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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. 

All Posts > 2019



Solutions Salon Inc

On January 2, 2018 the Department issued a denial of the Taxpayer’s claim for refund in the amount of $14,274.26. On February 27, 2018, the Taxpayer filed a timely protest of the Department’s denial. The Taxpayer is a cosmetology business that provides spaces to independent contractors within its building. The claim for refund was based on receipts it had deducted for rental income received from contractors for the use of the space. The main issue to be decided was whether the rental agreements should be treated as leases and therefore deductible, or licenses and taxable. Generally, a lease is agreement where the property owner gives up possession and use of the property for a definite term and the tenant acquires definitive control over the property. A license is a permission to do something on the land and conveys no interest in the property. A license is typically revocable, personal, paid for on the basis of each use or as a percentage of income from its use, and limited to a specific purpose. The Taxpayer argued the rental agreements with its contractors were leases because they were not revocable and its contractors had control over their spaces. The Taxpayer referenced a Department ruling and a previous case which provided support for this position. The ruling provided indications of when an agreement is a lease or a license and recognized that the property in question had elements of both. Using the indicators provided in the ruling and several other cases cited, the Hearing Officer determine that in the current case the majority of these factors favored the agreement being a license. Though some indicators suggested a lease agreement, such as the responsibility of the lessee for maintenance of the space and the duration of the agreement being more than day-to-day, the majority of indicators pointed to the agreement being a license. The agreement did not restrict access to other individuals and did not provide unrestricted use of the property. The property was not mortgageable or assignable, the contractors paid a percentage of their income for use of the space, and the agreement was limited to a specific purpose. Further, the Hearing Officer interpreted that the contract was indeed revocable because the Taxpayer could terminate the contract for irreconcilable differences with other independent contractors. This having been determined, the Hearing Officer ordered that the Taxpayer had failed to show enough support for the deduction and the protest was denied.



Rio Rancho Physical Therapy

On July 5, 2018, the Department denied the Taxpayer’s application for refund seeking $10,643.10 in costs and fees arising from its 2016 protest. The Taxpayer and the Department had settled the protest when the Taxpayer provided additional support for its refund request. On October 3, 2018, the Taxpayer filed a protest of the Department’s denial through its CPA. As there was not any material dispute of the facts in the case, the Hearing Officer agreed to provide a summary judgement. The issue to be decided in the case was whether the Taxpayer could later be awarded costs and fees in a separate protest when the protest from where the costs and fees originated had already been resolved. The Taxpayer voluntarily withdrew the initial protest after the settlement, though it later argued that it had not withdrawn its request for costs and fees. There was nothing in the withdrawal to indicate, however, that the Taxpayer would continue to pursue other unresolved issues related to the case. The statute governing the awarding of costs and fees states that they arise in connection with the proceeding in which they incur. The Hearing Officer interpreted this to mean that costs and fees should not be the central issue in a separate, standalone protest, but should be considered as part of a hearing determining the collection or refund of tax. The Taxpayer cited a fiscal impact report which, in its analysis of the statute, suggested a separate protest hearing might be required for the determination of costs and fees. The Hearing Officer determined, however, that this did not mean that the hearing would be a separate protest but instead another hearing in the same protest to determine the costs and fees. The Hearing Officer referenced a case that conducted an additional hearing within the same protest for just this purpose. Another case concluded that, once a case has been determined or resolved, its jurisdiction to consider costs and fees in that protest ends. In the Taxpayer’s earlier protest it made no demand for costs or fees and should have been aware that when it withdrew its protest the proceedings were concluded. Because of these reasons, the Hearing Officer ordered the Department was correct in its denial of the application for refund and the protest was denied.



Eduardo Aguirre

On December 13, 2018, the Department assessed the Taxpayer for $31,148.91 in gross receipts tax, penalty, and interest. On January 28, 2019, the Taxpayer filed a formal protest of the assessment. The issue to be decided in the case was whether the Taxpayer, who lived and worked in Texas, was liable for gross receipts tax for the sales of wooden shipping pallets sold to his customers who did business in New Mexico. These customers used the pallets as part of their packaging when selling products to their customers. Though the Taxpayer’s customers were doing business in New Mexico, the evidence showed that the sales had clearly taken place in Texas and that the customers had taken possession of the pallets in Texas. The Taxpayer did not deliver any of the pallets and instead the buyers picked up the pallets in Texas. As testimony was presented in the hearing the Department eventually conceded that since the evidence supported that the sales of the tangible personal property took place entirely in another state the receipts were not taxable. Gross receipts tax is levied on individuals engaged in business in New Mexico but the Department was unable to establish that the Taxpayer had conducted business in the state. The Taxpayer argued too that the Department had unfairly delayed its response to the protest and had not scheduled the hearing quick enough. The Hearing Officer responded to this argument by citing a case which determined that, though the statute provided a timeframe for when a hearing should take place, it did not provide a consequence for the failure of the Department to meet that timeframe. In the end, the Hearing Officer decided that since the Taxpayer had prevailed on the merits of the protest, the timeliness of the hearing was moot and did not need to be decided. Since it was established that the Taxpayer was engaging in business in Texas and not subject to New Mexico gross receipts tax, the Hearing Officer order the assessment to be abated in full and the protest was granted.



Drew Markell

On October 2, 2017, the Department issued an assessment for withholding tax, penalty, interest in the amount of $40,336.03 to the Taxpayer. On January 2, 2018, the Taxpayer submitted a formal protest of the assessment. The Department had assessed the Taxpayer because as CEO for Santa Fe Medical Group, LLC he was the person with control over payment of the company’s wages. The issue to be decided in this case, then, was whether the Taxpayer was personally liable for the withholding tax. Under statute the employer is a person, officer, agent or employee of that person having control of the payment of wages and that the employer is liable for the withholding tax. The Taxpayer was the CEO of the entity and had access to all financial records and authority over all finances, as well as the authority to direct the responsibilities of others in the organization. When the company went into bankruptcy it retained control of its own finances and was still required to file tax returns. The Taxpayer testified in bankruptcy court multiple times as to the company’s financial obligations but claimed he was unaware of the company’s outstanding withholding tax liability until he was assessed. The Taxpayer suggested that since the company was in bankruptcy a variety of other individuals shared responsibility for paying the company’s taxes. However, the Hearing Officer determined that the responsibility to make the withholding payments rested with Santa Fe Medical Group, LLC and its executives and that the Taxpayer was the executive to whom all others answered. The statute states that the person with control over payment has the final responsibility for paying the employee’s withholding tax and the Hearing Officer cited multiple cases where that individual was found to be personally liable. A case was also cited where the shared control of an account did not reduce the liability of the person whose responsibility it was to assure the withholding tax was paid. This having been decided, the Hearing Officer ordered the assessment to be paid and the protest was denied. 



Total Management Sys Inc

On September 22, 2017, the Department assessed the Taxpayer in the amount of $276,963.88 for gross receipts tax, withholding tax, penalty, and interest. On December 15, 2017, the Taxpayer filed a protest of the Department’s assessment of the gross receipts tax. The main issue to be decided in the protest was whether the Taxpayer could take a deduction from gross receipts for those amounts derived from providing administrative, managerial, accounting and customer services for an affiliate on a nonprofit or cost basis as provided for by statute. Though the Department agreed that services being performed were for affiliates of the Taxpayer, the primary cause of dispute was whether the services were provided on a nonprofit or cost basis and the method through which the Taxpayer calculated and divided the cost among its various affiliates. The evidence showed that the Taxpayer’s operations provided administrative, managerial, accounting, and customer services to its affiliated hotels as the statute requires. But the statute does not specify a methodology for determining the cost of services when supporting the deduction. The Taxpayer calculated its costs as the sum of all expenses and then identified the difference between its revenue and costs to determine whether it produced a profit. The Hearing Officer determined that it was reasonable to rely on the total of those costs as the starting point for determining whether those services were provided at cost or without profit. The Department argued that the Taxpayer should be required to account for the cost of every service to each affiliated hotel, but the Hearing Officer agreed with the Taxpayer that using the sum total of expenses was sufficient. A breakdown by affiliate was not required by the statute. The method employed, that each affiliate paid a portion of the Taxpayer’s total cost in proportion to the revenue that it generated, was a reasonable method to determine the share of the total costs. This method was used consistently by the Taxpayer and demonstrated its entitlement to the deduction. This having been decided, the Hearing Officer ordered the protest granted and the assessment abated.



Castillo Retirement Residences

On December 21, 2017 the Department assessed the Taxpayer for compensating tax and withholding tax for $225,892.20. On March 21, 2018, Taxpayer filed formal protest of the assessment contesting the entire amount of the compensating tax which made up 99.5% of the assessment. On April 11, 2018, the Department concluded from its interpretation of statute that by failing to protest, pay, or enter in a payment plan for the $1,025.20 in withholding tax the protest should be denied. On July 3, 2018, the Taxpayer protested the Department’s denial of the protest for this reason. The Taxpayer’s motion for summary judgement was granted by the Hearing Officer as there was no dispute of the material facts in the case. The main issue to be resolved was whether the Department was correct to deny the Taxpayer’s protest request because of the failure to pay the unprotest portion of the assessment. The statute governing protests states that “a protest may be filed with or without payment of the assessed amount” but then later stipulates that “if only a portion of the assessment is in dispute, any unprotested amount of tax, interest, or penalty shall be paid.” The Hearing Officer found the language here somewhat ambiguous but it clearly does not state that the Department should automatically deny the protest if a portion of the assessment is not paid. Statute requires that the Department inform the Taxpayer of a problem with their protest if there is one, giving them the opportunity to correct the problem if they can do so as part of the guarantee of a right to formal review. However, in this case the protest was simply denied. Only when a protest is not timely filed does the statute state the protest should be automatically denied. If a portion of the tax is not paid, the remedy provided in statute to the Department, the Hearing Officer determined, is enforcing collection. Timeliness and substantive content are the two primary necessary requirements of a valid protest. This having been decided the Hearing Officer ordered that the Department accept Taxpayer’s underlying substantive protest and promptly submit a request for hearing to the Administrative Hearings Office.



Potter Endustries Inc

On March 3, 2017, the Department assessed the Taxpayer as a successor in business in the amount of $558,243.36 in tax, penalty and interest. On March 27, 2017, the Taxpayer filed a formal protest of the assessment. The main issue to be decided in this protest was whether the Taxpayer was a successor in business to American Car and Truck Care, LLC, and if so, to what extent was the Taxpayer liable for the amount owed. Shortly after incorporating in 2017, the Taxpayer engaged in series of actions that made the Department conclude that it was a successor in business. The Department relied on the statute and regulation that determines when one business becomes the successor to another. The Taxpayer argued that the regulation being used was unconstitutional. In response, the Hearing Officer cited the law that the Department has the authority to issues regulations that clarify and exemplify the statutes to which they pertain. The regulation lists various criteria that should be weighed when determining whether an entity is a successor in business to another and would, therefore, be responsible for any outstanding tax liability. The Taxpayer met the vast majority of these criteria. The Taxpayer’s business was engaged in exactly the same type of business, car maintenance and repair, as the LLC. It kept the same name as the LLC. It paid for the LLC’s accounts receivable. It leased the same building that the LLC was using for its business and even kept the same sign on the building as the LLC. The Taxpayer later acknowledged it was benefiting from the goodwill of the earlier business and was already a recognized name in the community. The Taxpayer had also continued the work of a contract that had been entered into by the LLC. All this suggested that the Taxpayer was a continuation of the LLC’s business. Two of the criteria listed in the regulation the Taxpayer did not meet. There was not enough evidence to support that the same officers of the previous business were now employed or connected with the Taxpayer. There was no evidence that the Taxpayer had taken on any of the debts of the LLC. But considering all of this evidence together convinced the Hearing Officer that the Taxpayer was a successor in business. The Taxpayer also argued the extent of the liability, suggesting that it should only be $10,000 for the goodwill and the amount paid for the accounts receivable. But the Hearing Officer found that this did not reflect the value of the property being used. This amount was the full amount of the assessment. This having been decided, the Hearing Officer ordered the assessment be paid and the protest denied.



Online Radiology

On October 23, 2017, the Department assessed the Taxpayer $309,185.49 in gross receipts tax, penalty, and interest. On January 20, 2018, the Taxpayer through a representing CPA firm formally protested the assessment. The main issued presented in this protest was whether the Taxpayer’s receipts characterized as “cash collections guarantee” or “stipend” were subject to gross receipts tax. Representation for the Taxpayer used both terms interchangeably and argued that these payments represented compensation only for making itself available for on-call and after-hours services and was “payment for services not performed” and therefore not gross receipts. The Taxpayer, headquartered in California, provides radiology services for rural health care facilities and has agreements to provide these services to health care facilities in rural areas of New Mexico. The Taxpayer divided revenue characterized as stipend or cash collections guarantee separately from the other revenue it received. This money was paid by the health care facilities and not by patients or insurance companies and was intended, the Taxpayer said, as compensation for the afterhours coverage and other contractual obligations. The Taxpayer also argued that the compensation was intended to provide a financial incentive to the Taxpayer to contract with rural New Mexico health care facilities. Some of the contracts with the facilities, though, did identify this money as payment for providing services. The difficultly in deciding the case, the Hearing Officer said, lay in the lack of evidence provided to support the Taxpayer’s position. Much of the evidence presented relied on information obtained from individuals who were not called upon to testify and this severely diminished the credibility of the evidence. The Hearing Officer found that the Taxpayer’s one witness, the representing CPA, lacked the personal, first-hand knowledge of the Taxpayer’s business operations during the periods relevant to the protest. Under statute the Taxpayer has the burden to overcome the presumed correctness of the Department’s assessment. The Taxpayer, then, must present sufficient countervailing evidence in order for the Department to abate the amount owed. The evidence presented was far too little. This having been decided the Hearing Officer ordered the assessment to be paid and the protest denied.



The GEO Group Inc

On April 24, 2017, the Department sent a denial letter in response to the Taxpayer’s claim for refund of corporate income tax for 2011 and 2012, stating that a net operating loss established on a separate entity cannot be claimed on a consolidated return. On July 27, 2017, the Taxpayer protested the denial. The main issue of this protest was whether the taxpayer qualified for the net operating loss deduction and so should receive a refund. The Department partly argued that the refund claim could be denied based on the statute of limitations, but the Hearing Officer dismissed this as never the reason for the actual denial. Instead, the case hinged entirely if it was appropriate for the Taxpayer to claim the net operating loss. To create the New Mexico base income which determines tax, the Taxpayer must add back the net operating loss taken on the federal return and then take the allowable New Mexico net operating loss permissible under its own rules. A taxpayer must show clear entitlement to a deduction for it to be allowed. The Department argued that the returns and supporting documentation including the schedules provided, were insufficient to determine this. The Taxpayer provided some information regarding the federal net operating losses, but this alone could not allow for a clear determination of the New Mexico net operating loss deduction. Department regulation has established specific rules about when a corporation may claim a net operating loss first used by another corporation or first reported under another filing method. Some conditions require the loss to still be a part of base income while other instances allow for loss carryovers if they are permitted for federal income tax purposes. To determine if the net operating loss qualified the Department needed additional information about when the net operating loss was first claimed, by which entity, whether that entity filed New Mexico corporate income tax returns and under which reporting method, and about the Taxpayer’s acquisition of the entity. The Taxpayer was ultimately responsible for these omissions and failed to established entitlement to the refund. This having been decided, the Hearing Officer agreed with the Department that there was insufficient evidence to determine whether the deduction was allowable and the Hearing Officer ordered the protest denied.



Gabriel M. Vigil and Elauterio Vigil

On March 14, 2018, the Department issued assessments to Gabriel M. Vigil and to Elauterio Vigil in the amount of $333,025.03 in tax, penalty, and interest for the periods between January 31, 2008 and September 30, 2011. The Taxpayers filed formal protests on May 30, 2018, and the Department acknowledged both protests on June 13, 2018. The main issue to be decided in this protest was whether the Taxpayers were liable for tax owed by Prestige Towing and Recovery, Inc. during the periods in question. The company had its certificate of corporation revoked in 2007. Though the normal statute of limitations for assessing a tax liability is seven years, this limit can be extended to ten years when there has been an intent to evade tax. The Department interprets evasion to include when there is a conscious awareness of the obligation to pay tax but a reckless disregard to do so. In this case the Taxpayers had filed and paid tax for the company in earlier years but during the periods assessed they made no attempt to file and the gross receipts tax collected from their customers was never remitted to the state. The cancellation of the certificate of incorporation by the Public Regulation Commission is significant because it means the liability in this period no longer falls to the corporation. Though the Taxpayers asserted they were not properly notified of the cancelation because it was sent to a physical address and not the mailing address, the Hearing Officer found this unpersuasive as the Commission had contacted them previously and requested information about earlier corporate reports using the mailing address. If a corporation has been canceled it is supposed to cease doing business and is not expected to resume its business activity. The Hearing Officer cited a court case where it was decided that persons who act as a corporation without the authority to do so were liable for all debts and liabilities. Upon a corporation’s cancellation, those officers, directors or shareholders who continue to engage in business should be held personally liable for such activity. The Taxpayers also made the argument that since a previous protest by Platinum Performance, LLC., Decision and Order No. 17-46, had determined in 2017 that another company was now the successor in business to Prestige Towing, this current protest was re-litigating the same issue. The Hearing Officer, however, determined that at no point was that protest concerned with whether Prestige Towing was still a corporation. Instead, the protest decided whether another company was a successor in business to it. The current protest was concerned solely with whether the Taxpayers were liable for the tax owed in these periods. This having been decided the Hearing Officer ordered that the Taxpayers were liable for the outstanding liability and the protest was denied.



Michael Corwin

On April 20, 2016, the Department assessed Corwin Research and Investigations, LLC, the business of the Taxpayer for gross receipts tax, penalty, and interest for periods from 2010 to 2012. On September 1, 2017, the Department issued another assessment for periods from 2013 to 2014, and on June 25, 2018, the Department then issued another assessment for periods in 2015. The Department also sent a series of additional assessments in June and July of that same year. On September 24, 2018, the Department received the Taxpayer’s protest of all of these assessments and on October 2, 2018, the Department denied the protests. Though the Department eventually abated some of the recent assessments, and the Taxpayer amended other periods that negated the liabilities, the central question of this protest was whether the Taxpayer was entitled to also protest the earlier assessments that were well over the time limit specified in statute. Section 7-1-24 NMSA 1978 states that a written protest shall be filed within 90 days of the date of the mailing of the assessment to the Taxpayer. In 2016, the Taxpayer had been informed by a Department auditor while discussing his audit case that, though he had objections to the audit, he was to receive an assessment and was told of his protest rights. The next time the Department received any communication from the Taxpayer was six months later when, in conversation with another auditor, the Taxpayer explained he had misplaced the assessment. Nine months later, the Taxpayer exchanged emails with another auditor concerning the second audit case and was informed of the assessment liability and of the right to protest. The 90 days after this assessment also expired without any communication from the Taxpayer. In a similar conversation with another auditor in 2018, the Taxpayer stated that his attention to protest the earlier assessments should have been obvious to the Department, but there was nothing ever received from the Taxpayer that could be construed as a written protest 90 days after the actual assessment had occurred. The Hearing Officer concluded that, though the Taxpayer may have conveyed to the auditors that he disagreed with the findings of the audit, it was not reasonable for him to assume that this would preserve his right to protest beyond the statutory limit. The Taxpayer’s earlier email communications prior to submitting his eventual written protest do not constitute timely or valid protests under statute. This having been decided, the Hearing Officer ordered the protest denied.



School for Advanced Research

Between December 5, 2018, and December 10, 2018, the Department assessed the Taxpayer for withholding tax, penalty, and interest for three filing periods in 2016. On January 7, 2019, the Taxpayer filed a formal protest of the assessments. The majority the amounts owed were for penalty and interest due to the late filing of the returns in November of 2018. The main issue to be decided in the protest was whether the Taxpayer was liable for the penalty when the returns had been filed unintentionally late and due to what the Taxpayer perceived as confusing changes made to the website at the time. The Taxpayer had paid the tax due for each of the periods in question but had not filed the returns, explaining that an employee who made the payments was confused by changes made to the site and failed to click on the correct link. The Taxpayer argued that by changing the locations of the buttons for filing a return the Department had been affirmatively misleading and therefore the Taxpayer was not negligent. The Taxpayer also argued that the Department should have notified them immediately that it had made payment but not filed returns. The Hearing Officer, however, did not agree and pointed to the requirement of New Mexico’s self-reporting tax system that “every person is charged with the reasonable duty to ascertain the possible tax consequences” of his or her actions. Silence on the part of the Department never means that a return has been filed. Though the Taxpayer might have been confused by the website, the Hearing Officer concluded this is not the same as being affirmatively misled. The Taxpayer is ultimately responsible for its own oversight when using the online filing system. Though the mistake was inadvertent, it still meets the definition of negligence, described in regulation as “inadvertence” and “erroneous belief or inattention.” This having been decided, the Hearing Officer ordered that the late filed returns were subject to penalty.



Michele Giacomo

Between October 12, 2017, and November 1, 2017, the Department issued warrants of levy to multiple entities in order to collect a gross receipts tax liability for Giacomo Medical, Inc, the business of Michael Giacomo, the Taxpayer’s spouse. On January 30, 2018, Michele and Michael Giacomo submitted a written protest of the notice of levy. The primary issue in this protest was whether the Department should be permitted to levy the Taxpayer’s IRA account in order to collect a tax liability for her spouse’s business. The Department argued that the IRA of Ms. Giacomo was community property and therefore could be levied to satisfy a community tax liability. But the Hearing Officer by examining precedent and the law determined that Ms. Giacomo did not meet the definition of a taxpayer in this case. Gross receipts tax is stated in statute to be the responsibility of an individual engaging in business. Though the Taxpayer was a director of the business, she was never engaged in running the business. As a community property state New Mexico recognizes that the responsibility for income tax is shared equally by both spouses but, the Hearing Officer reasoned, this does not make a spouse responsible for gross receipts tax if that spouse was not engaged in business. The asset that was levied was also from an individual retirement account, rolled over from a 401K, which under federal law is created exclusively of the benefit of an individual or their beneficiaries. Moreover, the various statutory requirements for a levy of a person’s property were not followed in this case. Though the Department had sent several letters attempting to collect the liability, including notices of seizures intending to make Mr. Giacomo know of the Department’s imminent Levy of assets, these notices were sent to incorrect addresses and referenced a CRS number for entirely different business that Mr. Giacomo had started but was now defunct. The levies addressed to the entities holding the accounts for Ms. Giacomo stated they were for a liability for “Michele Giacomo DBA: Michael Giacomo.” This was incorrect, as the Taxpayer had never engaged in business under this name. The Department failed to accurately name the Taxpayer, identify the tax liability, or explain when the liability had been due. All of this having been decided, the Hearing Officer ordered that the money that had been seized be refunded and the protest was granted.



Sandia Corporation

On December 23, 2013 the Taxpayer filed an application for refund for the tax periods December 2009 through November 2010 in the amount of $13,331,708.48. On December 19, 2014, Taxpayer filed an application for refund for tax periods December 2010 through September 2011 in the amount of $3,351,289.93. Later the Taxpayer filed protests of the Department’s failure to act on these claims and both were consolidated into one. This protest centered around the question of whether the Taxpayer could take a deduction for services provided to an out-of-state buyer. The Taxpayer worked on many different projects during these periods for various federal agencies. By mutual agreement the Department and Taxpayer settled on 65 projects that exemplified the question at issue. The Taxpayer sought to take deductions under Section 7-9-57 NMSA 1978 which provides that services sold to an out-of-state buyer may be deducted if the buyer does not make initial use or take delivery of the product of the service in New Mexico. The Department maintained that Section 7-9-57 did not apply in this case because the services sold were to the federal government and there was no statute that clearly and unambiguously set out a deduction for the sale of services to a governmental agency. The Department used Section 7-9-54 NMSA 1978 in arguing that the receipts from the sale to a government entity are deductible only for tangible personal property and not the sale of services. But the Hearing Officer could not agree that this statute invalidated Section 7-9-57. After reviewing similar cases, the Hearing Officer could not find an example where the Department had even argued this position before. Long standing precedent had been established in previous decisions, including one by the New Mexico Supreme Court, which allowed the deduction of the sale of services to a government agency when the initial use was made out-of-state. The Hearing Officer further reasoned that when the legislature wrote into Section 7-9-54 a series of exclusions, among them the sale of services, all of these exclusions were intended only for this deduction. Additionally, the guidance the Department provides in its publications concerning the deduction makes no exceptions for services sold to an agency of the federal government. Instead they detail only how the initial use of the product must be outside New Mexico and the buyer must take use of the product of the service outside the state. The Department also argued that the Taxpayer had defined the product of the services sold too narrowly and that, because the product might have national or global benefits, the product could be considered to have been initially used in New Mexico. The Hearing Officer found all of this far too broad and unreasonable. The term “initial use” is defined in statute as “the first employment for the intended purpose.” Using this definition and applying it to one example, a project to engineer and manufacture a system enabling NASA to inspect a spacecraft’s heatshield while in orbit, the intended purpose would appear to be protection of spacecraft in future missions more than a broader purpose of the success of the national space program which might benefit New Mexico. The Department also disputed that an agency of the federal government could be considered an out-of-state buyer because the federal government has presence in the state. But again the Hearing Officer disagreed, explaining how the Department had decided in the past to allow the deduction for services for other federal entities such at United States Air Force which has substantial presence in New Mexico. Regulation NMAC states that if the buyer has presence in the state but the initial use of the product of the services occurs outside the state, the deduction may still be taken. This having been determined, the Hearing Officer granted the protest and ordered the refund approved.



American Power LLC

On September 17, 2018, the Department issued an assessment to the Taxpayer for weight distance tax, penalty, interest, and underreporting penalty. On September 25, 2018, the Taxpayer submitted a letter of protest with support for the grounds of the protest. On March 6, 2019, the Department filed a motion for a summary judgement with the deadline for the Taxpayer to respond by March 21, 2019. As there was no response from the Taxpayer, and there was no dispute of the material facts of the case, the Hearing Officer granted the request to submit a summary judgement in the case. The key issue in the protest was whether the Department could abate penalty and interest when the contractor the Taxpayer used to report the International Fuel Tax Agreement (IFTA) returns failed to report the mileage. The Taxpayer later paid the tax but argued that the penalty should be abated because its contractor, SWX Cleveland, LLC, filed fraudulent returns. The Department did not dispute this and based on the evidence provided agreed to abate the civil penalty portion of the assessment shortly after receiving the protest. The underreporting portion of the penalty, though, was not abated. In reviewing the request for abatement the Hearing Officer noted that under statute civil penalty may be abated by “a mistake of law made in good faith and on reasonable grounds,” but that underreporting penalty does not have this same provision. The statute governing underreporting penalty does not require negligence on the part of the Taxpayer, only that the mileage has not been reported properly. It allows for abatement only if the Department has acted “incorrectly, erroneously, or illegally.” Since this was not the case, ultimately the Hearing Officer found that there was nothing in statute that would allow for the abatement of this portion of the penalty. This having been decided, the Hearing Officer ordered that the underreporting penalty be paid and the protest was denied.

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