On April 5, 2011, New Mexico Governor Susana Martinez vetoed a bill that would have imposed additional escrow requirements on nonparticipating manufacturers to the Master Settlement Agreement.

Senate Bill 397, which was supported by New Mexico Attorney General Gary King, would have required nonparticipating manufacturers to make escrow payments for sales on Native American reservations and pueblos in New Mexico.  The bill also would have imposed escrow requirements on other tax-exempt sales, including sales to the state and federal government.

The bill was said to be necessary to avoid the so-called “nonparticipating manufacturer” adjustment to the state’s MSA payments, under which a state’s payments could be reduced if signatories lost market share as a result of the state’s failure to “diligently enforce” its escrow statute.  Opponents of the bill argued that the state is not obligated to amend the statute to make nonparticipating manufacturers’ obligations more onerous; the state must only enforce the original statute as enacted in 1999.

New Mexico’s original escrow statute did not require escrow payments for sales on Native American reservations, or for other tax-exempt sales.  The legislature amended the statute in 2009 to require escrow payments for tribal sales, but then repealed that provision in 2010 as part of legislation that required tribes to charge a 75 cent per pack tax, which is retained for tribal use.

Senate Bill 397 cleared the New Mexico Senate by a 31-6 margin and passed the House 52-6.  But Governor Martinez vetoed the measure, noting that signing the law would have meant breaking her campaign promise not to raise taxes.

For questions and/or comments, please contact Bryan Haynes, at 804.697.1420 or by email.