An estimated 7,000 American Indian military veterans who served between the years of 1977 and 2007 might be eligible for refunds because their state income taxes were improperly withheld during that 30-year period, state Veterans Services Secretary John Garcia said Friday.

Beginning in 1977, the federal government and the state entered into an agreement that mandated the Department of Defense to withhold state taxes from the paychecks of New Mexico residents, Garcia said. But under federal law, Indians living on tribal lands are not supposed to be taxed.

That situation sparked a lawsuit in 2007 in which 19 Indian veterans sued the state Taxation and Revenue Department for the taxes withheld. Santa Fe District Judge Jim Hall ruled that 11 of those defendants were eligible for refunds, which cost the state more than $28,000. The payments to the defendants ranged between $856 and $7,500.

The suit prompted several other Indian veterans to contact state Sen. John Pinto, D-Tohatchi, who last year successfully carried a bill to require the Veterans Services and Taxation and Revenue departments to conduct a study on tax withheld from Native Americans' military pay. Garcia said the study showed that the tax was improperly withheld. So earlier this year, the Legislature appropriated $1 million for a tax settlement fund.

Garcia said his agency created a claims form for Indian veterans — or their widows or dependents — who believe they are entitled to a refund.

To qualify, the veteran must have resided on tribal land in New Mexico at the time of enlistment and must have served in the period between 1977 and 2007.

The cut-off date of 2007 is because that year the state stopped withholding taxes of all military members. The state started withholding income taxes from paychecks in 1961.

"If you think your taxes were improperly withheld, check it out," Garcia said.

The forms are available at the state Department of Veterans Services Web site at www.dvs.state.nm.us/native_american_tax_refund.html. The form also is available at Veterans Services offices around the state and Navajo chapter houses, Garcia said.

Garcia said it's likely that many veterans don't still have their old tax information. But, he said, the Taxation and Revenue Department will contact the Defense Department to verify how much tax was withheld. Those receiving refunds should receive checks within 90 days, he said.

The program began Dec. 1. So far, only one application has been received.

"We're trying to correct a wrong," Garcia said. "Native Americans have a higher percentage of people serving in the military than any other group. They've also got the lowest percentage of veterans who file for Veterans (Benefits) Administration claims."

He said he hopes some veterans who file for the tax refunds realize they are eligible for other benefits as well. "They earned it. They deserve it," Garcia said.

Contact Steve Terrell at 986-3037 or sterrell@sfnewmexican.com. Read his political blog at roundhouseroundup.com.