New Mexico officials are studying how to take advantage of this week’s U.S. Supreme Court ruling allowing states to tax internet sales, a potential windfall for state government that also would please local brick-and-mortar retailers while forcing consumers to bear the brunt.
The high court ruled that states may require internet retailers to collect a sales tax on transactions even if the retailers have no physical presence in those states. Although New Mexico collects a voluntary tax from online giant Amazon, most internet retailers don’t have to pay the state’s gross receipts tax on goods shipped to customers here.
“Clearly, online retailers have been competitors for some Santa Fe businesses,” said Simon Brackley, president and CEO of the Santa Fe Chamber of Commerce. “Art, jewelry, clothing, furnishings and things like ristras and typical Santa Fe items are being sold online by other companies, and this has been challenging for local retailers.”
But that could end as states take advantage of the ruling and require online retailers to collect taxes and distribute the proceeds to those states.
Kevin Kelley, spokesman for the New Mexico Taxation and Revenue Department, said the path toward actually imposing a tax is not yet clear.
“It’s an interesting ruling, and as such our legal teams and chief economist and economist teams are reviewing it,” he said Friday. “It is a somewhat complex issue. The right minds are on it.”
The New Mexico Legislature last year passed a bill that sought to impose a state tax on internet businesses that had at least $100,000 in sales to New Mexico customers, which analysts conservatively estimated would bring in about $20 million a year in new revenue. However, Gov. Susana Martinez, who has opposed increases in state taxes, vetoed the measure.
Martinez leaves office at the end of the year, and state Sen. John Arthur Smith, a Deming Democrat who chairs the Senate Finance Committee, was quoted this week as saying he believes the proposal will go forward again when a new governor is in place.
“That’s a ruling the governor can’t line-item veto,” Smith told NM Political Report, describing Martinez as “the stumbling block all along” to imposing an internet gross receipts tax and saying he hopes legislators can bring the new governor on board with the idea when legislators convene in Santa Fe in January.
House Speaker Brian Egolf, D-Santa Fe, also anticipated passage, the website reported.
The decision in South Dakota v. Wayfair Inc. upsets a previous decision that allowed online retailers to avoid collecting sales taxes outside their home states. The earlier decision, Quill Corporation v. North Dakota, caused states to lose out on about $33 billion in tax revenues, wrote Justice Anthony M. Kennedy for the majority in the Wayfair decision.
New Mexico already imposes a 5.125 percent gross receipts tax on ordinary transactions; counties and municipalities add their own tax on top the state share. The tax rate in Santa Fe, for example, is 8.44 percent, with state and local taxes combined, according to the Taxation and Revenue Department.
The gross receipts tax is essentially collected like a sales tax and applies to most goods and services. It is a primary source of revenue for both the state and local governments.
Amazon agreed to collect the tax in New Mexico starting April 1. The Taxation and Revenue Department at the time estimated Amazon alone would pay up to $29 million per year. New Mexico was one of the last states to reach agreement with Amazon, which collects sales taxes in 45 states. A handful of others do not impose a sales tax.
Amazon, however, only pays tax on about half the sales it generates in New Mexico. The other half are made by third-party retailers that list their products on the Amazon site.
This fiscal year through March, gross receipts tax revenues in New Mexico are up nearly 17 percent, or $252.4 million, over the same period in the previous fiscal year, according to the Legislative Finance Committee. But don’t thank Amazon for that.
“Nearly three-quarters of the growth continues to be driven by the mining, construction, retail and wholesale trade industries, the vast majority of which is related directly and indirectly to the oil and gas industry,” the committee reported.
Brackley said those Santa Fe retailers who sell online are outweighed by the online giants likely to be taxed by the state.
“We have some local companies that do online sales but not entirely,” he said. “It’s part of their business but we don’t have an Amazon or a Zappos or an eBay that’s entirely hosted online.”