Committee weighing online tax prospects

Revamping tax code could add money to state’s coffers

SANTA FE — A plan to revamp New Mexico’s tax code for goods and services could lead to a step into cyberspace that several neighboring states have already taken.

The proposal being crafted by Rep. Jason Harper, R-Rio Rancho, and other members of an interim legislative committee would not require online retailers to collect a gross receipts tax from New Mexico customers, but it would encourage them to do so by changing several definitions in state law and not requiring retroactive payments for past transactions.

“We’re trying to give them excuses to pay,” said Richard Anklam, president and executive director of the nonpartisan New Mexico Tax Research Institute, who has provided input on the proposed legislation.

It’s unclear exactly how much revenue

taxing online sales would generate for the state, but Anklam estimated it would likely be no more than $100 million annually, and probably more like $40 million to $50 million per year. The state collected nearly $2 billion in total gross receipts tax revenue in the 2016 fiscal year, which ended June 30.

The issue of taxing online retailers is complicated by a 1992 U.S. Supreme Court case that found businesses have to be physically present in a state before the state can make the businesses collect taxes on its behalf.

However, Utah recently struck a deal with Amazon, an online retail giant, to begin collecting state and local sales taxes on all purchases — it takes effect Jan. 1 — and other states have also been seeking ways to collect tax revenue from online transactions.

In addition, the U.S. Supreme Court recently decided it would not consider an appeal of a Colorado law that makes out-of-state sellers provide the state with transaction records, which is intended to spur payment of sales and use taxes.

Harper said he and other supporters of the plan aren’t angling for a court challenge but believe that by making the state’s law more clear on what constitutes a physical presence it might send a message to online retailers.

“To me, this is just really an issue of fairness,” said Harper, who said he’s heard stories from local small-business owners about customers entering their stores and trying out products, only to leave and immediately order them online. “We’re sadly punishing the brick-and-mortar stores that are here by giving out-of-state-based online retailers an advantage.”

The prospect of additional tax dollars also might appeal to some lawmakers as New Mexico grapples with a prolonged budget crunch. The state is facing a projected $69 million deficit for the current budget year, and legislators already have enacted sweeping budget cuts and approved other solvency fixes.

During a recent meeting of the Revenue Stabilization and Tax Policy Committee at the state Capitol, Sen. Clemente Sanchez, D-Grants, cautioned that a tax on online sales would fall on New Mexico residents.

“This would be good for our state and good for our coffers … but in the end the consumer would pay for it,” Sanchez said.

Other lawmakers insisted it would not be a tax hike and said the fact that online retailers have not been collecting taxes from consumers has put numerous small businesses around the state out of business.

“I don’t see this as a tax increase,” said Sen. James White, R-Albuquerque. “This is a loss of tax revenue that we should have had.”

Overall, the tax package being put together would seek to lower the state’s gross receipts tax rate by closing more than 100 existing tax loopholes and deductions, Harper said Tuesday.

The measure has not yet been filed but is expected to be considered during the 60-day legislative session, which starts next month. The idea of levying a tax on internet sales was also discussed during a special legislative session this fall, but was not included in the final budget-balancing package approved by the Legislature.

Currently, New Mexico levies a 5.125 percent gross receipts tax rate on most goods and services and returns some of that money to municipalities. Cities and counties can then levy local taxes on top of that base rate, and the overall rate is approaching 9 percent in some municipalities around the state.