Governor Susana Martinez was joined by about two dozen state business leaders and New Mexico small business owners today to urge the passage of tax reform legislation that would curb the practice of "pyramiding" in the state's construction industry. Pyramiding is the term used when a business-to-business tax is levied on goods and services, resulting in double and triple taxation of finished projects in the construction sector. The practice ultimately drives up the price of construction projects and puts New Mexico small businesses at a competitive disadvantage with other states. New Mexico has experienced the largest decline in construction employment of any state in the country, according to the Associated General Contractors of America.
"New Mexico imposes one of the highest burdens in the country on local contractors and small businesses," said Governor Martinez. "We are not competitive with other states, and consequently, we continue to lose jobs in construction and have been hit harder than most states during the economic downturn. It is vital that we level the playing field for our small businesses, so that we can begin creating jobs in the construction sector once again."
Pyramiding occurs when taxes are levied on services before a contractor or manufacturer produces a final product. For example, a small construction contractor building additions to a home or office complex would be taxed on a myriad of items and/or services that would contribute to the final project -- such as any necessary architectural or design work, large trash hauling, and scaffolding.
"The prices of homes and construction projects are higher, and the burden placed on our shoulders as small contractors is heavier, because of the way the law is currently written in New Mexico," said Kirk McWethy, President of SDV Construction in Albuquerque. "Addressing tax pyramiding will allow small businesses like mine to take on new projects and hire new workers."
"Removing the unfair tax burden caused by pyramiding is an important step toward getting New Mexico's construction sector back to work," added bill sponsor Rep. David Doyle. "Taxing small business owners like builders and contractors multiple times for the same project is not only unfair, but it makes it more difficult for us to compete with neighboring states." Under the proposed legislation, the following products and services would specifically be deductible for businesses contracted for construction projects:
Construction Equipment --including items such as trash containers, portable toilets, and scaffolding
Environmental and Structural Testing
Services required to comply with governmental construction regulations