Tax Package — HB 547 The Governor, on the last day for her to take action on legislation sent to her by the 2023 Legislature, line-item vetoed the majority of the tax package. She left intact: • An increase in the Child Tax Credit for the lowest three income levels from $175 to $600, $150 to $400, and $125 to $200. The provision also adds language to annually adjust the credit amounts to account for inflation • A temporary personal income tax rebate to be paid to all residents who filed state tax returns for tax year 2021 of $500 for single filers and $1,000 for married individuals filing joint returns. • Expansion of the medical services gross receipts tax deduction to add all receipts from copayments or deductibles paid by a patient to a health care practitioner for commercial contract services provided under health insurance. • Increase the benefits of the film tax credit, including raising the cap for films not shot by New Mexico partners, expanding subsidies for non-residents, and enhancing the benefit of filming in rural locations in the state. Among those tax provisions included in HB 547, which were VETOED, include: • Income tax brackets revised: Single filers with incomes below $66,500 and married filers with incomes below $100,000 will see a tax rate decrease (cost to the general fund is $155 million). VETOED • Gross receipts tax: Reduced by a quarter-percent over four years (cost to general fund when fully implemented is $504 million). VETOED • Corporate Income Tax: The tax bill provides for a single corporate income tax rate of 5.9%. Current law has two income tax rates: 4.8% for corporations making less than $500,000 and 5.9% for corporations making more than $500,000. As corporate income tax is a marginal tax, our corporations will experience an increase (cost is $7.4 million in revenue derived from corporations). VETOED • Armed Forces Retirement Exemption: The bill removes the sunset on the armed forces retirement pay exemption currently in effect through 2026. With this change, the exemption would remain at $30,000 of retirement pay per armed forces retiree, beginning in the taxable year 2024. Surviving spouses of armed forces retirees were added to the exemption (cost to the general fund is $1.2 million). VETOED • Index Social Security Income for Taxes: Currently, social security income is exempt from state income tax for individuals with income of less than $75,000 for married filers filing separately; $150,000 for heads of household, surviving spouses, and married filers filing jointly; and $100,000 for single filers. This bill would annually adjust the income caps by a ratio of the consumer price index, increasing the income levels by the inflation rate except in instances where the inflation rate would result in a downward revision. VETOED • Apportionment of Business Income (Single-Sales Factor): Would replace the three-factor formula with an opt-in single sales factor. This is the ratio of sales in New Mexico divided by total sales in all states. It allows “eligible businesses” the option of retaining the three-factor formula or adopting a sales-only apportionment through the tax year 2028 at which time all businesses will shift to single sales. The assumption in this analysis is that all businesses will adopt an apportionment formula that reduces or maintains taxes, resulting in a negative impact on the general fund through corporate income taxes. After FY28, the fiscal impact is unknown as some businesses will pay more and others less corporate income tax when moved over to single sales. VETOED There are 42 categories of tax issues addressed in the original tax bill. The cost to the general fund when fully implemented is $1.2 billion. However, by removing most of the tax changes from the tax package, the recurring cost will decrease to $150 million as of the 2024 budget year. It will gradually increase to $246 million by 2027 primarily due to the revisions to the film incentives. This does not include the one-time tax rebates which will cost the state $670 million. Bank-Related Legislation The good news was there was NO State Bank legislation introduced this session. However, the Governor did ask the Legislature to consider HB 414, which would create a Housing Department, a non-cabinet department in the executive branch. It would have been tasked with providing housing stabilization, homelessness prevention, transitional housing, standardization of housing services, and increasing the development of housing. It would exercise functions and administer laws pertaining to housing services currently administered by other state agencies and the MFA. The bill would have amended the Housing Trust Fund Act, which governs the NM Housing Trust Fund, to make the fund a non-reverting fund in the State Treasury and change the trustee of the fund from the MFA to the Housing Department. Monies in the fund would be appropriated to the Department. Bottom line, in time, the Department replaced MFA as the state’s Housing Authority. Fortunately, the bill DID NOT PASS. I want to acknowledge the effort that was put forward by our bankers before the 2023 Legislature against the State Bank legislation. We prepared editorials against the state bank, appeared before interim legislative committees to testify against the state bank, and ran ads in major newspapers, pointing out what a bad idea it is. We also traveled in the Fall of 2022 and hosted Legislative/banking dinners and lunches around the state to discuss the NMBA Legislative agenda and the number one priority was NO state bank. 8
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