Builder Insight: The Cost of Doing Business
January 6th, 2012By Dina Major, Owner, Major Development, Inc.
The Albuquerque Journal recently published an article about the expensive, uncompetitive cost of doing business in New Mexico, due primarily to our gross receipts tax. New Mexico has a gross receipts tax instead of a sales tax which means that taxes are collected on services, as well as goods. More specific to the construction industry, we pay tax on a contractor’s labor costs, as well as supplies. When we receive an invoice from a subcontractor, we pay tax on that entire bill (including items he has purchased and previously paid tax on, as well as his labor costs included in the bill). The administration of Susana Martinez recently cited this as a pyramid taxation policy. The good news is that this tax structure is being analyzed and hopefully improved.
Another “building” tax item that I hope gets attention is the rate of taxation on new construction. The current tax rate on a newly built home in the city of Santa Fe is 8.1875 percent, the same rate you would pay for just about anything else. What this means in dollars and cents is approximately $32,750 due on the sale of a $500,000 house (after deducting $100,000 for the value of the land, which is taxed differently). This $32,750 immediately makes this new home less competitively priced in this strong buyers’ market. We do have a “large purchase” tax rate of three percent in this state that predominantly applies to the purchase of a car. This, of course, begs the question: “Why is a home not considered a large purchase and therefore taxed as such?”
A quick call to the Governor’s office (505-476-2200) may encourage her to continue questioning the way we tax construction in this state and what might be done to change and stimulate this industry.
In the meantime, we wish you all a happy, healthy and prosperous New Year.