The Taxman Leaveth

Few things get companies as excited as waving goodbye to corporate taxes.

On March 16, New Mexico Gov. Susana Martinez signed House Bill 641 into law, resulting in what many believe is the most important improvement to the state’s tax climate in its 101 year history.

“Albuquerque’s skilled work force
and low operating costs help
drive industry expansion.“
— Mayor Richard J. Berry

Generally, when the conversation turns to house bills and tax law, normal human beings tend to doze off. But hang in there. The news from Albuquerque is actually exciting — especially when phrased in terms of how this legislation affects you, the corporate investor, and your site location plans.

First, the new tax package allows manufacturers the option of electing the single sales factor in computing corporate income taxes. Moving to a single sales factor means that companies may now elect to be taxed only on sales to customers in New Mexico. That will effectively eliminate corporate income taxes for most manufacturers.

The legislature also approved a 22 percent reduction in the top corporate income tax rate, to be lowered to 5.9 percent over the next five years.

And completing the business climate trifecta in this legislative session, leaders also eliminated what was known as the Throwback Rule, ensuring that manufacturers who sell products into states where they don’t have nexus will not face any tax penalty.

This package follows tax relief enacted last year that phases in the complete elimination of gross receipts (sales) taxes on electricity and other consumables used in the manufacturing process.

With these bold moves and New Mexico’s incentives, the state has upped the ante to win more corporate investment. When phased-in, New Mexico will offer manufacturers the lowest effective tax rate (2 percent) in the Western U.S., according to a major study by one of the Big 4 accounting firms.

New Mexico’s communities, including Albuquerque, stand poised to reap the benefits.

One company already reaping the rewards of New Mexico’s tax law changes is mattress maker Tempur-Pedic. The Lexington, Ky.-based manufacturer opened the world’s largest mattress factory in Albuquerque in 2007. The 800,000-sq.-ft. plant employs 188 workers.

Amy Thomas Laub, director of state and local tax for Tempur-Pedic, was a member of the corporate team that negotiated the incentives package for the company back in 2004 and 2005.

“We will be benefitting from the tax law changes,” she says. “The way the legislation is written — adoption of the optional single sales tax factor for manufacturers — calls for a five-year phase-in beginning in 2014. Instead of averaging property, payroll and sales, you allocate your income based on a single sales factor only.”

The elimination of the Throwback Rule is especially helpful to Tempur-Pedic, notes Thomas Laub.

“Other things that are really good about Albuquerque are the incentives and the credits,” she says. “The high-wage jobs tax credit and the investment tax credit are both very beneficial to manufacturers.”

Thomas Laub says she also likes the state’s Job Training Incentive Program (JTIP), which provides cash reimbursement for up to 1,040 hours of on-the-job training for each new employee.

The United Nations’ Investment Advisory Series report on Trade & Development calls aftercare “A Core Function in Investment Promotion.” Whether you call it aftercare, retention or continuing development, the goals are the same: create an environment for your existing companies to succeed and grow. A job saved is a job earned, and the manufacturing plant a local economy keeps from moving to another city is every bit as important as the splashy new investments that garner so many headlines.

“100,000 college students in
New Mexico are ready to bring
their talents to area employers.“
— Maggie Hart Stebbins, Chair of Bernalillo County Commission

Albuquerque already enjoys a thriving high-tech industry, one that’s long recognized the substantial benefits of locating near government brain-power reservoirs like Sandia National Labs and the Air Force Research Laboratory.

“Albuquerque is a ‘mind to market’ technology and research hub,” says Mayor Richard J. Berry. “Combine that with our innovative work force and competitive state tax code and we have a lot to offer any company that wants to start up, grow or relocate.”

Diversification Success

“We have a growing economy benefitting from the diversification of our industry and the 100,000 college students in New Mexico are ready to bring their talents to area employers,” said Maggie Hart Stebbins, Chair of the Bernalillo County Commission.

The industries below have clusters in Albuquerque and well-established supply chains supporting them. Each will benefit from the new tax structure, with many already announcing new hiring and expansion.

Aviation and Aerospace

Eclipse Aerospace, producer of “the World’s Most Efficient Very Light Jet,” has announced new hiring at their aircraft production facility.

“Albuquerque has an incredible work force
– super smart, motivated – they
make excellent employees.“
— John Killoran, @Pay

The maker of this small jet aircraft officially opened its new 215,164-sq.-ft. production plant adjacent to the Albuquerque International Sunport in April. The facility employs more than 200 workers and has the capacity to produce up to 120 jets a year.

“What compels us to be here, number one, is the moderate, year-round climate,” says Edward Lundeen, senior vice president of business operations for Eclipse. “We are an aviation company. We sell and fly aircraft. You can basically fly 365 days a year here. There is no extreme hot or cold here. This is a good all-weather airport.”

At 14,000 feet, it also has one of the longest runways in North America.

“Plus, the cost of living is very attractive here,” adds Lundeen. “It is a very affordable environment. And a large, able and available work force is here.”

Lundeen notes that economic incentives were a driver of the company’s initial decision to locate in Albuquerque. “Legislation was passed to establish no fly-away tax,” he says. “That is, there is no sales tax on aircraft on the day of delivery. There is no sales tax on parts and service either. That makes it very attractive to deliver aircraft out of New Mexico. That law was passed in order to induce the company to come and stay here — and it worked.”

Lundeen adds that “the new single sales tax provision is another huge inducement. Albuquerque is a business-friendly environment. That has helped us implement a lot of new programs without a lot of pain and suffering.”

Eclipse maintains five different facilities, four of which are at the airport. In addition to the assembly space, the company has 53,550 sq. ft. of service space plus another 50,000 sq. ft. of class A office space next to the airport.

“We are now taking orders for the Eclipse 550 — an enhancement over the 500,” Lundeen says. “The avionics in it are better. It has synthetic vision, enhanced vision, auto-throttle, dual IFMS, anti-skid brakes, glass wind screens and other features not normally found in this class.”

Tomorrow’s leaders on the University of New Mexico campus.
Photo courtesy of the University of New Mexico

Eclipse will deliver its first 550 by the third quarter of this year, 10 total jets this year and 35 next year as the firm ramps up to 120 a year at full production. The base cost of the 550 is $2.895 million.

Other big players in the Aviation and Aerospace Industry include:

The Eclipse Aerospace 550 jet is the most technologically advanced aircraft in its class. Eclipse will deliver its first 550 to a customer in the third quarter of this year.
Photo courtesy of Eclipse Aerospace

• Bendix/King, one of the world’s leading manufacturers of innovative flight instruments and avionics systems, moved its headquarters to Albuquerque from Kansas in 2012 and is already expanding its avionics operation.
• Aspen Avionics, which specializes in bringing advanced technology and capability into general aviation cockpits, is enjoying international success.
• Ultramain Systems, which for three decades has provided software and support to aviation and logistics companies through offices around the world, has its global headquarters in Albuquerque. This integrated maintenance and logistics software company replaces an aircraft’s paper flight logs with an easy-to-use, touch-screen interface that speeds communication between cockpit crews and ground maintenance teams. Airline customers include British Airways and Singapore Airlines, and Virgin Galactic recently selected Ultramain to support its space flights from Spaceport America in southern New Mexico.
• Lockheed Martin, Boeing, Raytheon, Northrop Grumman, UTC Aerospace, Moog, SAIC, Ball, McNally/SunCountry, Aero Mechanical, Aero Parts and Applied Research Associates are among the other industry leaders with important operations here.
• Titan Aerospace, a start-up UAV company, recently relocated from California to Moriarty, 40 miles east of Albuquerque.
• The Albuquerque International Airport, known as The Sunport, recently closed its north-south runway, making available to potential users an 84-acre site adjacent to Kirtland Air Force Base with taxiway access to New Mexico’s longest runway.

The Sunport is a driver of economic activity in the Albuquerque region and indeed in all of New Mexico. With 5.2 million passengers a year, the airport is a gateway of commerce for many industries.

“The Sunport offers companies the ability to locate on tax-exempt land. Impact fees are waived at either of the City’s two airports — the Sunport and Double Eagle II, our general aviation airport,” says Jim Hinde, director of aviation for the Sunport.

Sunrise over the Albuquerque Sunport, which has a new 84-acre on-airport site available for development. The site is New Markets Tax Credit eligible.
Photo courtesy of Albuquerque International Sunport

Location plays a big role. “We are three miles from the intersection of two major interstates,” adds Hinde. “A rail spur comes into the south side of the airport, making intermodal a component of our logistics infrastructure.”

IT & Software

The Albuquerque metropolitan area ranks 34th among the largest U.S. metro areas in the percentage of jobs that are related to science, technology, engineering and math (STEM), the Brookings Institution reported last month, giving a huge boost to the local economy as STEM jobs pay almost twice as much as non-STEM jobs. A few of the smaller, emerging companies include:

• Lavu — this Point of Sale (POS) software developer takes full advantage of Apple’s iPad and iPhone technologies and is often featured on Fox’s popular Kitchen Nightmares TV show.
• Speridian, an award-winning CRM/Enterprise Solutions developer, is currently expanding their operations in Albuquerque as they grow their global presence with facilities in India.
• @Pay — the disruptive email payment developer is changing the way we buy online. @Pay’s technology allows consumers and retailers to close a sale with two clicks, whether on a computer or smartphone: one click to select their purchase and one click to confirm. CEO John Killoran has sourced funding from mostly New Mexico based investors as well as his talented staff. “Albuquerque is great for an intelligent work force, with one of the nation’s highest concentrations of PhDs, and whose children are our next generation of tech talent. Albuquerque has an incredible work force — super smart, motivated — they make excellent employees.”

Ultramain Systems, Inc. CEO Mark McCausland at the company’s test lab displaying their latest software products, which have been integrated into tablets and smartphones to assist pilots and crew with managing logistics and maintenance information.
Photo courtesy of Ultramain Systems, Inc.

Other industry clusters include semiconductors/electronics (Intel has a major fab in neighboring Rio Rancho), optics, cybersecurity, biomed/biotech and environmental technologies. There is also an excellent cluster of customer and technical support centers and shared services operations.

Houston, We Have a Partner

Glance at Emcore’s website (emcore.com) and you’ll be treated to images of the Mars Science Lab, the NASA Stereo Mission and AMOS Communications Satellites. One of the world’s leading providers of semiconductor components and subsystems for the fiber optic and solar industries, Emcore was recently awarded the solar panel manufacturing contract for NASA’s Green Propellant Infusion Mission. This announcement comes on the heels of a June 20th announcement that Emcore has been contracted to supply the Indian Space Research Organization (ISRO).

The $22-million project is coup for Emcore, further establishing them as a major player in the Asian satellite market, and strengthening their position as a private-sector partner to help carry out NASA’s lofty goals and aspirations.

So unless you’re a tax collector, there’s never been a better time to do business in Albuquerque.

Emcore’s operations are adjacent to Sandia National Labs, as well as the Air Force Research Laboratory’s Space Vehicles Directorate and Directed Energy Directorate.

New Mexico, which is already home to Spaceport America, captured the world’s attention as a space exploration center last October when Austrian skydiver Felix Baumgartner ascended 24 miles into the stratosphere above Roswell in a helium balloon before free-falling in a pressurized suit and then parachuting to earth. Millions of viewers around the world watched his record-breaking 10-minute descent — the culmination of the Red Bull Stratos project — live on the Internet. Albuquerque-based precision measurement, sensing and controls company Applied Technology Associates played a key role in the record-breaking jump. Thirty-five ATA staff members were among the 100-person crew that provided flight support for the mission.

Powering Up

Companies making large investments in new plant and equipment need to do so in markets where the utility infrastructure is reliable and affordable. At less than 6 cents per kilowatt-hour, PNM’s industrial rates are among the lowest in the Southwest, according to the Energy Information Administration. PNM is New Mexico’s largest electric utility, and consistently ranked in the top-performing quartile by the Edison Electric Institute in terms of the duration of outages and the frequency of outages experienced by the average customer.

PNM is focused on supporting economic development in New Mexico, recognizing the importance for the state and its customers. The company recently announced a $250,000 grant to create and launch a new initiative to support local small businesses with critical resources they need to expand and create new jobs. In recent years, PNM has invested in new infrastructure to help make possible growth in metro Albuquerque, one of New Mexico’s fastest-growing areas.

Entrepreneurs as Rock Stars

One of the best-known organizations for entrepreneurial assistance is Technology Ventures Corporation, a nonprofit formed by Lockheed Martin to help start-up companies commercialize technology coming out of Sandia National Laboratories. The initial goal was to increase the local economic impact of the labs’ operations, but TVC also contributes to the community by introducing investors to those entrepreneurs who have well-screened projects that are ready for investment.

TVC actively recruits venture capital firms to locate in New Mexico and assists entrepreneurs with fundraising efforts.

“We don’t fund anybody directly,” said president and CEO John Freisinger. “We provide services to help them develop strategies. You have to have a world-class business strategy because no longer are you competing with just local entrepreneurs but some who may be in Singapore and London … So, the final project they have is a business plan that we can then introduce to the business community and get them to venture capitalists.”

Since its creation in 1993, TVC has connected entrepreneurs with $1.3 billion in venture capital. In fact, there are more venture investors in this state than in surrounding states, with the exception of Texas, according to Freisinger. And TVC’s assistance is free.

If the company is in New Mexico, there are state programs that allow an entrepreneur to get help from laboratory technicians free of charge as well.

“If you have a problem and you’re a company in New Mexico, Sandia Labs can help solve that problem with scientific expertise,” Freisinger said.

“Albuquerque treats its entrepreneurs like rock stars,” he said.

Breaking Good

And then there’s the booming entertainment industry. Albuquerque is rapidly becoming Hollywood’s favorite second home. New Mexico is ranked in the top three states in the country for its film incentives. The recent expansion of the state’s film tax rebate program now offers up to a 30-percent refund for qualifying productions.

With an established infrastructure including Albuquerque Studios and I-25 Studios, and the most qualified crew base outside of Los Angeles and New York, Albuquerque attracts the lion’s share of the filming in New Mexico. It is the transportation hub for the state, with 310 days of sunshine and close proximity to Los Angeles. Couple all of this with location looks that can double for just about any place on the planet and you have a world-class filming destination.

Albuquerque prides itself on being a film friendly city and has consistently been ranked by Movie Maker Magazine as a top city to film in. Emmy-winning TV series “Breaking Bad” and Hollywood blockbusters such as 2012’s “The Avengers” were filmed here, as well as the highly anticipated film “The Lone Ranger.” The direct spend in the greater Albuquerque area for FY2013 was $93.5 million.

Ann Lerner and her team at the Albuquerque Film Office offer FREE, comprehensive assistance to filmmakers, acting as a liaison with city agencies and assisting in securing locations, equipment, and accommodations.

Albuquerque also has an evolving visual effects and post-production sector.

Photo credit: MarbleStreetStudio.com

Albuquerque is home to Central New Mexico Community College and the University of New Mexico, the flagship university in the state. Both are enormous players in partnering with, and providing students to, expanding companies. Economic development is part of their respective missions, and their students and area employers are the beneficiaries. Other universities throughout the state have high concentrations of students who are from the Albuquerque metro, and they look here first for employment opportunities.

Great Talent, Low Costs

The availability of a skilled work force and low overall operating costs are among the metro area’s strengths that companies cite as influential to their decisions to select Albuquerque.

Fidelity Investments is one of those companies, and it gathered community leaders and its 500 employees to celebrate its fifth anniversary in Albuquerque in May.

Lowe’s selected Albuquerque for its first U.S. corporate office outside of North Carolina, opening the doors to its 65,000-sq.-ft. center with 150 employees in March of 2012. They had such success finding talent that they leased an adjacent 30,000-sq.-ft. office, and total employment will reach 750 persons this summer, providing internet sales, customer support and repair services.

Gap Inc. came to Albuquerque 10 years ago with a Shared Services Center providing support to finance operations at its headquarters. The first year savings on real estate and labor were announced to be $8 million, and the world-class retailer employs about 350 professionals in its downtown Albuquerque offices.

There are hundreds of other examples like these, and there will be hundreds more to be created as New Mexico and the Albuquerque metro area are discovered by decision makers who are looking for a great place to grow their businesses.