In 2019, a bill passed through the New Mexico legislature that may have a major negative impact on gross receipts tax revenue for Carlsbad and many other communities. That year’s HB6 amends the state gross receipts and compensation tax act reporting from the place of business to the destination of business. This change will go into effect on July 1.
This bill was supposedly originally created to help address revenue from internet sales and make sure it was distributed fairly to communities where people make these purchases, but it changed during its time in the legislature into something much different. Some legislators tell us they feel they were misguided by unfair changes made at the last minute without their consultation.
If you had an office in Carlsbad but did most of your work outside of city limits, you previously paid gross receipts tax to where your business is located. As of July 1, you will pay a gross receipts tax where the service takes place.
Carlsbad is an extractive community- we have a significant number of businesses with offices in city limits who do almost all of their work out in the county. Municipalities across the state, similar our own, stand to lose millions of dollars annually in gross receipts tax, which is a new blow as we try to recover from the various COVID-19 shutdowns. Meanwhile, the state, who is responsible for this change, likely won’t face any sort of adverse impact.
The fact that Carlsbad and the surrounding area are responsible for generating a significant part of the state’s budget is a source of pride in our community. But with that role comes a high level of responsibility – we have more people driving on our roads, for example, and need to hire more first responders due to a larger population. The gross receipts revenue we received due to the presence of these industries has allowed us to adapt to these increased expenses, and even then it was often challenging.
The implementation of HB 6 changes that formula. This new process winds up specifically injuring municipalities in areas such as our own where much of the state’s tax revenue is generated. Nobody likes any tax, but local tax revenue has the most direct impact on our lives.
Additionally, many small businesses are extremely concerned about this new process, as they have now been tasked with keeping track of where they provide every single service, because they all require different tax rates. That’s a major bookkeeping burden for businesses with one or two employees.
Carlsbad’s City Council has already passed a resolution related to HB 6. Specifically, the resolution requests that the list of exemptions be expanded to include extractive service companies, which would be similar to the exemption already allowed for professional service companies. Other communities have done the same.
State agencies tell us they are studying the issue and will get back with us with but, to be blunt, data a few months from now is too little too late. Carlsbad may receive some increased GRT due to changes in the formula in internet tax, but we strongly suspect this won’t come close to offsetting what is lost. HB 6 will likely divert tax revenue away from the municipal level, where it is needed the most. We will continue to push for exemptions.
Sincerely,
Carlsbad Mayor Dale Janway