What is tax pyramiding and why are there efforts to curtail it?
Legislation to reduce “pyramiding” in New Mexico’s tax code will likely be proposed this legislative session. While the move could provide relief for small businesses and consumers, it’ll also reduce the recurring revenue of the state’s gross receipts tax.
When Gov. Michelle Lujan Grisham proposed tax reforms in her State of the State address, she urged lawmakers to pass cuts to personal income and gross receipts taxes, while “implementing, in addition, common sense anti-pyramiding measures to make goods and services more affordable.”
So, what is pyramiding? Well, New Mexico’s gross receipt tax, unlike a sales tax, can be applied to all transactions — not just the final sale when a consumer makes a purchase. That means a product or service can be taxed multiple times along its supply chain — what’s called “pyramiding.”
If a business pays gross receipts tax on something it needs to make its product — like supplies or consulting — it might pass that cost along to its consumers. A customer then pays that higher price along with a gross receipt tax when they buy the product, basically paying the tax twice.
New Mexico has implemented anti-pyramiding measures before, including adding manufacturing services to an already long list of deductions last year. While many businesses and lawmakers on both sides of the aisle would likely welcome more, not everyone thinks it’s a good idea.
“Let’s stop putting holes in the Swiss cheese of our tax base, and let’s tax everything at that rate,” New Mexico Voices for Children Senior Policy Advisor Bill Jordan told KUNM. “And, if we do, we can tax it at a lower rate.”
While reducing what’s subject to the GRT will lower how much it brings in, Lujan Grisham is not calling to raise its rate to balance that out. She’s calling to lower it again. It was reduced for the first time in 40 years last year, with another drop scheduled for July.
Spokesperson for the governor Nora Meyers Sackett says there’s no plan to make up that lost revenue, but noted the state expanded who pays GRT in recent years, creating more revenue, when it made large online retailers and recreational cannabis subject to the tax.
How much the recurring pot of money that accounts for about a third of the State General Fund will shrink will depend on the details of the anti-pyramiding proposal yet to be filed.
Sackett says it’s expected early this week and will focus on relief for small businesses that outsource their professional services.