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.
New Mexico’s Attorney General is joining with others who say the state should be able to collect sales or gross receipts taxes on all internet sales. Hector Balderas announced Monday that he filed an amicus curiae, or friend of the court, brief in a case challenging a 1992 U.S. Supreme Court decision. In all, 36 attorneys general from 35 states and the District of Columbia signed onto the brief, led by Colorado AG Cynthia H.Coffman. That decision, Quill Corp. v. North Dakota, was aimed at determining whether a state could collect taxes on sales originating from a company with no physical presence, or “nexus,” in that state.
New Mexicans shopping on Amazon.com will soon find a state tax added to their bill. State officials said Monday the giant online retailer will begin collecting gross receipts taxes on purchases shipped to the Land of Enchantment beginning in April, a move that may not thrill shoppers but will likely hearten legislators looking to boost revenue amid a budget crisis and please small businesses frustrated with competing against internet companies that do not charge New Mexico taxes. “It will give much needed revenue to the state and it will allow local retailers to compete fairly,” said Simon Brackley, president of the Santa Fe Chamber of Commerce. The announcement that Amazon would start collecting New Mexico taxes comes as the state Legislature is considering legislation that would require major internet companies to charge gross receipts taxes on purchases shipped into the state. Amazon is expected to pay the base state gross receipts tax of about 5 percent.
Lawmakers looking for every possible penny of new revenue to balance the state budget moved ahead with an omnibus tax package Wednesday over the objections of hospitals and medical providers that claimed paying more to the state would harm health care in New Mexico. House Bill 202 is part of an effort to bring in revenue from the fastest-growing part of the state’s economy — physicians, hospitals and clinics, most of which now pay little or no gross receipts tax. Rep. Carl Trujillo, D-Santa Fe, said his bill equalizes the tax among the entire health care sector at just over 3 percent — and that amount is paid on just 40 percent of patient revenue. “I don’t know how you can be more fair than everyone in this profession paying the same,” he said. The measure would raise $250 million for the general fund and restore cash reserves to about 4 percent, Trujillo said.
With the state still running a deficit and reserves depleted, Democrats in the New Mexico House of Representatives have identified four tax or fee increases they say would prevent more cuts to education and put the state on better financial footing. The initiatives — taxing all internet sales, raising the permit fee on heavy trucks, closing a loophole that benefits nonprofit hospitals and increasing the tax on vehicle transfers — could raise more than $200 million in ongoing revenue. Some of it would go to avoid cuts in state agencies and some to beef up reserves. The move to bring together the House Democratic caucus came on the same day as state economists restated a revenue forecast from December that shows the economy has stabilized but reserves are far below the desired level of $300 million, or 5 percent of recurring revenue. The reserve account for the $5.6 billion budget at the end of the fiscal year on June 30 is projected at 1.6 percent.
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?
Republicans and Democrats on Monday threw their support behind a proposal to collect gross receipts tax from major internet retailers such as Amazon and eBay. Legislators have considered several similar proposals in recent years, but backers of House Bill 202 hope that the state’s budget crisis, a changing legal landscape and bipartisan support will send this measure to Republican Gov. Susana Martinez. She has steadfastly opposed all proposals to raise taxes. But other Republicans who have been similarly wary of anything that sounds like a tax increase said during a meeting of the House Business and Industry Committee that they see the bill as ensuring fairness for small businesses competing with internet companies that do not have to pay the state’s 5 percent gross receipts or local taxes. “It’s really just closing a loophole,” said Rep. Monica Youngblood, R-Albuquerque.
Media coverage of planned tax legislation has so far focused on one hot-button topic of the proposal—reinstating a state tax on food. Santa Fe Archbishop John C. Wester and advocacy groups like New Mexico Voices for Children have vocally opposed the idea. But the two state representatives behind the proposal have not actually filed any legislation on the matter for the session that begins in January. Legislators could begin introducing bills on Dec. 15.
The latest update on the state’s budget situation was filled with negative news, including a large reduction from previous budget projections released in August. The current year’s budget is projected to be $69 million in the hole. For the fiscal year starting July 1, 2017, state budget experts project $300 million less money to spend than the budget in the current fiscal year—which itself saw massive cuts during the special session, with 5.5 percent cuts to most agencies. The update, presented by experts from the Department of Finance and Administration and the Taxation and Revenue Department Monday morning to the Legislative Finance Council, comes a month and a half before legislators go back to work during a regular legislative session to deal with next year’s state budget. During a special session in September and October, the Legislature plugged a $600 million budget deficit that encompassed last year’s budget and the current budget through a combination of tapping into reserves and making cuts.