New Mexico's Harmful Gross Receipts Tax: A Warning to Other States

New Mexico is an unfortunate trendsetter. Although as a state we are often overlooked (some geographically-ignorant people have been known to lump us in with Old Mexico), when it comes to broad-based taxation and the taxing of services, The Land of Enchantment is quickly becoming a rather dubious model for other states. Some states like Ohio and Texas have recently enacted such taxes at relatively low rates (effectively less than one-half of one percent), but New Mexico has had a broad-based taxation mechanism for more than 40 years.

Unfortunately, over the years, New Mexico’s gross receipts tax (GRT) has evolved so as to become even more economically-burdensome, especially for small businesses. For that reason, the tax itself is now at a crossroads. Changes either need to be made to restore the GRT to what it was intended to be – a low-rate, broad-based, and equitable tax – or it needs to be altered to make it more like the sales tax regimes administered by most other states.

As we will show in this paper, New Mexico’s experience with broad-based taxation has created an economically stifling burden relative to other states. New Mexico’s GRT woes should be useful in illustrating the difficult decisions other states will face over time if and when they adopt broad-based transaction taxes.