The Tax Man

Reform plan for New Mexico gross receipts tax is DOA for the Legislature's special session

The bill is massive. It totals 408 pages. As written, it will fill the gap between New Mexico's revenue and the $6.1 billion budget passed by the Legislature in March. Combined with other one-time cash grabs from things like idle state-funded construction projects, it could actually build the state's cash reserves, too.

But Rep. Jason Harper's gross receipts tax reform bill—championed by the governor—will not see a single committee hearing in front of the Legislature when lawmakers are called into special session once more on Wednesday.

"We're not going to do it. It's dead," Speaker of the House Brian Egolf, D-Santa Fe, confirms to SFR the day before the session starts. "The draft isn't going to be ready until Thursday. ... The public doesn't know what's in it, members don't know what's in it, the media doesn't know what's in it."

The holiday weekend is ahead and lawmakers are anxious to pass a budget compromise and go home. A Memorial Day cookout is on their minds, and the appetite for major tax reform on minor notice is thin.

Egolf says he's personally a fan of tax reform and there's broad interest in reform among his majority Democratic Party members in the House. But Egolf says it's possible the Legislature could finish its work on the immediate issue of the budget within hours after he gavels in the special session at noon May 24. He'd then be keeping members around waiting for a huge bill they haven't seen yet.

Rep. Harper (R-Rio Rancho) has been working at tax reform for years. In the last session, he crafted House Bill 412, which proposed some dramatic changes to the state's system of taxing gross receipts instead of a pure sales tax. It passed the House unanimously, but the Senate didn't take it up.

The bill that Harper has been working on is a three-headed hydra of tax proposals from the prior legislative session that Harper hoped would hold enough support to make its way to the governor. He'll have to hold his quest to slay the tax beast until next time.

Harper, a chemical engineer at Sandia National Laboratories, has drawn so much attention for the effort that someone recently posted his home on Google as a business. His title: tax assessor. It's funny to him. And a little sad.

"The main goals are the same," Harper tells SFR over his cell phone. He's on the way back from Santa Fe with just a day before the session is set to start. "Fix our broken gross receipts tax system and turn it into a broad-based sales tax. The average rate around the state would be about 6 percent." Broaden the tax base, lower the rate from its current statewide average of about 7 percent.

Harper's plan, which will likely reappear at the Legislature, would institute an online sales tax. It would eliminate the exemption for medical services except for Medicare, which primarily serves the elderly and those with kidney disease. That includes nonprofit hospitals and standalone doctors, as are often found in rural New Mexico. Nonprofit organizations would no longer be exempt from paying taxes on purchases.

And, of course, there's the food tax, which was exempted in 2005.

"That's the $300 million question, right?" Harper says.

On Tuesday, Democrats learned that Harper's bill would leave the food tax exemption alone. To make up for that lost revenue, the state would double the excise tax on motor vehicles and increase the tax on health insurance premiums by 1 percent.

Speaker Egolf tells SFR he anticipates the Legislature funding a study so that it can have a plan publicly available and ready to go when the lawmaking body meets as scheduled next January.

If the state did let local governments once more collect sales tax on food, it could eliminate costly payments it has to make each year as part of a plan to ease the burden on cities of losing all that tax revenue.

Harper said he was surprised by Egolf's position.

"I don't think keeping folks around for three days instead of one is a big deal, especially if it means we can reform our broken and 60 years-out-of-date gross receipts tax. ... Running another study won't tell us anything different," he says.

Democratic Rep. Bill McCamley of Las Cruces has also been vocal about reworking the state's tax system. But he shies away from what he fears is a plan that might be well-researched, but could only be passed in slapdash fashion during a special session.

"Tax reform is complicated. No one is disputing it should happen. But you have to do it right. If we pass something without vetting it, we may end up with something that's worse than what we have now," McCamley tells SFR.

The Legislative Finance Committee, which employs some of the best analytical talent around when it comes to dissecting bills, said of Harper's effort last session, "The complexity and magnitude of this bill made it almost impossible to score."

It wasn't that the bill couldn't be deciphered; it was that New Mexico hasn't done much work to track the cost of the tax cuts lawmakers have passed. It also doesn't have a great way to track the impact of tax pyramiding. The term describes what happens when gross receipts tax is piled successively on "services, supplies, raw materials and equipment."

The impact can jack up the final price of those things, making it harder on consumers than a standard sales tax on the final purchase. It can also impact small businesses, which can't afford to hire their own human resources person or in-house attorney.

Harper had a plan to exempt much of those professional services from the state's gross receipts tax, but it now appears it's a plan that will get studied instead of passed.

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