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.

Tax Expenditure Budget: Does Governor’s executive order do the job?

By Matthew Reichbach

Senator Tim Keller

Clearly New Mexico spoke with Sen. Tim Keller, D-Albuquerque, about tax expenditure budgets. A tax expenditure budget would review all of the tax breaks that the state gives to different portions of the population — which adds up to around a billion dollars annually. The annual state budget is $5.4 billion.

A bill in the 2011 session sponsored by Keller that would require a tax expenditure budget, or a review of all tax loopholes and carveouts, passed both chambers of the New Mexico Legislature without opposition this year. The bill was then vetoed by Gov. Susana Martinez. A similar bill, sponsored by former state Rep. Brian Moore, R-Clayton, was vetoed by then-Gov. Bill Richardson in 2007.

Earlier this month, Martinez issued an executive order where she ordered a review of the tax expenditures.

Martinez said in a statement when ordering the review, “A thorough account of the state’s tax system will give us a better idea of what works, what doesn’t, and what we need to change in order to encourage greater job creation and economic growth through our tax structure.”

Keller, however, said in an interview with Clearly New Mexico that the bill that Martinez vetoed would have been preferable to Martinez’s approach for three reasons.

One is that Martinez’s executive order is not as comprehensive as the bill Keller would have passed, so Martinez can “pick and choose which [tax breaks] to investigate and report on.”

Another is that Keller’s bill would have had the Legislature and the Tax and Revenue Department work together on the tax expenditure budget. Martinez’s executive order will only have the Tax and Revenue Department, which is part of the executive branch, carry out the tax expenditure budget.

“And the third difference, which is probably the most important, is that it’s not a law,” Kellers aid. “So that at any given time she can decide not to do it and there is no accountability if she doesn’t do it.”

Keller also noted that it would not be binding to when a new governor enters office, which will happen in either 2015 or 2019.

“So we’re looking at this taking place for a couple of years then going away,” Keller said.

Keller said he would likely not introduce the bill again. However, he warned that if the report to look at all of the effects tax deductions, exemptions and credits is not sufficient, “a [veto] override is always a consideration.”

Veto overrides are uncommon in New Mexico, though the Senate voted to override a veto of Gov. Richardson’s in the 2010 session. The attempt failed in the House.

At the time, The New Mexico Independent reported, “According to the Legislative Council Service, the Senate’s override vote was the first time that body had ever voted to override Richardson on legislation. The House of Representatives did it once, in 2004.”

Two-thirds of both chambers must vote to override a veto for the override to become valid.

So what will Keller look for to see if the report is sufficient?

“It’s got to be as comprehensive as possible,” Keller said. “There are 109 of these different carveouts, or loopholes, so we want to look at all of them and not play favorites.”

Another key part of a successful report would be to track the benefits of each of the tax breaks, for example, jobs created or looking at which segment of the population that is helped.

Finally, he says the report should “recommend actions” and make judgments on whether the programs “are worth the taxpayers’ money.” For example, he believes the report should list whether the program deserves to have more money put in it, kept the same, reduced or even eliminated.

Keller believes it is important to find out which of these tax breaks are actually useful to the state. “Over time they, in aggregate, become a huge amount of money that the state doesn’t collect in taxes.”

Without such a report, it wouldn’t be clear the effects of these tax breaks on the economy and the state will not be able to see which tax breaks are valuable to the state’s economy.

For earlier Clearly NM coverage of the tax expenditure budget:

Gov. Can Still Sign Tax Expenditure Bill For Maximum Transparency and Taxpayer Accountability – April 8, 2011

Major Transparency and Accountability Measures Head to the Governor’s Desk
– March 18, 2011

Getting Corped: Their Legislature at Work – Feb. 16, 2011

Why Gov. Martinez Should Support a Tax Expenditure Budget – January 24, 2011

Time to track state tax expenditures – April 21, 2009


Gov. Can Still Sign Tax Expenditure Bill For Maximum Transparency and Taxpayer Accountability

By Tracy Dingmann

There’s still time for Gov. Susana Martinez to sign SB47, a transparency bill that ensures taxpayer dollars are working for New Mexicans.

Under SB47, which passed both houses of the New Mexico Legislature unanimously, New Mexico would enact a tax expenditure budget to track and evaluate the merits of all revenue losses from tax deductions, exemptions and credits.

The tax expenditure budget would allow legislators and other policy makers to make informed decisions about which tax breaks are truly benefitting the state through jobs created and other returns, said the bill’s sponsor, Sen. Tim Keller, D-Albuquerque. Currently, the state hands out about $1 billion in tax incentives and there is confusion about which ones are really providing economic return to the state, he said.

“Legislators from both sides of the aisle agree that transparency and accountability are essential elements of good public administration,” Keller said Thursday. “This is the reason SB 47 – a bill that would create a tool to track and evaluate the merits of all revenue losses from tax deductions, exemptions and credits – passed unanimously by the House and the Senate.”

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Community Rallies at Roundhouse for Anti Racism Day

Poet Hakim Bellamy performing in the Capitol Rotunda on Anti Racism Day. Photo by Claus Whiteacre.

By Anthony Fleg, Native Health Initiative

The most important piece of health legislation in this year’s session might just be one without the words Medicaid, health insurance, or the names of any disease conditions in it.

Instead, it is a bill addressing institutional racism, the practices and policies within institutions (e.g schools, courts, hospitals, businesses) that lead to unequal access to resources based on skin color.

A week ago, the health professionals, educators, and community activists of the New Mexico Health Equity Working Group (NMHEWG) rallied for the bill at the first-ever “Anti Racism Day” at the legislature.

House Joint Memorial 32, sponsored by Rep. Antonio “Moe” Maestas (D-Albuquerque) and Sen. Tim Keller (D-Albuquerque) passed its first test, being approved by the House Labor Committee at 8pm on Thursday, February 17th.

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Keller: Why Not A Tax Expenditure Budget?

No one would expect a state to operate without following a budget that says exactly how much money is coming in and how much is going out, would they?

Well, the money that states spend on tax credits, deductions and exemptions is just as much of an expense for them as direct spending on things like schools, salaries, roads and prisons is.

So why isn’t the state of New Mexico required to track tax-related expenses with a tax expenditure budget?

Senator Tim Keller

Senator Tim Keller

Sen. Tim Keller (D-Alb) would like to know.

Keller has written a bill that would force the state Tax and Revenue Department to track and report the cost and benefits associated with what studies have indicated are billions of dollars in New Mexico tax expenditures.

The list of such measures include everything from the state film incentive to 47 categories of gross receipts tax exemptions on items like fuel, livestock and food. Some are fairly new and well known, while others have been allowed to remain on the books for years without evaluation.

A total of 43 states (including the District of Columbia) file some kind of tax expenditure budget, but not all of them follow a strict protocol that maximize their effectiveness.

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