Battling taxes - municipal governments of New Mexico force state government to modify tax policies

New Mexico Business Journal, August, 1991 by Jack Hartsfield

Potential businesses and industries, looking to New Mexico as a new site, shy away for no other reason than the state's gross receipts tax on services.

An example was the May departure of one of the 600 nationwide offices of Management Recruiters in Albuquerque. The local franchise had operated in Albuquerque for eight years.

New Mexico's state and local gross receipts tax of $634 per capita in '89 is the sixth highest among general sales taxes in the nation, but practically in a three-way tie with Connecticut and Nevada for fourth place.

The collections amounted to 5.15 percent of personal income in New Mexico - third highest in the nation, ranking only behind the tourist state of Hawaii and the sales tax dependent state of Washington.

According to the tax research and statistics office of the state's Taxation and Revenue Department, few other states apply a tax to such a wide range of services.

The state's gross receipts tax, unlike a sales tax, is not a tax on consumption but rather a tax imposed on sellers for the privilege of doing business in the state. New Mexico joins only Louisiana in imposing the tax that way.

New Mexico, for instance, taxes all sales and allows certain exclusions while other states tax specified list of items. The state is among a minority of states extending sales tax to basic food purchases and stands virtually alone in taxing prescription drugs.

Further complicating the issue is the matter of "compensating taxes," due New Mexico from other states that have business in the Land of Enchantment.

The compensating tax generally applies to items or services brought into the state on which a gross receipts, sales, compensating or similar tax was not levied by another state.

Ostensibly the compensating tax is meant to level the playing field or to protect New Mexico businessmen from unfair competition from imported property without payment of a similar tax.

The trouble is that the compensating tax is not easy to understand, apply - or collect.

If, for example, a product comes out of California direct to a New Mexico business, there is no gross receipts tax paid. But if there is a delivery system set up in New Mexico from the California originating point, the gross receipts tax is paid.

What may also happen is that the California company may ship directly to Texas, offload and make a delivery into New Mexico and be on its way without getting caught up in gross receipts taxes at all.

The problem, too slops over into New Mexico's special fuel tax for truckers. New Mexico is one of only a few states that doesn't assess the tax at the pump.

Instead, truckers have a bonding company which is supposed to cover whatever is owed New Mexico for the fuel tax in case of disputes where audits turn up differing numbers.

It isn't happening.

Overall, the estimate is New Mexico is due from $7-10 million a year or more on the special fuel tax - with no way to prove it and no leverage to collect it.

"I'd like to see the fuel tax collected at the pump," says Bob Clover, president of Clover Inc. in Albuquerque and a member of a special study team looking at the dilemma along with the state. "There are only two other states in the nation that don't collect at the pump.