In a Wednesday morning hearing, First Judicial District Court Judge Bryan Biedscheid ruled against a popular and pending tax intended to help create a funding stream for affordable housing in the city of Santa Fe.

At the polls last November, 73% of voters approved the 3% tax on the portion of a home sale that exceeds $1 million to support the City of Santa Fe’s Affordable Housing Trust Fund.

The Santa Fe Association of Realtors and several property owners had sued the city over the ordinance, coined the “Mansion Tax,” shortly before the election, arguing city officials lack the legal authority to impose such a tax and that it would harm the organization and homeowners.

In an October 2023 memo, City Attorney Erin McSherry defended the tax’s legality and later filed a motion to dismiss the case due to a lack of “strong arguments” from realtors, as well as the tax’s overwhelming popularity with voters. Biedscheid rejected that argument Feb. 26 and asked the city for more briefing.

Benjamin Feutcher, one of two attorneys representing SFAR, argued in court May 22 that the ordinance was not an excise tax, which the New Mexico Legislature gave municipalities the power to impose, because the tax is “calculated on the basis of the underlying value of the house itself.”

Rather, “It is no different than an ad valorem tax,” Feutcher said.

However, Senior Assistant City Attorney Marcos Martinez countered that the city had complied with the state statute that gave municipalities the power to enact local taxes, adding “the value of the property is not relevant” because the tax is on the “conveyance of ownership,” not the property itself.

“What the city has to do under state law is name what the tax does. There’s no requirement that the service have some independent value. It’s more identifying and putting the public on notice,” Martinez said. “Excise taxes in particular are not necessarily connected with the value of a service.”

In reply, Feutcher characterized the tax as a “radical expansion” of the law passed by the Legislature, adding the city’s position is “simply semantics.”

“There’s simply no way to make this tax work. What service is the city purporting to tax?” Feutcher said. “The city has taken the position that if they say it’s an excise, then it is. We actually examine how it operates, and when you look at it through that lens, it’s indefensible.”

Ultimately, Biedscheid agreed with SFAR’s argument, and said he struggled with “how the service of transferring the title equates to the full amount of the purchase price between arms-length buyers and sellers,” adding he didn’t think “many of us would view a real estate transaction that way.”

While noting he had voted for the tax and that it “would help free a revenue stream that would address” the housing crisis, nonetheless, Biedscheid said if the tax is based on the full purchase price of a property, “the city would be imposing its excise tax not just on services but on the real property that’s part of the transaction,” which violates New Mexico tax code.

In other words, he supported it at the polls, but doesn’t think it’s legal in its current form.

“I am not sitting up here thinking that what I am ruling is that this tax could in no way be legal [or] that is not a good idea,” Biedscheid said, “but by my reading of the code, in order to do this you would need additional authorization by the Legislature that is constitutionally given the authority to authorize and also limit municipal taxation, and I hope the city will do that.”

Following the hearing, McSherry and Martinez tell SFR while the city plans to follow the order and the tax will not go into effect May 28, there is “a path to appeal.” Martinez subsequently notified Biedscheid of the city’s likely appeal and requested the judge issue an interim or final order before the tax’s original implementation date.

The City Council and Mayor Alan Webber will review the ruling “in detail” at the May 29 governing body meeting, District 4 City Councilor Jamie Cassutt, a cosponsor of the original ordinance, tells SFR via text. “Of course this is not the outcome I was hoping for,” Cassutt writes. “This obviously was a policy Santa Feans are highly supportive of, which illustrates how critical of an issue this is in our community.”

Sandra Wechsler, who worked on the United for Affordable Housing campaign during the municipal election, says in a statement the group is “disappointed but not surprised.”

“The realtors and their national office have been on the wrong side of redlining against communities of color, eviction moratoriums during COVID, and rent control efforts. They have spent hundreds of thousands of dollars in our state to attack candidates and defeat ballot measures like this one,” Wechsler says. “We look forward to the city appealing this case so the will of the voters can be upheld, despite the anti-Democratic actions of the Realtors Association.”

Housing organization Homewise also supported the ordinance’s passage. Chief Executive Officer Mike Loftin tells SFR he’s “disappointed” with the outcome, describing the tax as “a very constructive” way to address ongoing issues with affordable housing. He adds he encourages the city to appeal and “fight it to the end.”

“Doing nothing is not an option,” Loftin says. “We can’t continue to stick our heads in the sand on this.”

SFAR issued a statement from Drew Lamprich, SFAR’s 2024 past president, describing the organization and its members, along with other plaintiffs, as “pleased” by Biedscheid’s “legal determination that the City of Santa Fe does not have the authority to levy a home excise tax on residential property.” While SFAR’s realtors and “affiliated real estate industry members prepared for the implementation of a new 3% excise tax on housing, we are grateful for the thoughtful and comprehensive ruling by Judge Biedscheid today,” Lamprich said.

Webber, however, tells SFR the city team is “convinced that the judge got it wrong.”

“There’s no case law, the judge came up with his own interpretation that not only disagrees with our interpretation, as far as I know, it doesn’t even support the argument of the realtors,” he says. “So we are disappointed.”

Webber adds he personally favors appealing the ruling, noting the tax’s popularity among voters. However, he will wait until the entire governing body is briefed at the next meeting.

“I think we will be able to demonstrate not only that our interpretation is correct, but also that the will of the people is, that this vote should be enacted and put into effect.”

Source: “Judge Strikes Down Santa Fe “Mansion Tax”