Tax Foundation Releases Business Tax Friendliness Index

According to the Tax Foundation’s exhaustive analysis of business taxes nationwide, New Mexico, the state ranks in the middle of the pack (23rd overall). There is a lot of great information and analysis in the paper, but the following quote summarizes the study’s findings with regard to New Mexico:

New Mexico has improved several aspects of its tax system in recent years, most advantageously cutting the top income tax rate, with the result that its sales tax system is practically the only thing dragging its overall ranking down to a middle-of-the-pack ranking of 23rd best. Although the almost 6% rate (when including local add-ons) is not excessive, its application to business-to-business transactions is among the most extensive in the nation. This results in several layers of sales taxation, which distorts the economy against sectors that rely on multiple stages of production to bring their products to market.

I have a few quibbles with even this quote, however. First and foremost, the reason we have such an all-encompassing sales tax is that we have a gross receipts tax with lots of exemptions written in. The analysis contained in the paper is correct, but New Mexicans call the tax “gross receipts,” not “sales.” More importantly, few places in New Mexico have sub-six percent gross receipts tax rates. In fact, the statewide average is 6.65 percent and the average rate of New Mexico’s 10 largest cities is in excess of 7 percent. Clearly, the gross receipts tax is an even bigger problem than the Tax Foundation’s report lets on.
New Mexico has improved somewhat in recent years, but we still have a long way to go. Reforming the GRT is a must for the economic future of the state.