2 February 2004
Cutting of Tax May Lure Boeing
By Winthrop Quigley
Albuquerque Journal

Boeing Co., which would prefer to locate its airborne laser weapons research and test facility at White Sands Missile Range, will put the program at the Navy's China Lake, Calif., testing center if House Bill 278 doesn't pass, Marquardt said.

Boeing must decide by March where its airborne advanced tactical laser weapons system will be tested.

It would cost Boeing $3 million to prepare China Lake infrastructure for its project, while White Sands is already equipped to meet Boeing's needs. However, Boeing would have to pay $10 million in New Mexico compensating taxes to open at White Sands, Marquardt said.

Marquardt's bill would allow projects like Boeing's to deduct compensating taxes if they are not already located in the state. The New Mexico compensating tax is a 5 percent tax on the price of products, equipment or services used in the state but bought from out-of-state businesses.

The bill is co-sponsored by House Speaker Ben Lujan, D-Santa Fe, and Rep. Donald L. Whitaker, D-Eunice, who chairs the House Taxation and Revenue Committee. Gov. Bill Richardson has said he will sign the bill if it reaches his desk.

Despite the bill's association with Boeing, Marquardt said the legislation is not a "Boeing bill." Changes in the way the federal government does business will force other defense contractors to confront the compensating tax problem. Contractors will avoid the state when possible if the Legislature doesn't act, he said.

Marquardt also introduced House Bill 329 that would provide compensating and gross receipts tax deductions for defense contractors willing to perform testing at New Mexico-based facilities.

"The reason the compensating tax has become a big deal now and never was before is that it has only been recently that the federal government has gone to using contractors for testing," he said.

The government generally used its own equipment and personnel for testing in the past, Marquardt said. The state did not impose compensating tax on government-owned property. Contractor-owned equipment is subject to the tax, however.

Before the current legislative session started, White Sands officials contacted Marquardt to warn him Boeing had been told by the New Mexico Taxation and Revenue Department about the tax and what it would cost. Losing the business would cost the state about $180 million in new economic activity, Marquardt said.

Southern New Mexico is the ideal place for the test site, absent the tax, he said. "Holloman (Air Force Base in Alamogordo) has the scientists, the research engineers, and the technology to support the test at White Sands Missile Range," Marquardt said. "White Sands has the air space, the land space, the infrastructure, as well as the brain resources of scientists, research engineers and technical people."

The issue highlights what Marquardt says is a flaw in the way the Legislature thinks about taxation.

When debating tax incentives and forgiveness questions, the Legislature's analysts evaluate the cost of lost revenue. Lawmakers receive no analysis of the positive financial impact, he said. "The way we make tax decisions in New Mexico probably ought to be revisited."

Boeing is working to develop lasers that can be mounted in aircraft and focus concentrated energy on enemy targets. Laser weaponry could be deployed from great distances, which would help protect the aircraft and its crew. Lasers can be aimed with great precision.

In its most recent fiscal year, Boeing reported revenue of $50.5 billion.