By Robert Nott, The Santa Fe New Mexican
Gov. Michelle Lujan Grisham announced an initiative to cut the state’s gross receipts tax rate, which she said could tally more than $400 million in savings for New Mexicans.
House Bill 367 also could lead to savings for consumers, who might see a reduction in prices of some goods as a result of the savings businesses may receive.
The legislation would lower the state’s Gross Receipts Tax rate an additional quarter-percent — from 5% to 4.625% — and create a deduction for a range of services small businesses contract out to other businesses — accounting, legal and payroll work, for example.
Those services get taxed individually in what is known as “pyramiding.” Rep. Jason Harper, R-Rio Rancho, one of the bill’s sponsors, said those pyramiding gross receipts tax payouts compound over time and are incorporated into the final price of the product charged to the consumer.
Rob Black, president and CEO of the New Mexico Chamber of Commerce, said in an interview Friday small businesses end up being hurt more by contracting out those services, whereas bigger businesses often have personnel within their company who can handle them, saving them the cost of paying the additional gross receipts tax.
“If I am a small business and I hire a lawyer to help me do some work, I pay gross receipts tax on that service,” he said. “If I am a big business and have an in-house lawyer, I don’t have to pay it.
“It makes our small businesses not competitive with larger businesses. It costs more money and disadvantages them compared to larger businesses.”
By offering a deduction for those contract services, Harper said, “there will no longer be a GRT penalty for small businesses.”
The savings, Harper said, could lead businesses to hire another employee or lower the price of goods, since often the GRT rates they get hit with are passed on to the consumer.
How much this would save individual businesses or consumers is unclear at this point.
Norm Ruth, owner of Deluxe Design in Rio Rancho, said his company uses all the contract services that would not longer be taxed under the provisions of HB 367. Though he said it is too soon to say how much the bill would save his company, “we would be able to take those savings and put it right back into our business.”
Other financial specifics about how the bill might pay off remain unclear as the bill does not yet have a fiscal impact report. The state Taxation and Revenue Department is still working on the report, said agency spokesman Charlie Moore.
He said the $411 million in savings cited in a news release issued by the Governor’s Office is a ballpark figure.
Harper said about 160,000 small businesses would benefit from the legislation if it is signed into law. According to the U.S. Small Business Administration Office of Advocacy, New Mexico in 2021 had 158,844 small businesses, which make up about 90 percent of all businesses in the state.
However, the bill could have negative effects on counties and municipalities that rely on GRT revenues to fund services because of the deductions to the pyramid taxes, Harper said.
By his estimate, counties and municipalities would lose about $70 million collectively.
“It will have an impact on government revenue and that would include counties and cities,” Black said.
Representatives from Santa Fe and Bernalillo counties said they did not think it would affect GRT revenue because of a provision that says local GRT rates imposed by cities and counties would not be affected.
Municipalities and counties have the option to set additional GRT rates, which range from region to region up to almost 9%, according to the state Taxation and Revenue Department website. Their total rate includes the state’s 5% GRT rate.
A spokeswoman said Santa Fe County is “neutral on this (bill) because it doesn’t appear to affect our local options.”
Other county officials around the state could not be reached for comment.
Harper said he believes Democrats and Republicans in both the House and Senate will support the bill and get it to the governor’s desk for her signature.
Senate Majority Leader Peter Wirth, D-Santa Fe, wrote in an email he “supports the push to lower the gross receipts tax and am willing to look for ways to reduce pyramiding as part of an overall tax reform package. When making these tax cuts, we also have to look for ways to replace the lost revenue, especially for those counties and municipalities that are very dependent on the revenue produced by the GRT.”
The quarter-cent rate reduction in the bill would be on top of the 1/8-cent cut already scheduled to take effect on July 1, according to a news release the governor’s office issued Friday.