No tax cut deal as NM Legislature nears finish

SANTA FE, N.M. (AP) -- The Democratic-controlled Legislature and Republican Gov. Susana Martinez have not reached a deal on possible tax cuts as lawmakers approach the finish line of the 60-day legislative session.

Senate Finance Committee Chairman John Arthur Smith, a Deming Democrat, said Thursday that talks continue with the Martinez administration about proposals to reduce taxes to encourage economic development in the state.

"We're still trying to work something out," Smith said in an interview. "The problem is we're running out of time."

Lawmakers adjourn on Saturday.

Martinez spokesman Enrique Knell said the governor wants lawmakers to "make job creation and education reform the priority" in the closing stretch of the legislative session.

"The notion that the Legislature does not have time to focus on efforts to help New Mexico small businesses grow and create more jobs is preposterous, given the types of legislation they are willing to stay late at night in order to pass," Knell said a day after the Senate had worked until nearly midnight, including to approve a legislative rule to potentially shield the email of lawmakers from disclosure through requests for public records.

Smith, who leads a committee that handles tax and budget issues, said he had concerns about the possible costs of tax cuts in coming years. Several business tax incentives were approved in recent years only to find out later that the state's actual loss of revenue far exceeded what had been projected when the Legislature approved the measures.

Martinez has made business tax cuts a centerpiece of her legislative agenda for economic development. She proposed a reduction in the corporate income tax rate to 4.9 percent from 7.6 percent over several years. The governor and her supporters contend that New Mexico's tax rate is high, particularly compared to neighboring states, and that makes it difficult to attract companies.

In New Mexico, the corporate income tax falls mostly on large companies. Many local businesses in the state 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.

Martinez also is seeking more favorable tax treatment of companies in New Mexico that sell most of their goods and services outside of the state. That could help corporations like computer chip maker Intel, which has a plant in Rio Rancho. Currently, the tax obligation of a corporation is tied to its payroll, property and sales in New Mexico.

As initially proposed, the governor's corporate tax reductions could have cost the state about $250 million in reduced revenue when fully implemented.

Smith's committee tried to assemble a package of tax changes. One measure could have cost the state about $80 million, and would have narrowed several existing business tax incentives to reduce their costs while phasing in a corporate rate reduction from 7.6 percent to 6.4 percent.

The proposal also would have allowed some manufacturing companies, like Intel, to base their tax liability on in-state sales if they made certain investments in capital equipment or facilities. That legislation has stalled, however, because critics said it wouldn't do enough to make the state more economically competitive.

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