This year\u2019s hot term in economic development jargon is the \u201csingle sales factor.\u201d<\/p>\n
Some of the current buzz in economic development circles is that the single sales factor is the first concern of businesses considering locating in New Mexico. If we don\u2019t have it, the rumor goes, they won\u2019t look further.\u00a0\u00a0 (They used to say that about workers\u2019 comp, but that issue is off the endangered species list for the moment.)<\/p>\n
The single sales factor is at the top of the wish list EDD Secretary Jon Barela is calling the New Century Jobs Agenda, a package of mostly legislative proposals that EDD is hoping will boost our state\u2019s persistently lagging private sector economy.<\/p>\n
If New Mexico is serious this year about economic development, our legislators have to pay attention to the fact that business wants the single sales factor and 25 other states have it.\u00a0 That\u2019s the nature of the highly competitive game of economic development these days.<\/p>\n
Dick Minzner, former secretary of the Taxation and Revenue Department, framed the issue in a recent briefing paper, noting that New Mexico receives $300-400 million per year in corporate income taxes, and most of those taxes are paid by large multistate or multinational corporations with locations in New Mexico.\u00a0 Smaller locally owned businesses don\u2019t pay the tax, he says, because most of them are organized in different business structures, such as S corporations or limited liability companies, which do not pay corporate taxes.\u00a0 The income from these types of businesses passes through directly to the owners, who then pay the tax as personal income tax.<\/p>\n
New Mexico has a formula for determining how a corporation figures out its taxes.\u00a0 The formula has three factors:\u00a0 the percentage of the corporation\u2019s sales that take place in New Mexico, the percentage of the corporation\u2019s property or assets in New Mexico and the percentage of the corporation\u2019s payroll in New Mexico.\u00a0 New Mexico gives more weight to the assets and payroll than other states do.<\/p>\n
If a corporation invests in a plant here and employs workers here, Minzner explains, but sells most of its products elsewhere, the formula taxes the corporation more for investing and creating jobs here than it would in other states.\u00a0 This discourages companies from building plants here.<\/p>\n
Most states used the three-part formula in the past, but have changed their tax structure.\u00a0 Either they have changed the factors to give less weight to payroll and property, or they have dropped payroll and property entirely and tax only on sales. This is called the \u201csingle sales factor\u201dor \u201csales only\u201dformula.<\/p>\n
A recent study for the New Mexico Tax Research Institute notes that the \u201ceffective tax rate\u201d for corporations operating in New Mexico is not just higher than surrounding states, but much higher.\u00a0 Changing the formula to single sales factor would produce the biggest change compared to other alternatives.<\/p>\n
So why does New Mexico — with its perennial low income, high poverty, and all the related social ills — resist this change?<\/p>\n
There\u2019s something we don\u2019t like about being forced into a policy change because powerful business interests are playing states against each other. \u00a0I don\u2019t like it, either, and in moments of wishful thinking, I wish states would band together and agree to uniform tax laws that don\u2019t give advantage to any state over any other.\u00a0 But that\u2019s not the world we live in.<\/p>\n
Our legislature can waste its breath and our time for 60 days debating over which tax policy is ethically superior.\u00a0 Or legislators can ask and answer a simpler question: would New Mexico be better off with more businesses employing more workers than with getting more tax revenue from the relatively few businesses that have chosen to be here in spite of our unfriendly tax climate?\u00a0 That\u2019s the question.<\/p>\n
Triple Spaced Again, \u00a9 New Mexico News Services 2012<\/p>\n","protected":false},"excerpt":{"rendered":"
This year\u2019s hot term in economic development jargon is the \u201csingle sales factor.\u201d Some of the current buzz in economic development circles is that the single sales factor is the first concern of businesses considering locating in New Mexico. If … Continue reading