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Orders are written statements to implement a decision after a Department administrative hearing. 

A taxpayer may file an appeal with the New Mexico Court of Appeals within 30 days after the date of the decision. Appeals are decided based on the evidence and arguments presented at the administrative hearing. 



04/14/2017

17-20

Christopher Roche & Nguyen H. Park

On November 21, 2016, the Department assessed the Taxpayers for penalty and interest owed for the 2015 personal income tax (PIT) period. The Taxpayer filed a timely written protest with the Department on December 23, 2016. The Taxpayers argued that they had originally filed their 2015 state PIT return on time and at the same time they filed there 2015 Federal income tax return. The Taxpayers testified that they mailed in their state return and payment by following the instructions provided by the state. The Taxpayers starting contacting the Department once they noticed that their check for their federal income tax due had cleared but their check for the state had not. Every time the Taxpayers had contacted the Department they would get an automated phone message response indicating that return processing times were taking up to six weeks. In the first or second week of October 2016, they were able to speak with a Department representative that informed them that there was not record of their 2015 PIT return and payment ever being received by the Department. Upon learning this information, the Taxpayers re-mailed their 2015 personal income tax return and payment. This time the payment cleared their account. Shortly after, the Taxpayers were assessed by the Department for penalty and interest for an untimely filed return. During the hearing, the Taxpayers provided evidence that their return and payment were mailed on April 16th or April 17th, 2017 which is in compliance with Section 7-1-9 NMSA 1978. However, per regulation 3.1.4.10 (C) (2) NMAC if the mailed items are not received by the Department the contents are not considered timely. The Hearing Officer determined that the Taxpayers exercised reasonable care when mailing their 2015 personal income tax return and payment through the United States Postal Service and that the Taxpayers did not fail to act when they were required to file and submit payment to the Department. The Hearing Offer decided based on the information above that penalty could be abated. For the issue of interest, the Hearing Officer indicates that the use of “shall” makes the assessment of interest mandatory and not discretionary. As the tax was not paid when it was due, interest was properly assessed. For the reasons above, the Taxpayers protest is granted in part and denied in part.


04/14/2017

17-19

Mohamed B. Aswald, M.D., P.C

The Taxpayer submitted a claim for refund on November 4, 2015 for an overpayment of gross receipts taxes for reporting periods from February to December of 2012. On November 18, 2015, the Taxpayers claim for refund was denied by the Department due to the information provided not matching the deduction requirements. On February 10, 2016, the Taxpayer filed a timely protest with the Department. The grounds of the protest were that the Taxpayers former certified public accountant (CPA) had incorrectly reported his gross receipts tax in 2012 and did not claim the applicable deduction for prescription drugs under Section 7-9-73.2 NMSA 1978. During the time at issue, the taxpayer was a physician authorized to dispense prescription medications approved by the Federal Drug Administration (FDA) and obtained through FDA-approved pharmacies. As part of his practice the Taxpayer would purchase medications, administer the medications to his patients, and bill the appropriate party for payment of the medications. From 2003 to 2014, the Taxpayer employed an out-of-state CPA. The Taxpayer felt that too much gross receipts tax was being paid monthly in 2014 and hired a CPA in New Mexico. The CPA reviewed the Taxpayers records and determined that the Taxpayer was eligible for a deduction under Section 7-9-73.2 NMSA 1978 for the sale of prescription drugs. The Taxpayer then filed an application for refund for the period at issue. In early 2012, it was brought to his attention by the FDA that since July of 2010 the Taxpayer was purchasing non-FDA approved drugs from a specific pharmaceutical company. The Taxpayer clarified that he was unaware that the company in question was selling non-FDA approved drugs until it was brought to his attention by the FDA. The taxpayer is seeking the deduction for prescription medications for all receipts, both from the authentic FDA-approved medications and the counterfeit non-FDA approved medications for the time at issue. The Taxpayer argued that at the time the medications were purchased he was unaware that one of the companies he was purchasing prescription drugs from was not FDA-approved. Therefore, the Department should allow the claim for the deduction based on the full cost of medication incurred during the time at issue. The Department argued the Taxpayer filed the application for refund when he was fully aware of which pharmacy the non-FDA approved prescription drugs or counterfeit drugs were purchased from. Under Section 7-9-73.2 NMSA 1978, the statute has very specific qualifications of what is considered a “prescription drug” and the Hearing Officer was persuaded that the prescription drug deduction was not applicable for counterfeit drugs. The Taxpayer did not provide any documentation to differentiate deductions claimed for legitimate prescriptions and counterfeit non-FDA approved prescriptions. The Taxpayer acknowledged that the information could be provided but it would be time consuming and costly. The Hearing Officer determined that as the Taxpayer was unable or unwilling to provide documentation for only the legitimate prescription drugs that the Taxpayer did not establish a right to claim the deduction and therefore the Taxpayer’s protest is denied.


04/10/2017

17-18

Spirit Halloween

On March 7, 2016, the Department assessed Taxpayer for gross receipts tax, penalty, and interest for the combined reporting system (CRS) for the periods starting January 1, 2009 to December 31, 2012. The Taxpayers filed a timely written protest on May 20, 2016. The Taxpayer requested that the penalty and interest be abated in order to facilitate the payment of the uncontested tax due. The Taxpayers wife testified that the business was started in 1995 as a seasonal pop-up store from September to October and currently has 15 stores in four different states. At all relevant times of the protest the Taxpayer was the sole responsible party for the business and for the filing of the CRS returns. In July of 2014 is when the Taxpayers wife and children started assisting with the business responsibilities. The Taxpayers wife testified that the Taxpayer is currently retired and suffers from a medical condition that affects his eyesight and has affected the Taxpayers well-being for the last 3 to four years. The Taxpayers wife testified that the medical condition possibly occurred during the years at issue in the protest and only grew in severity over the years since. Currently, the Taxpayers wife and children maintain the daily operations of the business and try to limit the Taxpayers exposure to the business to minimize the associated stresses of operating the business. During the hearing, the Taxpayers wife explained that she did not know for how long the medical condition had been affecting her husband and that she did not know if the medical condition rendered him unable to prepare and submit CRS returns and payment or to get assistance from another individual with this task for the business. The Taxpayers wife testified that while doing her research for the protest auditor she determined that the records were not kept in good order but despite poor record keeping she was able to reconstruct the business records upon which the gross receipts taxes should have been paid and was confident that her figures were accurate. With the cooperation of the Taxpayer the Department adjusted the assessment to more accurately reflect the amount of tax, penalty, and interest due for the time at issue. It was determined by the Hearing Officer that the decision of the protest must be based on the facts and the law and must not be influenced by sympathy or prejudice. When it comes to the issue of interest it was determined that interest is mandatory based on statute and for that reason the Department is without legal authority to abate it and the Hearing Officer is without legal authority to grant the relief requested. When it comes to the issue of penalty, it was determined for the time at issue there was no evidence that the Taxpayer consulted with a CPA or reasonably relied on the advice of competent tax counsel and the Taxpayer was unable to provide evidence that the medical condition rendered the Taxpayer unable to find or hire another person to prepare the returns or assist with making payments. Based on the facts there is no basis on which to abate the penalty. For the reasons above the Taxpayer’s protest must be denied.


04/10/2017

17-17

David & Janie Hoffman

On October 13, 2016, the Department assessed the Taxpayers for personal income tax, penalty, and interest for the tax periods beginning January 1, 2009 through December 31, 2015. On November 14, 2016, the Taxpayer filed a timely written protest letter. In 2006, the Taxpayers purchased land with the intent of owning and operating a farm. In 2007 and 2008, the Taxpayers farming operation turned a profit and in 2009 the taxpayers changed the operation to raise grass-fed beef. Since, that time the Taxpayers have reported a loss almost every year resulting in a reduction of the Taxpayers’ taxable state income. The issue to be decided is whether the Taxpayers are liable for the assessment amount based on the whether or not the Taxpayers can deduct the losses from the grass-fed operation. In order to claim the deduction the activity should be considered a for-profit business per 26 U.S. Code § 183. The Taxpayers argument is that the time and effort required for the operation of a grass-fed beef business and the land’s appreciation makes it a for-profit activity. The Department argues that the Taxpayers lacked records and a plan for making the activity profitable and the evidence that was provided to the Department was not sufficient to determine that the activity was for profit. The hearing officer reviewed the activity based on the following factors to determine if the activity is for-profit or not for-profit. These factors are: 1) the manner in which the person carries on the activity; 2) the expertise of the person and his advisors; 3) the time and effort put into the activity; 4) the expectation that assets may appreciate in value; 5) the person’s success in carrying on similar or dissimilar activities; 6) the history of income or loss with respect to the activity; 7) the amount of profits earned; 8) the financial status of the person; and 9) the elements of personal pleasure and recreation. It was determined after the review that six of the nine factors weigh against the Taxpayers and therefore the Departments disallowance of the deduction was reasonable. In the issue of penalty, the Hearing Officer determined as the Taxpayers relied on the expertise of an enrolled agent and were not negligent, penalty should be abated. In the issue of interest, the assessment of interest is mandated by statute and the Department is without legal authority to abate it. As the tax was not paid when it was due, the interest was properly assessed. For the reasons above, the Taxpayer’s protest was denied in part and granted in part.


03/29/2017

17-16

Affordable Cellular

On February 25, 2016, the Department sent an assessment letter to the Taxpayer for the reporting periods January 1, 2009 through December 31, 2011 for gross receipts tax (GRT), penalty, and interest. On April 21, 2016, the Taxpayer filed a timely formal protest with the Department. During the periods at issue, the Taxpayer was in business conducting indirect sales of goods and services. The Taxpayer purchased inventory for resale including equipment and accessories and sold services in the form of service agreements for third party. GRT was collected on the sale of goods and reported to the Department. However, the Taxpayer concluded that the money made on commission for the sale of service agreements for a third party was seen as income that was put back into the business and therefore not taxable under GRT. At the end of the year the Taxpayer received a Form-1099 Misc. with Box 7 indicating “non-employment compensation” for tax years 2009, 2010, and 2011. The Department issued a Notice of Limited Scope Audit for the tax years 2009, 2010, and 2011 as the result of a schedule C mismatch. It was discovered that the mismatch was due to the non-employee compensation from the third party company. The resolution of the audit resulted in the assessment letter being sent to the Taxpayer which is the subject of the protest letter. During the hearing, the Taxpayer mentioned another audit for the 2002 tax year which concluded January 26, 2006 which was also based on a schedule C mismatch. The Taxpayer remembered being satisfied with the result of the first audit but could not recall how the audit was resolved or the documentation that was submitted to the Department. After the audit the Taxpayer went back to operating the business the same way as before the audit and did not consult with a tax professional or the Department on the commission income. The Department was unable to locate any documentation in reference to the basis for the resolution of the audit concluding January 26, 2006. There was also nothing found in Department rulings specific to the Taxpayer or in statutes and regulations regarding commission as a non-employee not being taxable for gross receipts tax. The Taxpayer asserted that she believed based on the outcome of the audit for 2002 that she was reporting and paying her GRT correctly. It was decided in the hearing by talking with the Taxpayer that she was not an employee of the third party in which she received the non-employee compensation from for the periods at issue. Per Section 7-9-3.5 NMSA 1978, “gross receipts” includes the total commission and fees derived from selling services in New Mexico. The hearing officer determined that the Taxpayer was being compensated by commission as an independent contractor for the services of procuring service agreements. For that reason the non-employee compensation was taxable for gross receipts purposes and the income was not subject to any statutory deduction or exemption The Hearing Officer also determined that the Taxpayer did not provide evidence to establish non-negligence and therefore the penalty was assessed correctly. The Department also does not have statutory authority to abate interest and therefore the assessment of the interest is correct. For the reasons above the Taxpayer’s protest is denied.


03/29/2017

17-15

Mosaic Potash Carlsbad, Inc.

On July 24, 2015, the Taxpayer submitted a claim for refund for the periods beginning January 1, 2012 and ending December 31, 2014 for compensating tax which was reported on Combined Reporting System (CRS) return. The Taxpayer filed a timely protest with the Department in which the Taxpayer believed it was entitled to interest of the claim for refund since July 24, 2015. On July 24, 2015, the application for refund along with a single page spreadsheet was provided to the Department. The Taxpayer also filed amended returns electronically for the periods at issue. On August 21, 2015, the Department acknowledged receiving the Taxpayer’s claim for refund and asked for additional information to be submitted including a vendor summary and invoices from the periods at issue. The letter indicated that if the documentation was not provided within 60-days that the claim would be denied. On October 8, 2015, a reminder letter was sent to the Taxpayer for the additional information requested. On October 9, 2016, the Taxpayer emailed a detailed spreadsheet to the Department and the invoices requested were received on December 1, 2016 via email. On January 12, 2016 and March 30, 2016 letters were again sent to the Taxpayer for additional information specifically in reference to vendors not registered with the Department. At that time the refund could only be partially approved based on the documents that had been previously submitted. On April 22, 2016 the Taxpayer emailed the Department and asked that the refund claim not be processed until additional documentation was submitted. On May 6, 2016 additional information was again provided by the Taxpayer. On May 19, 2016, a letter with a partial approval of the refund claim was sent to the Taxpayer. The hearing officer determined that based on Section 7-1-26 NMSA 1978, that the claim for refund was not complete when it was first submitted. The Taxpayer did provide information on what the claim for refund was for and what periods it was claiming the refund for when first submitted. However, the Taxpayer did not provide information showing why it was entitled to the refund with the initial claim. Then after providing partial information on April 22, 2016 the Taxpayer asked that the Department delay review of the claim until it could gather further information. Once, all the information was provided on May 9, 2016 the Department sent a partial approval on May 19, 2016. Under Section 7-1-68 NMSA 1978, the Department acted on the complete claim for refund within 60 days and thus does not owe interest. Based on the information above the Taxpayer’s protest is denied.


03/23/2017

17-14

Lino E and Juanita B Salazar

On September 22, 2016, the Department assessed the Taxpayers for personal income tax and interest for the periods beginning January 1, 2009 through December 31, 2015. On October 30, 2016, the Taxpayers filed a timely protest with the Department. During the time at issue, the Taxpayers were performing ranching activities on property shared with siblings. They also had income from jobs and/or retirement. They relied on a tax preparer for preparing their federal and state income tax returns and submitted the requested information to the tax preparer for the ranching activity that took place on the shared property during the time in question. The Taxpayers had claimed a farm loss deduction for the tax years 2009 through 2015. Each year the loss was disallowed by the Department. In each instance, the Department disallowed the claimed loss due to the Department determining that the loss was not incurred with a for-profit motive for the ranching activities. The Taxpayers argued that although the ranching activities have yet to make a profit they are hoping to realize profit in 2019. The Department argued that the Taxpayers’ ranching activities have been motivated more by family tradition and love of ranching than by business profit. It was determined by the Hearing Officer that the deduction of losses in excess of profits is properly disallowed when the activity engaged in is not a for-profit activity. Federal regulations provide nonexclusive factors to aid in determining whether an activity is a for-profit activity or not. Those factors are: 1.) the manner in which the person caries on the activity; 2.) the expertise of the person and his or her advisors; 3.) the time and efforts put into the activity; 4.) the expectation that assets may appreciate in value; 5.) the person’s success in carrying on similar or dissimilar activities; 6.) the history of income or loss with respect to the activity; 7.) the amount of profits earned; 8.) the financial status of the person; and 9.) the elements of personal pleasure and reaction. It was determined by the Hearing officer that seven of the nine factors weigh against finding that the Taxpayers are engaged in the ranching activities for-profit. Therefore, the Departments disallowance of the deduction was reasonable. The assessment of interest was also determined to be properly assessed. For the reasons above the Taxpayer’s protest is denied.


03/23/2017

17-13

City of Albuquerque  Mid-Region Council of Governments

On October 17, 2016, the Department assessed the City for penalty and interest on gross receipts taxes for the period ending August 31, 2016. On January 5, 2017, the City filed a timely protest. A second assessment was sent to Mid-Region for penalty and interest for withholding taxes for the period ending August 31, 2016. On January 13, 2017, Mid-Region filed a timely protest. The issue to be decided in the hearing is whether the Taxpayers are liable for penalty and interest. As the payment process, the witnesses, and the attorney representing the Taxpayers are the same it was requested that the protests be rolled into one. The request was granted by the Hearing Officer.

For the gross receipts tax and withholding tax period ending Augustine 31, 2016 it was required that the tax be paid no later than September 26, 2016, as the 25th of the month fell on a weekend. The Taxpayers argued that the tax due amount was received on September 22, 2016 and the paperwork was done for an electronic fund transfer (EFT) to be processed for the tax balance and documentation was sent through the proper channels. The bank statements were checked by the Taxpayers on September 26, 2016 and the EFT information was not located on the statements as they normally are. At that time a supervisor was contacted to look into the situation and contact the necessary individuals to get the payment made. Confirmation of the issue being resolved was received on September 26, 2016 by the Taxpayers and the EFT payment was made after midnight on September 27, 2016. It was argued that the Taxpayer had the ability to write a check and deliver it to the Department or issue a direct wire transfer the Department both of which were not utilized for the time at issue. Instead the correction was done through the normal third party software used by the Taxpayers as they believed that the EFT transfer would be completed the same day. From further communication by the Taxpayers concerning the EFT payments it was learned that payments usually occur within 24 hours of the request. The Taxpayer argued that the error was noticed and all efforts to correct it were taken to ensure that the taxes were paid on time. The Taxpayer also noted that the result of the late payment was due to a software issue. The Department argued that the Taxpayers cannot delegate their duty of payment to a software program or to a bank. The Hearing Officer determined that the based on the totality of the evidence, the Taxpayers failed to overcome the presumption of correctness and that penalty was properly assessed. It was also determined that because the tax was not paid when it was due that the interest was properly assessed. For the reasons listed above the Taxpayer’s protest is denied.


03/13/2017

17-12

Richard Casias & Cheri L. Olivas

The Taxpayer filed an official protest to the notices of claim of tax lien which was received timely by the Department on September 22, 2016. The formal protest disputed that the Taxpayer’s are not liable for the amounts due in a personal capacity and that the liability was incurred by a limited liability corporation (LLC). The Taxpayer’s formal protest is based on an assessments sent June 18, 2013.The assessments were the result of an audit on two sole proprietor businesses owned by the Taxpayer for the periods beginning January 1, 2006 and ending September 30, 2011. The Department argued that the taxpayer filed a protest of the original assessments on July 13, 2013 and in June of 2014 the protests were withdrawn by counsel with the Taxpayer’s authorization. On September 18, 2014, the Taxpayer then executed a payment installment agreement with the Department. The instalment agreement explicitly states as a condition that the Taxpayer admits conclusive liability for the entire amount of taxes due consistent with Section 7-1-21 NMSA 1978. The Taxpayers counsel contacted the Department in September of 2014 and a change was made in the system to add the “LLC” designation per the phone call by a revenue agent. The Department does not show any indication that the Department’s procedures were followed by the revenue agent that took the phone call as there is no record of a registration update form with the Department and a new CRS number was not issued. The Department’s process requires that when a business is converted from one form of business entity to another that the business must close its existing account and open a new account as the converted entity. At that time, the business would receive a new CRS number for reporting purposes. The Taxpayer was unable to confirm that any such documentation was sent to the Department and the Department was unable to locate a business registration update form from the Taxpayer. In September of 2014, the Taxpayer failed to make payments per the payments installment agreement with the Department. As the payments were not made before or on the dates specified in the agreement and the liability was not paid per Section 7-1-21 NMSA 1978, “the secretary may proceed to enforce collection of the tax as if the agreement had not been made or proceed as otherwise permitted by law.” The notices for claim of tax liens were sent by the Department to the Taxpayers in a final attempt to collect the unpaid amount due. The Hearing officer determined that the Department provided approximately two years for the Taxpayer to comply with the terms of the installment agreement and then sought to collect the tax owed pursuant to its authority under the Tax Administration Act. It was determined by the Hearing Officer that the Taxpayer was unable to present sufficient evidence to establish that the limited liability companies exist to accept or receive the liability at issue. The Hearing Officer noted that immunity from personal liability for members of a limited liability company extends only to the liability incurred by the limited liability company. The Hearing Officer was still not persuaded that the limited liability companies incurred the Taxpayer’s liability at issue. For the reasons above the Taxpayer’s protest is denied.


03/12/2017

17-11

D-Trix Services, LLC

On May 18, 2016, the Department assessed the Taxpayer for tax, penalty and interest in weight distance tax (WDT) for the reporting period beginning October 1, 2009 through March 31, 2013. The Taxpayer filed a timely protest with the Department. The issue to be decided in the hearing is whether the Taxpayer is liable for the assessment of tax, civil penalty, underpayment penalty and interest for the periods at issue. The Taxpayer at the time of issue was in the business of providing services in the oil and gas industry, hauling waste water from well sites to designated storage facilities sometime located on the same property. During the time at issue the Taxpayer did report all miles for the international fuel tax agreement (IFTA). In 2010 and 2011, the Taxpayer decided that it was paying more in WDT based on off highway deduction.  The Taxpayer came to the conclusion that the roads it traveled in the oil fields were “off highway” miles and not subject to WDT. The Taxpayer argued that the discrepancies in miles between IFTA and WDT was due to the off highway miles being excluded from WDT. The Taxpayer did not consult with the Department or a tax professional before making the decision on off highway miles. The Taxpayer operates in New Mexico and had a rule conveyed to his drivers that if the road was marked as a state, county, forest, tribal or federal road then the miles traveled then the miles were taxable. The Taxpayer believed his duty to report and pay for WDT was only for loaded miles on governmentally designated roadways. During an audit of the period at issue it was discovered that based on the normal audit procedure and review of the documents provided by the Taxpayer that there was underreporting for WDT of more than 25%. Upon further communication with the Taxpayer, the Department was unable to obtain information that the off-highway miles reported were actually roads that were privately maintained by the oil companies. During the hearing, the Taxpayer argued that there should be a reduction of tax, penalties and interest because the business model being used by the Taxpayer in which the vehicles travel primarily on private roads while it is loaded. The Department argued that the evidence provided by the Taxpayer does not support the private road designation. The WDT Act requires taxpayer to report all miles, and if it maintains records which show that the vehicle carried no load at least 45% pf the time, it can qualify for a reduced tax rate for all the miles if the business is qualified as a “one-way” hauler. If the Taxpayer is not a “one-way” hauler the WDT Act indicates that the total number of miles travelled on New Mexico highways during the tax payment period by the motor vehicle is used to calculate the tax for the period and should be reported whether loaded or not. The hearing officer determined that the Department properly assessed the Taxpayer without reducing the assessment for off-highway miles as the Taxpayer did not overcome the presumption of correctness by not being able to provide sufficient records to support the deduction. As the Taxpayer underreported by 25% the assessment period was properly expanded and based on the statutes use of “shall” indicates that the Taxpayer is liable for penalties, and interest. For the reasons above the Taxpayer’s protest is denied.


02/27/2017

17-10

Hydrotech Services, LLC

On January 6, 2016, The Department assessed the Taxpayer for International Registration Plan (IRP) penalty and interest for the tax reporting period ending December 31, 2014 and an assessment for International Fuel Tax Agreement (IFTA) for March 31, 2013 through December 31, 2013. On March 22, 2016 the Taxpayer filed an official timely protest. The issue to be decided in the protest is whether the Taxpayer is liable for the assessment of penalty, interest, and tax during the periods at issue for IFTA and IRP. The Taxpayer argued for a reduction of tax, penalties, and interest since the original paperwork was located and provided to the Department. During the time at issue the Taxpayer had a home base in Hobbs, New Mexico and several vehicles which travel within Texas and New Mexico. The Taxpayer is subject to reporting and record-keeping requirements of IRP and IFTA. During the time of the original request for records the Taxpayer was unable to locate them as his prior bookkeeper had left for another job and the business was in the process of relocating. The Taxpayer testified that as documentation was located he would send it in to the Department. The Department shows record of receiving documents for April, May, and June of 2013 and with that information the Department was able to update the amount of tax, penalty, and interest owed. The Taxpayer was able to locate the remaining documents and provided that at the time of the hearing. The Taxpayer argued that there should be a further reduction in tax, penalty, and interest owed. During the protest the hearing officer determined that the correct audit procedure was used by the Department, that the assessment of penalty under the IRP and IFTA were justified, the misplacing of records by the Taxpayer was an isolated case, and that the Taxpayer provided evidence of reasonable cause to waive the assessment of IFTA penalties. For the reasons above, the Taxpayer’s protest is denied in part and granted in part. The Taxpayer is ordered to pay the IRP assessment of penalty and the tax and interest for the IFTA assessment.


02/23/2017

17-09

Wells Fargo Equipment Finance

On September 1, 2015, the Department sent a return adjustment notice for the tax year ending December 31, 2011 to the Taxpayer and on September 8, 2015 an assessment for the tax year ending December 31, 2011 including penalty and interest was sent to the Taxpayer. A timely formal protest was filed by the Taxpayer. The issue to be decided in the hearing is when the Taxpayer is eligible to claim the renewable energy tax credit. The Departments argument is that a taxpayer is eligible to claim the energy credit only after the certificate of eligibility is issued by the Energy, Minerals, and Natural Resources Department (EMNRD) and based on the certificate of eligibility issued to the Taxpayer eligibility to claim the started in 2012. The Department also argued that the initial application package with EMNRD secures the Taxpayer priority in line to claim the credit upon approval. The Taxpayer argued that it could claim the credit at any time after the facilities began producing qualified energy once the application package was approved by EMNRD. In this particular case the Taxpayer was approved in 2011 and they began producing electricity in 2011. The Department and the Taxpayer agreed during the hearing that there were no disputes in the material facts presented. The hearing officer determined that based on the language in Section 7-2A-19 NMSA 1978 that the Taxpayer first applies for the ability to claim the credit with EMNRD, the first level of approval can be received before construction of the facility, after the application package is approved and the facility is producing electricity the credit can be claimed by submitting the certificate of eligibility and other documents to the Department. It was decided that as credits are matters of legislative grace that the credit can be granted only after the requirements in the statute are met. The hearing officer referenced the statutes use of “may” claim the credit and based on the certain qualifications determined that this is intent to limit the credit. This means that the credit is not open-ended, unrestricted, or unconditional. The statute only indicates that the initial approval from EMNRD is used to determine a taxpayer’s priority over others in claiming the energy credit. However, in order to continue claiming the credit in subsequent years the qualifications have to continue to be met. The statute also does not explicitly allow for a taxpayer to reach back to the initial approval date to claim the credit.

The Taxpayer argued that by limiting the availability of the energy credit to the ten years after the facility initially produced qualified energy that the legislature must have intended that a taxpayer be eligible to claim the energy credit in the first year it produced energy as the taxpayer applied in the same year it applied for the credit the Taxpayer believes that it may not receive the full benefit of the credit for the full ten years. The Department argues that the statute does not guarantee that all taxpayers will be able to claim the credit for the full ten years. There are limits to the cumulative amount of credit that can be issued, certain priorities that are granted based on the certificate, and a limit on how long the credit may be claimed after production began per statute. The hearing officer determined that the Taxpayer could not claim the credit until the tax year in which the certification was issued and that the application approval was only a guarantee for a taxpayers priority in claiming the credit. The Taxpayer failed to overcome the presumption and the Department’s assessment and return adjustment were appropriate. For the reasons above the Taxpayer’s protest is denied.


02/10/2017

17-08

Ronald O. Jaynes

On October 24, 2016, the Department sent a denial letter to the Taxpayer for an untimely submission of a protest letter postmarked September 14, 2016. On November 3, 2016 the Department received a timely protest of the Department’s denial to the submission of the untimely protest letter, which was acknowledged on November 9, 2016. The Taxpayer received a notice of limited scope audit commencement dated January 1, 2016, and a reminder notice for the limited scope audit dated February 10, 2016, for the filing periods January 1, 2009 through July 10, 2016. During that time period the Taxpayer provided construction services to the film industry in New Mexico. Before the notice from the Department was received, the Taxpayer made undocumented communication with the Officer of the Governor and the State Auditor in which the Taxpayer determined from the conversations that tax was not owed. The Taxpayer also made undocumented communication with the Department by email and telephone in reference to the limited scope audit per the Taxpayer’s wife and the Taxpayer’s CPA. As no correspondence was received by the Department in reference to the limited scope audit, an assessment letter was sent on April 11, 2016 for outstanding gross receipts tax, penalty, and interest for periods January 1, 2009 through December 31, 2012. During the hearing, the Taxpayer’s wife indicated that a protest was not sent to the Department in regards to the assessment letter, the amount was not paid, and documentation was not submitted to the Department to support that the assessment was in error. The Taxpayer received a statement of account dated June 28, 2016 at that time the Taxpayer contacted a CPA for assistance in the matter. The CPA indicated that correspondence was submitted to Audit and Compliance Division but not the Department’s protest office on July 21, 2016. The Taxpayer characterized the correspondence as an “official protest” during the hearing the CPA admitted that the intent of the correspondence was to work out the issue with the Department before having to go to protest. There was not any evidence that the letter was submitted to the Department’s protest office. During the hearing, it was established that no other attempts at a formal written protest were sent to the Department before July 21, 2016 which is after the protest period expired. Per Section 7-1-24(C) NMSA 1978, a protest should be filed within ninety days of the date the letter was mailed or delivery in person to the Taxpayer by the Department. In order to challenge this assessment the Taxpayer would have needed to file the protest with the Department by Sunday, July 10, 2016. As the date falls on a weekend it is extended to a business day which was Monday, July 11, 2016. The CPA noted that after July 21, 2016 date numerous pieces of correspondence were submitted to the Department. One of those pieces of correspondence postmarked September 14, 2016 was received by the protest office and at that time a denial letter was sent based on the timeliness of the protest by the protest office at the Department. The Taxpayer argued that he acted in good faith and attempted to address the communication about the limited scope audit and the assessments. The Taxpayer also admitted that the address being used by the Department on the assessment, notice, and reminder letters is correct. The hearing officer determined from the information presented that the Taxpayer did not act on his right to protest until it had expired. Due to the Taxpayer not submitting in a written formal protest until after the 90-day period for protest, the Department lacked jurisdiction to entertain the protest. The hearing officer determined that for the reasons above the Taxpayer’s protest of the denial of untimely protest letter is denied.


02/06/2017

17-07

Broken Hill Proprietary Inc.

On December 24, 2014, the Taxpayer submitted an Application for Rural Job Tax Credit which was received by the Department on December 30, 2014. The Application sought a Rural Job Tax Credit for 665 Jobs. On September 29, 2015, the Department sent a partial approval letter in which the credit for 80 jobs were disallowed based on the information provided during the application review process. A timely protest was filed on October 28, 2015. The Taxpayer asserted that it was legally entitled to the additional credit for those 80 jobs. During the hearing, the Taxpayers representative asserted that the credit should be allowed as the Taxpayer provided information showing that the jobs were “occupied” during the qualified period in the application. The Taxpayer claimed that relevant inquiry for the tax credit was whether employee “occupied” the job for 48 weeks during the qualified period. Not that the records provided to the Department demonstrated that it paid wages to the employee over the entire duration of that period. The Taxpayer argued that even if an employee was not receiving a paycheck because they were absent with an illness or injury, that employee remained on the payroll register and continued to incur benefits. During the application review process, the auditor followed the correct audit procedure used by the Department. The documents submitted with the application were reviewed to determine whether an eligible employee was in a qualifying position for the minimum period of time as required by Section 7-2E-1.1 NMSA 1978.  An essential part of that review includes looking at the payroll records provided by the Taxpayer and verifying them against the Department of Workforce Solutions database. For any pay period in which a paycheck is missing the time period is to be eliminated from the final week counts for that employee. The Taxpayer was asked for additional documentation needed to confirm whether the Taxpayer paid wages to the employees allegedly occupying the 80 jobs in question during the application review process. When additional documentation was received the Department did not find the information provided was satisfactory to verify the wages paid and the occupancy of the 80 employees in the qualified jobs. A partial approval of the Rural Jobs Tax Credit was sent to the Taxpayer. The total disallowed credit amount reflected the Department’s determination that the 80 employees had failed to occupy their qualifying jobs for 48 weeks during the 12-month qualifying periods. The Department indicated that the information that it looks for to confirm the qualified positions occupancy includes an employee’s pay periods, pay dates, pay rates, hours worked per pay period, wages earned, deductions, and withholdings. The Department deems payment of wages to be evidence of occupancy and reviews all credit applications in the same manner. It was pointed out in the hearing that nearly half of the jobs in question consisted of employees with significant periods of unpaid sick leave,  leave without pay, compensation from a third party (weekly indemnity or workers compensation benefits), and others were classified as “flex employees” or who switched from hourly to salaried employees. The hearing officer determined that definition of “wages “does not include unpaid leave or benefits paid by a third party. The Taxpayer acknowledged that the facts with respect to the 80 disallowed jobs were uncontested. The Taxpayers records for 80 jobs showed that the wages were not paid for the full duration of the 48 weeks relevant to a 12-month period. Wages as defined in Section 7-2E-1.1(N)(10) NMSA 1978 is “all compensation paid by an eligible employer to an eligible employee through the employer’s payroll system, including those wages the employee elects to defer or redirect, such as the employee’s contribution to 401(K) or cafeteria plan programs, but not including benefits or the employer’s share of payroll taxes”. The hearing officer determined that Section 7-2E-1.1 (D) NMSA 1978 states that an employer seeking the rural job tax credit “shall certify the amount of wages paid to each eligible employee during each qualifying period, the number of weeks during the qualifying period the position was occupied and whether the qualifying jobs was in a tier one or tier two area” The hearing officer indicated that because this case involves a tax credit, which has been found to be an act of legislative grace, the language of the credit statute must be narrowly constructed. Taxpayer carries the burden of proving that it is entitled to the claimed credit. The hearing officer determined that the Department’s desire to verify such information was reasonable and consistent with its grant of authority provided in the statute in which an employer must apply to the Taxation and Revenue Department on forms and in the manner the department may prescribe. The hearing officer determined that the disallowed portion of the application, it was reasonable, and well within the Department’s authority to request additional information. When the Taxpayer was unable to provide documentation that the Department found satisfactory to establish an entitlement to the remaining portion of the requested credit, it was well within its authority to disallow the credit for the remaining 80 jobs. For these reasons the Taxpayer’s protest is denied.


01/31/2017

17-06

Randall & Judith Gilbert

On December 3, 2015 the Department assessed the Taxpayer for gross receipts tax, penalty, and interest for the Combined Reporting Systems reporting periods from January 1, 2008 through December 31, 2012. A timely protest was filed with the Department. Since 2008, the Taxpayer has been in the business of selling cabinetry to building contractors or individual customers in Texas and New Mexico from a business location in Farewell, Texas. The Taxpayer’s typical transaction for the period at issue involved an order being placed with the Taxpayer, the Taxpayer placing the order with the manufacturer, and the product being shipped directly from the manufacturer to the customer, where the customer would take possession of the item. If needed, other services were also provided including measurement at the install location and computer generated renderings in regards to the sale of the cabinetry. The Taxpayer specified that no the installation of the cabinetry was performed as part of his business. There was little to no proof provided in the hearing or to the Department that full transactions took place outside of New Mexico. The assessment was the result of a Federal Schedule C mismatch with gross receipts tax reported in the State of New Mexico. On May 22, 2015 the Taxpayer was provided with a Notice of Limited Scope Audit Commencement- 60 day notice. This notice informed the Taxpayer to obtain and submit nontaxable transaction certificates (NTTCs) to the Department on or before July 21, 2015. The figures from the limited scope audit were adjusted based on sales that were made out-of-state to out-of-state customers. Limiting the tax liability to gross receipts generated from sales of goods and associated services provided to New Mexico contractors and individual customers for the period at issue. The Taxpayer was represented by a CPA that indicated for the period at issue his only services to the Taxpayer included Federal and New Mexico Income Taxes. The CPA only started providing services concerning New Mexico gross receipts tax after the Taxpayer received the assessment from the Department. The CPA argued that most of the Taxpayers transactions were subject to deductions and that the Department gave the taxpayer information to make him believe he was not taxable. During the hearing an email was provided and read into the record from February of 2016. The hearing officer determined that the goods and services provided to customers in New Mexico was taxable per Section 7-9-5 NMSA 1978.However, possible deductions in accordance with the Gross Receipts and Compensating Tax Act, such as Section 7-9-51 NMSA 1978 for the sale of construction materials to persons engaged in the construction business which could have been claimed for some of the transactions for the period at issue but due to the Taxpayer not being unable to produce the appropriate NTTC’s per Section 7-9-43 NMSA 1978, the deductions could not be allowed. The hearing officer determined that without the NTTC’s there was no mechanism available to show that the construction businesses paid the gross receipts tax on the final transaction. During the hearing the Department explained that the first recorded communication with the Taxpayer was a phone call from the Taxpayer in January of 2016 inquiring about NTTC’s which was after the Taxpayer had received the 60 day notice from the Department. The letter from February 2016 was determined by the hearing officer to simply point to Section 7-9-55 NMSA 1978 but it did not attempt to instruct or advise the Taxpayer on how to assert the deduction under statute. The hearing officer also determined that the taxpayer did not present evidence in this case to support the deduction referenced in the email. No earlier communication with the Department could be provided in support of the Taxpayers claims. The hearing officer determined that there was no evidence to suggest affirmative misconduct by any employee of the department with whom the Taxpayer may have communicated. Under New Mexico self-reporting tax system, “every person is charged with the reasonable duty to ascertain the possible tax consequences” of his or her actions. There was no evidence provided to support that the Taxpayer consulted with a tax professional or made a through inquiry regarding his tax responsibilities prior to engaging in business. There was also no affirmative evidence provided to show that the Taxpayer was misled by a Department employee and that the Taxpayers failure to pay the tax was caused by reasonable advice of a competent tax counsel or accountant whom had full disclosure of all relevant facts. Based on the information above the hearing officer determined that the Taxpayer did not overcome the presumption of correctness and failed to establish an entitlement to an abatement of penalty in this matter. The hearing officer also determined that in concerns to interest based on Section 7-1-67 NMSA 1978 that the Department does not have legal authority to abate interest and the assessment of interest is mandatory despite the Taxpayer’s lack of bad faith. The Department is to assess the Taxpayer interest from the time the tax was due, but not paid, until the tax principal liability is satisfied. The hearing officer determined that the Taxpayer did not establish the right to the claimed deduction, or entitlement to an abatement of the assessed penalty or interest, the Taxpayer’s protest is denied.


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