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.

Battle For Clean Drinking Water Going On Now In Santa Fe

Is clean water important to you? If so, you should be paying attention to what’s happening at the Roundhouse right now.

On April 13, the state Water Quality Control Commission began hearings on a package of rules and regulations regarding disposal of waste generated by the dairy industry.

New Mexico’s dairy industry has never been regulated before – until now, the only rules that were ever applied to the industry had been cobbled together from other areas of oversight.

The initial push for regulations actually came from the state’s dairy industry, which said its members would rather face a clear set of rules than a bunch of haphazard ones.

The Water Quality Control Commission, which is a committee of the New Mexico Environment Department, formulated the regulations after holding a series of meetings with stakeholders – including dairy farmers, landowners and dairy industry leaders – all over the state.

But now the dairy industry and its powerful trade groups are pushing back hard, saying the set of rules that the New Mexico Environment Department is proposing is too restrictive and will cost farmers too much money to implement.

The Groundwater Problem

The regulation proposal would require dairies that are proven polluters to install synthetic liner for their manure lagoons. Many of the polluters use clay liners, which are cheaper but much more permeable. The new regulations would also require dairies that pollute to install groundwater-monitoring wells. The rules would apply only to new dairies and to existing dairies that are proven polluters.

The proposed rules are the first step toward addressing what by any measure has become an appalling situation regarding groundwater contamination in New Mexico.

According to the New Mexico Environment Department, two thirds of dairies operating in New Mexico are contaminating the groundwater near and directly underneath them.

Here’s a little history about dairy in New Mexico: Until the 1990’s, America’s dairy industry had largely been located in California’s Inland and Central Valley. But since then, encroaching regulations and increasingly expensive land drove the industry into states like Idaho and New Mexico, where the land is cheaper and the regulations – especially in New Mexico – were non-existent.

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