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Copyright © 2019 Albuquerque Journal

SANTA FE – New Mexico lawmakers have started wading once again into the murky waters of the state’s tax code, with majority Democrats saying the time is right for sweeping changes.

A bill debated Wednesday in a House committee would increase the state’s gas tax rate by 10 cents a gallon, create new personal income tax brackets for individuals making more than $23,500 annually and eliminate about 30 existing tax breaks.

Those changes, along with others included in the bill, would allow for a decrease in the state’s base gross receipts tax rate and would increase state and local revenue levels by an estimated $333 million by the 2022 budget year.

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“We need tax reform, and we need stable revenue; we know that much,” said Rep. Javier Martínez, D-Albuquerque, after a meeting of the House Taxation and Revenue Committee.

But passing drastic changes to the tax code won’t be easy.

Lobbyists for more than a dozen groups, including airline companies and health insurance providers, showed up Wednesday to voice concerns about the legislation’s impact.

Two top Albuquerque officials also expressed fears about how the changes might affect the city’s budget.

House Republicans have staunchly opposed the Democratic-backed proposal, saying it would raise taxes on small businesses and many state residents.

“It’s not going to come from the rich – it’s going to come from New Mexico families,” Rep. Jason Harper, R-Rio Rancho, told the Journal.

Harper unsuccessfully pushed tax overhaul proposals in previous legislative sessions, but his bills were engineered to be revenue-neutral to the state.

House Bill 6, the legislation sponsored by Rep. Jim Trujillo, D-Santa Fe, the House tax committee’s chairman, incorporates some of Harper’s ideas.

But Trujillo said it’s also intended to generate more revenue for the state so that teacher salary raises – also on the Legislatures’s to-do list for this year’s session – can be paid for into the future.

“If we have a slowdown in the economy, how are we going to cover those commitments we made?” Trujillo asked.

Gross receipts tax

Lawmakers on both sides of the aisle have described the state’s tax code as resembling Swiss cheese.

That’s largely because a proliferation of tax exemptions and deductions have led overall gross receipts tax rates to surpass 8 percent in some cities, including Las Cruces, Santa Fe and Farmington. The state’s base rate is 5.125 percent.

Jon Clark, an economist with the Legislative Finance Committee, said many New Mexico business owners have complained about the rising gross receipts tax rates.

He also said the number of existing tax breaks have made the state even more reliant on money from oil and natural gas taxes and royalties, a historically volatile revenue source.

“We have a tax base that is significantly dependent on one industry,” Clark said during Wednesday’s meeting of the House tax committee.

However, to avoid a drop in incoming revenue, lowering the state’s base tax rate would require other tax changes, some of which could be politically perilous.

One such idea is reinstating the gross receipts tax on grocery items. Lawmakers repealed the food tax in 2004, and the state currently pays a subsidy to city and county governments that’s intended to offset the lost revenue.

Although the bill debated Wednesday does not include a food tax reinstatement, a similar bill expected to be filed by Sen. Carlos Cisneros, a Questa Democrat, would reinstate the tax.

But Trujillo said such a proposal would not have enough support to pass the 70-member House, where Democrats hold a 46-24 majority.

Governor open to idea

The idea of retooling New Mexico’s tax code is supported by the state’s new governor, with a few conditions.

Gov. Michelle Lujan Grisham, a Democrat who was sworn into office this month, has indicated she would consider supporting tax overhaul legislation but would closely scrutinize the impact of any such bill on New Mexico families and local governments.

Lujan Grisham’s two predecessors both signed into law bills reducing New Mexico tax rates.

Former Gov. Bill Richardson, a Democrat, pushed for a 2003 measure that reduced the state’s top personal income tax rate, and ex-Gov. Susana Martinez, a Republican, signed off on a 2013 tax package that cut the state’s corporate income tax rate, among other things.

The 2013 tax package also authorized city and county governments to raise their local gross receipts tax rates in exchange for a gradual phaseout of the state subsidy.

Those subsidies would be eliminated seven years early – in July 2021 – under the proposed House tax bill.

Although other revenue-generating provisions could make up the difference, New Mexico Municipal League Executive Director Bill Fulginiti said the bill’s ultimate impact for most cities is unclear.

The House Taxation and Revenue Committee is expected to continue debate of the tax overhaul legislation on Friday. A vote on the bill has not been scheduled.