— By Alysa Landry —

The Daily Times

SHIPROCK — A group of American Indian veterans is challenging the state's settlement of a tax debt incurred when personal income taxes were taken from veterans' paychecks while they were on active duty.

The New Mexico Taxation and Revenue Department released a report Oct. 1 revealing it owes as much as $2 million in tax refunds to about 7,000 American Indian veterans serving in the military between 1977 and 2004.

But veterans claim the department unlawfully settled without seeking input from American Indians.

"There was no study done among American Indians," said Raymond Jim, a Vietnam veteran and president of the Shiprock Agency Veterans Organization. "The tax department made appointments to come to the reservation, but they never came."

Veterans also claim the state Taxation and Revenue Department acted beyond its authority when it compiled its report.

The department was authorized under Senate Bill 574 to create a settlement fund in the state treasury to pay back taxes unjustly withheld from active military personnel. The refunds apply only to veterans whose permanent residence was on tribal land during the time they served.

The legislature is expected to approve funds in January and the department will begin processing refunds shortly afterward.

Yet Shiprock veterans maintain a task force was charged with presenting the settlement.


Members of the Navajo, Jicarilla Apache, Mescalero Apache, Pueblo and Zuni tribes formed an Intertribal Veterans Task Force in May. The task force estimates the state owes refunds to more than 15,000 veterans who served from 1942 to 2004, and the amount owed is more like $300 million, Jim said.

Jim claims Senate Bill 574 authorized only the establishment of a fund, and any additional details must be presented in additional pieces of legislation. He and other veterans groups are prepared to file a class-action lawsuit if the state does not retract its settlement.

"The settlement is not the only issue," he said. "The issue is that the Taxation and Revenue Department went beyond the bill. We don't want a lawsuit because that could take 10 years. We want a settlement, but a fair settlement."

State claims

Rick Homans, cabinet secretary of the Taxation and Revenue Department, said representatives from his department, the Indian Affairs Committee and Veterans Services attended several data-collecting meetings with tribes and pueblos.

Homans also contends that the department was within its rights to move forward with the 80-page report, which includes formulas for determining taxes unjustly withheld by using time spent in active duty, rank and marital status.

"We feel we have the authority through the bill to develop regulations that will govern the disbursement of money," he said. "Developing those regulations will be a public process. We intend to engage in a formal government-to-government consultation with the tribes, to go through public hearings and reviews. We're just at the beginning of that process."

Additional legislation is necessary, Homans said, if the three entities determine the state also owes interest on the taxes withheld.

"If the legislature wants us to calculate and pay interest to these individuals, that needs to be specifically passed in a statute," he said. "Otherwise, if there's money in the fund, then once we've developed the regulations we'll be set to go," he said.

The Taxation and Revenue Department made public its meeting schedule and notes from April to October of this year. The documents indicate department employees met 16 times with groups of American Indians, including at least six on the Navajo Nation and one in Shiprock. State officials were escorted out of the San Felipe Pueblo last month when tribal members declared the state was not welcome.

During the other 15 meetings, the entities confirmed that the U.S. Department of Defense improperly withheld personal income taxes from American Indian veterans, but New Mexico did not begin mandatory withholding of state taxes until 1961 and the Department of Defense did not withhold until 1977.

"There was a tremendous amount of outreach and attendance at the meetings," Homans said. "We've been out and we've been listening, asking for input."

Taxes prior to 1977

Louis Izels, a Vietnam veteran and a member of the Disabled American Veterans, said he was paid in cash while serving overseas. He, like many American Indian soldiers, joined the military without knowing his Social Security number.

"I didn't even know I was being taxed," he said. "There was no paperwork, no pay stubs.

Izels' discharge papers reveal he was taxed, he said. Copies of his paperwork are in a stack of more than 100 documents the Shiprock Agency Veterans Organization has collected. The documents include discharge papers and pay stubs for veterans serving in World War II, the Korean War and the Vietnam War.

"It's clearly stated in the discharge papers," Izels said. "The government says the taxes were never deducted, so I'm just curious where all the money that came out of the paychecks went."

Izels said the state never asked to see the documents. Instead, the state compiled a report stating taxes were not withheld before 1977. Izels said he has proof of the opposite, including discharge papers that indicate veterans were taxed as far back as 1936.

"The state is taking the easy way out," he said. "It's twisting its words because it doesn't want a lawsuit and it doesn't want to do the research all the way back to World War II."

Homans said he has heard claims that taxes were withheld prior to 1977, but the U.S. Department of Defense maintains taxes were not withheld.

"There are definitive statements by the Department of Defense that they did not withhold tax prior to 1977," he said. "We have heard claims that they did. Out of deference to these individuals, we will leave that open. We feel pretty strongly that there were not taxes withheld prior to 1977, but if someone can come forward and provide us with evidence we can follow up on, we'd be eager to do something."

The fund was set up without a statute of limitations, Homans said. Any veteran or survivor unjustly taxed is eligible for a refund.

"Nothing in what we have proposed sets any limitation on whether this was done in 1925 or 1945 or after that," he said. "The process says if you are a Native American domiciled on tribal land and you actively served in the military and you had taxes withheld, then you would be eligible for a repayment of those taxes."

The refund process

The Taxation and Revenue Department has no way to estimate the number of veterans or survivors who have claims. It will work with the U.S. Department of Defense to extract documents as individuals request them.

"When these Indians joined the military, they didn't file a W-4 saying they were exempt," he said. "There's no separate classification, no way for us to just extract the information for Native Americans."

The Taxation and Revenue Department will begin processing refunds early next year after the Legislature votes to appropriate funds, Homans said. Claims will be investigated on a case-by-case basis.

"The process is not yet set up," he said. "We've proposed a process, and once it's finalized, we will do a lot of outreach through tribal governments and state agencies to reach veterans who may have a claim. It will be streamlined, a one-stop shop where veterans can get answers."

Alysa Landry: alandry@daily-times.com