New Mexico Taxes and Economic Development Whitepaper

The State’s tax system has a major structural problem and it relates to the gross receipts tax. New Mexico enacted an Emergency School Tax in 1935 to fund public schools with a state-level sales tax. In most states, public education is funded with local property taxes but in 1935 a statewide sales tax was chosen because it was the only tax capable of raising the revenue required. Later, New Mexico instituted a public school funding formula to deal with the inequalities in public school funding capacity across the State. Together, these actions firmly fixed the responsibility for funding public schools on the State’s General Fund.