A possible bill before the 2014 legislature to return a gross receipts tax on food is percolating among some state organizations, but Municipal League Executive Director Bill Fulginiti said despite the group’s passage of a resolution supporting the tax, he won’t seek a sponsor for the bill.
“You can’t get anyone to vote for a tax in an election year,” Fulginiti said in a Dec. 5 interview.
The League met in Taos and passed several resolutions outlining its legislative agenda, including 2013-35, which seeks to re-enact the 1.225 percent tax on food purchases. Fulginiti said a task force had researched the loss of revenue some cities and counties suffered in 2004, when the tax was repealed.
“A task force was created one-and-a-half years ago and they worked on this for almost a year,” Fulginiti said.
At the Taos meeting, the resolution passed 67-1 with Village of Corrales Mayor Philip Gasteyer casting the lone dissenting vote. Española City Councilor Pedro Valdez, carried Mayor Alice Lucero’s proxy and voted for the resolution to bring back the tax.
Lucero said Dec. 9 the city had suffered a huge decrease in revenue following the repeal of the food tax.
“Our revenues are down 14 percent from 2007,” she said.
Lucero acknowledged the recession hadn’t helped and the lack of a local economy is a continual hindrance to city revenue.
The tax was repealed in an effort to help those with lower incomes, who spend a larger percent of their income on food, and the tax on that food. To offset the loss of revenue to cities, the state agreed to supplement the lost revenue from the general fund and it allowed cities and counties to pass a three-eighths percent tax on things other than food, according to state law.
Las Cruces and Corrales are the only New Mexico cities to pass that new tax, Fulginiti said. Corrales Village Clerk Juan Reyes said Dec. 13, the village passed the tax Dec. 10, at its regular meeting, making it the second New Mexico city to pass the tax.
Think New Mexico Executive Director Fred Nathan was a key catalyst in passing the bill, which removed the tax during the 2004 legislature. His argument has been the gross receipts tax on groceries hits lower income people much harder and the other breaks in place prior to the tax’s removal, weren’t targeting the people hardest hit.
“There is a common misconception that low income people get all their groceries with food stamps,” Nathan said. “They (those opposing the food tax repeal) forget the first word in SNAP (Supplemental Nutrition Assistance Program ) is “Supplemental.” Food stamps supplement people’s food purchases.”
Nathan said the average New Mexican using food stamps receives about $4.09 a day. The federal food stamp benefit formulas assume each family spends an additional 30 percent of their net income on food.
Additionally, many low income people have some pride and won’t apply for food stamps. Others are eligible, but don’t know it, so they don’t apply for food stamps, Nathan said.
Gene Valdez, executive director of the New Mexico Grocers Association, said Dec. 9, low income people have other options to recover tax paid on food and get help from the state.
“In my opinion (the tax repeal) wasn’t correct,” Gene Valdez said. “The whole issue that it’s regressive isn’t right. The poor have assistance. Besides, they still pay tax on toilet paper.”
Tax credits
Fulginiti said low income people getting the food tax break are losing that savings by paying the higher tax on other goods and if the three-eighths tax is imposed in other communities, the poor would pay much more in gross receipts tax than before the 2004 repeal.
The municipal league’s resolution and another passed at the same gathering in Taos, encourages tax credits on state income tax returns and a higher rebate for the tax they would pay on food. The Low Income Comprehensive Tax Rebate would be received by filing taxes.
“There are two tax credits on the books for low income tax credit,” Fulginiti said.
Families with income below $20,000 would get a credit up to $300. The municipal league’s resolution proposed doubling that and extending income levels up into the middle income bracket.
“Seventeen other states are doing something similar,” he said. “We can design it, but it’s still going to be controversial.”
Nathan sees tax filing differently and many low income people don’t make enough money to qualify for the tax credits, he said.
“While every family must buy food, many New Mexicans, who do not earn enough to owe taxes, do not file income tax forms and therefore would not receive the rebate,” Nathan said.
Grocers say yes
Grocers were never for the repeal in 2004 and would agree with placing the tax back on food, if only to help hurting cities and counties. Gene Valdez said the Association’s main concern in 2004 was for the cities that would lose the revenue.
“I would like to see it come back and benefit the municipalities,” he said. “We collect the tax anyway (other than food tax) and we’re responsible for getting it to the state.”
If the tax were placed back on food, grocers would have the additional burden of reprogramming all of their registers and computer software associated with it.
“Any time there’s a change, it costs us money because we have to go in and sometimes manually key it in,” Gene Valdez said.
He said there was no benefit to grocers to collect the tax.
“One reason and one reason only we would support the tax is so the cities can have money,” he said.
Corrales’ needs
Gasteyer said Dec. 10, he voted against the tax because Corrales was moving toward the three-eighths tax because of several other mitigating factors.
“We weren’t hit nearly as badly as other cities,” Gasteyer said. “We’re a bedroom community and suburb, so we have little retail activity, no pharmacy and no grocery store.”
However, the village had two storms over the summer that caused devastating damage, Gasteyer said. The village’s $4 million budget could not address the $3 million in damage.
“We applied to FEMA but need to come up with a local match,” he said.
Gasteyer said the village plans to take the cash flow from a three-eighths gross receipts tax and pay down a $3.5 million bond. The bond would allow them to make storm repairs, finish some capital projects and pay back a $600,000 loan from the state. There would still be funding left for some long-postponed local projects. The village could keep the tax in place if the food tax were re-enacted.
“(There is) a provision called the anti-impairment clause that states, if you pledge a stream of revenue for a bond or borrowing, the legislature can’t remove it,” Gasteyer said.
This means with no grocery stores, placing a tax back on food would not directly affect Corrales, which would have the three-eighths tax in place.
Revenue lost
The city of Española, on the other hand, is struggling with what to do, Lucero said. The slight increase on other goods taxed has not come close to covering the city’s lost revenue from groceries.
“Both the city and the (Rio Arriba) County can enact the three-eighths tax,” she said. “We’re hoping we both don’t do it.”
Cities under 10,000 in population continue to receive the hold-harmless payments from the state, Lucero said. But with Española’s population at 10,225, the city will see a steady decrease in state help until 2017, when it ends.
Lucero said Pedro Valdez voted to bring the tax back so the city can continue to provide services to residents.
“We’ll lose $1.4 million from 2014 to 2017,” she said.
While this is a resolution only, Fulginiti said he will present it Dec. 18 to the revenue stabilization committee. The upcoming short legislative session focuses on the budget and how to fund it so things could change once the committee looks at it. But Fulginiti said he’s not looking for a bill or movement in 2014.
“We’re looking long-term,” Fulginiti said.