Are Taos Tax Hikes Necessary for Growth?

Recently, the Taos County Commission voted to adopt two ordinances setting a Sept. 25 refer­endum for voters to approve a 1⁄4-cent increase in the gross receipts tax within all the county and an additional 1⁄8- cent increase in its unincorporated areas.

If approved by voters, the plan is to use the increased gross receipts tax revenue to finance a replacement for the outdated and deteriorating county administration build­ings, district court, and county adult and juvenile detention facilities. The project is expected to cost taxpayers $35 million.

The commission had previously adopted a 1⁄16- cent increase throughout the county — known as a negative referendum — to help fund the project. A negative referendum does not require a public referendum unless a pro­test signed by 5 percent of registered voters is filed. Taken together, the tax hikes will cost tax­payers over $2 million annually.

While it is hard to argue that administra­tion buildings and a new district court and jail space are not core functions of govern­ment, it is also hard to argue that the gross receipts tax in both the town of Taos and the county’s unincorporated areas is not becom­ing too burdensome for the good of the area’s economy.

If adopted, the 1⁄4- cent increase would give the town of Taos the dubious status of having the heaviest gross receipts tax burden — 7.875 percent — of any city in New Mexico. This status would be shared with Santa Fé, Santa Rosa, Española, and a few other cities.

While the gross receipts tax will obviously be higher in the town than in unincorporated areas of the county, once the 1⁄4- cent and 1⁄8-cent increases are tacked on to the county’s already elevated 6.4375 percent tax rate, the unincorporated areas of Taos County will have the heaviest gross receipts tax burden of any unincorporated area of the state (6.8125 percent).

A May 17 editorial that appeared in this newspaper stated, “Historically, Taoseños have been far more amenable to gross receipts tax increases than property tax hikes. As is often heard, we like to ‘let the tourists pay for it.’” Unfortunately, the article went on to say, “tourism is in a slump, so we who live here year-round end up paying more than we want.”

Unfortunately, Taos’ political leaders have gotten themselves into a bad position by liv­ing under the misguided assumption that tourist dollars will always be there and that the gross receipts tax is only paid by outsid­ers.

Even under the sales tax regimes that are applied by most other states, this is not really true, but New Mexico’s gross receipts tax is actually a far worse deal for local businesses. For starters, our gross receipts tax covers everything (including services). Unlike most other states, New Mexico also taxes business­to- business transactions (other states only tax final consumption goods). The entire pro­ceeds of each transaction are taxed in New Mexico. Some relief for New Mexico’s goods producing industries comes in the form of a deduction for the cost of raw materials.

While Taos with its natural beauty and relative isolation is never going to be a hub of business and heavy industry, the area’s ever-increasing tax burden makes it more and more difficult to start service-oriented businesses like accounting firms and certain types of medical offices due to the increas­ingly heavy tax burden that actually builds upon itself in a process known as “tax-pyra­miding.”

While there are no easy solutions for the current, difficult situation, the county com­mission should search high and low for ways to cut costs and fund these projects using existing revenues. More importantly, for the long term, Taose-os must disabuse them­selves of the notion that they can raise the gross receipts tax with impunity and without harming the economy.

The upcoming vote is an opportunity to send the commission back to the drawing board to find ways to stop runaway taxation in Taos.

Paul Gessing is president of the Rio Grande Foundation, a non-partisan, tax­exempt research and educational organiza­tion dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and indi­vidual responsibility.