SANTE FE, N.M. (KRQE) – When dozens of New Mexico’s local governments collectively received millions of extra dollars in tax revenue last year, you might think it would be a welcome surprise. But that “surprise” was no cash windfall. It was a multi-million dollar mistake that the state blames on a computer glitch.
As part of its monthly tax distributions to those local governments in November 2016, New Mexico’s Tax and Revenue Department overpaid a total of nearly $14 million in tax revenue to at least 100 village, city and county governments.
The glitch is one that could have caused deep issues for many municipal governments who ran the risk of accidentally or intentionally using that extra money.
New Mexico’s Gross Receipts Tax
The problem originated with the tax revenue the state collects and distributes each month to the state’s village, city and county governments.
When you buy something in New Mexico, chances are you’re going to be taxed on the total purchase. That tax is called “gross receipts tax,” or GRT. Money from that tax goes directly into funding local government operations.
“We’re really dependent on our gross receipts tax,” said Bill Fulginiti.
Fulginiti has been the executive director for the New Mexico Municipal League for nearly 40 years, dealing with financial and other issues that New Mexico’s various regional governments encounter. “That’s our single largest source of revenue, 75 percent of municipal income comes from gross receipts tax,” said Fulginiti.
Each month, the New Mexico Tax and Revenue Department (TRD) is tasked with accurately calculating the amount of tax revenue each municipality has generated and dolling out that payment. Between the months of October and November in 2016, TRD was typically handling between $120 to $140 million worth of payments total each month.
Last October, TRD upgraded the “GenTax” computer system that it uses to make those calculations.
“In that upgrade, there was a glitch, there was an accounting error in that process,” said Jon Monforte, acting secretary for the Tax and Revenue Department.
Monforte, who has overseen multiple grades of the TRD’s GenTax computer system, said the error was not detected in the department’s usual testing.
“We do an ample amount of testing, I think one of the successes we’ve been able to do as a department is our successful rollouts,” said Monforte. “This one was not as successful in the sense of that accounting error that occurred afterwards.”
The state’s GenTax system upgrade (version 9 to version 10) was installed just one day before the state distributed its “October revenue” on November 14, 2016.
The upgrade caused most of New Mexico governments to be overpaid by TRD. In total, at least one hundred governments received more tax revenue money than they should have.
For example, in November, the city of Albuquerque was paid an extra $4.9 million, about 15 percent more than what they were supposed to be paid.
The village of Capitan in southeast New Mexico was paid an extra $32,227, about 77 percent more than the correct payout.
The biggest overpayment occurred in the small village of San Jon in eastern New Mexico. They were paid an extra $57,896, or about 424 percent more than what they should have received. Acting Secretary Monforte told KRQE News 13 that San Jon’s overpayment was so high compared to others because it was compounded by a “locational change.” That’s when a taxpayer changes the location of their business on tax records, which can result in a difference in the amount of money the taxpayer owes.
Within days of the overpayment, Monforte said the Tax and Revenue Department knew something was wrong.
“The total that was done in error, meaning both the positives and negatives, was about $13.8 million,” said Monforte. “We moved as quickly as possible to remedy the situation.”
The error was fixed within two weeks, however, all of that overpaid GRT money was still sitting in different governments accounts.
“The hope is that those local governments in those instances, if it’s coming without that type of an aberration, don’t spend that money,” said Monforte.
“I was thinking… please don’t spend the money, I hope you didn’t spend the money,” said Fulginiti.
Even if it’s by accident, any overpaid tax revenue money that New Mexico governments spend can cause problems. The Tax and Revenue Department has the authority to “clawback” the overpaid tax cash. Money can be removed from local governments’ next tax revenue checks.
State law outlines protections for municipalities that have to payback significant amounts of money to the Tax and Revenue Department. However, for small governments with slim budgets and slimmer reserves, any overspending can still create big budget issues down the line, as most local New Mexico governments rely closely on consistent gross receipts tax payouts.
“Think of what that funds, police services, fire, all the services that are provided by the city,” said Fulginiti. “So a major disruption in that (tax revenue payout) will change the service levels to the citizens.”
By December, the Tax and Revenue Department sent out dozens of letters to various New Mexico governments, explaining the error and asking for the money to be paid back.
“We fully understand that either through an error, or through the natural process that occurred in a gross receipts time period, that this is a volatile tax that is being distributed to these local governments, and there are huge potential impacts to services,” said Monforte.
Alongside the New Mexico Municipal League, the Tax and Revenue Department held a summit in July with city, county and village officials to directly address issues like how to spot and avoid tax overpayment.
KRQE News 13 asked if any local governments were still in the process of paying back the overpayments that were sent out in November, however, the department hasn’t answered the question.
“I think the largest complaint that we had heard from that whole process was that it was more of the planning part to it,” said Monforte. “It was just getting an understanding of what their normal would be in the (following) two or three month period. It was more of planning than anything else, from that specific event, that was sort of thrown off for these local governments.”
Fulginiti believes the overpayments didn’t cause many problems this time, though.
“I would say 90-some percent of (governments) took care of it the right way, said Fulginiti.
For Fulginiti, the recent tax payout glitch is a reminder of how reliant many of the state’s governments are on a single tax.
“I’ve dealt with every secretary since 1978 and we’ve all had this issue for that long. I would just like it to be solved,” said Fulginiti.