New Mexico taxpayers spent millions building and operating the commercial spaceport, which promised the state returns in the form of high-paying aerospace jobs, related economic development, and tourism.
What New Mexico doesn’t get, however, is tax revenue from the sale of high-priced tickets to space flights on Virgin Galactic, the spaceport’s anchor tenant.
A bipartisan bill introduced into the state legislature seeks to fill a loophole that exempted passenger tickets for space flights from gross receipts tax. The move is aimed at generating revenue from ticket sales as Virgin Galactic prepares to begin regular commercial service later this year.
HB 72 would amend a statute that excludes income “from launching, operating, or recovering spacecraft or payloads in New Mexico” from gross receipts taxes, clarifying that sales “for the transportation of a person into or near space” would be taxable .
In a 2019 ruling by the State Taxation and Revenue Department on the issue of taxing flights to space, passengers were essentially treated as cargo.
“When these exemptions were drafted, no one considered that humans were going to be a payload,” Rep. Jason Harper, R-Rio Rancho, told Las Cruces Sun-News. Harper is a co-sponsor of the bill.
The language “in or near the room” indicates a possible dispute over where the beginning of the room is defined. Virgin Galactic flights typically exceed 50 miles above sea level, the threshold recognized by NASA. International agencies put the line higher, at 62 miles.
Possible tax revenue from ticket sales
“If the flights become really regular, that could be a nice revenue stream, not just for the state, but through the GRT being shared with local communities,” said the bill’s other sponsor, Democratic Rep. Matthew McQueen.
The potential impact seems large indeed.
Virgin Galactic told investors last fall that it had about 700 reservations on flights totaling $450,000 as of last November.
Gross receipts taxes vary between different New Mexico locations because they combine the state rate of 5.125 percent plus the local gross receipts tax levied by counties and some municipalities.
Virgin Galactic conducts flight operations from the Sierra County Spaceport outside of Truth or Consequences and has commercial offices in Las Cruces.
McQueen said it was not clear where GRT would apply, but he assumed services would be provided there.
Assuming the GRT was applied in Sierra County, the GRT would be 6.9375 percent. This would add $31,218.75 to the full price of each ticket at current prices, of which more than $23,000 would go to the state and over $8,000 to Sierra County.
If taxed in Las Cruces as a point of sale, the GRT would be higher: 8.3125 percent, adding $37,406.25 to the price, including $14,343.75 in local GRT.
“I can’t think of a particularly good reason why we wouldn’t tax this activity,” McQueen said.
McQueen recalled asking about gross receipts taxes during a visit to the spaceport with fellow lawmakers. “No one seemed to know the answer, which I found odd,” he recalled.
As McQueen moved on to Taxation and Revenue, the department showed him the 2019 ruling. Harper argued the issue should have gone to the legislature in the first place, but said he’s pretty sure human passengers aren’t “payloads.”
“New Mexico taxpayers paid $220 million for a spaceport and … about $4 million a year to run the spaceport,” Harper said. “Calculating sales tax on these tickets doesn’t really ask for much in return.”
The Sun-News reached out to Virgin Galactic to ask if the company was aware of the proposal, had a position on it, or expected it would adjust its prices if the bill goes into effect.
A spokesman didn’t directly respond to those questions, other than to say that the space company was “aware of the bill,” adding, “With Virgin Galactic’s May 2021 spaceflight, New Mexico became only the third state to ever have people in sent into space. We continue to work with the state on policies that support our shared goal of growing aerospace in New Mexico.”
Read the bill here:
Algernon D’Ammassa can be reached at 575-541-5451, [email protected] or @AlgernonWrites on Twitter.
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