While there is a lot of positive going on in our community right now, New Mexico’s 2019 House Bill 6 (HB6) remains a major threat to the City’s gross receipts tax revenue base. Gross receipts tax is more than 50% of the City’s revenue budget and helps fund public safety, roads, parks, and many other city services and amenities.
During the 2019 legislative session, HB6 was passed by the New Mexico Legislature and signed into law by the Governor. In some ways, this law was well intentioned. It did correct a tax loophole that was hurting local businesses and smaller communities. Prior to HB6, internet sales were not considered taxable transactions to cities and counties. Now, because of HB6, Carlsbad and other local governments are receiving tax from internet sales. This not only helps our community with additional tax revenues, it makes it fairer for local companies to compete with online companies.
Another component of HB6, is that beginning July 1, 2021, New Mexico began imposing gross receipts tax on the destination of a product or service, versus the location of the company. This causes serious problems for many rural communities, such as Carlsbad. Many of the companies who have a physical location in Carlsbad, and utilize city resources, perform work just outside the city limits. Now, because of HB6, the City no longer receives gross receipts tax for any of the transactions taking place just outside the City limits, although the company’s business location is in Carlsbad.
Early projections show that this could be anywhere from a 10-15% loss of the City’s gross receipts tax revenue budget. This could mean a $12M a year in lost revenue, or more, for Carlsbad.
Although paying taxes are not fun, tax is necessary to any community’s success. In Carlsbad, tax revenues are put to great uses that are locally focused. Gross receipt taxes pay for public safety including the Police, Fire, and EMS Departments. In addition, gross receipts taxes pay for roads, the parks, the water park, the library, and the museum. This list goes on and on the amazing things Carlsbad does with gross receipts taxes. Carlsbad’s taxes are among the lowest in the state and we strive to put this revenue to good use.
Carlsbad is not alone in having concerns related to HB6. We are currently working with similar communities on this issue to develop a list of alternatives to correct HB6 so that rural communities are not negatively impacted, but to keep the internet sales tax in place. We want our local companies to be able to fairly compete with out of state companies. Our local legislators have been very responsive, and we believe they will go to bat for us during the upcoming legislative session, as they always do.
In the meantime, the City of Carlsbad is committed to continuing to provide you with the absolute best in terms of services and resources- but we want you to be aware of this very serious challenge.
Carlsbad Mayor Dale Janway