Legal Battle Over Popular Housing Tax Continues

A dispute over the legality of a high-end excise tax that Santa Fe voters approved in the November election will continue to a hearing after attorneys for both sides made new filings in the First Judicial District Court.

The Santa Fe Association of Realtors and several homeowners sued the City of Santa Fe Oct. 12, arguing the city did not have the power to enact the tax under the Affordable Housing Act in the New Mexico Constitution. Additionally, attorneys argued the ordinance conflicts with state deed recording statutes and priority law.

A few weeks later, final ballot tallies showed 73% of 20,856 Santa Fe voters favored the tax. Under the new measure, a buyer of a home over $1 million will pay a 3% excise tax only on the portion of the sale that exceeds the threshold. For example, the buyer of a home priced at $1.2 million would owe $6,000. The revenue generated will support the city’s Affordable Housing Trust Fund.

City Attorney Erin McSherry, who had already written a memo on her opinion that the tax was legal, and Senior Assistant City Attorney Marcos Martinez filed a motion to dismiss the case on the grounds that home-rule laws give cities the authority to govern themselves.

Attorneys for plaintiffs shot back with the reply filed Nov. 13, asking the court to let the case move forward because the motion lacked merit and the city “mistakenly conflates the issues of whether a claim is meritorious and whether it is adequately pleaded.” Furthermore, they argued the city overlooked New Mexico case law “which is directly contrary to its positions.”

Now, the city has asked Judge Bryan Biedscheid for a hearing. McSherry tells SFR it’s not likely to take place before the new year. In the meantime, she says, the city is gearing up for the tax to take effect in May.

“We are working with the internal departments like the Finance Department, in my department and the Office of Affordable Housing to move forward with the rules and the forms and all that type of thing,” she says.

The city’s filing described arguments from the plaintiff as “limited, underdeveloped, unpersuasive and contrary to public interest.”

Plaintiffs, however, say the tax is unlawful.

“At its core, the Ordinance imposes a tax on something—the purchase of real property —which cannot be classified as a ‘product’ or ‘service’ within the meaning of § 3-18-2 under strict construction principles. The Ordinance is therefore unlawful and unenforceable…and the Court should enter a judgment to that effect,” Attorneys Benjamin Feutcher and Thomas Bird wrote in their reply.

“Any delay in the recording of a deed exposes a purchaser (and consequently, that purchaser’s lender) to the risk of competing claims to the underlying real property. Defendant has no authority to interfere with New Mexico’s real property priority laws or impose this sort of risk on real property purchasers (or their lenders), so the Court should declare the Ordinance to be unenforceable on this separate basis,” attorneys for the plaintiff added.

McSherry denies the claims, telling SFR attorneys are “reaching” in their argument.

“Those statutes are about the county clerk. So the county clerk has to record the deeds upon receipt, but nothing in our ordinance says you can’t file your deed, it says you have to pay the tax first. So it doesn’t stop the county clerk from recording anything,” she says.

Attorneys for SFAR and the homeowners did not respond to requests for comment before publication. In 2008, the association filed a similar lawsuit but withdrew it after voters rejected a similar tax proposal in an election the next year.