A tax hike plan of the Albuquerque City Council is not only a political debate. It is also a lesson on how local taxes can shape the finances of households and small businesses.
City councilors are considering a 0.4875 percent increase in Albuquerque’s gross receipts tax. If approved, the tax increase is projected to generate about $130 million annually for infrastructure projects, facility repairs, and municipal operations.
Brook Bassan introduced the tax proposal, raising the city’s tax rate from 7.625 percent to 8.113 percent. The change may look small on paper, but even small tax increases can ripple through the economy.
Understanding how a gross receipts tax works
For many consumers, taxes on purchases are associated with sales tax.
But gross receipts tax is different: the gross receipts tax applies broadly to goods and services across the entire supply chain, unlike traditional sales taxes that apply mainly to retail transactions. That means businesses often pass the cost forward to consumers, who will ultimately pay.
Why do small businesses feel the tax hike more
Big corporations can absorb tax increases through scale, cost-cutting, or pricing strategies. But it is different for small businesses that operate on thin profit margins. A tax increase may force small businesses to either raise prices or absorb the cost.
This is why analysts at the Tax Policy Center said gross receipts taxes can disproportionately affect smaller enterprises. A tax hike directly affects local entrepreneurs, such as restaurants, repair shops, and service providers, their ability to remain competitive.
What the city says the money will fund
Proponents of the tax hike argue that it is necessary to address long-delayed infrastructure projects and rising construction costs. The funds are expected to support projects, namely: Paseo and Unser Buildout and North Domingo Baca Aquatic Center.
“This is the idea that I believe is going to really help project us forward,” Bassan said. Rising material and labor costs have delayed several city projects, he added. The proposal also includes a resolution to raise the wages of the city’s lowest-paid workers.
What it could mean for households
The effect of a tax increase like this may appear small in any single purchase for individual consumers. Over time, however, the cumulative impact can add up.
Small businesses will raise prices to offset taxes. As a result, consumers may pay more for restaurant meals, home repairs, professional services, and construction and housing costs. Economists at the Congressional Budget Office explain that businesses shift part of their tax burdens to consumers, workers, or shareholders.
Update: The City Council rejected the proposal on Monday night. In a vote held shortly after 10 p.m., councilors turned down the proposal with an overwhelming vote of 8-1.