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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 > 2003



Ernest I. Aragon

The taxpayer filed a timely 1995 PIT return showing a prepayment of $1,321 and tax due of $791, which he paid by check.  The Department did not have any record of the prepayment.  In June 1996, the Department’s Legacy computer system generated Assessment No. 662226 against the taxpayer for the prepayment amount.  In 2003,  the Department intercepted the taxpayer’s 2002 personal income tax refund and applied it to the liability shown on Assessment No. 662226.  The taxpayer filed a protest, saying he never received Assessment No. 662226.  When a mailing is challenged, proof of receipt of the mailing is not required, but the Department is required to show that the item in question was mailed.  At the formal hearing, the Department failed to present sufficient evidence to meet its burden of proof that Assessment No. 662226 was mailed to the taxpayer.  Without proof of mailing, the assessment was not valid under NMSA 1978, § 7-1-17.  The taxpayer’s protest was granted, and the Department was ordered to refund the $519 of personal income tax due to the taxpayer for tax year 2002, with interest as provided in NMSA 1978, § 7-1-68.



Academy Leasing

The taxpayer filed three identical claims for refund of gross receipts taxes overpaid for reporting periods October 1996 through October 1998.  The first claim was filed in October 1999, the second in May 2000, and the third in April 2001.  The Department did not act on any of the taxpayer’s three refund claims, and the taxpayer failed to protest the Department’s inaction as required by NMSA 1978, § 7-1-26.  On October 22, 2002, the taxpayer filed its claim for the fourth time.  Three days later, the Department denied the claim because all the reporting periods covered by the refund claim were now outside the statute of limitations.  The taxpayer then filed a timely protest, citing the Department’s failure to act on its three previous refund claims.  The taxpayer’s protest was denied because the taxpayer failed to file timely protests against the Department’s inaction on the first three refund claims and the statutory limitations on refund claims prohibited the Department from approving the taxpayer’s fourth refund claim. 



Xerox Corporation

A field audit of the taxpayer for 1995, 1996 and 1998, found that in calculating New Mexico taxable corporate income under the combined filing method, Xerox had deducted dividends and Subpart F income received from foreign subsidiaries whose operations were unitary with Xerox’s domestic unitary operations.  Xerox also excluded dividends received from certain nonunitary domestic subsidiaries from its New Mexico return.  In determining Xerox’s corporate income tax liability for the audit years, the Department allowed the exclusion of domestic dividends from nonunitary subsidiaries, but included the dividends and Subpart F income Xerox received from its unitary foreign subsidiaries as apportionable business income.  The Department then allowed factor relief for the foreign source income, using what is commonly referred to as the “Detroit formula”.  The Department assessed Xerox additional corporate income tax and interest, and Xerox protested the assessment.  As grounds for its protest, Xerox argued that under the U.S. Supreme Court’s holding in Kraft and the N.M. Supreme Court’s holding in Conoco, taxing Xerox’s unitary foreign dividends while excluding from tax its nonunitary domestic dividends resulted in an unconstitutional discrimination against foreign commerce.  The protest was denied for the following reasons:

  1. The facts of Kraft and Conoco, which addressed the disparate tax treatment of unitary foreign dividends and unitary domestic dividends under the separate entity filing method are distinguishable from the facts of this case, which involve the disparate tax treatment of unitary foreign dividends and nonunitary domestic dividends under the combined filing method.  
  2. The differential tax treatment of which Xerox complains was not based on the location of its subsidiaries’ activities, i.e., foreign or domestic, but on whether a subsidiary was unitary or nonunitary with the business operations of its parent corporation.  

Xerox did not presented any evidence or argument to show that New Mexico’s apportionment formula—as applied under the combined filing method and modified by the Detroit formula—did not result in a fair approximation of the corporate income that is "reasonably related” to Xerox’s activities in New Mexico.  



Zelma Kingsley

The taxpayer obtained from the Department an extension of time to file her 2002 New Mexico personal income tax.  At the time, a Department employee did not tell her that New Mexico law requires interest to be paid on any unpaid tax amount. On June 4, 2003, the Department assessed the taxpayer income tax, penalty and interest.  The taxpayer filed a written protest to the assessment, saying she had been granted an extension of time to pay until August 15, 2003.  She also objected to the addition of penalty and interest, arguing that she was never told there would be a penalty to extend the tax due date.  The Department abated the penalty assessed against the taxpayer.  Pursuant to NMSA 1978 Sections 7-1-13 and 7-1-67, the Department’s granting of an extension of time for the taxpayer to pay her 2002 personal income tax does not excuse her from the payment of interest on that tax.  The taxpayer’s protest was denied.




James M. and Terry K. Crowe

In 2000, James Crowe was hired as the business development manager for EchoPort, Inc., a small company with offices in Albuquerque, New Mexico.  Mr. Crowe spent some time at EchoPort’s Albuquerque office, consulting with company’s managers and using the telephone to contact potential customers, some of whom, he said, were located out of state.  Also in 2000, Dr. Terry Crowe did consulting work for Louisiana State University in New Orleans and North Park University in Chicago. The taxpayers filed their 2000 federal and New Mexico personal income tax returns. After learning of the business income, the Department found that the taxpayers were not registered for payment of gross receipts tax.  In response to a Department audit, Mr. Crowe furnished copies of the Form 1099’s received for Dr. Crowe’s consulting services and Mr. Crowe’s work for EchoPort.  The Department accepted the Form 1099’s as evidence Dr. Crowe’s services were performed out of state and not subject to New Mexico gross receipts tax.  Because EchoPort was based in Albuquerque, the Department asked Mr. Crowe to provide documentation supporting his claim that his services also were performed out of state.  Mr. Crowe told the Department he had disposed of all the paperwork related to his work with EchoPort, including his employment contract and his expense reports and travel receipts, and did not have any documents that would establish his out-of-state travel during the 2000 tax year.  The Department assessed gross receipts tax, penalty and interest, and Mr. Crowe filed a written protest of the assessments, claiming that no gross receipts tax was due because his services were performed out of state. Since Mr. Crowe did not maintain adequate records to prove that his services were performed out of state and therefore qualified for exemption from New Mexico gross receipts tax, his protest was denied.



Benny Nevarez

The taxpayer is a New Mexico resident who found that his New Mexico personal income tax liability for 2000 exceeded the amount withheld from his wages by $282.  In 2002, the Department issued an assessment for the $282, plus penalty and interest, whereupon the taxpayer filed a written protest. The only basis for the taxpayer’s protest is his belief that the tax imposed is too high and that he should not be liable for amounts in excess of the tax withheld by his employer.  Held:  While statute requires employers to withhold income tax from their employees’ wages, the ultimate liability for tax remains with the employee.  Nothing in statute provides that the employer’s act of withholding discharges the employee from liability for taxes due in excess of the amount withheld.  Concerns with the fairness of the tax rate must be addressed through the legislative process.



Paul Bunch

The taxpayer lives in Los Alamos, New Mexico, and owns houses in Texas, which he manages as rental units.  In 1996, the taxpayer registered to vote in Texas, but he has maintained his mailing address and telephone number at his Los Alamos residence.  The taxpayer acknowledges that he currently is a New Mexico resident.  Using the address of one of his rental homes in Texas, the taxpayer filed a “nonresident” 1999 New Mexico personal income tax return. On Form PIT-B, of his 1999 income the taxpayer allocated to New Mexico only the $1,268 his wife earned from her employment in Los Alamos. The Department adjusted the taxpayer’s 1999 PIT-1 to allocate all the couple’s income to New Mexico, based on the Department’s position that the taxpayers were New Mexico residents during 1999.  The Department assessed tax, penalty and interest for tax year 1999.  The taxpayer filed a written protest of the assessment, contending that he and his wife were residents of Texas in 1999.  The taxpayer further maintains that, even if he was a New Mexico resident in 1999, he is entitled to exclude from tax certain income from non-New Mexico sources.  The evidence shows that the taxpayers been New Mexico residents since 1988 and have not taken affirmative action to establish a permanent residence in Texas.  The taxpayers should have reported their 1999 income to New Mexico on the basis of New Mexico residency. The taxpayer’s protest was denied, but the Department did allow additional allocations of income to other states and reduced the amounts assessed.



Driscoll Woodworking

The Taxpayer, a woodworker, was an independent contractor for an Arizona company that acted as a general contractor on a construction project in New Mexico. The Taxpayer was not aware that services as an independent contractor are subject to the New Mexico gross receipts tax, and he failed to report or pay tax on this income. He did not ask for or receive a nontaxable transaction certificate (NTTC) from his customer. The Department audited the Taxpayer and notified him that he had 60 days to obtain possession of the NTTCs needed to support his deductions. The Taxpayer made several attempts to obtain an NTTC from the Arizona contractor, but was unsuccessful. The Department subsequently assessed the Taxpayer for gross receipts tax, penalty and interest. The Taxpayer protested the assessment, arguing that his services were sold for resale, and that his failure to produce an NTTC from the Arizona contractor was due to circumstances beyond his control. Held: The fact that the Taxpayer sold his services for resale is not sufficient to support a deduction in the absence of the NTTC required by statute.  New Mexico law states that if a taxpayer is not in possession of NTTCs within the 60-day notice period, the taxpayer’s deductions “shall be disallowed.” The responsibility for obtaining NTTCs is on the seller and not the buyer. The fact that the Arizona contractor would not cooperate with the Taxpayer does not excuse the Taxpayer for his failure to produce the required NTTC.  Protest denied.



Mr. Hubcap, Inc.

The Taxpayer is a family-owned business registered in New Mexico for payment of CRS taxes. From 1997 until midyear 2000, the Taxpayer had an exemplary reporting history with the Department. In 2000, the business hired a family friend to assume bookkeeping and accounting tasks. The bookkeeper prepared tax returns and checks for payment of taxes and other bills.  She then took them to one of the Taxpayer’s corporate officers for review and signature. The bookkeeper was also responsible for making all bank deposits and reconciling the Taxpayer’s bank statements. The Taxpayer’s corporate officers did not provide any oversight of the bookkeeper’s activities. For portions of 2000, 2001 and into 2002 the bookkeeper did not pay the Taxpayer’s CRS taxes. She also embezzled funds from the business either by having a corporate officer sign blank checks and cashing them for her own use, or by writing checks to herself and forging the corporate officer’s signature. Department assessments for taxes, penalty and interest began to arrive in 2002 with notices from other creditors. The Taxpayer investigated and discovered the bookkeeper’s illegal activities.  The Taxpayer then protested the Department’s assessment of penalty, arguing that it was not responsible for the bookkeeper’s activities.  Held: An employer is generally liable for the acts of employees committed in the course and scope of their employment (the doctrine of respondeat superior). Embezzlement by an employee is an illegal act that is outside the ordinary course and scope of employment. Although the bookkeeper’s illegal acts are not attributable to the Taxpayer under the doctrine of respondeat superior, the Taxpayer was nevertheless negligent in failing to exercise internal financial controls or properly supervise the bookkeeper’s activities. Penalty is due and payable. Protest denied.



Estes Spehar Design

The Taxpayer is in the advertising business and accepts Type 2 nontaxable transaction certificates (NTTCs) for the purchase of tangible personal property for resale. She entered into a contract to create a billboard display, not realizing that the contract to purchase space and create a billboard display is a service in New Mexico for which a Type 5 NTTC is the appropriate NTTC.  The Taxpayer did not contact the Department, consult her accountant, or research the state statutes and regulations on the issue. In 2002, the Department audited the Taxpayer and notified her that she must be in possession of required NTTCs within 60 days from the date of the notice. In June 2002, the Taxpayer contacted the Department employee assigned to the audit and produced records that included Type 2 NTTCs from her customers. The employee said that “everything looked okay” and she would forward the file to her supervisor. The 60-day period expired in August 2002 without further contact between the Taxpayer and the Department or the Taxpayer’s accountant. The Department subsequently assessed the Taxpayer on the receipts from her billboard contract and the Taxpayer protested the assessment. When the Protest Office explained that the Taxpayer should have had a Type 5 NTTC for the billboard contract, the Taxpayer obtained the NTTC from her client in January 2003. The Department rejected the NTTC because it was not in the Taxpayer’s possession within the 60-day period required by statute. At the administrative hearing, the Taxpayer argued that she was misled by the Department employee initially assigned to the audit, who told her that her records “looked okay.” The Taxpayer maintained that she could have obtained a Type 5 NTTC in a timely manner if the Department had told her she needed one.  Held: The Taxpayer’s argument does not provide a basis for equitable estoppel under the law and does not relieve her of the liability for tax, penalty and interest.  New Mexico has a self-reporting tax system, and it was the obligation of the Taxpayer—not the Department—to determine her liability for tax.  A taxpayer is not entitled to rely upon oral advice from the Department as a substitute for making his or her own independent review or consulting a qualified tax professional. Protest denied.



Doug’s Mobile Service

In 1994, the Taxpayer worked as a mechanic for an auto repair business, and received a federal Form 1099 reporting his wages as nonemployee compensation.  The Taxpayer did not understand how to report this income, and his employer arranged to have the Taxpayer's federal and state income tax returns prepared by its own accounting firm.  The federal return reported the Taxpayer's compensation as business income on Schedule C to federal Form 1040.  In March 1998, the Department assessed the Taxpayer for gross receipts tax, penalty, and interest on the income reported on his 1994 Schedule C.  The Taxpayer protested the assessment, and the Department subsequently determined that the Taxpayer had performed services during 1994 as an employee and not as an independent contractor.  The Department told the Taxpayer it would abate the gross receipts tax assessment if the Taxpayer filed amended federal and state income tax returns to correct his reporting. When the Taxpayer attempted to do so, the IRS refused to accept his amended return because it was untimely.  Although New Mexico does not have a statute of limitations on the voluntary payment of additional tax due to the state, the Department refused to allow the Taxpayer to file an amended New Mexico return in the absence of a corresponding amendment to his federal return. Held:  Given the clear evidence that the Taxpayer’s 1994 income should have been reported as employee wages rather than as business income, it is well within the Department’s authority to accept the Taxpayer’s offer to amend his 1994 New Mexico income tax return and pay additional tax due to the state. The Department is ordered to accept the Taxpayer's tender of additional tax due for 1994 tax year and, upon receipt of such payment, is ordered to abate its gross receipts tax assessment against the Taxpayer.  



Stella Owens

The Taxpayer is a Texas resident employed by the United States Customs Service at the Santa Teresa Port of Entry in southern New Mexico. In February 2002, the Taxpayer filed a New Mexico personal income tax return claiming a refund of the entire amount of New Mexico personal income tax withheld by her employer. In May 2002, the Department denied the Taxpayer's claim for refund.  The Taxpayer protested the denial, arguing that New Mexico is prohibited from taxing the wages of nonresident federal employees working within the state. Held:  In Lung v. O'Chesky, 94 N.M. 802, 617 P.2d 1317 (1980), appeal dismissed, 450 U.S. 961 (1981), the New Mexico Supreme Court upheld New Mexico’s right to tax the wages of nonresident federal employees working on federal property within the state, and this decision is binding precedent in New Mexico. The Taxpayer is deriving income from services performed for her employer within the State of New Mexico and is subject to New Mexico personal income tax on that income.  The Taxpayer is not entitled to a refund of New Mexico income tax withheld from her wages during 2001.  Protest denied.  




The Taxpayer is a nonprofit organization engaged in the business of providing services in New Mexico. The Taxpayer is registered with the Department for payment of CRS taxes and is required to pay on a monthly basis. In November 2001, the accounts payable bookkeeper was on leave and the organization made no arrangements to have her duties covered. The October 2001 CRS report was filed in December 2001. In January 2002, the Department assessed the Taxpayer for penalty and interest on the late payment of October 2001 CRS taxes. The Taxpayer protested the assessment and asked the hearing officer to waive the Department's assessment because: 1) it is a nonprofit corporation and could use the funds for a better purpose; and 2) the Taxpayer has made all other CRS payments in a timely manner for over 17 years. Held: The Taxpayer was late paying CRS taxes due to the state, and interest and penalty was properly assessed pursuant to Sections 7-1-67 and 7-1-69 NMSA 1978. Protest denied.  



Tom Growney Equipment, Inc.

The Taxpayer is engaged in business in New Mexico and is registered with the Department for payment of CRS taxes on a monthly basis.  In March 2002, the Taxpayer’s general manager decided to use the Department’s web site to electronically report and pay CRS taxes due for the February 2002 reporting period. The general manager failed to read the instructions on the Department’s web site and did not make an effective payment of tax due. He made the same mistake when trying to pay CRS taxes for the next reporting period.  The Taxpayer’s accounting staff failed to notify the general manager that the tax payments had not cleared the Taxpayer’s account, and he did not discover his mistake until he received an assessment from the Department in April 2002. He then paid the tax principal due, but filed a protest to the assessment of penalty, arguing that: 1) the Department's instructions concerning electronic payments were not clear, and 2) the hearing officer should waive or reduce the penalty based on the Taxpayer's exemplary reporting history. Held: The hearing officer does not have authority to waive penalty based on a taxpayer’s past reporting history. The Taxpayer's failure to timely pay its CRS taxes was due to negligence, and penalty was properly assessed pursuant to Section 7-1-69 NMSA 1978.  



In Home Day Care for Children

In 1989, the Taxpayer began providing child care services in her home and registered with the Department for payment of gross receipts tax. When she received her first CRS Filer’s Kit, she was confused by the instructions and called a Department employee who told the Taxpayer she was not subject to gross receipts tax and cancelled her registration.  Twelve years later, the Department audited the Taxpayer, determined that her receipts were subject to tax, and issued an assessment. The Taxpayer protested, arguing: (1) She is not engaged in business because the City of Albuquerque does not require her to be licensed.  (2) The type of care she provides is not specifically mentioned in the Department’s regulations as a service subject to tax. (3) A Department employee and H&R Block both told her she was not subject to gross receipts tax.  Held:  (1) The Taxpayer is engaging in business as defined in New Mexico’s tax statutes, which are separate and distinct from municipal licensing laws. (2) NMSA 1978, 7-1-5 creates a presumption that all business receipts are subject to tax, and there is no statutory exemption or deduction that would exclude the Taxpayer’s receipts from the general rule of taxation.  The Department’s regulations are not all inclusive, and the fact that the regulations do not specify that the type of services provided by the Taxpayer are taxable does not create an exemption or deduction from tax. (3) The fact that the Taxpayer received erroneous information from the Department does not prevent the state from taxing her receipts. There was no proof of deliberate attempts to mislead the Taxpayer. Because the Taxpayer was unable to identify the employee with whom she spoke, there is no way to confirm what information was given to the employee and what questions were asked. Taxpayers are not entitled to rely on the oral advice of a Department employee as a substitute for making their own independent review of statutes and regulations. Although the evidence does not support abatement of tax and interest, it does justify abatement of the negligence penalty.  Protest denied in part and granted in part.

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