Tax Relief

Revamped tax relief package deal on the transfer at Roundhouse

Copyright © 2022 Albuquerque Journal

Sergio Torres, an intensive care unit nurse at Lovelace Medical Center in Albuquerque, preps a room for an incoming patient in this September 2021 file photo. New Mexico nurses would be eligible for a one-time $1,000 tax credit under a tax package advancing at the Roundhouse in the final days of the 30-day legislative session. (Roberto E. Rosales/Journal)

SANTA FE – With New Mexico’s 30-day legislative session nearing its end, lawmakers pushed forward a $380 million tax package that includes a veritable buffet of tax relief for state residents.

A bill unveiled Monday by a House committee and then approved late in the day by the full House includes a gross receipts tax reduction, a Social Security tax exemption up to a certain income amount and a new child tax credit that would provide New Mexico residents with up to $175 per child.

In addition, the tax legislation, House Bill 163, would include a tax rebate of $1,000 for New Mexico nurses who worked in hospitals during the COVID-19 pandemic.

“It’s a proposal that serves a large and diverse number of New Mexicans,” said Rep. Christine Chandler, D-Los Alamos, during Monday’s meeting of the House Taxation and Revenue Committee.

A state revenue bonanza driven by surging oil production levels and increased consumer activity has sparked this year’s debate at the Roundhouse over tax changes, with Gov. Michelle Lujan Grisham and many legislators calling for some of the windfall to be used to benefit taxpayers.

A House-approved $8.5 billion budget plan leaves about $400 million available for tax code changes during this year’s session.

However, lawmakers have disagreed about what should – and should not – be included in the tax package, with some calling for one-time tax rebates and others favoring more lasting tax code changes.

Rep. Jason Harper, R-Rio Rancho, said Monday some Republican-backed provisions were included in the House tax package proposal, but described himself as not happy with everything in the bill.

“In my view, this legislation is more of a governor pre-election giveaway than a legit tax reform bill,” Harper said.

He ultimately joined several other GOP lawmakers in voting for the tax measure, which passed the committee on a 11-3 vote with all Democratic lawmakers present voting in favor.

The bill was then passed by the full House on a 59-9 vote just before midnight Monday evening, after majority Democrats rejected several proposed amendments during a three-hour debate – including a GOP-backed plan calling for bigger tax cuts.

The vote sent the bill on to the Senate with just over two days remaining in the 30-day session.

Governor’s support

The bill approved Monday includes two provisions supported by Lujan Grisham – a reduction in the state’s gross receipts tax rate and exempting Social Security retirement income from taxation.

However, single individuals making more than $100,000 per year would not qualify for the tax exemption on Social Security income. For married couples filing jointly, the income threshold would be set at $150,000 annually.

New Mexico’s personal income tax was not levied on Social Security benefits until the early 1990s, when a provision buried in a tax bill triggered the change.

As for the gross receipts tax cut, it would lower the state’s rate by 0.25 percentage points – from 5.125% to 4.875% – in a move projected to generate roughly $191 million in savings for New Mexico.

The current tax rate would be restored, however, if gross receipts tax revenue dips below 95% of its current level over the next five years.

Backers of the plan said that would ensure New Mexico lawmakers would not have to find new ways to generate revenue if the state’s budget situation deteriorates.

In a statement, Lujan Grisham lauded the bipartisan vote in favor of the tax package and said it would help keep money in the pockets of New Mexicans. While all Democrats present voted in favor of the bill, 15 GOP representatives cast “yes” votes and nine Republicans voted in opposition.

“I thank the House for their commitment to key tools that will support financial and economic success all across the state,” the Democratic governor said.

In addition, State Taxation and Revenue Secretary Stephanie Schardin Clarke said the tax reduction would mark the first time in 40 years New Mexico has lowered its gross receipts tax rate.

“Tax policy tells us to tax everything at a broad base and a low rate and that’s what we’d be doing here,” Schardin Clarke told lawmakers.

But cities and counties, who impose local taxes on top of the state’s rate, would still be able to raise tax rates under the plan, as a proposed five-year moratorium on such action was stripped out of the bill.

Provisions removed

While the tax package contains numerous provisions, some proposals were still left out.

For instance, a proposed four-month tax holiday for New Mexico restaurants and breweries was not included in the bill after appearing in an initial version of the legislation.

That prompted concern from some restaurant owners and lobbyists, who had sought to be included in the tax relief omnibus bill.

“The pandemic is not over for our industry,” said Carol Wight, of the New Mexico Restaurant Association, adding that many eateries are still struggling with staffing shortages and other issues.

But Chandler said a similar tax holiday for restaurants approved last year by legislators was not widely utilized.

She also said in an interview that she and other bill sponsors ultimately decided on tax changes that would benefit the greatest number of New Mexico residents as possible.

Specifically, she cited the potential impact of the proposed child tax credit that would provide residents with an annual tax break for each child they claim on their tax returns. The amount of the credit would depend on income levels, with lower-income residents eligible for a larger tax credit.

“We were looking at tax proposals that support individuals and also advance policy issues we’re trying to support,” Chandler said.

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