According to a report from the nonprofit organization Tax Foundation’s “2022 State Business Tax Climate Index,” New Mexico ranks as one of the top ten states in need of sales tax reform, ranking 41st out of 50 states on tax freedom.
New Mexico is also a state that is ranked toward the bottom when it comes to its sales tax base, which is measured on five criteria, including the variety of the tax base, the typical purchases of consumers, whether it includes services, tax holidays, and excise taxes on things such as gasoline, alcohol, and tobacco.
“States with the worst scores on the base subindex are Hawaii, Alabama, Washington, California, South Dakota, New Jersey, New Mexico, and Maryland. Their tax systems hamper economic growth by including too many business inputs, excluding too many consumer goods and services, and imposing excessive rates of excise taxation,” writes the group.
According to Tax Foundation, “Legislators in New Mexico created an additional individual income tax bracket on income above $210,000, bringing the state’s top rate from 4.9 percent to 5.9 percent. This dramatic increase caused a 10-place drop in the state’s individual income tax ranking and dropped New Mexico’s overall rank from 22nd to 28th.”
The state also ranks 41st out of all other states in business tax climate, making New Mexico a state with a more hostile tax environment for businesses.
“States that create the most tax pyramiding and economic distortion, and therefore score the worst, are states that levy a sales tax that generally allows no exclusions for business Inputs. Hawaii, New Mexico, South Dakota, and Washington are examples of states that tax many business inputs. The ideal base for sales taxation is all goods and services at the point of sale to the end-user,” the group concludes.
In recent years, Democrats have worked to increase taxes on consumers, businesses, and industries in the state while creating new taxes on many industries. This has all likely contributed to New Mexico’s unfriendly tax structure.