Saturday, March 26, 2005

A taxing predicament

Dana Bowley, Editor

Imagine for a moment that at your job you never saw your own timecard and nobody told you your hourly rate of pay. Come payday, the boss hands you a check and says, "Here's what we owe you."

The check has no information about hours, rate or deductions, and the total is less (or more) than your last check.

You ask, "How do I know that's all I have coming?"

The boss says, "Don't worry about it, we know it's right."

You ask, "How come you can't show me the proof?"

"Well," he replies, "it's proprietary information. If I gave it to you, you might share it with other employees or someone else, and with all that information you might be able to figure out how much the company makes. Then you might share that information with someone, and we can't have that."

This example is obviously absurd. Employers are required by law to provide you with all your wage details.

But this is exactly the situation local governments are faced with in New Mexico.

Imagine for a moment you're running the City of Socorro (or Village of Magdalena, or a New Mexico incorporated municipality of your choice — I'm easy to get along with).

Your main source of revenue is your share of the Gross Receipts tax, a tax imposed on most goods and services sold within your boundaries.

Businesses report and send their Gross Receipts taxes to the state, which then returns a portion of the money to the municipality or county in which it was generated. Each month, get a check from the state for your share of all Gross Receipts taxes reported from your municipality.

But are you getting all the tax revenue due you?

Socorro City Clerk Pat Salome would say you probably aren't, but it's almost impossible to know for sure.

In all likelihood, the state has sent you the correct amount based on what it knows. The problem, Salome suggests, is what the state doesn't know: one, did the businesses report the correct amount; and two, did they report it for the correct municipality?

The state has no immediate or easy means of answering either question. And the municipality, which is in the best position to answer them, can't because it is denied access to the necessary information.

Salome says the problem, like the hypothetical employment situation above, is that all the local government gets is a check with no details other than a list that says "these businesses paid some tax under your filing number."

You don't get any accounting for who paid how much — they could have paid a nickel for all the city knows, Salome said — and you might not even be able to identify who paid because the payer's name is not necessarily the same as the business (for instance, a place like McDonald's might be shown under a corporate name such as XYZ Enterprises).

So you, as chief of the city of your choice, ask, "How do I know that's all I have coming?"

And the state says, "Don't worry about it, we know it's right."

So you ask, "How come you can't show me the proof?"

"Well," the state replies, "that's proprietary information. If we tell you how much a business paid in taxes, you would know how much revenue it had. And we can't have that."

So, Salome says, cities like Socorro are constantly in jeopardy of losing revenue.

Here's an example of how it can happen:

Broken Shingles Roofing Co. from Albuquerque comes into Socorro and in one month re-roofs 20 homes damaged by the hailstorm. The company collects Gross Receipts taxes on all 20 jobs here, but the company's bookkeeper, innocently or ignorantly, reports some under Socorro's number and some under Albuquerque's number.

Result: Albuquerque gets some of Socorro's tax revenue, and Socorro doesn't know it. The list the city gets only shows that Broken Shingles paid some tax, not how much or for what — and the city is barred from getting that information.

Salome knows Socorro has been shorted this way in the past, but that the errors were generally only discovered by sheer luck. Other than that, local governments have little chance of finding out without going through a long, complicated, convoluted process. Even then, Salome says, results are spotty.

His suggestion is that the state establishes in the Taxation and Revenue Department an employee to serve as a sort of "ombudsman" for the municipalities and counties that rely so much on Gross Receipts taxes.

The sole function of this person, whose salary might even come from the local governments, would be to help those governments verify that taxes are reported and distributed correctly.

This is particularly important, he said, because of the change in the tax structure with the removal of taxes on most grocery food. In the first month of the new structure, a significant glitch turned up that resulted in millions of dollars not being distributed correctly.

With the new structure, Salome says, how can local governments ever know if they're getting their correct share unless someone is looking out for them? The January glitch was only discovered because virtually every local government had a significant drop in revenue and raised questions, not because the state noticed anything amiss.

Salome says he doesn't want proprietary business information, but he thinks it's only fair that local governments have some guarantee they're receiving what is owed.

Is anyone in Santa Fe listening?

E-mail this story Printer-friendly version