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Tax and revenue secretary quits amid probe

Demesia Padilla

Demesia Padilla

SANTA FE – New Mexico’s top tax official, Taxation and Revenue Secretary Demesia Padilla, abruptly resigned Thursday, a day after investigators with Attorney General Hector Balderas’ office raided the agency in search of tax documents connected with Padilla and her husband.

A search warrant affidavit filed by the AG’s Office indicated that Padilla, who met with investigators earlier this week, could be under scrutiny for multiple potential criminal acts, including tax evasion and embezzlement.

Gov. Susana Martinez, whose administration had previously defended Padilla, said Thursday that she accepted Padilla’s resignation, effective immediately. Padilla was one of Martinez’s original Cabinet members, having led the Taxation and Revenue Department since 2011, and her tenure was marked by a long-running policy battle with immigrants’ rights groups.

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“As a former prosecutor, I take any allegations of misconduct seriously and don’t believe anyone is above the law – that is why I ordered the tax department to fully cooperate with the Attorney General’s Office during the course of their investigation,” Martinez said in a statement.

Much of the AG’s Office investigation into Padilla’s actions appears to center on payments made to Padilla and her husband during a roughly 14-month period – from December 2011 until February 2013 – by a Bernalillo-area trucking company. A company official said Padilla handled the company’s financial affairs up until February 2013 – she was Cabinet secretary at the time – but was fired by the company after unauthorized transactions were noticed, according to the affidavit.

Padilla did not report the $25,360 paid toward her credit card from Harold’s Grading & Trucking during the 14-month period as taxable income or disclose it on mandatory annual forms for elected and appointed state officials, the affidavit also claimed.

“Absence of reporting this income and/or the failure to pay gross receipts tax could substantiate evidence of tax fraud or similar crimes,” Ed Griego, a special agent for the AG’s Office, wrote in his affidavit for a search warrant.

Padilla’s attorney, Paul Kennedy of Albuquerque, did not respond Thursday to a request for comment. Attempts to reach Padilla for comment were also unsuccessful.

But Padilla disputed the timeline in an interview with investigators, saying she ceased doing work for Harold’s Grading & Trucking in December 2010. She also said she continued to receive payment from the company after that date only because she was owed money, the affidavit said.

Attorney General’s Office spokesman James Hallinan described the probe into Padilla’s actions as an “ongoing investigation.” He deferred to the affidavit for details.

‘Troubling allegations’

State Auditor Tim Keller first raised allegations of wrongdoing against Padilla in July 2015, when his office released results of a preliminary investigation that focused on whether Padilla pressured tax department employees to give preferential treatment to a former client of her Albuquerque-based accounting firm, which is now defunct.

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The findings were subsequently turned over to the AG’s Office for investigation.

In a statement Thursday, Keller said his office had withstood intense political pressure in its investigation of Padilla, and expressed hope that Padilla’s resignation would lead to a more functional tax agency.

“There is no place for abuse of power from the highest-ranking officials in the administration,” said Keller, a Democrat. “Our office’s preliminary investigation into Secretary Padilla raised a number of deeply troubling allegations of actions that put our state revenue and whisteblower employees in jeopardy.”

The Auditor’s Office also released a letter in November 2015 that appeared to show Padilla asking her own agency to reduce a tax penalty for an unnamed taxpayer, which was later identified as Harold’s Grading & Trucking.

According to the search warrant affidavit, an unnamed Taxation and Revenue Department employee told investigators that Padilla, in her capacity as agency secretary, also asked to review a copy of the tax audit for the company. The request was apparently denied.

Meanwhile, in her interview earlier this week with AG’s Office investigators, Padilla said her accounting firm continued to receive compensation from the business after her appointment as Cabinet secretary because it was still owed money, according to the affidavit.

But she said she and her husband, Jessie Medina Jr., had burned client tax records after the firm’s filing system was damaged and would not be able to produce them for investigators.

The Martinez administration had previously defended Padilla from allegations about possible wrongdoing. And Padilla told the Journal in July 2015 that the Auditor’s Office’s inquiries were a mere “bump in the road,” while alleging that Keller was attempting to create a “political circus” with his investigation.

Timing questioned

Before being appointed Cabinet secretary, Padilla, 56, who grew up in Bernalillo County’s South Valley, was the Republican Party nominee for state treasurer in 2006. She lost in that year’s race to Democrat James Lewis.

Her resignation comes just one month before the start of a 60-day legislative session, and just a week after she and other top-ranking state officials unveiled new state revenue estimates.

Some state lawmakers were tight-lipped Thursday on the turn of events, but Sen. Mimi Stewart, D-Albuquerque, questioned why Padilla had allowed the situation to linger despite previous calls for her to resign.

“I personally feel like she should have taken care of it back then,” either by publicly showing that the allegations were false or by resigning, Stewart said. “And why didn’t the governor do something about it a year ago, when it came up?”

Meanwhile, Martinez, the state’s two-term Republican governor, said the state would continue moving forward on tax reforms despite Padilla’s abrupt departure.

“New Mexico faces pressing issues – particularly with our budget – and that must continue to be our focus as we move forward, which is why I accepted her resignation and will quickly appoint a new secretary,” the governor said.

The Martinez administration’s tax policy has hinged on lower rates and heightened scrutiny of tax returns. A controversial 2013 tax package pushed by Padilla and signed into law by the governor included a gradual reduction of the state’s corporate income tax rate intended to make the state more attractive to out-of-state businesses.

Search warrant for records at NM Taxation and Revenue by Albuquerque Journal on Scribd

Immigrants

Padilla’s six-year tenure at the helm of the Taxation and Revenue Department was also marked by policy initiatives that critics complained targeted immigrants.

She was the public face of Martinez’s efforts to take driver’s licenses away from undocumented immigrants, testifying for years before legislative committees in behalf of repealing the state law that allowed what the administration labeled a “dangerous practice.”

After five years of feuding, a compromise was reached this year: Real ID-compliant licenses for those here legally who want them, and non-Real ID-compliant driver authorization cards for undocumented immigrants and anyone here legally who prefers the cards.

But Padilla was criticized for the way her department implemented the new, two-tiered licensing system.

In addition, immigrants’ rights groups sued the tax department in February 2015, claiming that since 2012 it had wrongfully denied refunds to immigrants who used their IRS-issued individual tax identification numbers, or ITINs, when they filed their tax returns. The lawsuit was settled this fall.

In 2011, the Mexican American Legal Defense and Educational Fund successfully sued to force a halt to the Martinez administration’s policy requiring immigrants with driver’s licenses to reverify their identity and residency status.

The suit was filed after the administration told 10,000 randomly selected foreign nationals to make appointments at an Albuquerque office to verify their residency or face license cancellations.

Journal Capitol bureau reporter Deborah Baker contributed to this report.

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