Getting Along by Raising Taxes

Tut-tutters who abhor “polarization” and adore “bipartisanship,” rejoice. New Mexico’s Democrats and Republicans have united. So have New Mexico Voices for Children, the Greater Albuquerque Chamber of Commerce, and AARP.

They’re all backing the taxation of online shopping.

HB 202 has passed the Business and Industry Committee, and is now before the Taxation and Revenue Committee. Just one legislator — the heroic Rep. Yvette Herrell (R-Alamogordo) — voted “no.” The bill requires vendors “engaging in business” beyond New Mexico’s borders that have more than $100,000 in annual gross receipts within the state collect the GRT.

As things currently stand, businesses in the Land of Enchantment must pay a “compensating tax” when they buy from out-of-state sellers. But individual e-shoppers, and the vendors they purchase from, escape taxation. HB 202, and its counterpart in the Senate, would change that in a big way.

Rep. Monica Youngblood (R-Albuquerque), drinking the “fairness” Kool-Aid, believes that the bill amounts to “really just closing a loophole.” Not exactly. As as the Tax Foundation’s Joseph Henchman noted: “Despite how the issue has been portrayed, the inability of states to require out-of-state businesses to collect sales taxes is not a ‘loophole.’ U.S. Supreme Court precedent in both the Quill and Bellas Hess rulings stipulate that a seller have nexus with a state before that state can require the seller to collect taxes for sales to its residents. The U.S. Constitution was adopted in large part to prevent states from arbitrarily imposing complicated rules on out-of-state individuals and businesses who may have no say in how those taxes are administered.”

The New Mexico Tax Research Institute‘s Richard Anklam, always eager to please Santa Fe’s revenue-grubbers, has advised legislators that since the GRT isn’t a “true” sales tax, it might not be subject to the High Court’s rulings in Quill and Bellas Hess. But that assumption could be nothing more than wishful thinking. (If anything, the GRT’s targeting of sellers over buyers makes the justification for taxing out-of-state vendors weaker.) And predicting justices’ future decisions on the taxation of Internet-enabled commerce is a dicey endeavor.

At their core, the House and Senate online-taxing bills respect the time-honored New Mexico tradition of making others responsible for the state’s fiscal health. They’re a desperate and legally dubious attempt to deny the need to get the Land of Enchantment’s fiscal house in order through economic-expansion-driven revenue growth and a sweeping right-sizing of state government.