Tax error pits city against state

EUNICE, N.M. (KRQE) - A small New Mexico city is preparing to sue the state claiming a demand to fix a $2 million tax error could cripple the town financially.

Eunice, a city of about 2,500, people sits in far southeast New Mexico south of Hobbs.

Mayor Johnnie "Matt" White said city officials were notified by the Taxation and Revenue Department last month that an area business was mistakenly paying gross receipts taxes to the city when the business is actually in Lea County.

The amount overpaid to Eunice over five year's time was more than $2 million.

The state told Eunice to pay it back and gave the city a March 5 deadline to decide what to do.

"We're going to file a court case," White told KRQE News 13.  "We're in the process of doing the paperwork and challenge the state on how they're reading the regulation."

According to the city's understanding of the law Eunice should only have to repay about a year's worth of taxes, not the five years the state is demanding, White said.

The city has already imposed a salary and hiring freeze and canceled more than $400,000 worth of construction projects.