HB 412: Substantial Rework of New Mexico Taxes

02/23/2017

In the 2017 Legislature, one of the most notable measures is House Bill 412. If enacted, it would affect all New Mexico taxpayers. It is a massive tax reform bill that seeks to rework the current tax code to fit today’s economy.

The following is a summary of the most significant features of House Bill 412 as introduced. The summary is not intended to address all of HB 412’s provisions. The bill was introduced by Representative Jason Harper and Senators John Arthur Smith and Carlos Cisneros.

The 347-page bill is intended to substantially simplify elements of New Mexico’s tax system, focusing primarily on the state and local option gross receipts taxes. As written, provisions of HB 412 would take effect in 2018. While not likely to pass this session because of its sheer complexity and fiscal impact uncertainties, HB 412 represents a serious and thoughtful effort to broaden the tax base for the gross receipts taxes with the goal of substantially reducing rates, though more transactions would be taxable. The bill also seeks to further eliminate tax pyramiding within the gross receipts tax, particularly for business-to-business sales of goods and services. Finally, HB 412 advances tax equity by not only treating taxpayers closer to equals rather than narrow benefits for a few with the rest picking up the revenue shortfall, but also replaces some credits that are currently only available to very large, typically national, businesses, with deductions available to all on the same subject matter.

Major changes to a tax structure such as HB 412 would inevitably create winners and losers compared to the status quo, leading to piecemeal political resistance to specific provisions of concern to individual taxpayers or industries. The sponsors’ hope is that the Legislature can reach consensus as to what is best for New Mexico as a whole rather than individual taxpayers and constituents.

I.        GOVERNMENT FINANCE AND TAX ADMINISTRATION ACT

The first part of HB 412 contains many provisions addressing county, municipal and governmental use of tax revenues for bonding and other purposes, and adjustments to how various tax revenue streams are distributed and transferred to local governments that are beyond the scope of this report.

It should be noted that key elements of HB 412 are provisions intended to allay fears of local governments, some of which are already in considerable financial distress. To address revenue uncertainties for local governments arising out of the proposed major changes; Sections 47 and 48 would establish a local government stabilization fund out of state gross receipts tax revenues to cover unanticipated shortfalls for county and municipal gross receipts tax revenue, in 2019 and 2020 as the new gross receipts tax system takes effect and the inevitable bugs get worked out.

II.       PERSONAL INCOME TAX

A.       Single Tax Rate

Section 50 would eliminate all personal income tax brackets and impose the income tax at 5% of net income on all taxpayers, often referred to as a flat rate. The current top bracket is 4.9%. Several states in our region have flat personal income tax rates.

B.       Low Income Comprehensive Tax Rebate

Section 51 would revise the personal income tax Low Income Comprehensive Tax Rebate that may be claimed against tax liability and refunded in the event the credit exceeds tax liability. The credit was designed to assist low income taxpayers address the more regressive aspects of our tax system, including the gross receipts tax imposed on necessities of life such as food and clothing.

III.      CORPORATE INCOME TAX

A.       Single Tax Rate

Section 56 would abandon the top marginal corporate income tax marginal rates for 2017 of 4.8% (up to $500,000), and 6.2% (over $500,000) for a single 5% rate regardless of net income.

B.       Insurance Companies

Section 54 would add to the corporate income tax “income on which the premium tax” under the Insurance Code is assessed. This is a significant change from the current provisions of the Insurance Code, which impose the premiums tax in “lieu of” most other taxes, including the corporate income tax. This provision is consistent with Section 150’s proposed repeal of the Insurance Code “in lieu of” provision. This change would make New Mexico significantly different from most other states which also have “in lieu of” provisions and may face stiff resistance from insurance companies. It should also be noted that this would have a particular impact on Lovelace Hospital which operates as an insurance company.

IV.      GROSS RECEIPTS AND COMPENSATING TAX

A.       GENERAL

1.       Gross Receipts Tax Renamed the Sales Tax

Gross receipts tax would be renamed the “Sales Tax,” though there is no substantive change in the manner in which the tax is imposed on a seller’s “gross receipts.” The sales tax would still be imposed upon a seller’s gross receipts. This appears to be purely cosmetic, to try to get beyond perceptions of our “gross receipts tax” being an odd duck, which it will continue to be. The lack of a change to a “sales tax” imposed on buyers, as most other states do, may also be an implicit recognition that New Mexico derives substantial gross receipts tax revenue from federal government contractors that it could not constitutionally impose if the federal government were the buyer.

2.       Engaging in Business

Section 63 would redefine “engaging in business” (presumably “in New Mexico” though not stated) to include activity “without regard to having physical presence, including the presence of a representative acting on behalf of the person in the state,” unless the taxpayer and its affiliates have “less than $100,000 in the state, based upon receipts in the prior year.”  This provision is directly contrary to the U.S. Supreme Court decision in Quill Corp. North Dakota, 504 U.S. 298 (1992), which held that as a matter of constitutional law a taxpayer must have physical presence in a state for the state to impose a sales or use tax upon it.

3.       “Gross Receipts” Definition Expanded

Section 66 would add to the definition of “gross receipts” in NMSA 1978, § 7-9-3.5, from “third party sales made over a multivendor marketplace platform that acts as the intermediary, typically as the processor of the transaction, between seller and the purchaser.”  This is evidently intended to impose the tax on vendors with no physical presence in New Mexico who sell through a website such as Amazon.com.

4.       Sales Tax Rates to be Calculated Annually by Formula for at Least Two Years

Section 68 would amend the current 5.125% state tax gross receipts tax rate to be a rate calculated under a statutory formula tied to prior year receipts and future year estimated gross receipts. The provision appears intended to allow for a rate reduction due to a broadened tax base, while recognizing the fiscal impact uncertainty flowing out of implementation of HB 412 opposed to setting a new lower fixed state rate and waiting to see what happens. This provision should be carefully examined because it appears to have some terminology ambiguity or errors, in addition to the inherent uncertainty in predicting tax revenues in the future.

5.       Use (“Compensating”) Tax

Section 72 addresses several aspects of the New Mexico “compensating tax,” including renaming it the “use tax” as similar taxes are called in other states. The section would also establish the state “use tax” rate to be the same as the new “sales tax” rate.

Section 72 would remove the compensating tax currently imposed on a buyer for improperly issuing a nontaxable transaction certificate to a seller. Section 46, however, would enact a new civil penalty for a buyer’s use of tangible personal property or service contrary to the basis for which it gave the seller a nontaxable transaction certificate. The penalty would be the greatest of 6% of the value of the good or service or $25.

Finally, Section 72 would add licenses or franchises employed in New Mexico to the use tax, based upon the “value” of the franchise or license in use in New Mexico, if sold, leased or licensed by the taxpayer outside New Mexico and the receipts from the license or franchise are not subject not subject to the “sales tax.”  This proposed provision raises a whole host of potential controversies over interpretation as well as the notoriously complex issue of how to value intangible property, in this case a franchise or license.

B.       County and Municipal Gross Receipts Taxes

1.       New Local Use Tax Imposed

At present, New Mexico only has state use tax (the “compensating tax”) that goes entirely to the state.  Section 130 would require a municipality to enact a use tax at the same rate as its gross receipts tax.  Section 40 would impose the same requirement on counties.

 2.       Rates

There are provisions somewhat like those for the state sales tax for determination of a maximum municipal and county sales tax rate based upon prior year local option gross receipts or sales revenue based upon a percentage of the prior year tax revenue. Section 129 (municipal), Section 139 (county). The rate-setting mechanism appears to take into account repeal of numerous local-option sales taxes discussed later by being based on total local government revenue.

3.       Repeal of Many Special-Purpose Local-Option Gross Receipts Taxes

In an apparent effort at simplification in favor of a single or limited number of rates and taxes, Section 155 would repeal local option gross receipts taxes for a wide variety of purposes such as hospitals, fire protection, environmental services, infrastructure, regional transit and quality of life.

C.      Clean-Up

Many sections of HB 412 would clean up existing statutory language in a non-material way, or merely substitute “sales tax” for “gross receipts tax” and “use tax” for “compensating tax.”

D.       EXEMPTION AMENDMENTS

1.       Insurer and Bail Bondsmen Exemption Narrowed

Section 81 would narrow the sales tax exemption for insurers to receipts upon which the Insurance Code imposes the insurance premiums tax and remove bail bondsmen entirely from the exemption.

E.       DEDUCTION AMENDMENTS

1.       Nontaxable Transaction Certificates Not Required for Deductions

In a significant development, though nontaxable transaction certificates (“NTTCs”) could continue to be used, Section 82 would amend the provisions requiring the use of nontaxable transaction certificates to claim some deductions to make them optional, with other acceptable evidence also able to support the deduction. This is a major reform of the current gross receipts tax nontaxable transaction certificate provisions that create a significant trap for the unwary.

2.       New Anti-Tax Pyramiding Deductions

a.       Deduction for Manufacturing Equipment

Section 85 would amend the deduction in NMSA 1978, 7-9-46 for receipts from selling ingredients or component parts and consumables to manufacturers to also include receipts from selling “qualified” manufacturing equipment to a manufacturer. This would put New Mexico in line with many other states that do not tax manufacturing equipment because of its tax pyramiding effect on manufacturers who in turn sell manufactured products. There appear to be drafting errors in other provisions of the amendment that do not make much sense because it would include electricity, fuels and the like as manufacturing equipment when already addressed in the existing statute under “consumables.” 

This provision is no doubt tied to later provisions in HB 412 that would repeal the New Mexico Investment Tax Credit and the Advanced Energy Manufacturer’s credit, as well as possibly deductions applicable to the Urenco uranium enrichment plant in Lea County, which provided indirect relief on the purchase of manufacturing equipment to only relatively large manufacturers. Section 84 appears to take language directly from the Investment Credit Act to define qualified equipment.

Of some concern, Section 42 appears to amend the provision of NMSA 1978, § 7-1-21.1 in the Tax Administration Act to remove the provision allowing a manufacturer to pay gross receipts tax on electricity, gas or other consumables it purchases from utilities that are in fact consumed in the manufacturing proceed.  This process was arrived at following the addition of consumables to NMSA 1978, § 7-9-46 because, in the absence of separate metering, manufacturers are generally in the best position to know how much of the consumable purchased was used for manufacturing and how much was used for general business purposes, such as general, non-process specific heating, air conditioning, irrigation, and the like.

b.       Removal of “Every Other Sale” Limitation on the Sale of Services for Resale Deduction

As presently drafted, NMSA 1978, §7-9-48 provides a deduction to one who sells services to a buyer who resells the services to a third party, only if the buyer pays the gross receipts tax.  Section 86 would remove the “every other sale” limitation on the deduction to reduce tax pyramiding on services, already taxed much more than in other states.

c.       Business to Business Services Sales of Services Consumed, Rather Than Resold, by the Buyer

Currently, few deductions apply to services consumed, rather than resold, by a business, such as accounting, legal, marketing, IT, payroll processing and similar business support services. This has a tax pyramiding effect on the chain of transactions to the ultimate buyer of a good or service. Section 87 would create a broad deduction for receipts for business services if “deductible” as ordinary and necessary business expenses under Internal Revenue Code Section 162.

d.       Narrowing of Broad Deduction for Receipts from Selling Tangible Personal Property to Governmental Entities

Section 88 would eliminate the broad deduction in NMSA 1978, §7-9-54 for receipts from selling tangible personal property to local, state and federal governmental entities and replace it with a deduction for only tangible personal property sold to a local government for an industrial revenue bond project.  The provision does not address an issue recently raised by the Taxation and Revenue Department as to what constitutes “tangible personal property” opposed to tangible personal property that becomes a “fixture” to real property.

e.       Receipts from Interstate Sales

Section 89 would significantly amend NMSA 1978, § 7-9-55, currently a deduction for receipts from sales in interstate commerce, to an exemption on receipts from selling goods, services, licenses and franchises to customers outside of New Mexico.  The bill would extend the deduction to sales to foreign customers as well as customers in other states. The creation of an exemption means that receipts from qualifying transactions need not be reported, though records sufficient to support the exemption should be preserved for use in any potential audits.

Among other things, the provision recasts the deduction in NMSA 1978, § 7-9-57 for receipts from sales of service performed in New Mexico--the product of which is delivered and initially used outside of New Mexico--to receipts from services performed in New Mexico shipped or delivered to an out-of-state location for out-of-state use (eliminating disputes over what constitutes “initial use” outside of New Mexico). This provision explains HB 412’s proposed repeal of NMSA 1978, 7-9-57.

f.        Groceries

Section 96 would amend the deduction in NMSA 1978, 7-9-92, enacted in 2004 for retail sales of groceries (opposed to prepared food), to limit it to sales to those having an “electronic benefit transfer card" for public assistance benefits (formerly addressed with federal “food stamps”). This provision may be controversial because the original intent was to remove the regressivity of imposing the gross receipts tax on food for home consumption. The bill would limit the deduction to receipts from sales to low income persons--those most likely to be affected by imposing the gross receipts tax on food. It’s not immediately clear how this deduction meshes with the deduction for receipt of food stamps under NMSA 1978, § 7-9-18.1. The negative effect on gross receipts tax revenues was underestimated in 2004, though “hold harmless provisions” of NMSA 1978, §§ 7-1-6.46 and 6.47 were intended to reimburse local governments for the lost local-option gross receipts tax revenue, though under recent legislation the reimbursements would phase out over time, leaving local governments to increase local-option gross receipts tax rates to make up the difference. House Bill 412 Section 155 would repeal the hold harmless provisions.

F..       Repeal of Exemptions and Deductions

In an effort to increase the gross receipts tax base to support rate reductions and improve New Mexico tax equity, HB 412 would repeal a large number of gross receipts tax exemptions and deductions that are generally not addressing tax pyramiding of gross receipts tax pyramiding, but other matters. The primary ones are addressed next in specific business categories and then others that are outside those categories.

1.       Agriculture

NMSA 1978, § 7-9-18:  Exemption for receipts from sale of agricultural products (gross receipts).

NMSA 1978, § 7-9-58:  Deduction for Livestock feed, seed, fertilizer, insecticides, weed control, water for irrigation, livestock auctioneer receipts (gross receipts tax).

NMSA 1978, § 7-9-59: Deduction for warehousing, threshing, harvesting, growing, cultivating, transporting and processing agricultural products (gross receipts tax).

2.       Healthcare

NMSA 1978, § 7-9-73:  Deduction for sale of medical prosthetic devices (gross receipts tax).

NMSA 1978, § 7-9-73.1:  50% of hospital gross receipts (gross receipts tax).

NMSA 1978, § 7-9-73.2:  Prescription drugs, oxygen and oxygen service (gross receipts tax).

NMSA 1978, § 7-9-73.3:   Durable medical equipment (gross receipts tax).

NMSA 1978, § 7-9-77.1:  Medicaid payments for medical and other health services (gross receipts tax).

NMSA 1978, § 7-9-93: Receipts from services performed by healthcare practitioner received from managed care provider, healthcare insurer or Medicare Part C (gross receipts tax).

NMSA 1978, § 7-9-96.1:    Credit for hospital receipts (gross receipts tax).

NMSA 1978, § 7-9-99:  Engineering, design, architectural and new facility construction services for public healthcare facility in underserved area (gross receipts tax).

NMSA 1978, § 7-9-111:  Hearing aids and related services (gross receipts tax).

It should also be noted that substantial portions of Presbyterian Health Care are non-profit entities that would be affected by the changes above.

3.       Military (Federal Contractors) and Space

NMSA 1978, § 7-9-26.1: Exemption for space vehicle fuel (gross receipts and compensating tax).

NMSA 1978, § 7-9-54.1: Aerospace services to USAF (gross receipts tax).

NMSA 1978, § 7-9-54.2:  Spaceport operations (gross receipts tax).

NMSA 1978, § 7-9-54.4: Space-related test articles (compensating tax).

NMSA 1978, § 7-9-54.5:  US DOD test articles (compensating tax).

NMSA 1978, § 7-9-94: US DOD defense force transformation acquisition programs (gross receipts tax).

NMSA 1978, § 7-9-106:  Military construction services to implement special operations mission transition projects under contracts with US DOD (gross receipts tax).

Also note that HB 412 would repeal the municipal and county Spaceport gross receipts taxes currently used in part to fund the New Mexico Spaceport, evidently with the thought that the local governments could choose to support the Spaceport out of revenues from the revamped local option gross receipts tax provisions.

 4.       Nonprofit Organizations

NMSA 1978, § 7-9-15:  Exemption for 501(C)(3) entities (compensating tax).

NMSA 1978, § 7-9-16:  Exemption for Nonprofit elderly care facilities (gross receipts).

NMSA 1978, § 7-9-29: 501(c)(3) entity sales receipts (gross receipts tax).

NMSA 1978, § 7-9-60:  Sales of tangible personal property to 501(3) entities (gross receipts tax).

NMSA 1978, § 7-9-85:   501(c)(3) fundraising event receipts (gross receipts tax).

NMSA 1978, § 7-9-91: Contributions of inventory held for sale to 501(c)(3) organizations, state or federal agencies, or Indian tribes, nations or pueblos (compensating tax).

5.       Renewable Energy

NMSA 1978, § 7-9-54.3:  Wind and solar generation equipment sold to governmental entity (gross receipts tax). This primarily is used for industrial revenue bond projects to reduce prior disputes over what is tangible personal property, opposed to a real estate fixture, under NMSA 1978,§7-9-54 (an issue that goes well beyond renewable energy projects). There seems to be a disconnect with Section 88 of HB 410 that would narrow NMSA 7-9-54 to apply to only Industrial Revenue Bond Projects, without the clarifying language of NMSA 1978, § 7-9-54.3.

NMSA 1978, § 7-9-79.2:  Biodiesel blending facility tax credit (gross receipts and compensating tax).

NMSA 1978, § 7-9-98: Biomass equipment (compensating tax).

NMSA 1978, §§ 7-9-100 through 103:  Transactions with the New Mexico Renewable Energy Authority or its agents or lessees (gross receipts and compensating tax deductions).

NMSA 1978, § 7-9-103.1:  Tres Amigas electric grid connection project for electricity transmission (gross receipts tax).

NMSA 1978, § 7-9-112:  Sales of solar energy systems used on site for heat, hot water or electricity (gross receipts tax).

NMSA 1978, § 7-9-114:  Receipts from selling tangible personal property and services to owner or lessor of qualified solar, geothermal, recycled energy renewable energy facility, or a new or repowered coal-based electric generation facility and associated coal gasification facility (gross receipts and compensating tax).

6.       Tax Pyramiding

Several proposals would repeal statutes enacted to reduce tax pyramiding for businesses, though this may not have been recognized by the drafters.

NMSA 1978, § 7-9-69:  Back office administrative and accounting services sold to related entity on nonprofit or cost basis (gross receipts tax).

NMSA 1978, § 7-9-74:   Tangible personal property used in jewelry manufacturing (gross receipts tax).

NMSA 1978, § 7-9-75:  Service performed on manufactured product (gross receipts tax).

NMSA 1978, § 7-9-78:    Deduction for the value of tangible property held for resale or lease (compensating tax).

NMSA 1978, § 7-9-78.1: Uranium enrichment plant equipment (compensating tax), (though this may be addressed by the new manufacturing equipment deduction discussed above). This repeal may be intended to be replaced by the proposed new deduction for receipts from selling manufacturing equipment discussed above.

NMSA 1978, § 7-9-108: Investment management and advisory services for mutual funds, hedge funds or real estate investment trusts (gross receipts tax).

This deduction was enacted in 2007 in large part to provide a deduction for receipts from selling such services between related/affiliated investment entities and thus tax pyramiding, though not stated that way in the statute, which is broader. Flywheel Ventures venture capital funds based in Santa Fe were the primary movers.

7.       Other

NMSA 1978, § 7-9-13.4:  Exemption for textbooks sold by public college bookstores (governmental gross receipts).

NMSA 1978, § 7-9-40: Exemption for horse racing receipts (gross receipts tax).

NMSA 1978, § 7-9-41.1:  Exemption for officiating at New Mexico Activity Association sanctioned events (gross receipts tax).

NMSA 1978, § 7-9-56: Deduction for intrastate transportation part of single contract for interstate (gross receipts tax).

NMSA 1978, § 7-9-56.1:  Deduction for telecommunication services for internet access (gross receipts tax).

NMSA 1978, § 7-9-56.2:  Deduction for hosting World Wide Web sites (gross receipts tax).

NMSA 1978, § 7-9-56.3: Deduction for trade-support company in a border zone (gross receipts tax).

NMSA 1978, § 7-9-57:  Deduction for sales to out-of-state customer (gross receipts tax)(addressed in NMSA 1978, § 7-9-55 amendments, discussed previously).

NMSA 1978, § 7-9-57.2:  Deduction for software development services in nonurban areas (gross receipts tax).

NMSA 1978, § 7-9-61.1: Deduction for loan origination, making or assumption charges, loan payment handling (gross receipts tax).

NMSA 1978, § 7-9-63:  Deduction for newspaper and magazine publishing and retail sales of magazines (gross receipts tax).

NMSA 1978, § 7-9-64:  Deduction for receipts from newspaper sales (gross receipts tax).

NMSA 1978, § 7-9-65:  Receipts from selling chemicals and reagents (gross receipts tax).

NMSA 1978, §7-9-66:  Deduction for commissions on nontaxable sales of tangible personal property; dealer store commissions on sales of tangible personal property (gross receipts tax).

NMSA 1978, § 7-9-66.1:  Deduction for real estate commissions on portion of sales subject to the gross receipts tax because improvements constructed by seller of land (gross receipts tax).

NMSA 1978, § 7-9-68:  Deduction for receipts from selling goods or services fulfilling a warranty obligation (gross receipts tax).

NMSA 1978, § 7-9-70: Deduction for receipts from the rental or lease of vehicles used in interstate transportation of passengers or property authorized by agency of the United States (gross receipts tax). This repeal seems contrary to the statutory definition of “gross receipts” as including receipts from leasing property employed in New Mexico to the extent it may relate at least in part to use outside of New Mexico. There is also a potential Commerce Clause challenge to this repeal if receipts from transportation outside New Mexico is considered subject to the tax.

NMSA 1978, § 7-9-76:  Deduction for travel agent commissions (gross receipts tax).

NMSA 1978, § 7-9-76.1:  Deduction for manufactured homes (gross receipts tax).

NMSA 1978, § 7-9-76.2:  Deduction for receipts from leasing or licensing theatrical films and tapes to seller of commercial entertainment (movie theaters) (gross receipts tax).

NMSA 1978, § 7-9-83:  Deduction for jet fuel (gross receipts tax).

NMSA 1978, § 7-9-84:   Deduction for jet fuel (compensating tax).

NMSA 1978, § 7-9-86:  Deduction for receipts from sales to qualified film production companies (gross receipts tax).

NMSA 1978, § 7-9-87:  Deduction for receipts from retail lottery ticket sales (gross receipts tax).

NMSA 1978, § 7-9-90:  Deduction for receipts from sales of uranium hexafluoride and uranium enrichment (gross receipts tax).  This bill affects receipts associated with operation of the URENCO uranium enrichment facility in Lea County, New Mexico.

NMSA 1978, § 7-9-95:  Back-to-school deduction (gross receipts tax).

NMSA 1978, § 7-9-97: Deduction for receipts from sale of goods and services sold to the State from forfeited financial assurance funds (gross receipts tax).

NMSA 1978, § 7-9-103.2:  Deduction for receipts of an electricity exchange.

NMSA 1978, § 7-9-104:  Deduction for receipts from post-secondary educational institution non-athletic special event (gross receipts tax).

NMSA 1978, § 7-9-107:  Deduction for receipts from production or staging of professional boxing, wrestling or martial arts contest (gross receipts tax).

NMSA 1978, § 7-9-109: Deduction for receipts from veterinary services for cattle (gross receipts tax).

NMSA 1978, §7-9-110.2: Deduction for receipts from the sale of locomotive engine fuel (compensating tax). Note that repeal of the gross receipts deduction for receipts form selling locomotive fuel in NMSA 1978, § 7-9-110.2 is not proposed.

NMSA 1978, § 7-9-110.3: Purpose and requirements for gross receipts and compensating tax deductions for locomotive fuel (gross receipts and compensating tax).

G.      CREDITS NARROWED OR REPEALED

Again to broaden the gross receipts tax base, HB 412 proposes narrowing or repeal of several credits applicable to gross receipts and compensating tax.

1.       Advanced Energy Credit Narrowing

NMSA 1978, § 7-9-78:    Deduction for the value of tangible property held for resale or lease (compensating tax).

2.       Rural Jobs Tax Credit Narrowing

Section 59 would remove the gross receipts and compensating taxes from the taxes against which the Rural Jobs Tax Credit can be claimed, leaving the corporate and personal income taxes.

3.       Sale of Services for Resale Credit Repeal

 NMSA 1978, § 7-9-96:  Repeal of the credit for receipts from sale for resale of service in the ordinary course of business not subject to gross receipts tax on the resale (gross receipts tax).

4.       Obsolete Credit Repeal

NMSA 1978, § 7-9-105:   Repeal of an expired credit for payment of a penalty no longer in existence.

5.       Investment Credit Repeal

NMSA 1978, §§7-9A-1 through 7-9A-11:  Repeal of the Investment Credit not needed if gross receipts tax deduction for manufacturing equipment discussed above is enacted.

6.       High Wage Jobs Tax Credit Repeal

NMSA 1978, §§7-9G-1 and 7-9G-2:  Repeal of the controversial High Wage Jobs Tax Credit for creation of new jobs in New Mexico that, under current law, bring money from outside of New Mexico.

7.       Alternative Energy Product Manufacturer Tax Credit Repeal

NMSA 1978, §§ 7-9J-1 through 7-9J-8:  Repeal of the Alternative Energy Product Manufacturers Tax Credit based upon purchase of manufacturing equipment that could be claimed in addition to the Investment Credit and the use of an industrial revenue bond. The credit is no longer needed to address tax pyramiding if the deduction for manufacturing equipment discussed above is enacted.

V.       PROPERTY TAX

Section 141 would phase out so-called “tax lightening” caused by a statutory cap on residential property value increases from year to year of 3%, but the valuation goes to full market value for a buyer of the property. The original intent of the valuation cap was to protect lower income homeowners against large property value increases in the 2000s. Not surprisingly, it was not popular with homebuyers. Section 141 would phase out the valuation cap for most homeowners by 2020 (when values would be market value) but modify the current cap for homeowners with less than $35,000 net taxable income in the prior year or years.

These provisions must be understood in light of the so-called “yield control” provisions of NMSA 1978, §7-37-1 for residential and nonresidential property. The calculation is complex, but the general purpose of yield control is to produce tax equity by encouraging revaluation of properties on the property tax rolls without simultaneously increasing property tax revenues. Therefore, in general, if property values increase across the board as a result of removing the valuation caps, rates would decrease to generate revenue that is not substantially greater than the revenue under lower values.

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Questions may be directed to tax lawyer Tim Van Valen at 505-883-3330.

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