As we’ve already noted, the main problem with Gov. Lujan Grisham’s plan to slightly reduce GRT rates by .25% is the fact that the real problem with the tax is taxation of services as business inputs.
Also, with what is expected to be a $2 billion surplus, the Gov. wants to return $145 million. That’s about 7 percent of the available surplus. And, while the State’s GRT rate would be reduced from 5.125% to 4.875%.
In every area of the State we’ve seen tax rates rise dramatically over the years. The chart below reflects Albuquerque’s rapid climb over the years to the current gross receipts tax rate of 7.875 percent. Rio Rancho’s rate is now 7.6875%. You can find a full list of local GRT rates with rates ranging to over 9%. Relative to Albuquerque’s overall GRT rate, a .25% cut is a 3.17% reduction in the GRT.
In addition to addressing taxes on business inputs and services, the Legislature needs to address local taxation authority and constrain the ability of local governments to raise rates.
Paul:
I agree that the proposed .25% decrease in NMGRT is really a pittance and its will have a small effect on our economy.
The more serious problem is avoidance, like you pointed out regarding revenue from space tickets.
Another glaring example is the fact that motor vehicle sales are exempt from NMGRT but are taxed instead by a far lower excise tax.
Another example is the fact that “business-to-business” sales are tax exempt and are only charged to the end user. In my construction business a load of material my be sold from a manufacturer in TX to a supplier in ABQ tax free. It is then purchased by me, again tax free. It is only when I sell if to a Santa Fe homeowner that it is taxed, at the whopping rate pf 8.4375%. This “back-loading” of the NMGRT encourages tax avoidance. I am often asked by a potential customer “what if I pay you in cash” suggesting that I do the sale “off the books”, don’t declare the income and not charge the tax.
NMGRT should be charged on each of these purchases which will reduce the tax to the end user and reduce the temptation of tax avoidance.
A $50,000 purchase would be taxed $4,218.75 at present, whereas if it were split 3 ways would would be far less and reduce the temptation of tax avoidance.
This change would generate 100 of millions of dollars for the State.
The same is true of taxing groceries, which is another “N0-brainer”
Thanks.
John
I agree that the taxation of business inputs is a terrible idea. The only good aspect is that it is a set percentage and not a VAT. My concern is this is where the Gov is going. A VAT would be devastating to NM business.
However, I disagree with the contention that the state legislature should constrain the ability of local governments to tax. Competition should work between towns, cities, counties as well as states. Taxation is one of the dials a municipality can use to make their location more or less attractive to business and residential development. Restricting the use of that variable will stifle the ability of municipalities to compete.
What is meant by “return” as in “with what is expected to be a $2 billion surplus, the Gov. wants to return $145 million” ? Return to whom?
Return in the form of a small tax cut to the GRT of .25 percentage points.