Democratic New Mexico state Rep. Javier Martinez, left, of Albuquerque, and Republican Rep. Gregg Schmedes, of Tijeras, converse Saturday, June 20, 2020, on the floor of the New Mexico House of Representatives in Santa Fe. The New Mexico Legislature met in a special session to address a gaping budget hole linked to the coronavirus and related economic upheaval. (AP Photo/Morgan Lee)
View All (2)

SANTA FE, N.M. (AP) — Taxes are being levied on home-delivered groceries that are tax free when purchased at stores in New Mexico, undercutting incentives to stay at home during the coronavirus pandemic, tax policy experts warned Thursday.

A panel of government income experts including Taxation Secretary Stephanie Schardin Clarke noted the problem as they delved into the financial consequences of COVID-19 and New Mexico's stay-at-home order to avoid infections. The pandemic is wreaking havoc on public finances in state and local government.

Gov. Michelle Lujan Grisham on Monday signed relief legislation that waives interest and penalties on late tax payments and accelerates payments of $48 million to local governments based on online retail sales. She signed budget revisions Tuesday that resolved a general fund deficit of well over $1 billion by reducing state spending increases and tapping federal recovery funds and financial reserves.

At a quarterly meeting of the administration's tax advisory panel, experts sounded an alarm about the erosion of government income that supports basic services, including police and fire agencies.

“We haven’t figured out a way to establish a tax structure that allows the state and municipalities and counties to raise adequate revenue to meet the needs of their citizens,” said James Jimenez, executive director of New Mexico Voices for Children. “I would be in favor of a much broader conversation.”

Democratic state Rep. Javier Martínez of Albuquerque indicated that the Legislature will take up proposals again in January to tax and regulate recreational marijuana sales as a new source of government revenue.

Martínez, co-chairman of a House taxation committee, suggested the state may want to consider a temporary surtax at big box retailers such as Walmart and Home Depot that were exempt from business closures under a public health order that temporarily shut down many smaller, nonessential retail businesses.

“These big box stores are making a killing ... in many cases at the expense of small business,” Martínez said.

Schardin Clarke said it would be costly to set up that kind of surtax initially.

On the subject of taxing home food deliveries, the Cabinet secretary said her agency is keenly aware of the practice from public complaints. State law provides for a tax deduction for sales “at” food establishments, she said.

Gross receipt taxes on sales and services range from about 5.5% in rural Catron County to more than 9% within the city of Espanola.

“We get a lot of inquires at the department right now about tax on delivered groceries,” she said. “There are some who are charging it. I don’t know what share of grocers across the state.”

New Mexico lawmakers removed the gross receipts tax from sales of most food items in 2004. Lost revenues to local governments are offset by state replacement payments each year in excess of $100 million.

Schardin Clarke said her agency is extending an unofficial moratorium on aggressive tax collection practices for an additional month until the start of August.

“When they start collecting again, they’re going to have a lot of tax payers who just feel threatened financially, and that fear is going to come across either as panic or sadness or anger," Schardin Clarke said. ”We need to be ready to deal with that and respond in a helpful way and have all the tools necessary that we can offer."