Tik Tok… not just a Ke$ha song! Clock is ticking on Governor’s decision whether to close corporate tax loophole (VIDEO)

Will she or won’t she? That IS the question.

Will Governor Susana Martinez do the right thing and and sign Senate Bill 9 into law, closing the tax loophole for Big Box out-of-state retailers and give New Mexico businesses a fair shake in the bargain? Or… (shudder), will she veto the bill? (See “Countdown to Decision“.)

As Sarah Kennedy explains, time is running out!


 

To contact the Governor’s office:

Phone: 505-476-2200

Email: http://www.governor.state.nm.us/Contact_the_Governor.aspx

 

Countdown to Decision: Will a Martinez Veto Keep Corporate Tax Loophole in Place? (VIDEO)

Sitting on Governor Susana Martinez’s desk awaiting her signature is Senate Bill 9 — the Combined Reporting Act. It’s a long-needed tax reform that will help level the playing field for New Mexico businesses confronted with competition from those out-of-state corporate Big Box stores that are currently allowed to skip out on paying income taxes on the profits they rake in selling goods to local consumers.

The 20-day post-session deadline for Martinez to act on the bill is fast approaching. Much to the dismay of the New Mexico small business community, the smart money has Martinez vetoing this common sense reform. Say it ain’t so, Susana!

As usual, Sarah Kennedy nails the problem in her latest video:


 

That’s not all. Even the Albuquerque Journal editorial board has come to its senses on SB9. Here’s what a recent editorial from the morning daily had to say:

Editorial: Corporate Tax Change Could Benefit the State

Wedneday, Feb 15, 2012

New Mexico is known for going it alone, often with negative results. For example, take the recently struck down cap and trade regulation imposed during the Richardson administration.

New Mexico is the only Western state with a corporate income tax that doesn’t require big businesses that are based in another state to file corporate taxes here using “combined reporting.” That means such corporations would have to combine earnings from all of its subsidiaries, regardless of location, and pay New Mexico corporate income tax based on a portion of its combined earnings. Businesses now have the option of filing state taxes on income related to in-state operations or on its combined corporate income.

Proponents of combined reporting say the current code allows corporations to shift income to states with lower tax rates to reduce liability.
For the past few years, legislation to change what proponents call a tax loophole has been introduced but has failed to pass.

This year’s version, SB 9, sponsored by Sen. Peter Wirth, D-Santa Fe, would lower the top corporate tax rate from 7.6 percent to 7.5 percent, to offset the requirement that more corporations pay taxes to the state. The bill was amended so that only “big box” retailers – stores of more than 30,000 square feet under one roof – would have to file with combined reporting.

Opponents have argued the change would discourage big businesses from locating in New Mexico. However, amendments adopted this year address that, for instance, by exempting manufacturers like Intel. In fact, it targets retailers like Walmart and Target that will locate here in any case because there is a customer base for their products.

If the change will lower corporate income taxes across the board and make the tax code more equitable, it merits serious – and nonpartisan – consideration.


This editorial first appeared in the Albuquerque Journal. It was written by members of the editorial board and is unsigned as it represents the opinion of the newspaper rather than the writers.

“Baby Step” for Big Boxes Only: Senate passes limited combined reporting bill

By Matthew Reichbach

The state Senate passed a narrow combined reporting bill (SB9) that would require so-called “big box” stores to pay taxes on income earned in New Mexico. The bill, which tracked the Senate Finance Committee substitute, exempts other businesses like multi-state banks and national fast-food and restaurant chains from combined reporting.

The measure cleared the Senate on a party line vote, with all Democrats voting for the legislation, all Republicans except for one, who was absent, voting for the legislation.

In addition to requiring the big box stores to file taxes using combined reporting, the bill drops taxes on the top corporate income tax rate from 7.6 percent to 7.5 percent. One reason, according to the bill’s sponsor Sen. Peter Wirth (D-Santa Fe), is that the Senate Finance Committee was wary of dropping the corporate tax rate too far in the current turbulent economic times.

There was a long debate on an amendment by Sen. Eric Griego (D-Albuquerque) that would have returned the bill to the original language before it was changed in the Senate Finance Committee. This would have required all out of state corporations to pay their taxes using combined reporting. This, Griego said, would have made sure that entities such as banks would pay their fair share in taxes in the state.

That amendment failed with only five Senators voting for it.

This was the first time that the legislation, which Wirth has carried since he joined the legislature in 2005, has passed the Senate. Wirth made a number of concessions to allow the bill to pass, including lowering the top corporate tax rate and restricting the combined reporting requirement to “big box” stores.

The legislation defines a “big box” store as those ” a unitary corporation that provides retail sales in a facility of more than thirty thousand square feet under one roof.”

Wirth referred to the legislation as a “baby step” a number of times and is a revenue-neutral piece of legislation. He noted that if his bill in 2009, which did not drop the top income corporate tax rate and related to all out of state corporations, it would have increased state revenues by $80 million to $90 million per year according to the fiscal impact report.

Sen. Steven Neville (R-Aztec) disputed the notion that this was a tax loophole that gave out of state corporations an edge. He said that it “is the law of the land of the state of New Mexico.”

Griego said that it was all semantics and they could debate what a loophole really is.

Allan Oliver, CEO of the New Mexico Green Chamber of Commerce, applauded the Senate vote. Oliver said, “This is a big win for New Mexico’s small businesses. This bill lowers corporate taxes for small business, requires ‘big-box’ corporations to pay their fair share and helps our small retail businesses compete on a level playing field.”

Wirth also referred to the bill being one that would help level the playing field for locally owned businesses and used it as an example of why he believed that broader tax reform is needed.

“We’ve got a tax code right now filled with winners and losers,” Wirth said.

It’s Alive: Bill to close out-of-state corporate tax loophole clears first committee

By Matthew Reichbach

A combined reporting bill that would close the loophole that allows multi-state corporations to avoid paying income tax on profits created in New Mexico, passed a key Senate committee Wednesday night, the first hurdle in its effort to become law.

After over two hours of debate, the Senate Corporations and Transportation Committee passed SB 9 on a 5-4 vote with no recommendation. Sen. Phil Griego (D-San Jose) voted along with the Republicans on the panel.

Sen. Peter Wirth (D-Santa Fe) brought the law for the fourth straight year, this time with some tweaks. In addition to calling for combined reporting, Wirth’s law would reduce the top corporate income tax rate to 7.0 percent from 7.6 percent, a difference from the past years to entice votes that otherwise have gone against the bill.

Wirth and supporters of the bill say the bill would level the playing field for small businesses in New Mexico that do not have the option of paying corporate taxes in another state. Those who oppose the bill say it would make New Mexico less competitive and stop businesses from coming to New Mexico to do business.

“These small businesses are put in a position of competing against multistate conglomerates,” Wirth said, saying the large corporations can expense profits to other states instead of paying the New Mexico taxes.

In an attempt to make the legislation hit a more narrow area of businesses, Griego proposed an amendment that would only require retail outlets of more than 30,000 square feet to comply with combined reporting. Griego called it his “big box amendment.” It was aimed squarely at corporations like Walmart and Target while attempting to exempt other businesses like Intel Corporation. But it would also have exempted large fast food chains.

Wirth called the bill a sort of “reverse carveout” which “carves everybody out except big box stores.”

The amendment ultimately failed.

A common complaint of those who were opposing the bill, who were all lobbyists for multistate corporations, is that this bill would be favoring one class of businesses (locally owned businesses) over another class of businesses (multi-state corporations).

“I’m not the one pitting businesses against businesses,” Wirth told the committee. “We already do that in our tax code.” Wirth said this bill would level the playing field.

The bill now heads to the Senate Finance Committee where it probably faces a similarly tough debate. Nevertheless, clearing Senate Corporations was a notable achievement, given the committee’s long-standing and well-deserved reputation as the home field for corporate lobbyists.

Odds and Ends

  • One problem is that no one quite knows just how much the tax loopholes and carveouts cost the state in lost revenue. A bill requiring a tax expenditure budget, which would fully account for the effects of all the tax breaks, was vetoed last year — something that Sen. Tim Keller (D-Albuquerque) called a preemptive strike against tax reform. Gov. Susana Martinez will release her own tax expenditure budget, but, due to the veto, the next governor will not be required by statute to follow her example. Former Gov. Bill Richardson also vetoed a tax expenditure budget.
  • Former Sen. Kent Cravens came back to the New Mexico legislature, this time as a lobbyist for the New Mexico Oil and Gas Association. He objected to the term “loophole” to describe businesses paying taxes in other states on the revenue created in New Mexico, saying it “demonized” businesses for filing in an appropriate fashion. Cravens probably also objects to the terminology of the “revolving door” — a reference to the practice of former legislators immediately returning to the Roundhouse as corporate lobbyists.
  • Sen. George Munoz (D-Gallup) said that the bill would ultimately make corporations layoff workers to keep their profits up.
  • Though the room cleared out because of the late start to the hearing (SB 9 was not heard until after 6:00), the room still had many supporters of the legislation. When they applauded after public comment, committee chair Griego seemed visibly upset and instructed the audience that they were not in a city council or county commission hearing and to not burst into applause. Before coming to the state Senate in 1996, Griego served on the Santa Fe City Council.
  • Supporters of the bill asked questions of Frank Katz, the former General Counsel at the New Mexico Taxation & Revenue Department. Opponents of the bill tended to direct their questions to Dick Minzner, a lobbyist who has long opposed combined reporting on behalf of his clients.

Who Dat Lobbyist?

Back in Washington, the revolving door is alive and well when it comes to individuals leaving government service to lobby on behalf of the very industries they once regulated.  The same seems to hold true at the State Capitol in Santa Fe.

The agenda for last week’s meeting of the interim Revenue Stabilization and Tax Policy Committee featured a presentation by James O’Neill, a former assistant secretary and tax policy director for the state Department of Taxation and Revenue.  The topic of his talk:  Personal Income Tax and Corporate Income Tax Proposals-Council on State Taxation Ranking.

In his talk, O’Neill pitched three revisions to Tax Administration Act and the Corporate Income Tax Act, arguing that these suggested “fixes would increase our score” on the COST scorecard and aid economic development.

The COST to which he referred is the Council on State Taxation, a Washington-based trade association made up of nearly 600 multistate corporations engaged in interstate and international business.  COST was formed in 1969 under the sponsorship of the Council of State Chambers of Commerce, an organization still closely linked to COST.

COST’s membership is a veritable who’s who of corporate America, including 7-Eleven Inc., Aetna, Altria (formerly Phillip Morris), Aztra Zeneca Pharmaceuticals, Bank of America, Best Buy, BP America Inc, Burlington Northern Santa Fe Corp., Comcast, Conoco Phillips, Domino’s Pizza, Home Depot, Intel, Morgan Stanley, Pfizer, Temper Pedic, Verizon, Wal-Mart, Waste Management Inc., Wendy’s — just to name a few.

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The Budget: A Mixed Bag

The New Mexico Legislature finally did it.

Passed a budget, I mean.

Legislators were able to avert further significant cuts to education, public safety and health care. This was good, because maintaining necessary funding levels for these critical programs is the best path to pulling out of the recession.

However, the 2011 budget plan it approved is a mixed bag for those who truly care about tax fairness for low income and working families.

Let’s review what’s actually in the new plan.

We’ve got some regressive taxes – the kind that affect those least able to pay. The list includes a new two percent tax on food. That’s a big hit for low income and working families, who studies indicate spend a higher proportion of their income on food.

We’ve got a new one-eighth percent additional tax on sales, which will affect, well…everyone in New Mexico who ever buys something. Again, not hitting the ones most able to pay.

And we’ve got an additional 75¢ tax on cigarettes, which when added to the existing federal tax of $1.01, would raise the average price of a pack from $4.60 to $5.35. Taxes on cigarettes and alcohol are commonly known as sin taxes.

What’s not in the budget? Any sort of progressive taxes, including a combined reporting measure that would make large, out-of-state corporations pay their fair share on income they make in New Mexico.

Also proposed, but not adopted: A surtax on the income of the state’s richest residents.

As the session ends, I see lots of coverage from the mainstream media about the all the tax hikes New Mexicans will be forced to endure to maintain necessary services like education, transportation and public safety.

But I think the real question New Mexicans need to ask their legislative leaders isn’t “Why did you raise our taxes,” but rather “When will the rich and out-of-state corporations be asked to pay their fair share?”

Breaking! Legislative Committee Passes Cigarette Tax

After 24 hours of meeting, mostly in secret caucuses, legislators have finally made one small step toward crafting a state budget that wouldn’t require dismantling necessary state services like public safety and education.

The House Tax and Revenue Committee just passed a cigarette tax that would add 75 cents to the cost of a pack. The bill, which cleared the committee on a 10-6 vote, would generate an estimated $33 million for the state, including $10 million that would go toward public education.

It was the first significant agreement on ANY measure that would help the state close a projected shortfall of hundreds of millions of dollars for the fiscal year 2011.

Congratulations, legislators – now could you please take advantage of the momentum and consider the many other non-regressive revenue options on the table?

Instead of the punitive and controversial food tax favored by Senate Finance Committee Chairman John Arthur Smith, how about the non-controversial PIT-add back?

Instead of a gross receipts tax on New Mexicans, how about making out-of-state corporations pay their fair share?

Just asking.

What Combined Reporting Really Means For New Mexico

Fat CatThe New Mexico Independent just got its hands on a newly-released report that puts the lie to the tired old argument that large corporations won’t come to or stay in states that make them pay higher corporate income taxes.

In a story today, NMI senior reporter Trip Jennings reports that Intel and many other companies who do business in New Mexico also choose to operate in states with higher corporate income tax rates.

From the story, based on a report compiled by the Washington-based Center for Budget and Policy Priorities:

At least 71 of the 78 multi-state corporations that have 250 or more employees in New Mexico have a facility in at least one state that mandates combined reporting.

Under combined reporting, a corporation’s nationwide profits are combined – that is, added together – and the state then taxes a share of that combined income, according to the Center.

So what companies are we talking about here? A quick look at the report shows that Comcast, Conoco Phillips, JC Penney Co., Bank of America, ABF Freight System, Wal Mart, Target, Whole Foods and Southwest Airlines are among the many corporations who pay more to do business elsewhere than they do in New Mexico.

You can read the full report here.

I find this report particularly important today, as the House Committee on Business and Industry meets to discuss HB 62, which would institute combined reporting and close the loopholes that currently let corporations shift their New Mexico profits out of state and avoid paying income taxes on them.

Many groups, including a coalition of lawmakers and a diverse group of health, education, social service and religious advocates say that New Mexico must act now to make corporations who do business in our state pay their fair share.

They’ll be at today’s hearing, as will lobbyists from the business community, still attempting to hold up the ridiculous argument that implementing combined reporting will make companies stay away from our state.

Keep checking back here for updates on what happens at today’s hearing and how HB 62 fares in the session.

The economic future of our state could depend on it!