Feb. 26—A state district judge Monday denied a motion from the city of Santa Fe to toss a lawsuit challenging the city’s authority to impose a voter-approved excise tax on high-end home sales.
The Santa Fe Association of Realtors, which campaigned heavily against the tax ahead of the November municipal election and filed the suit seeking to block it, issued a news release Monday touting the judge’s decision to allow the case to move forward.
“We are pleased that Judge [Bryan] Biedscheid recognized the importance of a thorough review and timely ruling prior to the ordinance’s implementation,” association Past President Drew Lamprich said in a statement.
City Attorney Erin McSherry said she was disappointed. However, she said, “It sounds like the judge is proceeding cautiously.”
An ordinance overwhelmingly approved by voters would impose a 3% tax on the amount of a home sale over $1 million in the city. Money from the tax, imposed on the buyer, would create a revenue stream for the city’s Affordable Housing Trust Fund.
Supporters estimate it could generate up to $6 million a year after it takes effect in May.
The lawsuit alleges the city does not have the authority under New Mexico law to impose the tax, a claim the city disputes. The city filed a motion Nov. 13 — one week after the election — requesting dismissal of the case.
Monday’s virtual hearing on the motion centered on whether the tax is on real estate, which is not legal, or on a service.
Assistant City Attorney Marcos Martinez argued Monday the tax pertains to the conveyance of the title during a property sale and is not in any way a property tax.
“The value of the service doesn’t have a relationship to the tax,” he said.
Benjamin Feuchter, an attorney for the plaintiffs, disagreed.
“There’s a real problem with trying to characterize the purchase of a house as a service,” he said.
After questioning Martinez, Biedscheid denied the city’s motion and requested more explanation in future filings why city officials believe the excise tax is on a service, and therefore in line with state statutes.
Biedscheid said he would like to resolve the case via summary judgment before the tax is scheduled to go into effect May 28.
The plaintiffs filed motions Feb. 12 requesting a summary judgment and a stay on the tax until the case is resolved.
The motion for summary judgment asks the court to find the city ordinance establishing the home sales tax is invalid and unenforceable. It cites a state statute prohibiting home-rule municipalities from imposing property taxes, as well as case law finding the sale of property cannot be considered a service.
In its motion to dismiss the case, the city argued the tax only applies to the potential purchaser and not a homeowner. It cited a case in which the New Mexico Supreme Court ruled against a company challenging a severance tax on oil and gas production on the grounds it was a property tax.
The city plans to file its own motion seeking a summary judgment. Biedscheid set a deadline of April 19.
He also asked Martinez to file a request for an expedited hearing to ensure it is scheduled before the tax is set to take effect.
“I’m glad that the judge is taking this very seriously and will be analyzing the merits of the case,” Lamprich said after the hearing.
He noted the judge’s sense of urgency to resolve the case.
“That’s what’s most important for everybody,” he said.
City Councilor Jamie Cassutt, who sponsored the resolution calling for the excise tax, said in an interview earlier this month the city examined its options and would not have put the tax on voters’ ballots if officials did not believe it was legal.
She noted the 73% of voters supported the measure.
“The city of Santa Fe very much agrees this is something that we need,” Cassutt said.
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