SANTA FE, N.M. (AP) — Corporations will benefit from tax cuts, but larger cities and counties may be forced to increase taxes in coming years because of an economic development package approved by the Legislature.
Republican Gov. Susana Martinez said Saturday she’ll sign the tax measure into law and downplayed the possibility that consumers could end up paying more for goods and services because of one provision in the legislation.
She said the tax bill was crucial for diversifying New Mexico’s economy and bringing higher paying jobs to the state
“With the compromise jobs package that we passed today, I am confident we have the tools necessary to move New Mexico forward,” Martinez said after the session.
The tax bill represented one of her biggest victories in the 60-day session.
The legislation will:
— Lower the state’s corporate income tax rate from 7.6 percent to 5.9 percent over five years. Currently, the state’s top rate is the highest among neighboring states.
— Provide a tax break to manufacturers that sell most of their goods and services outside of the state. Companies will have the option of basing their tax liability on their sales in New Mexico. The change could help corporations like computer chip maker Intel, which has a plant in Rio Rancho. The tax obligation of a corporation currently is tied to its payroll, property and sales in New Mexico.
— Narrow recently enacted business incentives, including one offering a tax break to companies creating high wage jobs. The incentives have ended up costing the state far more in lost revenue than initially estimated.
— Revamp the tax treatment of large multi-state retailers. Supporters contend it will help stop “big box” retailers, such as Wal-Mart Stores Inc., from avoiding taxes by shifting income to subsidiaries in other states.
— Sweeten incentives for attracting television and film projects. New Mexico offers a 25 percent tax refund for certain film and TV production expenses. The incentive will increase to 30 percent for a TV show producing at least six episodes in New Mexico. The extra 5 percent also will be available to film and TV projects that use a film studio in the state for an extended time. The total incentives remain capped at $50 million a year but the legislation allows unused subsidies up to $10 million to be carried over to the next year — offering up to $60 million annually in some instances.
— Phase out revenue the state has been providing to local governments. That helps lower the cost to the state of the overall tax package. Currently, the state provides cities and counties with revenue to offset what they lost when New Mexico lifted taxes from food and medical services in 2005. Those payments have grown to nearly $150 million a year by holding local governments harmless from any revenue loss. The legislation ends the provision over 15 years, starting in July 2015. Local governments will have the power to increase their gross receipt tax by up to three-eighths of a cent. Smaller cities and counties will have the option of continuing with the current system rather than trying to raise taxes.
Bill Fulginti, executive director of the New Mexico Municipal League, said it’s uncertain how many communities may need to increase taxes to offset the loss of revenue from the state.
The state imposes a 5.125 percent gross receipts tax on most good and services. Cities and counties add local levies on top of that. The legislation expands that local taxing authority, but the new levies won’t apply to exempt items such as groceries and food staples.
Lawmakers initially considered letting local governments re-impose the tax on food but that was dropped.
The tax proposals are projected to cost the state about $37 million in reduced revenue in the fiscal year starting in July 2015 and grow to $56 million the following year.