Summary:

 Senate Bill 559 (SB 559) proposes extensive revisions to the state’s tax structure, affecting income tax brackets, corporate income tax rates, gross receipts tax, governmental gross receipts tax, compensating tax, and various excise taxes. The bill reduces personal income tax rates and corporate income tax rates, lowers the gross receipts tax, compensating tax, and governmental gross receipts tax, and repeals numerous tax credits, deductions, and exemptions. It eliminates certain tax increment financing mechanisms and repeals multiple excise tax acts, including the Motor Vehicle Excise Tax Act and Insurance Premium Tax Act. Additionally, the bill repeals the Estate Tax Act and phases out several economic development tax credits, including the High-Wage Jobs Tax Credit and the Film Production Tax Credit. It also imposes additional registration fees on electric and plug-in hybrid vehicles and introduces new gross receipts tax exemptions for donations to nonprofit organizations. The bill includes a delayed repeal of the Film Production Tax Credit Act. If enacted, SB 559 will take effect on July 1, 2025.
 

Legislation Overview:

 Senate Bill 559 (SB 559) introduces a comprehensive overhaul of New Mexico’s tax system by adjusting tax rates, repealing specific tax credits, and modifying tax structures across multiple revenue sources. It revises the income tax brackets under the Income Tax Act, reducing rates across low and middle-income brackets while restructuring taxation on capital gains income by limiting deductions. It lowers corporate income tax rates under the Corporate Income and Franchise Tax Act, capping the highest rate at 6%.

The bill reduces the gross receipts tax (GRT) from 4.875% to 2% and applies the same 2% rate to the governmental gross receipts tax and compensating tax. Additionally, it repeals tax increment financing mechanisms, removing the state’s authorization to allocate GRT increments to Tax Increment Development Districts (TIDDs) and Metropolitan Redevelopment Projects. SB 559 also eliminates certain GRT distributions to municipalities and counties, impacting local revenue streams.

The bill repeals multiple excise tax acts, including the Motor Vehicle Excise Tax Act, the Alternative Fuel Tax Act, and the Insurance Premium Tax Act, effectively eliminating taxation on vehicle purchases, alternative fuels, and insurance premiums. It repeals the Estate Tax Act, removing state-level estate taxation. Several economic development tax credits are repealed, including the High-Wage Jobs Tax Credit, Investment Credit Act, Affordable Housing Tax Credit Act, and the Alternative Energy Product Manufacturers Tax Credit Act. The bill phases out the Film Production Tax Credit Act, with a delayed repeal to allow time for transitional adjustments.

Additionally, the bill introduces higher vehicle registration fees for electric and plug-in hybrid vehicles, imposing additional costs to offset lost gasoline tax revenue. It provides a new GRT exemption for donations to nonprofit organizations, encouraging charitable giving while reducing taxable transactions.

Implications
SB 559 will result in significant tax reductions across multiple revenue sources, lowering individual and corporate income tax rates and reducing gross receipts tax rates. The bill’s elimination of numerous tax credits and deductions will simplify the tax code but may remove incentives that have historically supported business growth, job creation, and economic development. The repeal of tax increment financing mechanisms will shift the financial burden for redevelopment projects from state-allocated GRT increments to local governments or private funding.

Lowering the GRT, compensating tax, and governmental GRT to 2% will reduce state revenues but could stimulate economic activity by reducing the tax burden on businesses and consumers. However, municipalities and counties that rely on GRT distributions may experience budget shortfalls due to the elimination of certain local revenue-sharing provisions.

The repeal of the Motor Vehicle Excise Tax Act and Alternative Fuel Tax Act will reduce the cost of purchasing vehicles, but the imposition of additional registration fees for electric and hybrid vehicles may offset some of the savings for those vehicle owners. Repealing the Insurance Premium Tax Act could lower insurance costs for consumers, but it also removes a stable revenue source for the state.

The bill’s phase-out of the Film Production Tax Credit Act will likely impact New Mexico’s film industry, which has benefited from incentives attracting major productions to the state. The elimination of the High-Wage Jobs Tax Credit and other business incentives could discourage investment in high-paying jobs and research and development. However, proponents may argue that lower overall tax rates provide a broader incentive for economic growth.

The net fiscal impact on state revenues depends on the balance between lower tax collections and potential economic growth stimulated by tax reductions. If the reductions lead to higher economic activity and job creation, some revenue losses could be offset. However, without alternative revenue sources, long-term budgetary stability may be a concern. 

Current Law:

 Under current law, income tax brackets impose higher rates on middle- and upper-income earners, with corporate income tax rates reaching 7.6% for higher earnings. The gross receipts tax is currently 4.875%, and compensating tax rates are aligned with GRT. The state authorizes tax increment financing through TIDDs and Metropolitan Redevelopment Projects, allowing local governments to dedicate portions of state GRT revenue to fund infrastructure and economic development projects.

Existing excise tax laws impose taxes on motor vehicles, alternative fuels, and insurance premiums, generating significant state revenue. The Estate Tax Act remains in effect, taxing estates above a certain threshold. Various economic development tax credits, including the High-Wage Jobs Tax Credit and Film Production Tax Credit, provide incentives for job creation, research and development, and film industry investment.