gross receipts tax

It could be awhile before the NM Supreme Court decides to rule on cannabis tax case, if at all

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Medical cannabis producers in New Mexico will be on the hook for gross receipts taxes for the foreseeable future, or at least until the state Supreme Court decides whether it will weigh-in on the issue. 

Last week, a response filed by New Mexico cannabis producer Sacred Garden was the latest in a pending case between the producer and the state’s Taxation and Revenue Department (TRD). Earlier this month, the TRD filed a petition asking the high court to consider the case, with the hopes that it might overturn a previous state Court of Appeals decision. 

Santa Fe attorney Joe Lennihan, on behalf of Sacred Garden, argued that a review by the Supreme Court was unnecessary since the Court of Appeals already determined that medical cannabis should be viewed in a similar light as prescription drugs, which are exempt from gross receipts taxes. 

“Sales of medical marijuana are restricted to patients approved to use it and must do so under the care and supervision of a physician,” Lennihan wrote. 

Both TRD and Sacred Garden have repeatedly made their respective arguments in previous court filings and now both must wait to see if the state Supreme Court decides to weigh-in. 

For the most part, TRD has argued that since medical cannabis use is recommended, not prescribed, by a doctor, medical cannabis sales are subject to gross receipts taxes. Sacred Garden’s view on the matter is that because a 2019 update to the state medical cannabis law states that medical cannabis should be viewed in a similar light as any other prescription drug, medical cannabis producers should be exempt from the tax. The Court of Appeals ruled in favor of Sacred Garden, citing a lack of expected tax revenue in legislative financial impact reports. 

But in its request for the Supreme Court to consider the case, the TRD turned the legislative intent argument around and said that if the Legislature wanted to exempt medical cannabis from gross receipts taxes, it could have specified this by amending state tax laws. 

Gross receipts taxes, sometimes incorrectly referred to as sales taxes, are charged by the state and local municipalities for goods and services. Businesses often pass the tax along to the consumer, although they are not required to.

CARES Act

ABQ mayor hopes to use federal money to make up for lost tax revenue

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The City of Albuquerque received $150 million in federal aid this week, but the question still remains whether it can be used to keep the city operational. 

During a press briefing on Monday, Albuquerque Mayor Tim Keller announced some good news— that the city received a support check from the U.S. Treasury Department. Keller later told NM Political Report the city is awaiting further guidance on whether the city can use that money to make up for lost tax revenue that is needed to pay city employees and avoid layoffs and furloughs. Much of the city’s operations are funded through gross receipts taxes, Keller said. But, with many of the city’s businesses shut down and consumers largely staying at home, the state is facing a revenue gap of about $70 million between this and next fiscal years, Keller said. 

“The good news is the numbers line up almost exactly,” Keller said. “Tax revenue, we’re looking at being down $20 million this fiscal year and then $50 million the next fiscal year.”

Keller said the rest of the money would go to the daily costs of fighting the COVID-19 outbreak, with about $50 million left as a contingency reserve. 

“As long as this doesn’t go past May, the $150 million should cover us just right and if it goes longer than May, we’re not going to have enough,” Keller said. 

The money is part of the federal CARES Act, which was designed by Congress to distribute money to states and cities in need.

Quick Reads

Medical cannabis producers still on the hook for GRT, pending a state Supreme Court ruling

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Despite a decision by the New Mexico Court of Appeals, medical cannabis producers are still required to pay gross receipts taxes—at least for now. 

Last month the New Mexico Supreme Court filed notice that it received a petition from the state Taxation and Revenue Department asking for the high court to overturn a court of appeals ruling. That opinion, filed in January, stated that medical cannabis is exempt from gross receipt taxes. The notice from the high court that it received the petition from the state also included instructions to hold off on enforcing its decision. 

Days after the January decision, medical cannabis producers began notifying patients that they would not charge gross receipts taxes, which are often erroneously referred to as sales tax. State law requires many businesses to pay gross receipt taxes for goods produced or services provided. Those businesses often pass the tax on to consumers. 

The issue goes back to an attempt by medical cannabis producer Sacred Garden to get a refund from the gross receipt taxes it paid from 2011 through 2016.

Medical Cannabis Program

NM Supreme Court tasked with cannabis GRT issue

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Should medical cannabis producers continue to get a tax break? That’s the question the New Mexico Taxation and Revenue Department has asked the state’s high court. 

On behalf of TRD, the state’s Attorney General’s office filed a petition Monday with the New Mexico Supreme Court asking for clarification about whether medical cannabis is exempt from gross receipts tax, like prescription drugs. 

In 2014, New Mexico cannabis producer Sacred Garden asked the TRD for a refund on the gross receipts tax the company paid that year. That request was denied by TRD. But the state Court of Appeals agreed with the cannabis company and ruled that medical cannabis indeed qualifies for the same tax exemption as prescription drugs. In the state’s petition to the state Supreme Court, Special Assistant Attorney General Cordelia Friedman argued that because federal law prevents doctors from writing prescriptions for cannabis, it does not fall under the same tax exempt category as prescription drugs in New Mexico. 

“The term ‘prescription’ does not appear in the [Lynn and Erin Compassionate Use] Act or the regulation promulgated to provide guidance for individuals wanting to obtain ‘registry identification cards’ to receive medical marijuana,” Friedman wrote. 

The state Court of Appeals ruled in January that a recommendation from a doctor to use cannabis to alleviate symptoms of certain medical conditions is essentially the same as a prescription.

Featured

Ruling means state may owe millions in tax refunds to cannabis producers

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The state of New Mexico’s Taxation and Revenue Department could be on the hook for millions of dollars in tax refunds to medical cannabis producers after a state Court of Appeals ruling made earlier this week. 

In her opinion filed on Tuesday, Court of Appeals Judge Monica Zamora wrote that medical cannabis producers should be able deduct gross receipts taxes just as pharmacies do for sales of prescription drugs. Under the Lynn and Erin Compassionate Use Act, the state’s medical cannabis law, medical cannabis is not prescribed to patients. Instead, qualified medical professionals issue a recommendation to the state Department of Health for each patient. 

Zamora cited the federal Food, Drug and Cosmetics Act, which says that restricted drugs “shall be dispensed only . . .

Santa Fe County

Santa Fe County voters reject tax increase

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Santa Fe voters rejected another tax increase, this time in a low-turnout special election. The increase would have raised the gross receipts tax in Santa Fe County by one-sixteenth of one percent, or 6.25 percent on every $100 spent. The results were anything but close—70 percent of the voters opposed the increase. Unlike the sugary-drink tax election, which drew  a lot of campaign spending and relatively high turnout, unofficial numbers from the Santa Fe County clerk showed just under 8,000 voters cast ballots for the gross receipts tax election, less than ten percent of the county’s registered voters. The state’s base gross receipts tax, which applies to most goods and services but not food or medicine, is 5.125 percent.

2017 legislative session

State Auditor to legislators: state’s tax breaks require closer look

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In a letter to New Mexico’s legislative leaders yesterday, State Auditor Tim Keller summarized the state’s largest tax breaks and their distribution by size. About half of the revenue that the state does not collect as a result of tax breaks comes from three sources: extractive industry tax breaks, two broad gross receipts tax breaks and the exemption of nonprofit organizations from gross receipts taxes. Tax exemptions for a range of extractive industries, such as mining and drilling, comprises 27 percent of all tax breaks and total nearly $400 million. Compiled by the Office of the State Auditor, the data came from the New Mexico Tax and Revenue Department. But finding it was not easy.

2017 legislative session

In late-night vote, House moves to close tax loopholes

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An effort to eliminate hundreds of tax breaks for dozens of businesses and service providers while lowering the overall tax rate on sales is moving forward in the Legislature and may become part of a solution to fix New Mexico’s budget deficit for years to come. The measure, sponsored by Rep. Jason Harper, R-Rio Rancho, passed the House of Representatives late Wednesday with no dissenting votes. The initiative had been broadly scaled back from what Harper first proposed with the introduction of House Bill 412, which now has a prime focus on reforming the state’s cumbersome gross receipts tax law. Initial measures to extend that tax to food, as well as changes to income tax rates and how property is valued, were removed from the bill in what House Speaker Brian Egolf called “the largest substitution in the history of the House floor.” Harper accepted the amendments from Rep. Carl Trujillo, D- Santa Fe, as the only realistic way his reforms would move forward.

2017 legislative session

Much still undone as legislative session hits halfway mark

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Thursday marks the halfway point of the 2017 New Mexico Legislature’s 60-day run in Santa Fe. And while half the time is gone, perhaps 90 percent of the work remains. All-important debates over how to spend the public’s money, where to get it and how much to keep in reserve, are yet to be resolved. How much should be devoted to keeping the schools running? What kind of tax breaks are effective in stimulating a sputtering economy?

NM Legislature

Harper: Tax policy overhaul paves way for state’s future

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While state lawmakers are pulling out all the stops to find “now money” to plug an expected deficit in the next fiscal year, Rep. Jason Harper has introduced a bill he hopes can put the state on better financial footing for decades to come. Harper, R-Rio Rancho, admits that House Bill 412, the New Mexico Tax Reform Act, is not a quick fix and will not patch the budget in fiscal year 2018 or even 2019. But by restructuring the state gross receipts tax and simplifying income and other tax policies, New Mexico will position itself for more solid growth in the new economy, he said. “It doesn’t help us fix the current budget problem,” Harper said of his bill, “but this hopefully prevents another budget problem.” The measure comes halfway through the 2017 legislative session, when reserve funds have been depleted by efforts to balance budgets for the last fiscal year and the current year, which ends in June, and many lawmakers are focused on raising enough new money to get through the upcoming year.