Tax Reform and the Special Session, Part III

So much for tax reform.

There will be no consideration of a major tax-modification package during the special session that starts today. Calling it “not fair to the public,”” House Speaker Brian Egolf (D-Santa Fe) has decided that the timing isn’t right for a significant revamp of the tax code.

But that’s no reason to nix the final installment of our look at tax reform in New Mexico, because the taxation of Internet sales — the topic planned for today — is very much alive in Santa Fe. While the ideas enumerated in HB 412, the 333-page bill favored by the governor, are DOA in the special session, the provisions contained in SB 202 are not. That bill made a number of important tax changes, including hikes in the gasoline and diesel taxes, a big boost to the weight distance tax permit fee, and an increase of the motor vehicle excise tax from 3 percent to 4 percent.

Yet the portion of SB 202 that stands the best chance of approval in the special session is the imposition of the gross receipts tax on purchases New Mexicans make from out-of-state vendors.

Fans of bipartisanship, congrats. The “Amazon tax” enjoys strong support from Democrats and Republicans in New Mexico. And as the Pew Research Center noted earlier this week, the story is the same beyond our borders: “In 2017, six states have enacted laws or set tax rules that address the lack of tax on remote sales — Alabama, Indiana, North Dakota, Virginia, Tennessee and Wyoming. All but Virginia have Republican governors and majority GOP legislatures.”

Revenue-grubbing pols, red and blue alike, think that the issue is settled. But it’s not. Proponents of taxing Internet sales consider their policy the closing of a “loophole” that harms brick-and-mortar sellers. But as the National Taxpayer Union explains, the “‘loophole’ is actually the physical presence standard, a firmly grounded constitutional doctrine the Supreme Court has upheld for decades to protect businesses and their customers from predatory tax administrators. The physical presence safeguard helps to protect taxpayers from many types of aggressive policies that could affect income, property and other taxes.”

The Tax Foundation agrees, arguing that the “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.”

With so many states targeting Internet commerce, the issue will surely be addressed, once again, by the High Court. And the outcome, give the present lineup of justices, is anyone’s guess. Relying on the “new money” Santa Fe would get from applying the GRT to online sales could prove to be a sucker’s bet.