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You can easily see the incentive for doctors and dentists to leave New Mexico. For example, a dentist earning taxable income of $160,000 would save over $28,000 in taxes simply by moving to Texas!
How the new law changes things
Beginning in 2005 managed care practices will no longer be subject to the tax. Unfortunately, however, traditional care doctors and dentists will see their tax rates go up! The basic feature of “managed care” is that “providers must supply health care services to enrollees on a contract basis.” However, copays, coinsurance and deductibles are subject to the tax even under managed care contracts. The following table summarizes the new situation for each group in Albuquerque:
What is wrong with the new law?
This bad law should be rescinded in the next legislative session. And it should be replaced with a law that is fair, consumer friendly, helps the economy and provides tax relief to health care providers. This can be accomplished by an across the board gross receipts tax rate reduction (my favorite), a tax rate reduction for all services or a tax rate reduction only for health care providers.
 An earlier version of this article appeared in the October 2004 edition of the New Mexico Dental Journal.
 The law also eliminated the tax on groceries purchased for home consumption, while raising the overall gross receipts tax rate in municipalities by 0.5 percentage points. The part of the law is terrible too, since it will actually hurt the poor (because the tax increase far outweighs any relief from the tax on groceries). Interested readers will find a thorough analysis of this abomination in the paper Reform This! on the Foundation’s website www.riograndefoundation.org. Also, an earlier paper “Lower Taxes Period: the right way to end the tax on food” provides additional analysis and background.
 Health care providers have a higher percentage of overhead than do other service providers. Consequently they suffer more. The percentage of overhead used for the examples in this paper is 65 percent (source Dr. David Moore 9/8/04). Tax calculations are for couples filing jointly.
 Other jurisdictions (e.g. Santa Fe, Las Cruces, Taos) generally have higher gross receipts tax rates than does Albuquerque, making the adverse situation even worse.
 Texas has the most favorable tax climate in the region. But the health care provider would still save over $22,000 in taxes by moving to a less favorable tax state such as Utah or Oklahoma. The table assumes that the legislature will not renege on the scheduled reduction of the top rate on individual income to 6.0% (from 6.8% this year).
 A detailed discussion of qualifying managed care criteria along with examples can be found in publication FYI-202 on the website of New Mexico Taxation and Revenue Department.
 See the Foundation’s publication “Reform This!” for a discussion of how taxes cause harm.