Business columnist Winthrop Quigley recently wrote a detailed article in the Albuquerque Journal about New Mexico’s economically-harmful gross receipts tax. The article made a number of good points, but I felt that it needed a few details about the specific harms associated with the tax as well as a discussion of some potential solutions.
Winthrop Quigley’s article on New Mexico’s gross receipts tax (GRT) is a must-read for anyone concerned about turning around our sluggish economy. We at the Rio Grande Foundation have fingered the tax as the single biggest obstacle to our economic success.
Another point on the GRT is its outsized impact on small businesses and entrepreneurs who contract with as opposed to hiring professional talent including accountants, legal help, and accounting services (to name just a few services). The GRT adds 7 percent or more to these services when purchased from a New Mexico-based as opposed to an out-of-state provider.
What can be done? The bad news is that the current, “Swiss cheese” GRT regime is untenable. Giving exemptions to a few, politically-connected industries and causes while socking everyone else with rates upwards of 7 percent on items that are not even taxed elsewhere, is a guaranteed jobs killer.
Policymakers must either embrace the GRT for all of its flaws by eliminating exemptions, reducing rates, and eliminating the personal income tax as a separate tax (the GRT in its pure form taxes personal income, but is currently exempted). This was the idea behind legislation introduced by Sen. Bill Sharer and Rep. Tom Taylor during the 2013 legislative session. The top rate under this proposal would have been 3 percent.
Alternatively, through a combination of fiscal restraint, a push to increase revenues elsewhere, and some type of rate increase, New Mexico could eliminate the GRT and switch to a traditional sales tax.
Neither path is easy, but the GRT is a big problem that demands a big solution.