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State takes issue with use of sales tax

The plan advocated by city councilors to create a new gross receipts tax for public safety if voters approve the reduction in the higher education tax is drawing criticism from Gov. Susana Martinez and some Republican lawmakers, who say it would amount to "double-dipping" on taxpayers.

At issue is the plan to raise gross receipts taxes by one-eighth percent and dedicate the money to police and firefighters. City councilors say the increase would only be made if voters approve the Aug. 20 special election ballot measure to reduce by an equal amount the quarter-cent gross receipts tax dedicated to four-year higher education facilities.

Martinez, though, said through a spokesman Monday that she opposes local governments raising gross receipts taxes while continuing to receive what are called "hold harmless" payments. The Legislature authorized the payments to replace the revenues municipalities lost when the state removed taxes on food and medicine in 2004.

The Republican governor said what Rio Rancho is proposing would be "essentially double-dipping" on taxpayers with no financial justification.

State Reps. Jason Harper and Tim Lewis, both Rio Rancho Republicans, share her concern and intend to address the issue in the next legislative session.

"They're using money that was intended for the future for today's problems," Harper said. "They're kicking the can down the road."

Rio Rancho City Councilor Chuck Wilkins — who has pushed for the change in the city's tax structure — said Harper and Lewis are only attempting to sway voters. He added that what the legislators are proposing would only punish the city for being responsible.

"Because we're a year ahead, because we're preparing (in advance), they're penalizing us," he said. "I'm sorry. I think that's shortsighted on their part."

According to New Mexico Municipal League Executive Director Bill Fulginiti, the hold-harmless money to pay back cities for lost revenue was generated by a statewide half-cent gross receipts tax, as provided in the original legislation. A problem arose when inflation on the price of food and especially medicine outstripped the state's ability to pay local governments back and, over time, caused serious issues for the state budget, he said. It finally came to a head in the most recent legislative session.

To solve the problem, the Legislature passed a bill that, in two years, will begin to phase out the state's hold-harmless payments. The phase-out will be spread out over 15 years, with payments dropping about 6 percent each year. For Rio Rancho, hold-harmless funding accounted for roughly $3.5 million in 2012.

To replace those funds, the bill included a provision that allows local governments to make three increases — without voter approval — to their gross receipts taxes for a total of 3/8 percent, or about $3.5 million in Rio Rancho.

That is the provision the city council plans to take advantage of to fund public safety should voters approve the upcoming ballot measure.

Fulginiti said even though he approves of the city's tax policy — swapping one tax for another rather than raising taxes — Rio Rancho is actually using a flaw in the law to put a new tax in place while still collecting the hold harmless funds that tax was meant to replace.

He said the 2013 bill, passed in the last 20 minutes of the legislative session, has quite a few other flaws, including a loophole that would allow counties and cities to both increase taxes by 3/8 percent, potentially doubling the intended tax burden for some taxpayers.

"I think we're going to see quite a few fixes in January," Fulginiti said.

Harper and Lewis said they intend to address the "double-dipping" issue. Harper said he wants to see a measure that will reduce the state's share of hold harmless payments should a local government use its option to increase its gross receipts taxes.

In Rio Rancho, that could mean the $1 million they may dedicate to emergency services would be accompanied by a $1 million hit to the city's hold harmless payments.

Harper said it might be an emergency measure, effective immediately after it is signed into law.

Lewis and Harper said they would have stayed out of the fray associated with Rio Rancho's controversial ballot measure. But, if the city moves forward and imposes the tax, it would essentially be a misuse of legislation, they said.

Wilkins, though, said the city is following the law as it was written. He contended many lawmakers didn't even read it first or only did so in final minutes of the session. The bill wasn't debated on the house floor, he noted.

"I think it's sad that we're following the law … and now they're trying to punish us for following the rules they set," he said. "(Harper and Lewis) are going back and trying to punish us for something that the state has done … I think that is poor judgment."

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