American Indian veterans
to receive N.M. tax refunds

SANTA FE (AP) — New Mexico plans to refund American Indian veterans for state personal income taxes withheld from their paychecks while they were on active duty between 1977 and 2004.

About 7,000 veterans could receive refunds, which go only to people whose permanent residence was on tribal land when they served in the military.

Taxes were taken out because of a paperwork omission, state Taxation and Revenue Secretary Rick Homans said. The tax department failed to provide documents for Indian service members to declare an exemption from having state income taxes taken from their paychecks, Homans said.

The amount of each refund will depend on such things as pay grade and time served.

Veterans have called for refunds of as much as $40,000, but their estimates are inflated, Homans said.

“One thing we’ve been dealing with is this high expectation level,” he said.

Some refunds could total more than $7,000, but others will be $200 or less, the department reported.

After a 1976 amendment, the Department of Defense began withholding state income taxes from military pay. New Mexico entered into the agreement in July 1977, but Indians living on tribal lands are exempt. The state developed an exemption certificate in 2002 and gave employers instructions for W-4 forms a year later.

However, a three-year statute of limitations prohibited veterans from seeking refunds. Gov. Bill Richardson signed a measure this year creating a settlement fund to repay them.

“The state government illegally taxed veterans,” said Sen. John Pinto, D-Tohatchi, who sponsored the measure. “The veterans want their money back.”

Pinto had no estimate of the number of veterans affected, and the Taxation and Revenue Department found no clear records of how many Indian veterans or their survivors

qualify for refunds. Department of Defense financial records have no breakdown by ethnicity, Homans said.
“Every case is going to be different, based on pay grade, allowances and residency status,” he said.

The U.S. Department of Veterans Affairs estimates that nearly 10,000 Indian veterans live in New Mexico. Eighty percent of those are younger than 70 and may have had state income tax withheld from military pay, Homans said.

His agency said about 60 percent of American Indians in New Mexico live on reservations, but there is no data on the number of veterans who claimed permanent residence on tribal lands.

The 2009 Legislature is expected to vote on appropriating money to the Native American Veterans Income Tax Settlement Fund. From there, it will process claims on a first-come, first-served basis, Homans said.

“We’ll be able to get a better idea of how many veterans there are,” he said. “Then next year we can ask for more funding.”