SANTA FE – Republican Gov. Susana Martinez on Thursday proposed lowering New Mexico’s corporate income tax rate to provide an incentive for economic development.
In outlining part of her agenda for the coming legislative session, Martinez said she will ask the Legislature to reduce the corporate tax rate to 4.9 percent from 7.6 percent through several years.
The governor also wants to change how New Mexico determines the taxes owed by corporations that do business in multiple states. Companies would be offered the option of basing their tax liability on their sales in New Mexico. The change could help corporations such as computer chip maker Intel, which has a plant in Rio Rancho, but the bulk of its sales are outside the state. Currently, the tax obligation of a corporation is tied to its payroll, property and sales in New Mexico.
The corporate tax proposals could cost the state about $255 million in reduced tax revenue once fully implemented, according to estimates from the Department of Finance and Administration.
New Mexico’s corporate tax rate is higher than neighboring states, and Martinez contends it should be reduced to make New Mexico more competitive in attracting companies and encouraging existing businesses to expand in the state.
“Federal budget uncertainty threatens key jobs at our military bases and national labs. Our state is disproportionately reliant upon federal dollars, and will be disproportionately affected by budget cuts,” Martinez said in a statement. “Until we diversify our economy and commit to a competitive economy that focuses on helping small businesses grow and attract large job creators, we will remain extremely vulnerable to across-the-board cuts and partisan politics in Washington.”
The corporate tax changes are among several economic-development proposals the governor will submit to the New Mexico Legislature, which convenes Jan. 15. Martinez outlined her plans in a speech Thursday in Albuquerque at a luncheon sponsored by the Greater Albuquerque Chamber of Commerce and several other business groups.
The governor also proposes to offer a tax credit for small businesses that create jobs in the state.
A spokesman for Martinez said the governor is willing to work with the Democrat-controlled Legislature to determine the phase-in for the proposed corporate tax changes.
Sen. John Arthur Smith, a Deming Democrat and chairman of the Senate committee that handles budget and tax issues, said he favored changes in the corporate income tax to make New Mexico more economically competitive, but expressed concerns about the potential cost of tax cuts.
“Philosophically, I have no problem moving in that direction. The question is timing,” Smith said in a telephone interview.
Smith said the state may need to increase some spending on programs or services to offset federal budget cuts if Congress and the president agree on a deficit-reduction plan.
The Legislature and governor should have slightly more than $280 million for budget increases and to offset any tax cuts next year under the latest revenue forecast. Corporate income taxes are estimated to account for about $342 million of the $5.9 billion the state will collect in its main budget account in the fiscal year that starts next July.
In New Mexico, many local businesses don’t pay corporate income taxes because they are organized as partnerships or limited liability companies. Owners pay personal income taxes on profits of those businesses.