Tom Taylor

Tax Cut Bill HB641

Diana — Fri, 26 Apr 2013 02:29:22 +0000

Provided below are the highlights regarding the tax cut bill (HB 641) that the House dramatically passed in the waning moments of the legislative session.

The tax cut provisions of the bill are designed to lower corporate income tax rates and other provisions of the corporate tax code to encourage businesses to grow and locate in New Mexico. The legislation is also designed to provide certainty and consistency so that businesses can plan ahead and, hopefully, encourage businesses to relook at the business climate in New Mexico with a more favorable perception.

The major provisions of HB 641 are as follows:

Reduces the top rate for the corporate income tax rate from 7.6% to 5.9 % and phases-in that rate reduction over five years.
Establishes a new method of determining corporate income tax liability for manufacturers by creating a single weighted sale factor and the bill phases-in that provision over five years.
Incorporates the changes to the film and TV production tax credits that Governor Martinez vetoed earlier this week from HB 379.
Amends current law regarding the high-wage jobs tax credit by tightening a host of high wage tax credit definitions to ensure those qualifying for the tax credit fulfill the law’s original intent. Changing current law was necessary to stem the fiscal pressure being placed on the State General Fund as the current high wage tax credit was too broad and not targeted enough to new job creation.
Amends current law regarding how the Gross Receipt tax (GRT) is applied to manufacturing “consumables” such as electricity, natural gas, water, manufacturing aids, chemicals, etc. This new language fixes problems with legislation that was approved last year that was designed to address tax pyramiding within the GRT tax structure. This fix was needed to ensure the original intent of last year’s legislative action was met, yet still address the problem of tax pyramiding.
Added a requirement to the tax code that certain corporations have to file combined reporting, but the new bill allows manufacturing and other selected businesses to be exempt from combined reporting requirements if the business employs 750 or more employees.
Begins the phase-out of the current hold harmless payment to local governments by delaying any change to the hold harmless for two years, and then phasing-out the payment over the next 15 years. Small municipalities under 10,000 people and small counties under 48,000 people can decide to continue to receive hold harmless. Local governments will have the option of increasing local option taxes, without a referendum vote, to increase GRT rates in their communities to make-up any lost revenue. Currently, the State of New Mexico provides local government with about $150 million per year in hold harmless distributions.

As with all tax measures that make significant changes in what we do, we don’t always know the exact outcome of the effect.. Time will always tell and we are always ready to go back and tweak things up a bit. Senator Sharer and I will continue to press for an even greater reform of our taxes that would virtually make the above action moot and cure the lions share of the problems created by our wounded and dying gross receipts tax. The vultures are circling and I believe we are ripe for some major change.

2013 Session Update

Diana — Wed, 24 Apr 2013 01:31:00 +0000

Just as the dust has settled from the last legislative session, district one has been pounded by a real dust storm that has lasted for a week. Maybe spring will get here eventually.

It always amazes me how exactly the same process and exactly the same issues year to year always yield a unique and different session. This year we added 35 new members to our 112 Senators and Representatives. Some were house switchers but because the dynamic of the Senate and House are so different, the act of moving to the other side of the building still makes you a freshman in most ways.

From a political and philosophical perspective both houses grew more divided with the addition of several Progressive Democrats and a few strong conservative Republicans.

What got done during the session? First, many of the more technical bills that modernized, corrected and amended existing law moved seamlessly through the process. Second, the heap of wordy and voluminous Memorials found slow passage of a few but most laid on the agendas of committees and the floor calendars and quietly died as the session ended on March 16^th. This action alone provided much more time to deliberate and focus on the list of important and often controversial bills. The session ended with a compromise bill that affected corporate tax, dealt with the film industry and gross receipts tax. I will detail the bill in a following news post.

Our new Speaker of the House, Ken Martinez, did an outstanding job in his new position and through his leadership conducted a very well-run and fair session of the House of Representatives. This session was far less contentious than any I have ever attended. Many of us had the opportunity to be speaker for a day and conduct the business of the house. Not only is this an honor but also a great teaching tool to learn a little more about the curious process of which we are all a part.

The Gross Receipts Tax Re-Boot

admin — Thu, 28 Feb 2013 02:01:44 +0000

Designed to be a broad based tax with a very low rate, Gross Receipts Tax (GRT) has morphed into a narrow based tax with a very high rate. Over the years we have enacted hundreds of Exemptions, Deductions and Credits (EDC’s), continually raising the rate to its bloated, complicated and selective condition. Because this process has violated the basic foundation of the GRT theory the tax is spiraling into self-destruction. Back in 2003 the Blue Ribbon Tax Commission suggested that we go back to the way it was at it’s inception and the people wailed and wept and those who had the EDC’s revolted at the mere suggestion. So the idea was placed on a dusty shelf where it has laid for a decade. The problem at the time was that the idea was suggested without reducing the rates.

So Senate Bill 368 and House Bill 369 propose to Reboot the GRT and take it back to the basic definition and tax every transaction with a rate of somewhere around 2.5%. Because of the years of complication of the Gross Receipts Tax it is hard to figure out what would happen if we did this. We can’t even find all the EDC’s because they are scattered throughout the law and not just in the tax code. The purpose of these bills is to examine a re-boot and encourage every New Mexican business and individual to see what life would be like if you paid about 2.5% on every transaction including your wages. This proposal eliminates the income tax and the corporate tax so your assessment replaces those taxes with the 2.5% rate. The bills also contemplate a refund to those living below the 210% poverty level and of course reduce the GRT on every purchase. It is also important to note that there will be winners and losers, but because the rate is so low, one doesn’t win or lose by much.

Gross Receipts Tax by its nature is regressive and we recognize that. The plan is to get a good assessment of what would happen if we did this and then figure out how to address the regressivity. It is important to note that the Senate bill received four committee referrals and the House bill received six. For those unfamiliar with the legislative process, bills that get three committee referrals are destined to never make it through the system, which means there is no chance for passage of either one of these bills, which is on purpose. The plan is to get as many hearings as possible and continue the process through the interim. We need to understand the impact of this proposal and address the unintended consequences. This process is for the benefit of all. If we can’t find a solution by examining the definitional base of the GRT, then we have to take a bigger leap and eliminate the GRT in favor of sales tax or some other system. I think it is in our best interest to seriously consider and examine the back to basics approach.

Capital Outlay

admin — Thu, 28 Feb 2013 01:49:31 +0000

It is Capital Outlay week in the legislature. In New Mexico we have a four billion dollar severance tax permanent fund that derives from taxes on minerals severed from the earth. 95% of this comes from oil and gas. The fund is used for two main purposes. Each year 4.7% of a five year rolling average of the corpus of the fund comes to the general fund. The severance tax bond fund is created from revenues into the permanent fund and supports schools and provides money for projects around the state. For example, the lion’s share of the money that is building the new animal shelter in Farmington is from capital outlay (oil and gas).

Most all of the money in that fund comes from our corner of the state and the southeast corner of the state while most of the money is spent in the Rio Grande corridor from Las Cruces to Taos. All of the colleges in and around Santa Fe are funded with state dollars and the majority of it from oil and gas taxes. San Juan College in Farmington and New Mexico Junior College in Lea County are funded with local property tax levies with few capital outlay dollars. The reasons for this are entirely political. The NW and SE are predominately Republican while much of the Rio Grande corridor is predominately Democrat and contains most of the state’s population. Since Democrats have controlled the legislature from Statehood, the colleges in San Juan and Lea counties are left to fund their own capital needs while Rio Grande corridor colleges don’t have to have any local tax support.

This is the real dichotomy: Santa Fe has adopted very onerous drilling rules that effectively prevent development of oil and gas but hoards and relies on the millions of dollars oil and gas provides.

Go Figure.

NM Corporate Tax, the myths and the facts

admin — Sat, 27 Oct 2012 21:23:44 +0000

We have seen the statement “big corporations don’t pay taxes” during this election cycle. For years some legislators have been trying to change our corporate tax laws because they think that big corporations don’t pay taxes or at least don’t pay much because of so called loop holes in the tax law. The fact is that big corporations pay almost all of the $300 plus million in taxes that New Mexico collects.

The charge has also been levied that local New Mexico corporations are at a competitive disadvantage. There are only a handful of New Mexico subchapter C corporations that pay the corporate 7.6% tax rate Most New Mexico corporations are subchapter S corporations or LLC’s which don’t pay corporate tax at all. Their taxes are paid at the personal income tax rate of 4.9% so they actually have an advantage.

Another compounding factor that focuses on large C corporations is the way we figure the tax in New Mexico. We use a triple weighted formula to determine the tax. One third is your profit, one third is your property, and one third is your number of employees. Most other states tax simply on profits. So in New Mexico if you hire more people, you have to pay a higher tax and if you add space to your facility, you have to pay more tax. The result of this is fewer people are hired and the least amount of building space is constructed.

I know all of us at one time or another just don’t like the big box stores so it’s an easy and popular statement to villify these big corporations and accuse them of paying no tax. It is simply an untrue statement. In fact other than the jobs they provide and the payrolls that go with them, big corporations leave millions in tax dollars in the state before their profits leave the state for the headquarters.

Welcome

admin — Tue, 23 Oct 2012 02:31:17 +0000

Welcome to the new House of Representatives District 1 and welcome to those folks who were previously in Paul Bandy’s and James Strickler’s districts. As a result of the redistricting process, District 1 looks a whole lot different. New areas include north Farmington, Flora Vista and to Light Plant Road in Aztec. Areas no longer in District 1 are north Kirtland and a couple of precincts in West Farmington.

Although separated into districts all of your Representatives and Senators work collectively to serve San Juan County. We continue to have new challenges with unemployment still lagging and the war against our energy based economy. We are all hopeful the Mancos Shale will provide a little boost but we must not take our eye off the goal of making New Mexico a great place to work, raise a family and do business. That will require some major changes in the way we treat our kids in school and college, and a serious look at how we regulate and tax in order to pave the way for job creation. Remember that governments only create government jobs supported by your tax dollars and don’t create jobs in the private sector. You, the citizens, do that.

New Mexico is far too dependent on Federal dollars and programs, and with the coming budget crises, regardless of the election outcome, we are going to see that flow interrupted. Our economic recovery will require a combined effort of both parties and that can only happen if we elect a balanced legislature in New Mexico. For our entire history save a couple of years in the 50′s, New Mexico’s legislature has been dominated by Democrats. We only need two more Republicans in the House and we have a 50/50 split and only eight more Republicans in the Senate to gain parity.

Make sure you cast your vote and after this election is over, I and my fellow legislators from San Juan County will do our best in the coming session on your behalf

Pensions

admin — Thu, 19 Jul 2012 00:06:49 +0000

Recent actions by the accounting world are about to light up a serious national issue and one that also plagues the Land of Enchantment. The new GASB pension standards will require that the unfunded liability of public pension plans be part of the reporting requirement. The net pension liability is the difference between the total pension payout and the assets set aside to pay those liabilities. In New Mexico that insolvency number for the Public Employee Retirement Act and the Education Retirement fund is over $11,000,000,000. That is almost double the entire state budget. Nationally this problem is 757 billion bucks. Because that is not part of the report or included in balance sheets and newsletters many public employees are unaware. That makes it even more difficult to enact the reforms necessary to fix the problem. We currently have a cost of living adjustment of 3% that happens every year despite the actual cost of living index. During the recession when the COL was basically 0 the pensions were paying out at 3% while the slipping economy was significantly reducing the assets of the funds. This result is a double whammy for the funds. We have enacted some reforms to chip away at the problem with the ERB, and PERA is proposing action for the upcoming session of the legislature, but both fall short of fixing the problem. It is not an easy thing to fix. While those of us on the private side have watched our retirement funds fade with the markets, the public sector has seen the steadily promised increases. Without at least a formula tied to the economy and changes for existing plans I don’t believe there is a way to fix the problem. All we need is another downturn in the economy and that future problem could be sooner than later.