Business Tax Climate: The Good and (Mostly) Bad

The Tax Foundation is out with its latest “State Business Tax Climate Index,” which is “designed to show how well states structure their tax systems,” as well as provide “a roadmap for improvement.”

New Mexico ranked 35th — not among the absolute worst, but far from the best. Unfortunately, each of the Land of Enchantment’s neighbors performed better. Utah ranked highest (9th), followed by Texas (14th), Colorado (16th), Arizona (21st), and Oklahoma (31st).

Disaggregating the index’s data, New Mexico performed best on the property tax — its burden was the lowest in the nation. Our sales tax (more accurately, the gross receipts tax) was 42nd. Not surprising, given the GRT’s high rates and mind-numbing complexity.

As authors Jared Walczak, Scott Drenkard, and Joseph Henchman note, for the top ten states, the “absence of a major tax is a common factor.” Wyoming, Nevada, and South Dakota lack both corporate- and personal-income taxes (with Nevada imposing its own type of GRT), while “Alaska has no individual income or state-level sales tax; Florida has no individual income tax; and New Hampshire, Montana, and Oregon have no sales tax.”

Serious simplification, and strong reduction, of New Mexico’s GRT would do quite a lot to improve the state’s ranking on the Tax Foundation’s index. Long-term, eliminating the personal-income tax — perhaps funded by a multi-year drawdown of the tens of billions of dollars in the state’s permanent funds — would yield even more benefits.