Housing Tax Lawsuit Stays Afloat

An excise tax on high-end home sales in Santa Fe will head to a hearing before the end of May, following the Monday denial of a motion to dismiss a complaint from the Santa Fe Association of Realtors.

“We’re disappointed, but we will certainly get more discovery for the judge,” City Attorney Erin McSherry told SFR after the ruling from First Judicial District Court Judge Bryan Biedscheid.

In November, voters approved the so-called “Mansion Tax,” which requires a buyer to pay 3% of the portion of a home sale that exceeds $1 million. But shortly before voters were set to consider the tax last fall, SFAR and property owners Kurt Hill and Richard Newton filed a lawsuit arguing it was illegal. It is set to go into effect beginning May 28.

McSherry previously wrote a memo on her opinion that the tax was legal, and the city subsequently filed the dismissal motion citing a lack of “strong arguments” from realtors, as well as substantial public support—73% of 20,856 voters cast ballots in favor of the measure to impose the tax and use the revenue for affordable housing.

“In light of the fact that a purchaser could land in jail if the tax isn’t paid, these legal issues must be resolved,” Drew Lamprich, past president of the association said in a statement released after the hearing. “We are pleased that Judge Biedscheid recognized the importance of a thorough review and timely ruling prior to the ordinance’s implementation.”

One of the principles at issue is whether the tax would be imposed on a service, as allowed by state law, versus as an ad valorem tax based on the monetary worth of the property.

Senior Assistant City Attorney Marcos Martinez told Biedscheid the city maintains its position that the tax would be levied on a service.

“The city cited the definition from Black’s Law Dictionary, which defines services as a ‘tangible commodity in the form of human effort,’” Martinez told the judge. “So what the city has done is it has located a service that the seller does for the purchaser, and it imposes the tax on the purchaser, but it is the conveyance of ownership that is the service…Simply because no one has imposed a tax at this point before over this type of service is not an indication that it is not a service or that the city has not validly designated the service for the purposes of the ordinance or statute.”

Benjamin Feutcher, who represents SFAR and the property owners, told Biedscheid the opposite was true.

“Frankly the analogy with the use of the term ‘services’ is contrary to both New Mexico law and common sense,” he said. “If I’m buying your house you’re not performing any labor for me. I’m not performing any labor for you…and that is what is being taxed here.”

The New Mexico Court of Appeals, he argued, already ruled the transfer of a house is not classified as a service.

Plaintiffs are also seeking an injunction to prevent the tax from going into effect until the matter is adjudicated. In motions filed Feb.12, the association and property owners reiterated arguments that the state Supreme Court has ruled that New Mexico law denies home rule municipalities the power to impose the tax.

On Monday, Biedscheid pushed back on the city’s analysis and said he was “not clear” on how the consideration paid for the property relates to the value of the service or the transfer. He said he wanted a more detailed briefing.

“I do think the plaintiffs have stated a claim, as I understand, upon which relief could be granted,” Biedscheid said. “I would like to get this decided before the tax goes into effect.”

The city has until March 7 to respond to the realtors’ original complaint. It must then reply to the injunction request by March 15. A motion for summary judgment and a response to the original motion for summary judgment filed by realtors would be due no later than April 19.