"Tax reform" is a buzz phrase at the New Mexico Capitol these days.

But, like beauty, what "tax reform" is and is not apparently is in the eye of the beholder.

Gov. Susana Martinez has invoked "tax reform" to describe the various tax cuts she has proposed for manufacturers and small businesses, as well as her desire to end tax "pyramiding" for certain business sectors. Businesses experience pyramiding when they are taxed on services that are then incorporated into a final product, which also is taxed.

Sen. Peter Wirth, meanwhile, brands his proposal to require certain out-of-state businesses to pay more in state corporate income tax and level the playing field for in-state firms as "tax reform." An added benefit, he said, is that the proposal would generate enough money to allow New Mexico to lower the tax rate businesses pay each year in corporate income tax.

And Sen. John Arthur Smith, who likens New Mexico's gross receipts tax to "Swiss cheese," is eyeing the GRT because he wants to reduce the number of tax breaks contained in the levy. Lower that number, he said, and the state could lower the overall tax rate New Mexicans pay on everyday purchases of goods and services.

These are a few examples of "tax reform" circulating around the New Mexico Capitol as state lawmakers enter the second week of the 30-day legislative session.

Over the next 26 days, the Legislature and Martinez will negotiate a state budget for the year that starts July 1, including how much revenue to raise through taxes to help pay for the state's operating expenses. The governor has ruled out signing any legislation that would raise the amount of taxes New Mexicans or businesses pay to fund the state.

As a result, the discussion over revenue has moved to New Mexico's tax code, which is full of credits, exemptions and deductions created for taxpayers. Every year, those tax breaks add up to more than $1 billion that New Mexico doesn't collect.

Advocates of "tax reform" say Martinez opened the door on whether to close or reduce some of these tax breaks last year when she successfully lobbied state lawmakers to cap at $50 million what New Mexico pays to TV and film productions in the form of incentives. Martinez calls them subsidies.

Genuine "tax reform" would scrutinize tax breaks of all types, for all industries, not just film, they say. That includes the oil and gas industry, which was a big supporter of Martinez's gubernatorial campaign in 2010, they add.

Because the governor opposes tax increases, Wirth said, the tax policy discussion needs to be about "which of these $1 billion in exemptions, deductions and credits aren't working."

The revenue generated by closing a few tax breaks could help pay for the governor's proposed tax cuts, Wirth said.

The Martinez administration isn't averse to a review of the tax code, Tom Clifford, Martinez's budget secretary, said Friday.

"The short answer is that she is open to looking at them," Clifford said, although he added "in a sense, the governor has already taken steps" at broader tax reform with the film tax incentive cap.

Wirth doesn't agree.

The Santa Fe Democrat feels that New Mexico businesses are at a disadvantage when compared to what certain out-of-state businesses pay in state corporate tax.

Such entities avoid paying a portion of New Mexico taxes because they divert profits earned here to another state by using a provision in the state tax code, Wirth said.

Currently, corporations have a choice when they file a New Mexico corporate income tax return, the lawmaker said. They can either file a return that separates out how much profit was earned here versus what was earned in other states, or they can file a separate return that allows them to expense profits to states that don't have a corporate income tax, such as Delaware.

His proposal, Senate Bill 9, would remove that second option, Wirth said.

"We're simply telling the out-of-state companies that they have to play by the same set of rules as New Mexico companies," Wirth said.

Combined reporting isn't new. Most western states have something like it in their tax codes.

But Clifford said Wirth's proposal would render New Mexico even less competitive in the contest for attracting businesses.

That's because most states with combined reporting have formulas that allow companies to separate a more significant amount of profits earned through transactions to other states.

"If most of the sales are out of state, a business might not pay much in the state," Clifford said. "Our corporate tax is very uncompetitive."

Smith, unlike Wirth, meets regularly with Martinez and her financial advisors. The Deming Democrat said he has counseled the Martinez administration to thoroughly review the state's gross receipts tax since the governor took office in January 2011.

Eliminate enough credits, exemptions and deductions, and you dramatically increase the flow of revenue into the state coffers, which would allow policymakers to lower the overall rate, he said.

Over the decades, the state's gross receipts tax has grown from 4 percent -- or 4 cents per every dollar spent -- to a statewide average of more than 7 percent, state officials said.

So far, Smith said he has gotten a tepid reaction.

"Well, they didn't say, 'We don't like that idea,' " Smith said of the Martinez administration. "But they didn't say, 'We like it,' either."

New Mexico officials' hesitance to review the tax code could flow from a practical reason. New Mexico is one of a handful of states without a mechanism to measure the efficiency and worth of tax breaks.

To scrutinize the exemptions, deductions and credits, a so-called tax expenditure report must be produced. It would show all the tax breaks in New Mexico's tax code, the reason each was created and how much money each tax break costs New Mexico in uncollected tax revenue.

Last year, Martinez vetoed legislation that would have created such a report. However, she promised her administration would put together a list of exemptions, deductions and credits. That hasn't happened yet, although Clifford said Friday the administration hopes to publish the report in June.

"We agree it's an important tool to examine all the exemptions, credits and deductions," he said.

Contact Trip Jennings at 986-3050 or tjennings@sfnewmexican.com.