N.M. to Reduce Food Tax

SANTA FE, N.M. -- A bill to wipe out part of the tax on groceries and make up the revenue with a higher tax on cigarettes was endorsed 35-4 by state lawmakers. Gov. Gary Johnson has said he would sign the measure if it reached his desk during the 30-day legislative session.

Under the plan, the share of the food tax that goes to the state -- 3.275 percent in cities, where most food sales occur, and 5 percent in rural areas -- would be wiped out over three years. The portion of the gross receipts tax on groceries that goes to cities and counties - which ranges from a fraction of 1 percent in some rural areas to as much as 3.7 percent in some municipalities -- would remain in place.

The tax on a pack of cigarettes, meanwhile, would be raised by 60 cents over two years -- 25 cents the first year, and 35 cents the second, for a total state tax of 81 cents. Opponents of the legislation said the plan would not be revenue-neutral, but instead would end up costing the state money.

The tax break would mean a savings in the first year of $1.09 on every $100 of groceries bought in a municipality, where 75 percent of such sales occur. As of January 2005, with the state's share of the tax fully lifted, the savings on $100 would be $3.28.

The legislation guarantees only that the first two-thirds of the state's share of the tax comes off: one-third the first year and another one-third the second. The final one-third would be removed only if, after the first two years, it's clear that there's enough cigarette tax revenue coming in so that the state doesn't lose money.