- Associated Press - Thursday, December 15, 2016

SANTA FE, N.M. (AP) - The head of the New Mexico Taxation and Revenue Department resigned Thursday after prosecutors raided her agency’s offices and seized her personal tax filings amid allegations she gave preferential treatment to a former business client.

Gov. Susana Martinez accepted the resignation of Secretary Demesia Padilla and ordered the department to cooperate with an investigation by the attorney general.

The Office of Attorney General Hector Balderas served a search warrant Wednesday at the taxation department to seize personal and business income tax records for Padilla and her husband, Jessie Medina.

In a search warrant affidavit, an investigator described interviews with several taxation department employees that suggested Padilla may have tried to circumvent an agency audit of a former business client, identified as Harold’s Grading and Trucking of Bernalillo.

Unnamed taxation department employees told investigators they were instructed by Padilla to stop the audit of Harold’s and move the matter to protest proceedings - a step outside of normal agency practices. Another employee recounted rebuffing Padilla when the secretary asked to review the incomplete audit file.

Investigators under the attorney general also were examining whether Padilla failed to report income from the company on financial disclosure forms filed with the state in her role as taxation secretary, and whether taxes were paid on that income.

Padilla’s attorney, Paul Kennedy, could not immediately be reached for comment. Padilla took office as the state’s top taxation official in January 2011 at the outset of Martinez’s first term as governor.

Padilla told investigators earlier this month that she stopped working for Harold’s as she took office but continued to receive money owed for earlier work, as prosecutors probed recorded payments of $25,360 from 2011 to 2013. She declined to answer specific questions about payments on advice from her attorney.

Investigators said accounting files for Harold’s held by Padilla’s accounting partnership were destroyed after the papers fell into disarray in a storage room and were considered by Padilla to be useless. Padilla told investigators that she and her husband systematically burned the records.

Investigators continue to question whether Padilla performed side-work for the business as a certified public accountant while serving as taxation secretary in possible violation of New Mexico’s Government Conduct Act.

An employee of Harold’s told investigators that Padilla continued to do accounting work for the business until early 2013, though husband Medina signed off on work and payments were rerouted electronically instead of through checks to Padilla. It was unclear whether Padilla received the necessary permission from her agency to perform outside work and avoid conflicts of interest.

The investigation of Padilla stems from an anonymous letter from unidentified department employees and similar allegations forwarded by State Auditor Tim Keller.

Keller’s office hired a forensic auditing firm that found evidence supporting the accusations that Padilla gave preferential treatment to her former client in a tax audit.

“There is no place for abuse of power in the highest ranking officials,” Keller said in a statement Thursday.

Padilla’s resignation comes after Secretary of State Dianna Duran stepped down in 2015 and was convicted of embezzlement and money laundering. She acknowledged using campaign funds to fuel a gambling spree.

Martinez said in a statement that she takes allegations of misconduct seriously.

“That is why I ordered the tax department to fully cooperate with the Attorney General’s Office during the course of the investigation.”

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