Legislators passed a pretty good tax package this year, but instead of responding thoughtfully to the big picture, they simply rolled together a bunch of individual bills. They got in some pet tax credits while ignoring longstanding problems and creating one new irritant for businesses and economic development.
House Bill 252 “modernizes the tax code” and “enables working New Mexicans to hold on to more of what they earn,” said its sponsor, House Taxation and Revenue Committee Chair Derrick Lente, D-Sandia Pueblo.
There is much to like. Among other things, HB 252:
- Adds more personal income tax brackets and decreases taxes for all taxpayers. Low earners get the biggest breaks.
- Offers the Rural Healthcare Practitioner Tax Credit to more health professionals, including those working in underserved rural areas.
- Creates a gross receipts tax deduction for childcare and pre-K providers.
- Increases the Special Needs Adopted Child Tax Credit by $500.
- Gives public school teachers a deduction up to $1,000 for buying classroom supplies.
- Extends the qualification deadline for Angel Investment Tax Credits from 2025 to 2030. Because it encourages investment, this was a priority for business.
- Offers wildfire victims rebuilding homes a new tax credit of up to $50,000 and a gross receipts tax deduction for legal services.
The bill is heavy on environment-related breaks for electric vehicles, geothermal and solar electricity, and solar and wind energy manufacturing.
On the down side, HB 252 creates a single corporate income tax rate to 5.9% instead of the current two-tiered structure of 4.8% for taxable income under $500,000 and $5.9% for more. Some 4,200 companies earned less than $500,000 but accounted for just 6.4% of corporate taxes paid, according to legislative analysis of tax data from 2021 to 2023, while 474 companies making more than $500,000 paid the rest.
The change might appear to hurt smaller companies, but the Taxation and Revenue Department, quoting the Tax Foundation, says “the size of a corporation bears no necessary relation to the income levels of the owners.” In fact, a single rate “minimizes the effort by corporations to avoid the tax liability at the higher marginal tax rates.” Twenty-nine other states have enacted a single-rate.
The New Mexico Chamber of Commerce wasn’t crazy about the higher rate for smaller companies but hasn’t asked the governor to veto it.
NMCC is, however, alarmed enough about two other provisions to circulate a petition and ask for a line-item veto. The provisions will harm multinational taxpayers with New Mexico operations because they “inappropriately broaden New Mexico taxation to include foreign income in the tax base” and “will make New Mexico less competitive for investment and growth by business entities that include international operations.”
In a letter to the governor, NMCC said lawmakers sneaked these provisions into the bill. They “had just one hearing in the Senate, with no vote and no public comment” before being added to HB 252 “at the eleventh hour without further discussion. A bill this technical and complex, which undermines some of the key provisions in the 2019 tax reform, should have included much more discussion and outreach prior to being included in this session’s tax package.”
Lente has said he thinks HB 252 is fortified against line-item vetoes. We’ll see.
Finally, despite complaints over too many years, the gross receipts tax was missing from the package, even though the interim tax committee heard testimony on it. Again. Only one lawmaker, Rep. Jason Harper, R-Rio Rancho, tried to reduce the hit from pyramiding of gross receipts taxes. Often referred to as a tax on a tax, the gross receipts tax is a much deeper problem, say experts, because the taxes embedded at each level raise base costs and make New Mexico businesses less competitive.
SB 252 was a bill long on feeling good and less on substance.