The New Mexico Senate Finance Committee Friday advanced a tax package that allows construction companies to deduct gross receipts tax for labor and materials on multi-family, affordable housing complexes, one of the major housing policies the Legislature is considering this session.

The deductions, estimated to cost state and local governments more than $10 million annually, are intended to make new construction financially feasible in a state that lacks approximately 32,000 affordable housing units, supporters said during the committee hearing.

Senator Michael Padilla (D-Albuquerque) who introduced the housing bill that later made it into the tax package the committee approved, also said Friday the measure will ensure workers arriving amid an “enormous amount of economic activity in the state” will have a place to live.

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The provision allows sellers of construction materials and labor contractors to deduct gross receipts taxes, which are sales taxes on sellers, so long as the project is for a multi-family housing complex in which 80 percent of the units are affordable to those making 80 percent or less of the area median income. Gross receipts taxes vary across the state, but are generally between 5 percent and 9 percent.

Senator George Muñoz (D-Gallup), chair of the Senate Finance Committee, said the provision posed the risk of costing taxpayers far more than initial estimates because it did not have enough guardrails to prevent it becoming a “runaway” tax credit.

One reason Muñoz cited is that no cap exists on the amount sellers can deduct from their gross receipts taxes. New Mexico Taxation and Revenue Department Secretary Stephanie Schardin-Clarke said Friday that imposing a cap on GRT deductions, which thousands of sellers across the state file each month, would be administratively impossible.

In addition to the lack of cap, the tax package also allows the provision to be in place until 2033, which Muñoz said was too long a period, especially if the deduction proved unexpectedly popular.

“I think the risk with this thing is it’s going to get way out of hand,” he said.

The committee ultimately agreed to amend that provision to end in 2028, five years earlier than in the original bill. With that, Muñoz and other committee members voted to pass the tax package.

In addition to the affordable housing deductions, the Senate tax package allows other credits and deductions worth up to $55 million, including $10 million for income tax credits for physicians and $33.8 million for gross receipts tax deductions on medical supplies. GRT on medical supplies is one factor in the health care worker shortage, Las Cruces doctors told lawmakers in December. 

It also includes a $4 million tax credit for local journalism organizations, allowing companies to receive a credit up to 30 percent of their annual wages. Senator Carrie Hamblen (D-Las Cruces), who presented the tax package Friday, cited the recent closure of Gallup’s long-time newspaper and statewide news deserts generally as reason the credit is necessary.

A tax package from the House of Representatives will also include up to $55 million in credits and deductions, and will be incorporated into the total legislative tax package once the bill lands in the House.

The Senate’s tax package heads next to the Senate Floor.