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Leaders plan action after internet tax ruling

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New Mexico government and business leaders expect legislation will be introduced in 2019 to allow the state to require online retailers without a store here to collect and remit sales tax. (Lisa Dunlap Photo)

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Some New Mexico leaders are making plans to push for legislation in 2019 to collect sales tax from online retailers following the U.S. Supreme Court decision Thursday that permits requiring merchants without physical locations in the states in which they are doing business to collect taxes.

The New Mexico Municipal League has supported such legislative efforts in the past and will seek to have similar legislation introduced when the New Mexico Legislature reconvenes in January, said Executive Director William Fulginiti.

He said the ruling was “probably three decades overdue.”

“It created such an imbalance with our own businesses and our own Main Street. We were placed at such a severe disadvantage by the previous decision,” Fulginiti said. “This decision will give us an opportunity to fix that.”

He said that New Mexico is one of five states that needs to enact “corrective” legislation, which he expects will occur in January.

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The online retailer Amazon started collecting and remitting sales taxes from its New Mexico customers in 2017, and some laws already exist requiring businesses to pay taxes on their online purchases. But the new legislation could require many online merchants to pay taxes on all consumer purchases.

“The problem with having the imbalance is that it creates an incentive to shop outside of your city or out of state,” Fulginiti said. “And, as you have seen in the past, bookstores and any number of businesses have closed — so it is a loss of jobs at the local level. So if we can maintain our jobs, those families will have income and can buy houses and groceries. So it is best to keep our jobs here.”

Fulginiti estimated that New Mexico loses about $200 million a year from untaxed transactions conducted online.

He also stressed that any legislation passed would not be creating a new tax but only applying the existing gross receipts taxes to internet businesses selling to New Mexico consumers.

The decision by the U.S. Supreme Court concerned a 2016 lawsuit by the state of South Dakota against three large online merchants, Wayfair, Overstock.com and Newegg.

The ruling overturns a 1992 opinion by the court in Quill Corp. vs. North Dakota, which said that states have no authority to require businesses without a physical presence in their boundaries to collect or remit taxes.

In making their ruling, the five justices in the majority — Anthony Kennedy, Ruth Bader Ginsburg, Clarence Thomas, Samuel Alito and Neil Gorsuch — wrote that business has changed so dramatically due to the internet that prior rulings no longer made sense. They said that existing laws gave an unfair advantage to some businesses and deprived states of their ability to seek prosperity.

Dissenting justices — John Roberts, Stephen Breyer, Sonia Sotomayor and Elena Kagan — stated that it should be left up to Congress to change laws regarding interstate commerce.

Truth or Consequences business owner Celeste Rich said that she hopes whatever legislation is enacted will distinguish between large enterprises and small businesses.

“I think more and more the small retailer, whether brick-and-mortar or online, are being squeezed out by the major retailers,” she said.

Rich has operated new-mexico-online.com since 2010, which sells New Mexico-made items by individual artisans and crafts makers, many of whom have no other online sites or access to computers. She said she had to close a physical store in 2012 after a “big box” retailer came to town.

She noted that she already collects sales taxes on purchases by New Mexico residents since she is located here, but says it will mean more expense for small retailers to buy the software or contract with the vendors who can manage the sales tax collection effort if several states begin to institute new laws.

“I kind of agree with the ruling as it applies to the giant merchants … because most other merchants have to collect sales tax even if you buy online from Sears, for example, because they have stores, they have to collect sales tax,” she said. “But for small businesses it could be onerous. We don’t have a large staff or a lot of revenue, so we are going to have to farm out and buy software in order to comply.”

Pat Block, a consultant and legislative lobbyist for the New Mexico Retail Association, said most likely any legislation introduced will follow the court’s guidelines, which talked about a $100,000 transaction threshold before sales tax compliance would be enforced.

“The world is a vastly different place than the 1990s,” he said, “so we are happy with the decision.”

The association represents both large chains such as CVS and small mom-and-pop shops.

He noted that New Mexico was one of 40 states to file an amicus brief in the Supreme Court case in favor of South Dakota.

New Mexico Tax Research Institute Executive Director Richard Anklham said the Supreme Court ruling and tax laws are complicated. He said that there will still be limitations on how states can tax online merchants and that it will take several changes in laws and New Mexico Department of Tax and Revenue regulations before any additional revenues will be seen, especially at local levels.

“The way New Mexico does it, local and city governments won’t get any of it,” he said. “It means there is more work to be done to make the playing field level.”

Senior Writer Lisa Dunlap can be reached at 575-622-7710, ext. 310, or at reporter02@rdrnews.com.