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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. 



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.


01/19/2017

17-05

Matthew Marshall RJ Handyman

On July 30, 2015 the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the reporting periods June 1, 2012 through December 31, 2012. The Taxpayer filed a timely protest with the Department which was received on October 5, 2015. During the time at issue the Taxpayer was a sole owner and proprietor of a handyman construction and maintenance service business. The Taxpayer’s wife assisted the Taxpayer with maintaing the records of the business and the filing of taxes. During the relevant periods the Taxpayer and the Taxpayer’s wife filed a married filing joint return and reported more business income on the federal Schedule C than was reported on gross receipts income filed on the CRS returns. Based on the mismatch information between the Federal Schedule C and the amount reported to New Mexico the Notice of assessment was issued by the Department. During the hearing the Taxpayer argued that gross receipts tax is not due for the material purchased for the services he provided as the materials were reimbursed expenditures that were purchased on behalf of his clients and that the materials and his services were separated out on the invoices provided to the Department. The hearing officer determined that with the invoices and spreadsheets provided the Taxpayer met the bookkeeping requirements. However, Taxpayer did not present sufficient or compelling evidence that he was a disclosed agent for the clients so Section 7-9-3.5 NMSA 1978 does not apply. During the time of issue, the Taxpayer’s wife was also engaged in her own business endeavors including contracting with an out-of-state company performing services in New Mexico, selling goods online to out-of-state buyers, and performing mystery shopping services but was not registered with the Taxation and Revenue Department as a business and did not have her own CRS number. The Taxpayer argued that the Taxpayer’s wife business endeavors were not subject to gross receipts tax as the services were performed for an out-of-state company. The Department agreed to a partial abatement for some of the business endeavors reported by the Taxpayer’s wife prior to the hearing. At the time of the hearing, the hearing officer determined that gross receipts tax applies to the services performed in New Mexico by the Taxpayer and the Taxpayer’s wife per the definition of gross receipts in Section 7-9-3.5 NMSA 1978. Lastly, the Taxpayer argued that the penalty and interest should be waived for the period at issue as there are good intentions to pay what is owed to the Department. It was determined by the hearing officer that interest will not be abated as the Department has no discretion to abate interest based on Section 7-1-67 NMSA 1978. It was also determined that the Department is unable to abate penalty per Section 7-1-69 NMSA 1978 as there was no evidence showing that the Taxpayer engaged in any formal consultation or study of the issue before reporting or paying CRS taxes. The Department is ordered to recalculate outstanding tax, penalty, and interest in light of the abatement allowed by the Department and the Taxpayer is ordered to pay the outstanding liability. The Taxpayer’s protest is denied.


01/09/2017

17-04

Autoglass Technologies, LLC

On September 9, 2015 the Department assessed the Taxpayer as a successor in business. On October 6, 2015 the Taxpayer filed a timely written protest. The issue to be determined in the hearing was whether the Taxpayer is liable under the assessment as a successor in business to the former company. The Taxpayer renewed its argument that the Department’s violation of the Section 7-1B-8 NMSA 1978 that the protest be granted. During the time at issue the prior company owner was going out of business and the current company owner/the Taxpayer wanted to start her own business doing automobile glass repair. With the help of the former company owner the Taxpayer started her own business. With the assistance of the former company’s accountant the Taxpayer filed for business licenses and taxes. Taxpayer first filed a zero gross receipts tax for December 2014. The former company was still operating and receiving payments in December 2014 and the Taxpayer was conducting business and receiving payments in December 2014 despite reporting zero gross receipts for that month. It was also discovered that the former company and the Taxpayer were providing service to some of the same customers and paying some of the same employees. The Taxpayer continued to do business with customers from the prior business but did not have formal agreements to assume any of the prior business outstanding contracts. Based on Regulation 3.1.10.16 NMAC it was determined by the hearing officer that the Taxpayer is presumed to be a successor in business to the former company due to the Taxpayer first and continuing customers being the goodwill of the former company. Based on the Taxpayers renewed argument the Departments response was that the tardiness of the request and the hearing are not jurisdictional and are not grounds to grant the protest. The Hearing officer determined that the Department was in violation of the statute by failing to refer the protest for hearing within 45 days per Section 7-1B-8 NMSA 1978. However, it was also determined the Departments violation of the statutory time limits for requesting a hearing does not necessitate that the protest be granted. The hearing officer determined that even though the Taxpayer is a successor in business to the former company, it is not liable for penalty and interest but is still liable for the gross receipts tax due. The Taxpayer’s protest is granted in part and denied in part.


01/09/2017

17-03

CORE

On May 17, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty, and interest for periods from March 31, 2010 through October 31, 2015. The taxpayer filed a timely protest letter July 28, 2016. During the tax periods at issue, the Taxpayer was providing educational services in New Mexico. For the periods they outsourced payroll and corporate filings to a corporate services provider which at the time of the hearing it was not found that the service provider was a competent tax counsel or an accountant capable of providing tax advice. At no time did the Taxpayer consult with any New Mexico taxing authority or tax professional to determine if the Taxpayer was in compliance with New Mexico Law. The Taxpayer stated that it was unaware of New Mexico’s “unique gross receipts tax for services” and that the Taxpayer was never given notice by the Department of GRT tax obligation during the periods at issue. However, the Taxpayer acknowledged the Registration Certificate dated in 2008 that refers to “Gross Receipts, County Gross Receipts, Municipal Gross Receipts, Compensating, and Withholding Taxes.” In 2014, a non-filers notice was acknowledged by the Taxpayer for the same CRS number in which the Registration Certificate was issued to. No evidence or documents were provided to the Department for the periods at issue supporting the Taxpayer of being tax-exempt from gross receipts tax or support their finding that the transactions during the periods were exempt or subject to a deduction. Under New Mexico’s self-reporting tax system, “every person is charged with the reasonable duty to ascertain the possible tax consequences” of his or her actions. The Taxpayer filed Corporate Income Tax returns for the time periods and concluded that it owed gross receipts tax and interest, but disputed the amount of penalty owed to the Department due to the statute of limitations and the earliest periods being assessed by the Department. With review of the statute of limitations based on the non-filer status of the account under 7-1-18 (C) NMSA 1978 the Department may asses at any time within seven years from the end of the calendar year in which the tax was due. Based on the information above the hearing officer determined that the Department properly assessed the Taxpayer and that the gross receipts tax, penalty, and interest is due. The Taxpayer’s protest is Denied.


01/04/2017

17-02

17-02 Diamond T US Mail Services Inc.

On December 28, 2015, the Department denied the Taxpayer’s claim for refund for the CRS reporting period ending July 31, 2015. On January 8, 2016, the Department received the Taxpayer’s protest of the Departments denial of claim for refund. The taxpayer is a mail courier under a Highway Contract Route, with the United States Postal Service transporting mail from and to Lubbock, Texas. The refund denial was based on the Taxpayer being a star route contractor and the lack of sufficient documentation to support the deductions being claimed. The grounds of the protest sent in by the CPA indicated that the Taxpayer was not a “star route” contractor with the United States Postal Service and that the Taxpayer had incorrectly reported receipts earned in interstate commerce. The Taxpayer argued that the refund is due under Section 7-9-55 and Section 7-9-56 NMSA 1978. The CPA response to the denial is that the term “star route” contractor is obsolete and for that reason the claim for refund should not have been denied. Based on one of the Exhibits provided in the hearing by the Taxpayer, a publication from the United States Postal Service suggests that the term “star route” has been replaced by “HCR” or “Highway Contract Route”.  The hearing officer interprets the parenthetical as signifying that the term “star route” has been supplanted by “HCR” or “Highway Contract Route”, but that the underlying definition are functionally equivalent. For this reason it was determined that the activity falls squarely within the scope of Regulation 3.2.213.10 NMAC The Department established that the relevant documentation needed in order to consider the claim for refund are addressed in Regulation 3.2.213.10 NMAC. The Department asked for documents or logs to help assist in apportioning taxes between services provided in New Mexico and those provided in interstate commerce but the documents requested were never received. The Taxpayer argued that the refund is due under Sections 7-9-55 and Section 7-9-56 NMSA 1978. The Department’s position is that the deductions can be claimed if the necessary documents establishing the right to the deduction are provided.  The evidence provided to the Department was insufficient to clearly establish the right to the deduction upon which the claim for refund relies. The Taxpayer did not establish entitlement to any refund with the evidence presented at the hearing for this reason the Taxpayer’s protest is denied.


01/04/2017

17-01

Jerry Ritchie

On February 17, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the CRS reporting periods between January 1, 2011 and December 31, 2012. On April 22, 2016, the Taxpayer filed a timely protest of that assessment. During the period at issue, the Taxpayer was a limited partner in a holding company that invests in, starts, and operates businesses in the medical field. The Taxpayer had a side agreement with the holding company in which the company agreed to forgive or offset half of the Taxpayers financial commitment in the partnership in exchange for the Taxpayers expertise and relationship in guiding the overall strategy of the company. The CPA confirmed that the LLC used Forms 1099-Misc indicating that the Taxpayer received non-employee compensation in 2011 and 2012 which was reported on the Taxpayer’s federal Schedule C. Based on the Departments Schedule C mismatch program with the IRS it was detected that business income was reported to the IRS and gross receipts tax was not reported to the state. The Hearing Officer was not persuaded by the evidence presented that the Taxpayer overcame the presumption of correctness under Section 7-1-17 (C) NMSA 1978 due to the partnerships unwillingness or inability to confirm that the forgiveness of debt was not due to services rendered in New Mexico for the periods at issue. The hearing officer was persuaded that the Taxpayer was engaging in business in that he carried on the purpose of achieving a direct or indirect benefit, which in this case was the value of consideration received in the form of debt forgiveness from selling services performed in New Mexico and that the value of the consideration received was subject to gross receipts tax. It was agreed by the Department that the penalty would be abated because it was convinced that the Taxpayer reasonably relied on the advice of the competent tax counsel or accountant as to the Taxpayer’s liability after full disclosure of all relevant facts. At the time of the hearing it was determined that the outstanding principal and the interest were due. The protest is denied in part with respect to the relief requested for gross receipts tax principal and interest. The protest shall be granted in part with respect to the abatement of penalty.


12/19/2016

16-57

Hilario Leos & Christina Luchetti-Leos and C&R Nutritional Club

On July 20, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the tax periods from January 1, 2010 through December 31, 2012 for account A and January 1, 2012 through December 31, 2012 for account B. On August 23, 2016 the Taxpayer entered into a Short Term payment Plan with the Department for the period of January 1, 2010 to December 31, 2011. The Taxpayers timely protested the assessments for the periods included in the plans in addition to reporting period in 2012. The Department acknowledged the receipt of a valid protest with respect to the 2012 assessments. In a separate piece of correspondence the Department asserted that there was no right of protest with respect to the period’s subject of the Short Term Payment Plans because the Taxpayer waived those rights by executing the plans. Starting in 2009 the Taxpayers started using a tax preparer to file their federal and state income taxes during the relevant period of time. The tax preparer provided documents in the protest claiming that the Taxpayer were not subject to pay New Mexico gross receipts tax because the goods they were selling were purchased out of state and they paid tax in the other state. The Taxpayers informed the Department that the tax preparer did not inform them of any gross receipts tax obligations in New Mexico. It was found that the taxpayers were selling goods in New Mexico and were subject to gross receipts tax. The evidence provided was insufficient to find that the tax preparer was a competent tax accountant due to lack of the individual being qualified, credentials, or competent in the area of New Mexico gross receipts tax. Despite the good faith intentions of the Taxpayers in this case, it was determined when a taxpayer fails to make timely payment of taxes to the state interest shall be paid per Section 7-1-67 NMSA 1978. The assessment of interest is mandatory and the Department is without legal authority to abate it despite the Taxpayers’ good faith intentions. Penalty may only be abated when a Taxpayer is able to show that he or she was not negligent in failing to file. Pursuant to the definition of negligence in Regulation 3.1.11.10 NMAC, the Taxpayer was negligent in failing to report and pay gross receipts tax. The Taxpayer’s protest was denied.


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