SANTA FE — New Mexico will lower taxes on corporations under an economic development measure signed by Gov. Susana Martinez on Thursday, but the new law could lead to higher taxes on goods and services in larger cities and counties.

The package of tax changes signed by the governor also will offer fatter tax incentives to television shows filmed in New Mexico — a provision aimed at bringing more long-running TV series such as "Breaking Bad" to the state.

The governor said the corporate reductions will help in recruiting new businesses or encouraging existing companies to expand their operations.

"Republicans and Democrats came together and passed a game-changing jobs package that will level the playing field with our surrounding states and help New Mexico compete for new business, new investment and new jobs," Martinez said in a statement.

The state will reduce its corporate income tax rate from 7.6 percent to 5.9 percent over five years, starting in 2014. New Mexico's top rate is the highest among neighboring states and above the national average of 6.4 percent.

The state also will phase in a tax break to manufacturers that sell most of their goods and services outside of New Mexico. That's a provision that could benefit a company such as computer chip manufacturer Intel, which has a plant in Rio Rancho.


Critics disagree that tax cuts will help in creating new jobs.

"What this bill does guarantee is that the state will have tens of millions of dollars less for education, public safety, and health care," said Gerry Bradley, an analyst for New Mexico Voices for Children, a social advocacy group.

The most controversial provision of the law will phase out more than $140 million in state revenue that goes to local governments. Doing that will leave the state with more revenue and help lower the cost of cutting taxes for businesses.

The state provides cities and counties with money to offset what they lost when taxes were removed from food and medical services in 2005. Those payments are to hold local governments "harmless" from any revenue loss, but the expense to the state has grown dramatically. The new law phases out the transfers to local governments over 15 years, starting in July 2015.

To help local government cope with the loss of revenue, larger cities and counties are given the power to increase their gross receipt tax by up to three-eighths of a cent. The tax applies to most goods and services.

Cities of less than 10,000 — all but 21 of the state's incorporated municipalities — and counties under 48,000 — all but 12 of the 33 counties — will have the option of sticking with the current system. They could continue to receive money from the state rather than try to raise taxes.

Sen. Gerald Ortiz y Pino, an Albuquerque Democrat, said the new law could shift more of the tax burden to working class taxpayers over time.

"It's a little bit like the frog in the water, not knowing if the boiling level is getting reached and before you know it he's parboiled. That's what going to happen to the taxpayers," said Ortiz y Pino. "We've given corporations a big tax break, and we're paying for it by raising the tax on the middle class. I just don't think that's a great way of doing it."

The tax proposals are projected to cost the state about $42 million in reduced revenue in the fiscal year starting in July 2015 and grow to $59 million the next year, according to a legislative analysis.