State Representative Jason Harper (R-Sandoval) has plans to reform New Mexico's complex tax code in a big way and last week he shared highlights of his plan with, and sought feedback on the plan from, the Chamber's board of directors during the organization's regularly scheduled monthly meeting.
Harper said the state's tax policy has been of interest to him since he joined the tax and revenue committee after being elected to the legislature in 2013. But soon after joining the committee, realized its work was more focused on tax loopholes than tax policy. "Nearly 2/3 of the bills that came before the committee were asking for some credit, some deduction or an exemption from the tax code."
With the desire to get the conversation centered around policy and not politics, Harper said the work began to get himself and other members of the legislature educated on the impact of various components of New Mexico's tax code.
Initially, Harper said he was focused on a tax reform plan proposed by Republican Representatives Bill Sharer and Tom Taylor in 2013. The plan would have removed dozens of taxes paid by New Mexicans, including the state's gross receipts tax, and replaced them with a two-percent sales tax. "It was a beautiful proposal, I loved that concept," Harper said. Harper's intense research showed, however, that the proposal couldn't get the rate low enough.
He turned his efforts to crafting a plan to combat what he calls the biggest problem with New Mexico's tax code--GRT or gross receipts tax. GRT is a tax levied on the seller which has a pyramid effect that increases the actual taxable percentage as it passes through the product or service life cycle. Pyramiding places a heavier tax burden on businesses and individuals who make a lot of purchases from in-state vendors, which creates incentives to buy from out-of-state vendors.
"If the problem is pyramiding, why don't we just remove pyramiding from the base?" Harper said. Harper's tax reform proposal will a hybrid of sorts that would combine "the best of GRT and the best of sales tax." The bill is currently being built in the Revenue Stabilization and Tax Policy Committee, an interim committee chaired by Harper.
Harper said the bill, which will be revenue-neutral or slightly revenue-positive will cut the tax rate by more than half and the state, counties and municipalities will still receive the same amount of money as under the current tax system. "Everyone pays the same rate, their fair share," he said.
Under Harper's proposed reform, food purchases would again be taxed, which he said would be a "hard lift" politically, but the tax rate on other purchases would be significantly lessened. "We're not paying tax on the food we buy at the grocery store, but we're paying 7% on the food we buy at McDonald's, on diapers...," he said. "So lowering the rate to 3.5% is still going to be a net gain to folks."
Harper said his plan will also include a rebrand of the term "GRT" to "New Mexico Sales Tax", it will include looking for ways to broaden the base by removing deductions and credits as permissible, fix the issues with the NTTC or non-taxable transaction certificate program, align the compensating tax structure with GRT so that individuals are not incentivized to make purchases outside the state, taxing Internet sales so that brick and mortar companies in the state are not at a disadvantage, fixing some issues with tax lightening and property taxes and simplifying to one corporate income tax bracket, to name a few.
Harper says his committee has been going through options as they create the bill, identifying problems that need to be solved and working on the solutions. He said he wants to build consensus so that the legislation gets out of the House and Senate in the upcoming session.
Throughout his presentation, Harper credited Representative Bill McCamley (D-Dona Ana), Secretary Tom Clifford, Richard Anklam, President of the NM Tax Institute and others for their work and counsel throughout the process.