NM offers $50M to settle tax lawsuit

Over 40 cities and counties claim they were shorted in their share of revenue

SANTA FE — The state of New Mexico has agreed to pay $50 million to resolve allegations that it failed to share tax revenue accurately with more than 40 cities and counties.

The agreement isn’t final and still must be approved by each of the plaintiffs.

It centers on a 2018 lawsuit that accused the state Taxation and Revenue Department of shorting cities and counties some of the money they use to pay for law enforcement, fire protection and other services.

A top executive at the New Mexico Municipal League, at one point, estimated the state might owe $100 million to local governments. The state denied the allegations in court filings.

To resolve the lawsuit, the state has agreed to make a one-time payment of $50 million, which would be shared by the local governments.

Cities and counties will next evaluate whether

to sign off on the proposed agreement.

Sanjay Bhakta, Albuquerque’s chief financial officer, said the city is expecting its allocation from the settlement to be around $12 million, though the amount is still being calculated.

“We went to bat for our local Albuquerque residents who pay gross receipts tax and deserve their rightful share of the distribution that pays for critical services and programs in return,” Bhakta said in a written statement.

In announcing the agreement, Gov. Michelle Lujan Grisham’s administration said it had made a variety of improvements to the tax system, including the hiring of a liaison to work with local governments and robust auditing of the money.

“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,” Taxation and Revenue Secretary Stephanie Schardin Clarke said in a written statement.

The lawsuit predates the tenure of Lujan Grisham, who took office in 2019, about two months after the litigation began in the state’s 2nd Judicial District Court.

The state has also instituted more robust reviews of the monthly distributions, the department said, in addition to granting local governments access to reports to verify the accuracy of their distributions.

“Throughout this process,” Schardin Clarke said, “this administration has been as transparent as possible, and we will continue to be, as we ensure local governments receive what they should under the distribution formula.”

The revenue at stake comes from gross receipts taxes generated by the sale of goods and services. The state collects the revenue, then sends some of it back to local governments. Gross receipts taxes are a vital source of income for municipalities.

But the lawsuit alleged the state — sometimes with little warning or explanation — made unauthorized reductions to the distributions when businesses filed tax-refund claims.

Among the municipal plaintiffs are Albuquerque, Santa Fe, Las Cruces, Roswell and Farmington. Plaintiff counties include Los Alamos, San Juan and Valencia.

City councilors and county commissioners may review the proposed settlement.

“The City will review the draft documents as soon as they are received,” Santa Fe spokesman David Herndon said in a written statement, “and the Governing Body will need to approve the settlement.”

The potential end of the lawsuit comes as New Mexico enjoys higherthan-expected revenue from gross receipts taxes, driven by increased consumer spending.