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Tax lawsuit against New Mexico grows to 44 cities, counties

Copyright © 2019 Albuquerque Journal

SANTA FE – More than 40 cities and counties are now accusing New Mexico of failing to share tax revenue accurately, raising the stakes in a lawsuit that began with a few local governments a year ago.

All told, 44 municipalities and other local agencies have now signed onto the suit, alleging violations in the state’s handling of gross receipts tax revenue.

They are asking the court to order the state Taxation and Revenue Department to compensate them for what they allege were unauthorized reductions to the revenue they rely on – a total that could exceed tens of millions of dollars.

William Fulginiti, executive director of the New Mexico Municipal League, said the amount owed to local governments could reach $100 million, depending on how many years back they seek reimbursement.

The Taxation and Revenue Department, in court filings, has denied the allegations. The litigation started in November last year, less than two months before Gov. Michelle Lujan Grisham’s administration took office Jan. 1.

Charlie Moore, a spokesman for the Taxation and Revenue Department, said the agency has appointed a local government liaison to help address questions and concerns about the tax distribution.

“The Taxation and Revenue Department is committed to ensuring that cities and counties receive timely and accurate gross receipts tax distributions that they are due under the law,” Moore said in a written statement. “We agree with local governments on the importance of determining the accuracy of distributions from past years.”

Albuquerque, Santa Fe, Las Cruces, Roswell and Farmington are among the plaintiffs in the lawsuit. They contend the state has shorted them some of the revenue they rely on to pay for law enforcement, fire protection and other services.

The dispute centers on revenue generated by gross receipts taxes, which are shared by the state and local governments. It’s similar to a sales tax, usually paid by consumers buying goods or services.

The state collects the money and distributes some of it back to cities and counties each month.

In their lawsuit, the local governments say the state – often without warning – reduces the amount of revenue it sends back to them, based on tax-refund claims filed by businesses. The cities and counties contend they are left with little explanation for the fluctuating revenue.

The plaintiffs also have accused the state Taxation and Revenue Department of other violations of tax law and regulations.

Fulginiti said the cities and counties are open to a settlement outlining how to calculate what each local government is owed. The Municipal League also supports legislative action that would further clarify how to handle the distribution of revenue.

The suit has been slowed by legal maneuvering over the last year, Fulginiti said, but should be moving more quickly soon. There have been clashes over which attorneys can work on the case, among other disputes.

“It’s just seems to be taking a long time to get through the motions and the early (legal) strategies,” Fulginiti said. “I think we’re now past those stages.”

The lawsuit started last year with a petition filed by Albuquerque and three other cities. It has since been amended repeatedly to add new cities and counties and is now pending in 2nd Judicial District Court before Judge Nancy Franchini.

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