June 21, 2018

NM could see tax on internet sales after Supreme Court decision

A U.S. Supreme Court decision may open the door to the taxation of more internet sales in New Mexico.

In a 5-4 decision Thursday, the U.S. Supreme Court said states could tax sales on internet purchases from companies that do not have a physical presence in a state. The decision overturned a 1992 decision on catalogue-order companies that was later interpreted to include internet sales.

The New Mexico Legislature passed a bill that would apply the state’s gross receipts tax to internet sales in 2017 as part of a suite of tax changes. That would bring in, by a conservative estimate, $20 million annually for the state. Gov. Susana Martinez vetoed that legislation, saying she would not raise any taxes while governor.

The Legislature’s effort would have only applied to those with more than $100,000 in gross receipts, for instance, larger internet vendors, such as Amazon and eBay.

She then line-item vetoed a similar internet gross receipts tax proposal during a special session later that year, saying some provisions were “legally dubious.”

Amazon began charging tax on purchases in New Mexico in early 2017. However, the online retail giant only collected state gross receipts taxes on the sales, not local taxes.

New Mexico Attorney General Hector Balderas supported the effort to allow internet sales taxes.

State response

State Sen. John Arthur Smith, D-Deming, said that he believed it would go forward again in 2018 when a new governor is in place.

“That’s a ruling the governor can’t line-item veto,” Smith told NM Political Report. He described Martinez as “the stumbling block all along” to imposing the internet gross receipts tax.

Speaker of the House Brian Egolf, D-Santa Fe, also anticipated it passing again.

“I think we’ll do it as a matter fairness for local businesses. For me it is very important that we put local shops on an even footing with Amazon,” he told NM Political Report. “When you can buy something for $100 on Amazon or $107.50 in Albuquerque, a lot of people will choose Amazon.”

Egolf said the year-round tax policy staff is already looking at implementation and that ideas would be presented to the interim Revenue Stabilization and Tax Policy Committee before the legislative session.

While Martinez vetoed the legislation, she will not be governor during the next legislative session. Instead, it will likely be either Democrat Michelle Lujan Grisham or Republican Steve Pearce. A Libertarian Party candidate may also be on the general election ballot.

He said he believed New Mexico would need to “tweak” its gross receipts tax to deal with the Supreme Court decision.

“I’m hoping we can bring the new governor in when we do that when we come back in January,” Smith said.

A spokesman for Lujan Grisham said she would support the effort.

“Michelle would support legislation that would help local businesses by leveling the playing field and taking away the unfair tax advantage online retailers currently have,” Victor Reyes said. “This would bring in more revenue to help the state invest in priorities like public education and public safety while encouraging investment back into our local economy.”

When asked if he would support such a bill if the Legislature passed it in 2018, Steve Pearce didn’t reject or approve of the idea outright.

“We need to ensure that every business can compete on a level playing field, from the smallest companies to the largest corporations,” Pearce said. “This is especially important for the rural parts of New Mexico, where small businesses are the backbone of the local economy. Any legislative proposal being considered must recognize this notion.”

Update: Added quotes from Brian Egolf.