Reforming New Mexico’s harmful gross receipts tax
New Mexico’s gross receipts tax (GRT) is a noose around the neck of our state’s economy. This was the basic point of a recent column written by Rep. Larry Larrañaga (R) and Sen. George Muñoz (D). The column discussed a bill that died in the 2014 legislative session that would have eliminated the gross receipts tax from the sale of goods and services to the United States Department of Defense related to directed energy or satellites. In Albuquerque, the tax is charged at 7 percent. The rate varies statewide.
The impetus behind the bill is that New Mexico is pretty much unique in charging tax on business inputs (a few other states charge similar taxes at far lower rates). It is also unique in charging taxes on federal contractors and services provided to the federal government. This is because the GRT is charged as a percentage of total receipts, not a percent of sales.
The GRT is a jobs-killer because it increases costs for business by 7 percent or more above competing states, most of which do not have taxes on business inputs and none as high as New Mexico’s in terms of the rate. That is a huge margin for someone who plans to provide business services on a national basis and can locate their business anywhere. No one wants to pay an additional 7 percent on top of what they’re already paying to Washington and Santa Fe and, quite frankly, a business that must charge extra is not going to be as competitive.
Larrañaga and Muñoz are attempted to target the GRT for one group of contractors dealing with the Labs. It would reduce revenues to the State and Bernalillo county by anywhere from $2 to $10 million annually. The problem, of course, is that anytime you carve out one industry for special favors, you push that burden onto others. That’s why RGF opposed reducing electricity prices for a few favored businesses….ultimately the cost must be picked up elsewhere. Already, entrepreneurs and new businesses must pay 7 percent or more for attorneys, technology services, accountants, and a wide variety of other non-politically-favored services if they are provided by a New Mexico business. Alternatively, if you are looking to set up one of these businesses, you are strongly incentivized NOT to locate your business in New Mexico lest you have to add that tax to your prices.
New Mexico’s gross receipts tax either needs to be dramatically-reformed with the rates lowered and other taxes on productivity like the state income tax eliminated, or, the GRT must be eliminated entirely and the budget gap (totaling millions of dollars) made up through a combination of new revenues (including economic growth) and spending restraint. Read the Rio Grande Foundation’s detailed analysis of the gross receipts tax and its myriad problems here.