Tax Reform and the Special Session, Part I

With fiscal conditions in the dumpster, it might not be the best time for New Mexico to slog through an overhaul of its tax code.

And as State Rep. Candie Sweetser, a Democrat from Deming, points out, a special session — one that taxpayers should hope will be short — does not offer much time “to analyze different proposals and amendments, hold public hearings and legislative debates, and provide New Mexicans with adequate opportunity to monitor the issue and express their opinions to their legislators.”

Throw in the facts that the legislature is controlled by a party comfortable with — if not eager to adopt — tax hikes, while the executive branch is run by a governor who has pledged not to raise taxes, and it’s not unreasonable to question the timing of a sweeping tax redo.

But Susana Martinez has repeatedly stressed her desire for the special session to achieve “comprehensive tax reform,” specifically citing HB 412, a hugely complex bill that passed the House of Representative but died in the Senate during the regular session.

It’s far from perfect, there’s a lot to like about HB 412. Here are a few highlights:

* A ban on soda taxes: Current law bans local governments from imposing excise taxes on tobacco, liquor, motor fuels, and motor vehicles. HB 412 adds “food or beverages” to the list. That’s a great idea — the Nanny State’s case against sugar-sweetened beverages is pathetically weak, and the money committed on future soda-tax battles in the Land of Enchantment would be better spent elsewhere.

* More revenue for roads: The excise tax assessed on sales of motor vehicles is set at 3 percent. The funding stream the levy creates does not flow toward transportation expenditures, but into the general fund. Starting in fiscal 2019, HB 412 distributes 50 percent of the excise tax’s revenue to the state road fund and 50 percent to the local governments road fund. The New Mexico Department of Transportation estimates that in the first year of the change, $159 million in “new money” will become available.

* Local GRT simplification: Villages, towns, cities, and counties can now impose levy hikes for prisons, “environmental services,” hospitals, “fire protection,” and “quality of life” expenses. HB 412 scraps all the earmarked increments, replacing them with a single rate. The New Mexico Municipal League noted that the shift would empower local governments to “raise and expend funds in response to federal and state requirements and local demands and conditions.”

* Renaming the GRT the “sales tax”: The change is terminology may not be momentous, but it is welcome, because the levy, as currently constituted, is a sales tax. The state admits it: “Although the gross receipts tax is imposed on businesses, it is common for a business to pass the gross receipts tax on to the purchaser either by separately stating it on the invoice or by combining the tax with the selling price.”

Tomorrow we’ll look at how HB 412 eliminates many of the dedications, credits, and exemptions that infect today’s GRT.