Socorro won’t see change in food tax
Hold harmless was one topic broached at New Mexico Association of Counties legislative update April 10 at the Socorro County Annex, but neither the city nor county of Socorro will be affected — for now.
The hold harmless clause was part of past legislation that removed gross receipts taxes from food and certain health care services across the state of New Mexico. Consumers don’t pay the GRT on such purchases, but the hold harmless provision ensured the state would reimburse local communities for income they miss out on by not taxing those purchases.
HB 641: Film Production Tax Credit Changes, signed into law this legislative session, phases out the hold harmless distribution to cities and counties at a rate of 6 to 7 percent per year starting in fiscal year 2016 until it is eliminated by fiscal year 2030, according to the bill’s fiscal impact report posted on the Legislature’s website. The bill also lowers the corporate income tax rate over five years and allows municipalities and counties to impose a local option gross receipts tax.
Tasia Young, NMAC contract lobbyist, noted HB 641 was a big bill; her preliminary report of the 51st Legislature, which was distributed at the April 10 meeting, states the final version of the bill is 58 pages. It includes a 36-page Senate floor amendment passed the last night of the session.
Young’s report states the Senate floor amendment is essentially a substitute bill that retains the film production tax changes, but also combines four other Senate bills into a tax package. It includes corporate income tax rate reduction, changes to local government gross receipts tax distributions, a requirement for big box chains to file corporate income tax returns on a unitary basis and an allocation for manufacturers to apportion net income to the state on a sales factor only basis.
The 15-year phase-out of hold harmless distributions begins July 1, 2015. Young said smaller cities and counties will not be affected by the phase-out unless they enact the new hold harmless GRT the bill makes available to them in 2016. Her report states counties with populations under 48,000 and cities under 10,000 will not be affected by the phase-out.
According to the 2010 U.S. Census, the city of Socorro had a population of 9,051 and the county 17,866, so neither will be affected by HB 641.
County manager Delilah Walsh said during an interview Tuesday that Socorro County receives about $70,000 per year from the state due to the hold harmless legislation, and the county will continue to receive its funding because of its smaller size.
“For now,” Walsh said, “until next session.”
Walsh said lawmakers could always change the legislation to include smaller counties, or even do away with hold harmless completely. She added the county’s revenue is mainly derived from property taxes; the hold harmless phase-out will have more of an effect on cities, which have most of their revenues from GRTs.
City clerk Pat Salome also said the hold harmless exceptions could change at a future legislative session.
“Just because it says 10,000 now doesn’t mean it will stay that way,” Salome said.
Salome said he does not agree with taxing food items, but cities in the state grew around those taxes. He said removing the tax at the state level was probably done with good intentions, but it has only led to a situation of cities having to put it back on.
“The tax on food might not have been the best way to start as a state, but to change it midstream is very difficult,” Salome said. “When you try to change things midstream, you might not end up with the results you were looking for.”
During the April 10 legislative update, Paul Gutierrez, NMAC executive director, said the city of Albuquerque will take a large hit when the phase-out begins.
He said the state Department of Finance and Administration, Legislative Finance Committee, state Tax and Revenue Department, New Mexico Municipal League and NMAC will assemble a working group in the interim to look at the effects of the bill and the cost shift from the state to the counties.
“The tax structure in New Mexico, the tax code, is really broken,” Gutierrez said. “I mean there’s so many exemptions and deductions out there, what was once a broad-reaching tax with a low rate has now become a very narrow tax base with a high rate.
“And at some point, we’re going to have to hit the reset button. This may be that opportunity to look at some of those changes.”
District 12 Sen. Gerald Ortiz y Pino said the process of approving HB 641 was a “low point” in the session as far as he was concerned.
“Whatever your feelings about the tax bill are, that we voted on it without having read it … is not a good thing,” Ortiz y Pino said.
Ortiz y Pino said as a process, he disagreed with pulling together several different bills into one without really having a public hearing or an opportunity to amend or substitute. He said there was no reading of the bill and not much chance to ask questions, and the Senate passed the full bill 11:20 a.m., just 40 minutes before the session adjourned at noon March 16, the last day.
“And then the House had even less time … the House got it at a quarter of 12,” Ortiz y Pino said. “I don’t know if they had time to even look at the summary before they had to vote. That’s not a good process.”
Ortiz y Pino said he has since had a chance to read the bill, and still does not think it is a good bill. He said the bill’s worst feature is that it starts chopping away at communities’ hold harmless protections, putting many cities and some counties in a position where they have to raise local taxes.
“I’m afraid that it’s really going to mean that we’ve cut corporate taxes in order to raise taxes of working people and middle class people through gross receipts taxes,” he said.
Ortiz y Pino said the bill’s good feature is that it doesn’t take effect for two years so lawmakers have time to revisit the issue.