Column: New Mexico and Corporate Taxes: Basic Facts

Column By District 43 Rep. Jim Hall
Los Alamos, Santa Fe and Sandoval Counties

There has been a lot of misinformation about corporate income taxes in New Mexico. Some facts about Corporate Income Taxes (CIT) follow.    

First, statements have been made that out-of-state corporations pay no corporate income taxes in New Mexico.

This is false: out-of-state corporations and their subsidiaries pay more than 90 percent of New Mexico corporate income tax revenues. 

Second, it has been said that New Mexico collects less than other states in corporate income taxes because we don’t require a tax collection technique called “combined reporting.”

Wrong: New Mexico corporate income tax revenues average $300 million to $400 million, or 5 percent to 6 percent of general fund revenues.  

This is slightly above the national average (5 percent of the general fund) of CIT revenues in other states—and is comparable to those states that have implemented combined reporting.

Third, allegations are made that local businesses pay higher taxes than out of state corporations.

Wrong again: small New Mexico businesses pay less of their profits in taxes than large corporations, wherever headquartered. 

Almost all New Mexico businesses are LLC’s, partnerships, or Subchapter S corporations and pay no CIT whatsoever (profits are taxed as personal income.)

The maximum personal tax rate (4.9 percent) paid by such businesses and the minimum rate (4.8 percent) paid by large corporations are essentially the same. 

Nearly all large corporations—headquartered in or out of New Mexico—are taxed at a higher rate than the minimum, account for nearly 100 percent of CIT revenues, and almost always pay a higher tax rate than small to medium sized New Mexico businesses.

Finally, there is a claim that implementing “mandatory combined reporting” will raise New Mexico tax revenues. 

There might be a small short-term increase (with increased enforcement costs) but the long term effect would surely be negative.

The National Conference of State Legislatures, a national bipartisan organization of state legislators commissioned a study, published in 2010, that showed combined reporting to be minimally effective at best in raising tax revenues and had a large enforcement cost. (see

Because of our other corporate tax policies, mandatory combined reporting would worsen New Mexico’s already poor investment climate leading to even less business investment.

What really needs to be done? The surest way to grow tax revenues is to grow New Mexico jobs.

In New Mexico, 5 percent to 6 percent of general fund revenues come from corporate income taxes.

More than 60 percent of general fund revenues come from job-based taxes – personal income and gross receipts taxes. The right strategy for more tax revenue? Grow jobs! 

Secondarily, some corporations do use transfer payments to minimize their New Mexico tax burden. 

Some years ago, Kmart used payments of “logo leasing fees” to related companies in low tax states to lower their taxable revenue in New Mexico. The New Mexico Taxation and Revenue Department identified the tax dodge, sued and won.

One proven legislative remedy to this “gaming” of the system is known as “add-back” legislation. It is beyond the scope of this column: however, I could support such legislation as a part of other tax reform. 

Tax policies and trade-offs to encourage investment and grow jobs in New Mexico will be the subject of my next column.  Most data in this column comes from easily obtainable public sources: See

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