A welcome relief on gross receipts tax

New Mexico doctors got a bit of relief in an amendment to the tax law enacted this past session.

Doctors have had to pay New Mexico gross receipts tax on co-pays and deductibles -- the portion of the bill paid by the patient. That was eliminated by this law.

It used to be worse. Until the late 1990s, we required gross receipts also on the portion paid by the insurance company.

A 2022 report by the New Mexico Medical Society said New Mexico is one of only 4 states that tax medical services in any way (the others are Ohio, Michigan and Hawaii).

That darn gross receipts tax. It keeps making life harder for business, including the business of health care.

It has also been a blessing.

Because it taxes so many things, it does not depend on a single economic trend. Therefore, it keeps revenue stable so the state can rely on it to fund essential services.

Among governments, that is enviable.

This tax originated during the Depression era as the “emergency school tax” at rates around 2%. It was applied to retail sales of both tangible property and services, spread out broadly so everybody paid a little, including professionals like doctors, lawyers and accountants.

The logic was, as explained recently by tax expert Jim O’Neill, that people in every occupation send their children to school, so everyone should all contribute.

The tax was updated extensively in the 1960s, but major problems remained.

We taxed services that were not taxed in other states, making New Mexico uncompetitive. Medical practices cannot pass the tax on to the customer – they have to absorb it.

We taxed tangibles sold from one business to another business to produce a consumer product. That’s called tax pyramiding, and the business community has been pleading for years with the Legislature to fix it.

Somewhere in there, we started making exemptions. After all, what would you pay a lobbyist for if not to convince legislators that you are a special case and get you an exemption?

In the statute (Chapter 7, Article 9) the specific exemptions start at paragraph 12 and run through paragraph 41.4, followed by deductions, which run through paragraph 114. That’s about 100 exemptions, some of them very detailed and difficult to administer.

Today the tax is no longer levied equally on everybody but riddled with exemptions. Therefore, the rate is much higher than the originators intended.

It’s easy to make the argument that it’s unfair or even immoral to tax a certain item.

That’s how we made an exemption for the tax on food. How can any state justify taxing food?

But a portion of gross receipts tax revenue goes to the local municipality where the purchase was made.

In some small towns, the only retail business is a convenience store. The food tax exemption has been devastating for them. Legislators know that but have not devised a permanent fix.

How to reform our tax system is a great puzzle.

It pits two opposing concepts against each other. On the one hand, taxation should be fair and spread out widely so no group is overburdened. On the other hand, virtually every interest group can make the argument that it deserves an exception.

If anything merits a new exemption, it’s medical services. New Mexico does not have enough doctors, and our medical care has been suffering as a result. We’ve been losing doctors for several years, as they choose to work in states with a more doctor-friendly economic climate.

This does not solve all the doctors’ tax problems, but it’s a welcome relief.

Contact Merilee Dannemann through www.triplespacedagain.com.

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