New Mexico resolves tax dispute with $50M payment

Lawsuit alleges state shorted cities in revenue to pay for law enforcement, other services

Local governments will get a $50 million boost to resolve a 2018 lawsuit that accused the state of botching tax distributions to 44 counties and municipalities across New Mexico.

Albuquerque, Santa Fe, Las Cruces, Roswell and Farmington were among the major plaintiffs to the lawsuit that alleged the state has shortchanged them revenue that pays for law enforcement, fire protection and other services.

The state Taxation and Revenue Department on Tuesday announced terms of the financial settlement on the sharing of gross receipts taxes.

Gross receipts taxes apply to sales and business services at a rate of between 5 percent and 9 percent by location. The state distributes more than $1.9 billion in revenues from gross receipts taxes to local governments each year.

Local governments also complained of wild fluctuations in amount of gross receipts shared each month, previously with little explanation by state taxation authorities.

Shortly after the case was filed, both the city of Santa Fe and Santa Fe County joined the lawsuit, which accused the Taxation and Revenue Department of “unauthorized adjustments” that led to a reduction in gross receipt tax payouts to local governments.

Both Santa Fe County commissioners and the Santa Fe City Council will review the agreement at future meetings, spokespeople for both entities wrote in emails.

Both governing bodies would have to approve the settlement, though it’s unclear what either would receive through the settlement.

The late Bill Fulginiti, former executive director of the New Mexico Municipal League, said in 2018 the case stemmed from longstanding complaints from local governments surrounding the use of gross receipt taxes, the first coming from Artesia in the early 1980s.

In a statement, Taxation and Revenue Secretary Stephanie Schardin Clarke said “local governments deserve to have confidence in how their tax revenues are handled, and we’ve been able to demonstrate to them that the system is working.”

Her agency says it added a liaison to improve communications with local governments, rigorous monthly reviews of local tax distributions, more robust auditing and greater access to state financial reports.

State economists say gross receipts taxes have surpassed expectations by $330 million during the fiscal year ending June 30, 2021. They linked the surge in revenues to deployment of the coronavirus vaccine this year, the reopening of businesses and the release of pent-up consumer demand.