Proponents of online sales tax hope to deliver revenue to N.M.
Cyberspace may not be a tax haven for New Mexico shoppers much longer.
As bipartisan support grows among state lawmakers for tax collections on internet sales to bring in more revenue and help level the playing field for local businesses, major internet companies are becoming increasingly willing to comply and judges are warming to the concept.
Online shopping has grown, and so has the share of taxes that state and local governments have lost to internet retailers that do not pay gross receipts taxes on merchandise shipped to New Mexicans.
State Democrats and Republicans alike are rallying around a new legislative proposal aimed at getting major internet retailers to fork over their share of state gross receipts taxes. The proposal is likely to be part of a more sweeping tax reform package that also includes reinstatement of the unpopular food tax.
Opponents of an online sales tax have long argued it would be unconstitutional under a 1992 ruling by the U.S. Supreme Court that restricts states from collecting taxes from retailers located elsewhere. Under Quill v. North Dakota, governments have been held to the principle that to tax a company, the company must have some sort of physical presence in the state — an office, a warehouse or employees.
But in the last several years, states have tried to redefine what it means for a company to have a physical presence, arguing that shipping hundreds of thousands of dollars or millions of dollars worth of merchandise to residents should count.
Some federal judges have interpreted the ruling in Quill loosely, giving states greater leeway to collect taxes from internet retailers. And last week, the U.S. Supreme Court declined to hear a challenge to Colorado’s efforts to collect sales taxes on purchases from major online retailers, buoying hopes for New Mexico’s efforts to get revenue from e-commerce giants such as Amazon.
Congress also has considered legislation that would create a standard policy for the entire country rather than leave each state to figure out how it will collect taxes from internet retailers.
Members of New Mexico’s legislative Revenue Stabilization and Tax Policy Committee last week mulled a bill that would not create a new tax but would instead try to answer the question, “How can New Mexico collect existing taxes on businesses like Amazon that are based in other states?”
Richard Anklam , executive director of the New Mexico Tax Research Institute, told committee members the proposed policy is intended “to encourage out-of-state sellers to comply with state tax laws that are already on the books.”
New Mexico would label any company selling more than $100,000 worth of merchandise here as “doing business” in the state and on the hook for gross receipts tax, regardless of whether the company has a physical presence in the Land of Enchantment. Smaller businesses would not be included, and the state would not go after back taxes.
Demesia Padilla , the former secretary of the Taxation and Revenue Department, has argued in the past such a law might not be constitutional and that the state should wait for the U.S. Congress to create a national policy.
But Anklam told committee members this week that the state could make a strong argument that New Mexico is not subject to the ruling in Quill at all because it applied to sales taxes, which are charged to buyers, rather than gross receipts taxes like New Mexico’s, which are charged to sellers.
The U.S. Supreme Court is likely to revisit the issue. Justice Anthony Kennedy wrote last year that the nation’s highest court should reconsider the precedent it set with the ruling in Quill.
Legislators and experts see New Mexico’s proposed policy as posturing in the hopes of getting major internet retailers to pay up rather than fight the state in court, where the companies could be on the hook for back taxes if they lose.
Unclear is how much money New Mexico’s state government stands to gain by collecting taxes on internet sales.
The state is estimated to have lost more than $120 million in tax revenue from online businesses in 2012, according to the most recent estimate from the National Conference of State Legislatures.
Critics argue that figure is overstated. And legislative staffers have said there is too little data to know for sure how much revenue would flow to the state’s coffers under a similar policy proposed during a special session earlier this year as part of a larger tax reform bill.
That measure was passed by the state Senate, but Republicans in the House stripped out the section on collecting tax from internet retailers.
Last week, both Republicans and and Democrats on the Revenue Stabilization and Tax Policy Committee voiced support for the new proposal, with conservative legislators arguing it would create a fairer marketplace for local brick-and-mortar businesses that are stuck paying the tax while bigger out-of-state companies ship goods to consumers here without having to pay.
“Do we need the money? Yes,” said Sen. Bill Sharer, R-Farmington, referring to the state’s ongoing budget crisis. “But we have shut down local businesses all over the state because of this. We ought to be supporting our local business.”
Democrats, however, questioned whether Gov. Susana Martinez, who has consistently opposed raising taxes or introducing new taxes, would approve the legislation.
“Do we still have two years to wait for this?” asked Rep. Jim Trujillo, D-Santa Fe, referring to the time left in the governor’s term.
Rep. Jason Harper, a Republican from Rio Rancho who has emerged as one of the GOP’s leaders on tax policy in the state House, said he is “hopeful” the governor would accept the bill if “it’s part of a larger tax reform package where we’ve lowered some taxes here and raised some taxes there.”
