Confusing and Often Unfair

New Mexico Business Journal, Oct, 2001

A tough review of the state's tax system by New Mexico First turns up quirks, inequities and other problems that need fixing

LAST MAY, SOME 75 NEW MEXIcans--members of New Mexico First, an organization with total of more than 1,000 members statewide, participated in a three-day "town hall" in Angel Fire. The subject, always freighted with controversy, was the state's tax system. It was the 26th Town Hall in the group's 15-year history.

The process calls for the participants to meet for two days in small groups, each led by a discussion leader and recorder trained by New Mexico First. As reports from the deliberations are collected, they are synthesized by the chief recorder. On the third day the draft Town Hall is reviewed, approved, amended and finally affirmed by the entire group.

The Town Hall report, bound with the research, is distributed to New Mexico First members, legislators and other elected officials, the media and the general public. A 501 [C] 3 nonprofit organization, New Mexico First is supported primarily by membership dues, private sector contributions and registration fees. Principal sponsors of the Angel Fire Town Hall were Public Service Co. of New Mexico, Arizona Public Service, BHP Minerals, First State Bank, Intel Corp., the Modrall Law Firm, Phelps Dodge and Wells Fargo Bank.

Following are excerpts from the report, "New Mexico's Taxes: Taking Another Look."

Most New Mexicans believe their taxes are too high. Many people believe they pay more in taxes relative to people in other social or economic classes. There is widespread misunderstanding about New Mexico's taxes, especially the effect of indirect or hidden taxes. Misperceptions are based on the misuse of statistics by various interest groups in comparisons with other states. One misperception is the widespread belief that property taxes are disproportionate and unduly burdensome, even though they are among the lowest in the nation. Out-of-state businesses considering locating in New Mexico often find the tax system extremely complex and difficult to evaluate before making an economic decision. Finally, many New Mexicans believe they are not getting their money's worth for the taxes they pay.

New Mexico faces many challenges as a result of its tax system as expressed by the Town Hall in terms of potential solutions or missed opportunities.

The Town Hall expressed a strong desire to see a tax system that is accountable and establishes direct links between taxes and services provided. A simplified, non-political approach to taxation policy is needed for policy makers to make the best possible decisions. The tax system must be stable and the state should avoid over dependence on unstable revenue sources (e.g., corporate income taxes and oil and gas taxes). Education of the public would help address concerns about the tax system.

New Mexico is home to a distinctive blend of multiple, overlapping taxing jurisdictions. Changes in state taxes can have many effects, some unintended, upon cities, counties, schools and Indian tribes and their ability to raise revenues to serve their citizens' needs.

Taxes should be administered uniformly, efficiently and effectively.

Taxation on Tribal Lands

The revenue-generating interests of both state and tribal governments on tribal lands have resulted in two major problems: dual taxation and tribal marketing of tax exemptions that ultimately may disadvantage the taxpayers, the tribes, or the state. State, tribal governments and all affected parties should separately review and resolve dudal taxation and the marketing of tax exemptions on tribal lands.

Gross Receipts and Compensating Tax

Four major areas emerged as priorities for study and reform:

1. Exemptions, deductions and credits should be reviewed regularly and their purposes justified.

2. Outdated exemptions, deductions and credits should be repealed or allowed to sunset.

3. Corrections need to be considered to capture the tax on some untaxed forms of commerce such as catalog and internet sales, simplify it for others and reduce the pyramiding of taxes.

4. Regressiveness of the tax should be evaluated. If problems are identified, solutions should be proposed that incorporate the full range of tax and benefit programs.

Personal Income Tax

Personal income tax should be reviewed and, ideally, reduced at the highest rates. The Town Hall also recommended that the tax brackets be broadened and indexed for inflation, that capital gains not be taxed as ordinary income, and that provisions be made for low-income taxpayers to retain available credits.

Property Tax

The property tax is one of the last understood and most emotional forms of taxation. While it is imposed at almost the lowest rate in the nation, it offers great potential for improving the social and economic lives of New Mexicans if approached carefully. The Town Hall issued more recommendations for the property tax than for any other of the taxes available for general governmental purposes. The key recommendations include requiring the public disclosure of property sales prices, requiring more accurate valuations of property and accurate assessments, and professionalizing the property assessment function.