Cities accuse NM of shortchanging them

Lawsuit seeks accounting of tax revenue state has collected

SANTA FE — Albuquerque and three other cities say the state of New Mexico is mishandling the collection and distribution of tax revenue — depriving municipalities of money they depend on to operate, according to a lawsuit filed in state District Court.

They are asking a judge to order the state Taxation and Revenue Department to compensate them for lost revenue caused by “unauthorized adjustments” to their tax revenue.

An analysis completed for the four cities found that they could be owed over $10 million altogether in gross receipts taxes, said William Fulginiti, executive director of the New Mexico Municipal League.

“If we’re not getting the right amounts,” he said, “it really has a tremendous impact on our budget and our ability to provide services.”

A spokesman for the state Taxation and Revenue Department said the agency hadn’t received the lawsuit yet but that it’s committed to handling the money responsibly.

The legal dispute centers on gross receipts taxes, or taxes that businesses pay to the state when they sell most goods and services. It’s similar to a sales tax, usually paid by the consumer, and the revenue makes up about 75 percent of what cities spend on basic operations.

The state of New Mexico collects the money and sends the revenue back to cities and counties. The state also handles refund requests by businesses that say they overpaid their taxes.

But the new lawsuit alleges a host of problems with the state’s work. The cities say the state makes adjustments to their revenue without much of an explanation, and they want an accounting of how the money has been handled.

They also accuse the state of automatically granting refund claims filed by businesses, triggering a reduction in revenue to cities. Some refund requests are invalid — or they’re only partially justified — and there’s no “truing-up process” to ensure the cities get their money if the refund is denied, the lawsuit says.

The cities — Artesia, Farmington, Moriarty and Albuquerque — accuse the state of other violations, too.

Kevin Kelley, a spokesman for the Taxation and Revenue Department, said the agency “is committed to responsible stewardship of taxpayer dollars and proper distribution of tax dollars. TRD has not been served with a complaint and cannot speculate about potential litigation.”

The lawsuit, filed last week by attorney Dalva Moellenberg, doesn’t estimate how much the cities believe they are owed. But Fulginiti said an initial analysis estimated it could be $10 million to $12 million for all four cities.

Alicia Manzano, a spokeswoman for Albuquerque Mayor Tim Keller, said the city “relies on gross receipts tax revenues to maintain roads, fund emergency services, and build the foundation for thriving local economies.”

“We’re taking action,” she said, “to ensure Albuquerque families are not being shortchanged by the State Tax and Revenue Department, so we can fulfill our obligations to our communities.”

Other cities are expected to join the litigation.

Santa Fe city councilors late Wednesday approved plans to join the lawsuit, and Santa Fe City Attorney Erin McSherry said as many as 10 to 20 other local governments may get involved.

Millions of dollars are at issue for Santa Fe, she said.