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LANL tax status now in question

Copyright © 2018 Albuquerque Journal

SANTA FE – The issue of whether the new managers of Los Alamos National Laboratory will pay state taxes remains unsettled, even as Triad National Security LLC is set to take over the lab on Nov. 1.

While Triad officials have stated publicly that they will pay New Mexico gross receipts taxes, Los Alamos County Manager Harry Burgess said he has learned that the federal government is pushing Triad to apply to the Internal Revenue Service for 501(c)3 nonprofit status, which would make the new lab management group tax-exempt.

Los Alamos County would lose $20 million a year – 40 percent of its general fund budget – without its share of lab GRT, said Burgess. Citing a legislative study, he said state government would lose $25 million.

Smaller amounts of GRT from lab purchases go to other local governments and entities like the North Central Regional Transit District’s regional bus service.

Triad consists of the University of California, Texas A&M and Ohio-based scientific nonprofit Battelle Memorial Institute and is organized as a limited liability company.

Earlier this year, Triad won the bidding to take over the $2.5 billion annual LANL operating contract from the current contractor, private consortium Los Alamos National Security (LANS), which includes the University of California and the Bechtel corporation. LANS has paid state taxes during its tenure that started in 2006.

Over the summer, New Mexico state government denied tax-exempt status for Triad.

On Thursday, a Triad spokesperson reiterated: “The NM State Department of Taxation and Revenue has indicated that Triad is liable for gross receipts tax in response to a request for ruling from Triad. Accordingly we will be paying the State taxes required under NM State law.”

But that’s not the whole story, according to Burgess.

He said that he and other Los Alamos County officials went to Washington, D.C., in September and discussed the matter with Lisa E. Gordon-Hagerty, administrator of the National Nuclear Security Administration, the semiautonomous wing of the Department of Energy that runs the nation’s weapons labs.

Burgess said Gordon-Hagerty and her staff cited procurement regulations requiring that any eligible cost savings in federal contracts should be pursued. “It was expressed to us from the director herself that meant they (Triad) would have to go after 501(c)3 status,” he said in a verbal report to the Los Alamos County Council at a recent meeting.

In effect, GRT paid by LANL’s operators would be a pass-through of federal dollars to pay state taxes.

Burgess also said Triad officials have confirmed that they’ve been asked to pursue nonprofit status from the IRS, but that Triad is undertaking a legal review before doing so.

“It’s unclear what the future may hold,” Burgess said.

He says the “most ominous” issue facing his county is the prospect of having to refund tax dollars if Triad starts paying GRT when it takes over the lab Nov. 1, but then applies for and wins tax-exempt status down the line. If the application process takes a year, “we could be on the hook for some $20 million,” Burgess said.

There is case law that says entities that achieve 501(c)3 status should get a refund on taxes paid from the date they apply to become nonprofit, according to Burgess.

That means that Los Alamos County must start “ratholing” money to be prepared for a refund, he said. “In essence that would mean some sort of cuts” in spending for county operations, he said.

The possibility of a refund would also negatively affect the county’s bond rating, Burgess told the County Council.

Councilor Christine Chandler said Triad’s leadership has had “very positive” interactions with the county but are “in a bit of box” because Triad has to take direction from NNSA. She said the federal agency doesn’t have the “same appreciation or sympathy” for what the host city must provide in the way of infrastructure and other resources to support the lab. Chandler also said she was disappointed that NNSA has not been “terribly forthcoming” or collaborative.

Burgess told the Journal that LANL would be the only one of 17 national lab sites that doesn’t pay local taxes like the GRT.

In response to Journal questions about whether NNSA was pushing Triad to apply for nonprofit status, an agency spokesman provided this statement: “NNSA is focused on making the transition from LANS to Triad a success. We are mindful of the concerns expressed by County leadership regarding the Gross Receipts Tax issue and will look at the issue once transition is complete and Triad is operating Los Alamos National Laboratory.”

Earlier this year, with the possibility that a public university or other nonprofit could take over LANL under a new management contract, the Legislature passed a bill that would apply GRT to any nonprofit in charge of the lab. Gov. Susana Martinez vetoed the measure.

In her veto message, the governor acknowledged potential revenue loss as a concern, but said the loss “will be less than what it is claimed to be; if the prime contractor (at LANL) is a nonprofit, then the subcontractors become taxable,” She also called the bill “yet another piecemeal attempt at tax reform” instead of the comprehensive reform package she supported.

Burgess said that both the Legislative Finance Committee staff and Los Alamos County came up with similar numbers for tax losses if the lab doesn’t pay GRT and he has not seen how any lower estimate might have been arrived at. He said the county based its estimate in part on how GRT revenues went up after the private LANS consortium started paying the tax when it took over the lab in 2006 after decades of management by the University of California, which didn’t pay GRT.

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