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Free Liberal: Coordinating towards higher values

Free Liberal

Coordinating towards higher values

Rio Grande Foundation Uncovers Ugly Reality of New Mexico’s Gross Receipts Tax

(Albuquerque, New Mexico) – New Mexico’s gross receipts tax is the dominant and defining feature of tax policy in the state. No other state in the country levies such a broad tax at such high rates while also taxing personal income.

In their new study, “New Mexico’s Harmful Gross Receipts Tax: A Warning to Other States,” Dr. Harry Messenheimer and Paul Gessing expose the ways in which services are often taxed multiple times for a single transaction. The authors also explain why gross receipts taxes like New Mexico’s are a boon to special interests, but killers for economic growth.

Noting the ongoing changes made to New Mexico’s gross receipts tax in recent years and the fact that states all over the country are considering such taxes (Texas and Ohio have adopted such taxes in recent years) the Rio Grande Foundation’s study of the issue is particularly timely.

As Gessing points out, “With rates exceeding 7.8 percent in some cities, New Mexico’s gross receipts tax clearly violates the economic principle that tax rates should be low and applied broadly. Our relatively high rates and lack of transparency relative to a sales tax,” Gessing explained, “creates incentives for special interests to demand their own exemptions from the tax before moving to New Mexico.”

“Exemptions have helped make the gross receipts tax unfair by treating entrepreneurs engaged in similar activities very differently,” Dr. Messenheimer points out. “An example of this,” he writes, “is the fact that managed care organizations have been exempted from New Mexico’s gross receipts tax, but fee-for-service providers have not. Thus, a fee-for-service provider for whom income amounts to 20 percent of gross receipts in a given year will face a combined state and federal tax rate of 78 percent, while a similar managed care organization will be taxed at an effective rate of ‘only 44 percent.’”

As Messenheimer concludes, “Policymakers in Ohio and Texas (and wherever gross receipts taxes are being considered), should keep New Mexico’s example in mind. After all, our gross receipts tax originated at a relatively benign rate of 3 percent. Now, it is a jobs-killing, lobbyist-employing monstrosity. Other states need to learn from our mistakes.”

In the meantime, both Messenheimer and Gessing conclude, “New Mexico gross receipts tax is at a crossroads. The Legislature needs to dramatically drop the rates and eliminate some of the most egregious exemptions, or it needs to abandon the tax entirely and simply shift to an old-fashioned sales tax.”

The study can be found online at: Hard copies can be obtained by emailing your name and street address to

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