ALBUQUERQUE, N.M. (AP) – The New Mexico Court of Appeals upheld a ruling this week that effectively shields cities and counties from losing money because of tax errors by taxpayers.
The three-judge panel issued its decision Tuesday, affirming a previous ruling made by the Lea County District Court, the Albuquerque Journal reported.
In the ruling, Judge Linda Vanzi said the New Mexico Taxation and Revenue Department can only recover gross-receipts taxes that were incorrectly paid within a year of their distribution.
Regarding the ruling, S.U. Mahesh, a department spokesman, said “the department is still reviewing it and evaluating potential ramifications while keeping all options open.”
The case stems from a business that discovered in 2012 it had been erroneously paying gross-receipts taxes for three years to the city of Eunice. The business, which was unidentified in court documents, realized it was actually considered to be in an unincorporated area of Lea County. As a result, the business’ owners filed 36 amended tax returns. The state Taxation and Revenue Department reimbursed the business $2.3 million in January 2013.
The department then requested payment from Eunice, which essentially received revenue it wasn’t entitled to. State officials withheld future distribution of tax revenue in asking for the payment.
“That would have been a big chunk of our operating fund,” Eunice City Manager Martin Moore said.
According to Moore, the city would have lost 40 percent of its $5.8 million operating budget. Officials would have had to eliminate 25 percent of its workforce and delay various projects, he added.
The city filed a complaint in Lea County District Court last year. The court sided with the city, ruling the state could only repossess $120,000, the amount it had mistakenly paid to Eunice in 2012 and 2013. The state agency in turn filed an appeal.
Eunice Mayor Johnnie “Matt” White said the city and Taxation and Revenue Department Secretary Demesia Padilla tried to come up with a payment plan. Ultimately, both parties ended up disagreeing on state law. Padilla had argued that a taxpayer could keep money mistakenly given out if the state had made the error.
Vanzi said in the court opinion that no such limitation was mentioned in the law and it was an “illogical distinction.”
Mahesh said Padilla was not the only secretary to interpret the law like that.
Timothy Van Valen, who represented Eunice in the case, said the ruling has significance for every municipality across New Mexico.
Bernalillo County officials last year reported it was not getting $2 million in expected gross-receipts taxes.
County spokeswoman Tia Bland said this week officials didn’t know what effect the ruling would have since the date those payments were given was unclear.