Food tax vetoed

The Associated Press

SANTA FE — Gov. Bill Richardson vetoed a proposed food tax on Wednesday but signed other tax increases that will provide about $170 million next year to help balance the budget.

Richardson used his line-item veto powers to reject a proposal that would have reinstated the gross receipts tax on food at the rate imposed by local governments, which averages about 2 percent statewide. That would have generated $68 million.

Signed by Richardson were measures to:

— Increase the gross receipts tax by one-eighth cent. The tax applies to goods and services. The state rate will go from 5 percent to 5.125 percent starting July 1.

— Raise personal income taxes for about one-fourth of New Mexico taxpayers by eliminating a deduction for people who itemize their deductions on federal tax returns.

— Increase the cigarette tax by 75 cents a pack, bringing it to $1.66 starting in July. The governor vetoed a provision that would have repealed the higher tax rate in July 2014. He also eliminated provisions that would have earmarked part of the money to early childhood programs, including pre-kindergarten. That veto will add $13 million to the state’s reserves.

— Ensure the compensating tax applies to purchases by businesses and others from out-of-state vendors.

The governor also signed a bill to allocate about $5.6 billion next year for public education and government programs ranging from courts to prisons.

Wednesday was the deadline for the governor to act on bills passed during a recent special session of the Legislature.

New Mexico stopped taxing food staples and groceries in 2005. With Richardson’s backing, legislation was enacted in 2004 to repeal the food tax and the law went into effect the next year.

Richardson said he vetoed the food tax because it’s regressive and would fall heaviest on the poor and middle-income families.

“I agree with all of those who say this is a cruel tax,” Richardson said.

There is “no reason to tax so basic a necessity as food in order to balance the budget,” he said.

A veto of the food tax provision creates a hole in the budget next year, but money from the state’s cash reserves will help offset some of the $68 million revenue loss.

Richardson said he was ready to use $20 million in federal economic money to balance the budget and, if necessary, he could use powers provided in the budget bill that allow him to make across-the-board cuts in programs.

One issue in Richardson’s decision on a veto is whether the tax bill appropriates money. Under the state Constitution, the governor can make line-item vetoes only in appropriations bills.

Richardson said it’s possible that his food tax veto could be challenged in court, but he expressed confidence that his administration would win a judicial test.

Gilbert Gallegos, the governor’s deputy chief of staff, said administration lawyers had reviewed the state Constitution and legal precedents from court rulings, concluding that Richardson can use his line-item veto powers to eliminate portions of the tax bill, such as those that would reinstate the food tax.