer and restaurant owner. ACI will oppose this bill that has three committee referrals.

SB142: LIQUOR TAX BOOST FOR TREATMENT FUND introduced by Sen. B. Sanchez would increase liquor excise tax rates, as follows: on spirituous liquors, from $1.60 to $2.73 per liter; on beer (except that produced by microbreweries) from $0.41 to $0.94 per gallon; on beer produced by microbreweries, from $0.08 to $0.61 per gallon; on fortified wine, from $1.50 to $1.92 per liter; and on cider, from $0.41 to $0.94 per gallon. The increase would be effective July 1, 2010 and revenues would be spent by the Human Services Department for mental health and substance abuse treatment. No fiscal analysis has been completed and it cannot be predicted how much of the liquor sales by consumers would be shifted to out-of-state vendors or to the pueblos.  The impact would be to the private in-state retailer and restaurant owner. ACI will oppose this bill that has three committee referrals.

Other Tax Increase Proposals:

HB99: EMERGENCY SERVICES INSURANCE PREMIUM SURTAX introduced by Rep. J. Campos.  This bill, in addition to the insurance premium tax, requires property and vehicle insurers to pay a surtax on every July 1 based on premiums and policy fees in the prior calendar year. The surtax begins at 0.885 percent for 2010, 2011 and 2012 and phases in every three years to reach 2.885 percent by July 1, 2024. 51.2 percent of the revenue is earmarked for the Emergency Medical Services Fund and 48.5 percent for the Trauma System Fund.

Insurers covered by the surtax include those transacting property or vehicle insurance. The surtax is due on net homeowners’ insurance (as defined by the Superintendent of Insurance) and vehicle insurance premiums and policy fees.  The bill earmarks the revenue to the Emergency Medical Services Fund for contracting with nonprofit emergency medical services offices to fund costs of regional planning and development, technical assistance and support and coordination of medical services in their regions.  There is no fiscal analysis for this bill which has two committee referrals.  ACI will stand in opposition to this bill which will mean in increase in costs to consumers who purchase health, home, and auto insurance.

SB10:  FOOD TAX ON ACCESSORY FOOD ITEMS introduced by Sen. B. Sanchez narrows the gross receipts deduction for food purchases to the sales of staple foods at retail food stores. Staple food means a food or food product, including meat, poultry, fish, bread, cereal, vegetables, fruits or dairy products, for home consumption that meets the definition of staple food. Under this bill, items such as potato chips and pork rinds will not be taxed, however a very basic item like eggs will be taxed. If the definitions are taken to their extreme, products containing parts of the staple foods (i.e. pizza) will also receive the gross receipts tax deduction and this will lead to a much lower revenue increase in the general fund than currently estimated. Currently the estimation is an increase to the General Fund of up to $87 million.  Retail food stores will experience increased administrative impacts, as they will need to reprogram their systems to include receipts from non-staple food sales in the taxable portion of sales. ACI will oppose this bill which has three committee referrals.

SB29: TAX ON ADMINISTRATIVE SERVICES ONLY INSURANCE CONTRACTS introduced by Sen. D. Feldman would allow the gross receipts tax to be applied to insurers’ receipts for administrative services only contracts and it amends the law to clarify that receipts from administrative service only contracts are not exempt from the gross receipts tax. Because no effective date is provided in the bill, its provisions will become effective ninety (90) days after the 2010 legislative session adjourns. Since the costs of the increase would be passed along to consumers, ACI will oppose this bill until a better policy & fiscal analysis is available. The bill has three committee referrals.

Today’s blog will summarize the bills to increase the Personal Income Tax, as well as those increasing the Gross Receipts Tax.  Tomorrow’s blog will contain those bills considered “Sin Tax Increases” plus other tax proposals.  Wednesday blog will contain those bills that, to date, propose changes to the Property Tax Laws.

Personal Income Tax Increase Proposals:

HB9: ONE PERCENT INCOME TAX SURTAX introduced by Rep. E. Sandoval 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.  The bill has one committee referral—the House Taxation & Revenue Committee that Rep. Sandoval chairs.  While the Governor has said that he will veto roll backs of the Personal Income Tax reduction, he has not gone on the record with a position on a surtax on income.  There is no fiscal analysis yet on how much revenue this bill would generate. Only 2% of tax returns are for over $200,000 and only 9% of returns are over $100,000.  Yet those 9% pay 59% of the tax. Note also that the surtax would be retroactive to the beginning of 2010. ACI will oppose this bill which has one committee referral.

SB65: RAISES PERSONAL INCOME TAX RATES introduced by Sen. G. Ortiz y Pino raises, beginning with the 2010 tax year, personal income tax rates by adding five new brackets. The highest imposes a rate of 8.2 percent for married taxpayers filing jointly with taxable income over $1,000,000 and $500,000 for single taxpayers. The bill would increase the PIT on incomes as low as $16,000 for a single person and $24,000 for a married couple filing jointly.  ACI will oppose this bill which has three committee referrals.

SB128: PERSONAL INCOME TAX SURTAX, DISTRIBUTION CHANGES Sen. E. Griego would, for the 2010, 2011 and 2012 tax years, adds a 3.3 percent personal income tax surtax on married individuals filing separate returns with income over $75,000, on heads of household, surviving spouses and married individuals filing joint returns with income over $150,000 and on single individuals and estates with income over $100,000.  ACI will oppose this bill that has three committee referrals.

Gross Receipts Tax Increase Proposals:

HB30: DROPS ELIGIBILITY REQUIREMENT FOR LOCAL TAX IMPOSITION introduced by Rep. J. Trujillo would remove the requirement that, to be eligible to impose the municipal (or county) capital outlay gross receipts tax, a municipality (or county) must have enacted all authorized increments of certain other local option gross receipts taxes. Also allows counties to use proceeds from a county capital outlay gross receipts tax for any infrastructure purpose.  This bill, in essence, would allow local government gross receipts tax increases that are not presently authorized. These increases will ripple through to business to business sales increasing the cost of doing business as well as making us less competitive with other states. The general fund revenue loss would be about $2.8million in FY11 if all local governments chose to impose the tax, while about $91 million could be generated by counties and about $74 million could be generated by municipalities if all were to fully impose the tax in FY11. ACI will oppose the bill which has two committee referrals.

HB42: BOOSTS MUNICIPAL ENVIRONMENTAL SERVICES TAX TO ONE-HALF PERCENT introduced by Rep. R. Martinez would allow the governing body of a municipality to enact an ordinance imposing an excise tax not to exceed 0.5 percent which shall be imposed in 1/16 percent increments if imposed at a rate of less than 0.5 percent. Currently the municipal environmental services gross receipts tax only authorizes an imposition of 0.0625 percent. Because no effective date is provided in the bill, its provisions will become effective ninety (90) days after the 2010 legislative session adjourns. Eighty-one municipalities already impose the tax (at 1/16 percent) and this estimate assumes all municipalities will impose the full 1/2 percent increment of the tax. About $148.9 million could be generated by municipalities if all fully impose the tax in FY11.The general fund revenue loss will be about $1.6 million in FY11 and $1.7 million in FY12. ACI will oppose this bill until further policy analysis indicates the impact to the General Fund and to business.

HB50: “AMAZON LAW” COMES TO NEW MEXICO introduced by Rep. E. Chavez proposes a version of New York’s “Amazon law” under which Web sellers and other remote vendors would become taxable on their sales into New Mexico for gross receipts tax purposes. A person with no physical presence in New Mexico is presumed to be engaged in business in New Mexico if (1) that person enters into an agreement with a New Mexico resident for consideration to refer potential customers to that person and (2) the cumulative gross receipts from sales by the person who referred New Mexico customers exceed $10,000 in the twelve-month period ending the previous June 30. The bill is interesting and if it does anything it is in effect a tax increase for New Mexicans. The bill appears to target out of state internet sellers for gross receipts tax—the tax will just be passed on to New Mexican consumers. ACI will oppose the bill until further policy and fiscal analysis can be made to fully understand any unintended consequences.  The bill has two committee referrals and no fiscal analysis.

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 grants a new tax credit to certain Medicaid dentists. 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 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.

ACI will oppose this bill with two committee referrals and no fiscal impact analysis at this time.

SB81: EXPANDS “RETAIL FOOD STORE” GRT DEFINITION introduced by Sen. S. Neville amends the existing gross receipts deduction for sale of food to include as “retail food stores” establishments whose sales consist at least 75 percent of bottled water, ice and coffee. Thus the store’s sales of bottled water, ice and coffee, as well as any other item defined as “food” under the federal Food Stamp Act would be deductible. The policy implications of this bill are unclear and ACI will be neutral on this bill that has three committee referrals.