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More cities join tax lawsuit against NM

Copyright © 2019 Albuquerque Journal

SANTA FE – More than a dozen cities and counties have joined a lawsuit accusing New Mexico of flubbing its responsibility to accurately collect and distribute tax revenue, according to court records.

The lawsuit, initially filed by Albuquerque and three other cities in late 2018, ballooned this year to 19 villages, counties and other local governments throughout the state.

At least 10 more cities also intend to join the suit, an attorney involved in the case said.

The 21-page petition, filed in the state’s 2nd Judicial District, asks a judge to order the state Taxation and Revenue Department to compensate cities and counties for making improper reductions to the revenue they rely on.

The department, in turn, has denied the allegations in court.

It isn’t clear how much money is at issue.

The first four cities to initiate the lawsuit estimated they were owed $10 million to $12 million in gross receipts taxes.

The cities and counties that joined the suit later say they are owed millions of dollars on top of that.

William Fulginiti, executive director of the New Mexico Municipal League, said more than just money is at stake. The local governments want better communication, more transparency and assurances that the state is in compliance with tax laws.

“Cities opened their banking statements and found they were short, Fulginiti said Monday. “That’s not what the procedures call for.”

Charlie Moore, a spokesman for the Taxation and Revenue Department, said the agency can’t comment on pending litigation. But the department takes seriously its role in distributing tax revenue accurately and on time to local governments, he said.

The department, Moore said, has created a new liaison position to work with local governments and to answer questions about tax distributions. There are also a variety of financial reports that local officials can look at.

“We are committed to providing excellent customer service to local governments and to assisting local governments in interpreting trends and tax data,” Taxation and Revenue Secretary Stephanie Schardin Clarke said in a written statement.

Schardin Clarke took over the department in late January, about three months after the lawsuit was filed.

The suit centers on gross receipts taxes, which are generally levied on the sale of goods and services in New Mexico. The Taxation and Revenue Department collects the money from businesses and then sends it back to local governments after making a few adjustments.

But the lawsuit accuses the state of automatically granting refunds to businesses that claim they overpaid and providing little explanation to the cities and counties that rely on the revenue. The refund is then taken out of the next distribution to the local government, the lawsuit says.

The cities and counties also allege a variety of other legal violations in the handling of the money, and they are seeking an accounting of the revenue and refunds.

Gross receipts taxes are a critical source of funding for police, firefighters and other local services throughout the state, the lawsuit says. The revenue makes up about 75 percent of city budgets.

“Obviously, it’s revenue they rely on,” Fulginiti said.

The original lawsuit, covering four cities, was filed in early November. Another 15 local governments signed on to a new version of the suit in late January. They range from Santa Fe, Española and Los Alamos in the northern part of the state to Hobbs and Hatch in the south.

Fulginiti said he expects more local governments to be added to the lawsuit soon.

Ten more cities have already agreed to join the suit, and 12 counties have expressed interest in participating, an attorney involved in the case said.

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