Time for Some Business-Tax Climate Change

The Tax Foundation’s latest look at state business-tax climates has neither good nor bad news for New Mexico. For the third year in a row, the Land of Enchantment lands at #34 — behind neighbors Utah (#8), Texas (#13), Colorado (#18), Arizona (#21), and Oklahoma (#32). Nevada, which isn’t adjacent but is in the neighborhood, is #5.

Disaggregating the score, New Mexico moved from 25th to 24th on the corporate-tax component, a result of cutting its top rate from 6.6 percent to 6.2 percent. (It’s scheduled to drop again, to 5.9 percent, next year.) The state’s famously low property-tax burden yielded a ranking of #1 in the nation. (Good news — or is it?) Not surprisingly, the component that hobbled New Mexico’s overall score the most was the GRT. With high rates, business-to-business impacts, and a dizzying array of deductions, exemptions, and credits, the levy is a significant disadvantage.

No, liberals, the tax burden isn’t the only issue that matters to businesses. But it’s pretty important, as the Foundation’s Jared Walczak, Scott Drenkard, and Joseph Bishop-Henchman explain:

The modern market is characterized by mobile capital and labor, with all types of businesses, small and large, tending to locate where they have the greatest competitive advantage. The evidence shows that states with the best tax systems will be the most competitive at attracting new businesses and most effective at generating economic and employment growth. It is true that taxes are but one factor in business decision-making. Other concerns also matter — such as access to raw materials or infrastructure or a skilled labor pool — but a simple, sensible tax system can positively impact business operations with regard to these resources. Furthermore, unlike changes to a state’s health-care, transportation, or education systems, which can take decades to implement, changes to the tax code can quickly improve a state’s business climate.

There’s lots of work ahead for the Land of Enchantment’s thoughtful, evidence-based advocates for economic development. A key item on the task list is to make the state a friendlier tax jurisdiction for entrepreneurs, investors, and corporations.

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