SANTA FE, N.M. (KRQE) – With just a few days left in the 2023 legislative session, a lot of eyes are centered on what lawmakers will do with House Bill 547. The omnibus tax bill is loaded up with money matters, including tax rebates, new tax brackets, and incentives for certain industries.
While the bill passed the House, it’s clear that the legislation is still a work in progress. Wednesday, March 15, legislators in the Senate Tax, Business and Transportation Committee considered the latest version, which includes tax changes sourced from a number of other bills introduced this session.
“I think there’s things in here that all of us like and things here we don’t like,” Sen. Peter Wirth (D-Santa Fe) said. “This is, I think, the biggest tax package we’ve done in years.”
Not everyone, though, thinks the tax package will be a boon to the state. “If anybody thinks this tax bill is going to jump start our economy, you’d be wrong,” Sen. Bill Tallman (D-Abq.) said. “We’ve got a lot bigger problems than taxes.”
A key part of the bill is another round of rebate checks for New Mexicans. Near the start of the legislative session, Governor Michelle Lujan Grisham announced a bill to send individuals $750 and joint filers $1,500.
Then, those amounts were cut down. In the first iteration of the tax package, the rebates were set at $300 for single filers and $600 for joint filers. Then, on the House floor, they were bumped up to $500 and $1,000 respectively. That change passed a final House vote.
The bill could also change how much some New Mexicans pay in income tax. Proposed changes would lower the rate individuals at the lower income levels pay. See below for the proposed rates for heads of households, surviving spouses, and married individuals filing jointly.
|Proposed Bracket||Proposed Rate||Current Bracket||Current Rate|
|0-$8,000||1.5% of taxable income||$0 – $8,000||1.7%|
|$8,000 – $25,000||$120 plus 3.2% of income over $8,000||$8,000 – $16,000||$136 plus 3.2% of income over $8,000|
|$25,000 – $50,000||$664 plus 4.3% of income over $25,000||$16,000 – $24,000||$392 plus 4.7% of income over $16,000|
|$50,000 – $100,000||$1,739 plus 4.7% of income over $50,000||$24,000 – $315,000||$768 plus 4.9% of income over $24,000|
|$100,000 – $315,000||$4,089 plus 4.9% of income over $100,000||Over $315,000||$15,027 plus 5.9% of income over $315,000|
|Over $315,000||$14,624 plus 5.9% of income over $315,000|
The bill looks to decrease how much capital gain can be deducted from personal income taxes. Capital gains are profits made from selling an asset, such as a stock.
Currently, New Mexico allows taxpayers to claim a deduction of up to $1,000 or 40% of the profit of a long-term asset sold. In other words, if you sell stock and make a profit of $10,000 on it, you only have to pay state income tax on 60% (or $6,000) of that profit.
But legislators are considering adjusting that. In the version of the bill passed by the House of Representatives, the capital gains deduction for non-business-related personal sales would be capped at $2,500. In other words, if you sold the same amount of stock as given in the example above, you would have to pay state income tax on 75% (or $7,500) of the profit.
And for business-related sales, capital gains deductions would be capped at 20% of the profit, rather than the current 40%. With a lower cap, the change would presumably help the state generate more tax revenue, while potentially costing some businesses more money by limiting the dollar value of their deduction.
Sen. Gay G. Kernan (R-Chaves, Eddy & Lea) expressed concern that such a change could drive businesses away from the state over time. “Is it really worth it?” Kernan asked. “I think most of the burden is going to fall on the small businesses.”
Larger businesses could also choose to leave the state if the tax situation becomes unfavorable, Kernan said. And she wasn’t alone in concern over capital gains changes. “I’m concerned that that’s gonna hurt people,” Sen. Ron Griggs (R-Doña Ana, Eddy & Otero) said.
During Wednesday’s committee meeting, legislators amended the bill to also include some tax credits for various industries. That includes credits for geothermal energy and filmmaking.
“We strongly favor the addition of both geothermal tax credits into the bill,” Camilla Feibelman, the director of the Rio Grande chapter of the Sierra Club, told the committee on Wednesday. “After a summer of fire and flood, the action that you’re taking is incredibly meaningful.”
Rep. Derrick J. Lente (D-Rio Arriba, Sandoval & San Juan) noted in Wednesday’s committee meeting that proposed film credits in the bill could cost the state tens of millions in lost revenue.
The tax bill also looks to incentivize the purchase of electric vehicles. It would offer several tax credits for people who purchase those vehicles.
The proposal is to offer a $2,500 tax credit for each purchase of an electric vehicle. If the purchasing household earns under 200% of the federal poverty level, the credit would be $4,000.
The state wouldn’t pay out those credits infinitely, though. There’d be a max of $10 million worth of credits paid out each year. And the credits would only be offered until 2028.
Corporate income tax
The bill would also change the state’s corporate income tax structure. Instead of splitting corporations into those who make over half a million dollars and those who make under that, the bill would create a single tax rate for all corporate taxpayers.
That rate would be 5.9%, under the version of the bill approved by the House. In other words, small businesses would have a higher tax rate under the new bill than they currently have, which is 4.8%.
Childcare provider & Medicaid renovation GRT deduction
The tax bill also looks to give a tax break to businesses providing childcare. The break would be for licensed childcare assistance programs and for-profit prekindergarten providers.
If the services offered by those providers meet certain criteria laid out in the bill, they can get a deduction on gross receipts. Gross receipts are similar to other states’ sales tax but are paid by businesses.
The bill gives a similar tax break to businesses that provide certain services for Medicaid recipients. If a qualified business installs safety equipment or completes a home modification in order to help Medicaid recipients live more safely, the business can get a tax break.
Public school teachers can also get a tax deduction for school supplies they purchase. School teachers could get up to $500 in deductions this year and up to $1,000 per year until 2028, under the latest version of the bill.
Cigars, alcohol, vaping
The bill would adjust tax rates for things like alcohol, tobacco, and e-cigarettes. The latest changes to the bill, approved in the Senate Tax, Business and Transportation Committee, would place a 31% tax rate on e-cigs and vaping liquids. Currently, the state places a 12.5% tax on e-cig liquids and a $0.50 tax on each closed cartridge.
The bill would also put a 25% tax on cigars. And the bill would also change some of the tax rates on alcohol. Those rates would be dependent on the type and volume of alcohol, and the rates could very well change again before the bill is finalized.