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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 > 2010

12/21/2010

10-21

Sipapu Recreation Dev. II, LLC

The Taxpayer is a limited liability that owns and operates a resort in New Mexico.  From 2000 until March 2008, the Taxpayer has always filed a paid its monthly gross receipts taxes on time.  For a 4-year period, beginning in 2004, the Taxpayer employed a paid bookkeeper.  Until 2008, this bookkeeper had a history of timely filing and payment and gained the trust of the Taxpayer.  In early 2009, because of discrepancies regarding credit card statements, the Taxpayer terminated the bookkeeper’s employment and hired a new accountant. The Taxpayer also hired forensic accountants who found a number of issues in the work the bookkeeper had done, including falsifying and destroying certain records.  During the time that the forensic accountants were reconciling the Taxpayer’s accounts, the Department contacted the Taxpayer regarding outstanding gross receipts tax for seven periods in 2008.  The Taxpayer verified that no filings or payments were made and filed all the missing reports.  Shortly after, the Department issued seven assessments for unpaid gross receipts tax, penalty and interest.  The Taxpayer filed protests to each of the assessments.  After some discussion with the Department, the Taxpayer withdrew the protest regarding tax principal and interest but continued to protest the assessment of penalty.  Penalty is imposed when a taxpayer fails to pay taxes due as a result of negligence or disregard of rules and regulations.  In this case, consistent with prior Departmental Decision and Order In the Matter of the Protest of Sandia Oil Company, No. 01-01, based upon testimony of the Taxpayer regarding this former bookkeeper and her actions, and also the actions of the Taxpayer in supervising that employee, the Hearing Officer found that the Taxpayer exercised reasonable business care and prudence and was not negligent.  For that reason, the Taxpayer’s protest was granted.


12/16/2010

 10-20

Chevron USA, Inc.

The Taxpayer is an integrated petroleum company whose main operation in New Mexico is the sale of natural gas.  The Department conducted audits of the Taxpayer for tax years 2004, 2005 and 2006.  During the audit period the Taxpayer operated approximately 800 oil and gas wells in New Mexico and owned working interests in approximately 1700 additional oil and gas wells in New Mexico. The Taxpayer acquires rights to oil and gas property both by purchase and by lease.  The oil and gas leases provide for payment of royalties to the lessors of the oil and gas properties.  For purposes of calculating the Taxpayer's property factor under the Uniform Division of Income for Tax Purposes Act, "UDITPA", codified at §§ 7-4-1 to 7-4-21 NMSA 1978, the Taxpayer treated the royalties it pays lessors of oil and gas properties as rents.  Section 7-4-12 NMSA provides that property rented by a taxpayer is valued at eight times the net annual rental rate.  Regulation NMAC 3.5.12. C (1) broadly defines "annual rent" as "any amount payable for the use of real or tangible personal property...whether designated as a fixed sum of money or a percentage of sales, profits or otherwise".  The Department's auditors determined that the calculation of the value of the Taxpayer's rented property should be adjusted to exclude all royalty payments by the Taxpayer to lessors of natural resource interests.  The Department's auditors relied on Multistate tax Commission Regulation IV.11. (b), which excludes from the definition of "annual rent" royalties based on extraction of natural resources.  After adjusting the taxpayer's property factor to disallow royalty payments from the valuation of the Taxpayer's property, additional corporation income tax and interest was assessed for the years under audit.  The Taxpayer filed a timely written protest to the assessment and asserted that their calculations on the original returns were correct.  The sole issue was whether royalties paid to lessors of natural resources are rents for purposes of calculating the Taxpayer's property factor.  The Hearing Officer found that there was case law from other jurisdictions to support both the Taxpayer's argument that royalties can be considered rents and the Department's argument that royalties are not rents.   The Hearing Officer also found that New Mexico had not adopted the Multistate Tax Commission Regulation which excludes royalties for the extraction of natural resources from the definition of annual rent.  The Hearing Officer found that royalties fall within the broadly worded definition of annual rent in regulation NMAC 3.5.12.9C(1).  The Hearing Officer also found that the Taxpayer's method for calculating the value of its oil and gas leaseholds was reasonable because it produces a value which is equivalent to the value of the production from those properties.  For those reasons, the Taxpayer's protest was granted.  


12/06/2010

10-19

Terry and Eva Capehart

In 2006 Taxpayers had an ownership interest in a New Mexico company from which they were paid consulting fees reporting the income on their Federal income but not on their state tax return.  Upon being notified of the discrepancy through a limited scope audit Taxpayers paid the principal balance due but not the assessed penalty and interest requesting an abatement. Taxpayers’ abatement claim was based on other states not charging a similar tax and their mis-understanding that the fees were non-taxable. The hearing officer found that the Taxpayers were negligent in failing to report gross receipts taxes in tax year 2006 and owe the principal amount of gross receipts tax and the assessed interest.  The hearing officer also determined that amount of penalty was limited to ten percent based on the principal tax due prior to the amendment which changed the maximum penalty to twenty percent.  Any amount of penalty in excess of ten percent was ordered to be abated.  The Taxpayer’s protest was granted in part and denied in part.
 NOTE: The New Mexico Court of Appeals has overruled the 10% penalty issue mentioned in this decision.  (Case No. 30,932)


10/20/2010

10-18

Rose Ann Mathews

The Taxpayer was engaged in business as a counselor in New Mexico in 2005 and 2006.  The Taxpayer failed to file gross receipts tax with the Department for those years, which the Department determined through the Combined Reporting System.  On March 15, 2010, the Department assessed the Taxpayer for gross receipts tax, penalty and interest.  On March 18, 2010, the Taxpayer filed a formal protest.  The Taxpayer stated that she did not know she had to pay gross receipts tax.  The Taxpayer is willing to pay the taxes that she owes, and has engaged in managed audits for subsequent tax years.  The Taxpayer protests the assessment of penalty and interest.  The Taxpayer also protests the amount of gross receipts tax calculated as she was engaged in business in Valencia county, but was charged the rate for the city of Belen.  At the hearing, the Department conceded that the Taxpayer was doing business in Valencia county, so the amount of gross receipts tax was recalculated.  The penalty and interest were also recalculated, based on the new gross receipts tax total.  As to the Taxpayer’s protest to the assessment of penalty, a taxpayer’s lack of knowledge or belief that the taxpayer did not owe tax is considered to be negligence for purposes of assessment of penalty.  Statute states that interest “shall be paid” on taxes not paid, so interest must be imposed.  The assessment of penalty and interest was appropriate in this case.  However, the cap on penalty at the time that the tax was due was 10%, not 20%, and the Department is to abate the penalty in excess of 10%.  The Taxpayer also feels that the Department should have notified her prior to 2010 of this liability, the Department has seven years from the end of the year in which tax is due to make an assessment when the Taxpayer fails to file any return.  The assessment was made in a timely manner.  The Taxpayer’s protest was granted in part and denied in part.
 NOTE: The New Mexico Court of Appeals has overruled the 10% penalty issue mentioned in this decision.  (Case No. 30,932)


10/14/2010

10-15

Shane and Kim McGrew

The Taxpayers were residents of New Mexico in 2001.  They filed their joint Personal Income Tax (PIT) return by mail on October 15, 2002.  The Department determined that the Taxpayers were non-filers for the 2001 and 2003 tax years.  On June 13, 2008, the Department notified the Taxpayers of a limited scope audit for PIT for those two tax years.  The Department then located a payment for 2003 in their database and eliminated that year from the audit.  The Department assessed the Taxpayers for personal income tax, penalty and interest for the 2001 tax year.  The Taxpayers filed a formal written protest to this assessment stating that they had filed the return in question and submitted the necessary payment.  At the hearing, the Taxpayers presented evidence, both by affidavit and testimony, that they filed their PIT return for the 2001 tax year.  The Department was not able to provide evidence that the return was not received.  The Department also stated that they were in the midst of changing its database in October 2002, the same month that the Taxpayers filed their return.  The Taxpayers argued that it was likely a mistake could have been made in processing their return.  The hearing officer determined that the Taxpayers presented sufficient  evidence to show that they filed their 2001 PIT return in October 2002.  The Taxpayer’s protest was granted.


09/30/2010

10-13

GEA Integrated Cooling Technology

The Taxpayer is a Colorado based company that builds and renovates cooling towers for power plants.  During the audit period, June 2003 through May, 2008, the Taxpayer was working on projects in New Mexico for the Public Service Company of New Mexico.  The Taxpayer was audited by the Department, commencing on July 16, 2008.  As a result of the audit, on September 21, 2009 the Department issued an assessment to the Taxpayer gross receipts tax, penalty and interest for the periods covered by the audit.  Effective January 1, 2008, an amendment to Section 7-1-69(A) NMSA 1978 raised the maximum rate of penalty imposed for the failure to pay taxes from a maximum of 10% of the unpaid taxes to a maximum of 20%.  The Department applied the amended statute in calculating the penalty assessed the Taxpayer.  The Taxpayer protested only the penalty portion of the assessment, arguing that for reporting periods prior to the effective date of the amendment, the Department was prohibited from imposing the higher penalty provided for in the amended statute because it amounted to giving the amendment a retroactive effect, which is prohibited.  The hearing officer determined that although the language of Section 7-1-69(A) looks to whether taxes were unpaid in determining whether penalty should be imposed, penalty is imposed under the language of the statute only at the time that the unpaid taxes are assessed.  Because the unpaid taxes were assessed after the effective date of the statutory amendment, the amended version of Section 7-1-69(A) applied and it was not a prohibited retroactive application of the statutory amendment to assess penalty at the higher percentage of the amended statute.  The Taxpayer's protest was denied.  


09/27/2010

10-12

Adobe Rose Bed & Breakfast

During the period in question, the Taxpayer was the sole proprietor and owner of a bed and breakfast outside of the city limits of Artesia, New Mexico.  The Taxpayer’s primary customers were federal law enforcement agents on assignment as instructors at the Federal Law Enforcement Training Center.  These agents would usually stay for longer than thirty days.  The Taxpayer was uncertain about the taxability of receipts from guests staying longer than thirty days, so he contacted the Department.  A Department employee advised the Taxpayer that guests staying more than thirty days would be considered a lessee paying rent, and not subject to gross receipts tax.  This advice was not given in writing.  The Taxpayer relied on this advice and did not impose gross receipts taxes to guests staying more than thirty days at the bed and breakfast.  He did impose gross receipts tax on guests staying less than thirty days.  In 2008, four years after beginning his business, the Taxpayer was selected for audit.  As part of the audit, the Department determined that the Taxpayer had no Tenant-Landlord relationship with any of the guests and so all money received from guests who stayed at the bed and breakfast were taxable gross receipts.  The Taxpayer informed the auditor of the information that he was given by a Department employee.  This employee, now an audit supervisor, confirmed that he had given the Taxpayer this information.  He recommended that the imposition of penalty be waived in assessing the Taxpayer.  The Department assessed the Taxpayer for unpaid gross receipts tax and interest, but not penalty.  The Taxpayer filed a written protest to the assessment because of the advice given by the Department employee.  The hearing officer concluded that gross receipts tax was due in this situation, and reliance on oral advice does not have an affect on this statutorily-required tax principal.  Statute dictates that interest shall be imposed, so the assessment for unpaid gross receipts and interest is correct in this case.  The Taxpayer’s protest was denied.


09/13/2010

10-11

Western Disposal Services

The Taxpayer filed a timely CRS report and made payment for the December 2003 reporting period.  The Department misapplied the payment to another account and lost the report.  The Taxpayer was notified of the failure to file a report for that period.  The Taxpayer was unable to locate the report or proof of payment, so another report and payment for that period were submitted in March 2004.  In March 2009, the Taxpayer was informed that the report for December 2003 was still missing.  The Taxpayer found the original CRS report and proof of payment in their records and provided copies of these to the Department.  In April 2009, the Taxpayer filed a claim for refund for the second payment made.  The Department denied the claim for refund in May 2009.  In June 2009, the Taxpayer filed a formal protest to the denial.  The issue to be decided in the hearing was whether the claim for refund was properly denied due to the statute of limitations.  Section 7-1-26 (D) NMSA 1978 establishes that no refund or credit is allowed unless claimed within three years of the end of the calendar year of the original due date of the payment or within three years of the overpayment.  The original payment was due in January 2004 and the overpayment occurred in March 2004.  The statute of limitations expired at the end of the 2007 calendar year.  The claim for refund was barred by the statute of limitations.  The Taxpayer’s protest was denied.


06/16/2010

10-09

Steve Ortiz

Taxpayer, a sole proprietorship, performed services for but did not obtain required nontaxable transaction certificates (NTTCs). As a result of the information-sharing program with the IRS, the Department conducted a limited scope audit of Taxpayer’s gross receipts tax for 2006 and advised him as to the necessity of possession of timely dated NTTCs to support his deductions or such  “deductions relating to the NTTCs will be disallowed.”  Taxpayer did not obtain the required NTTC’s by the deadline. The Department therefore disallowed the deductions and assessed the taxpayer for unpaid gross receipts tax, twenty percent penalty and ongoing interest.  The Taxpayer filed a protest to the assessments claiming he should be fined for obtaining the NTTC’s late but the tax, penalty and interest should be abated claiming the tax had already been paid by another and therefore it unfairly was double taxation. The hearing officer found that the Taxpayer was not entitled to the deductions based on not having the necessary NTTCs in possession by the allowed time period and the tax and interest were appropriate charges however the penalty was abated to ten percent based on the assessment being for 2006 taxes. 
 NOTE: The New Mexico Court of Appeals has overruled the 10% penalty issue mentioned in this decision.  (Case No. 30,932)


06/02/2010

10-08

Christopher Martin

The Taxpayer worked as a handyman and doing odd jobs in New Mexico in 2005 and 2006.  He failed to file gross receipts tax for those years.  The Taxpayer was using a tax preparer from California who did not realize that gross receipts tax was applied to services in New Mexico.  The Department discovered this discrepancy based upon comparison with the Taxpayer’s federal Schedule C, and subsequently assessed him for unpaid tax, penalty and interest for those periods.  The Taxpayer filed a protest to the assessments.  At the hearing, the Taxpayer did not dispute that he was providing services and that receipts from those services were taxable.  He was not aware of that in 2005 and 2006, but upon learning that his receipts were taxable he took steps to get into compliance.  The Department does not have discretion in applying interest to unpaid tax liabilities.  The law states that interest shall be applied.  When engaging in business, it is the Taxpayer’s responsibility to determine the taxability of his activities, so penalty cannot be waived due to being unfamiliar with the law.  However, the hearing officer did determine that, because the cap on penalty was 10%, not 20%, at the time the taxes were due, the Department is to abate the penalty in excess of 10%.  The Taxpayer’s protest was granted in part and denied in part.
 NOTE: The New Mexico Court of Appeals has overruled the 10% penalty issue mentioned in this decision.  (Case No. 30,932)

 


05/27/2010

10-07

Jason P. Able

In tax years 2005 and 2006, the Taxpayer had a contract as an oil-well pumper with his father’s business, Able Pumping Service.  The Taxpayer believed that his father’s business was responsible for the payment of gross receipts taxes.  At the time the Taxpayer performed services for Able Pumping services, he did not ask for or possess a nontaxable transaction certificate (NTTC) from that company.  As a result of the information-sharing program with the IRS, the Department found some discrepancies between the Taxpayer’s IRS filing and his New Mexico Combined Reporting System (CRS) filings.  The Department mailed notices to the Taxpayer that it was conducting a limited scope audit of his gross receipts tax reporting for the years 2005 and 2006.  The notices advised the Taxpayer that he must be in possession of all NTTCs required to support his deductions within 60 days from the date of that letter.  The Taxpayer was later sent reminder notices also containing this information.  The Taxpayer contacted Able Pumping Service regarding the NTTCs, so that company applied to the Department for the appropriate NTTCs.  The deadline by which the Taxpayer had to have the NTTCs in possession passed and he still did not have the certificate.  The Taxpayer was issued the Type 5 NTTC forty-seven days after the deadline.  Because the NTTCs are required to support the deductions taken by the Taxpayer, and because he was not in possession of them at the time required by statute, the Department disallowed the deductions and assessed the taxpayer for unpaid gross receipts tax, penalty and interest.  The Taxpayer filed a protest to the assessments arguing that he was prevented from timely possessing the relevant NTTCs as the Department withheld them from Able Pumping Service.  The Department states that statute provides a lawful basis to withhold NTTCs from an applicant when their account is delinquent or shows a non-filing period.  The hearing officer found that the Taxpayer was not entitled to the deductions taken as he did not have the necessary NTTCs in possession.  The law is clear that the deduction is to be disallowed if the NTTCs are not obtained in the designated time period.  The law also requires the Department to impose interest, so this amount may not be waived.  The hearing officer also ordered that the Department waive part of the penalty imposed as the cap on penalty was 10% rather than 20% at the time these taxes were due.  The Taxpayer’s protest was granted in part and denied in part.  
 NOTE: The New Mexico Court of Appeals has overruled the 10% penalty issue mentioned in this decision.  (Case No. 30,932)

 


04/21/2010

10-06

Peter Sinclaire and Elizabeth Durston

Taxpayers received Department notification in September 2008 of an overpayment on their 2004 personal income tax return including a blank application for refund requiring that it be completed and returned. Taxpayers completed and delivered the application on February 5, 2009. The refund was denied as it was requested late. NMSA 1978, §7-1-26 requires that a claim for refund must be filed within three years from the end of the calendar year in which the payment was due. A refund request for 2004 personal income tax, due in 2005 must be requested in 2008.  Taxpayers protested claiming they had not received the instructions to the application for refund; that a Department employee indicated completion of the refund application was unnecessary; and Taxpayers could apply the refund to 2008 taxes. The issue is whether the Taxpayers are entitled to a refund and whether estoppel should be applied against the Department.  Taxpayers’ reliance on a Department employee’s oral representations was not determinative in this case.  The Taxpayers protest is denied.


03/24/2010

10-05

Kimberly and William Flores

The Taxpayer engaged in babysitting services for pay from the State of New Mexico, CYFD, in the years 2005 and 2006.  The Taxpayers filed their 2005 and 2006 personal income tax returns indicating income from these services on Schedule C of their federal returns, but they failed to file gross receipts returns.  The Department assessed Taxpayers for unpaid gross receipts tax, penalty and interest for both 2005 and 2006, and applied an refund to offset the tax liability due. Taxpayers were engaged in business and are responsible for the gross receipts tax and interest. The Department correctly offset the rebate amount and Taxpayers are not entitled to a refund of the offset rebate as the Department acted properly in applying the offset to the outstanding liability.  In regard to the penalty, the Department was ordered to abate any penalty imposed above 10% as the law increasing penalty to 20% was not in place at the time these taxes were due.  The Taxpayers protest was granted in part and denied in part.  
 NOTE: The New Mexico Court of Appeals has overruled the 10% penalty issue mentioned in this decision.  (Case No. 30,932)

 


03/18/2010

10-04

Lonyta Viklund & David Galloway

Taxpayer argued that he was not a resident of New Mexico.  Taxpayer resided in New Mexico after he married a New Mexico resident.  Prior to marriage, Taxpayer resided in England. Part of the year, Taxpayer works on a cruise ship spending approximately eight months each year on ship. The Department conducted an audit of the Taxpayers for tax years 2005-2008 and assessed Taxpayers personal income tax.  Taxpayers paid the assessment for 2006, filed for a refund and formally protested based on the Department’s failure to grant or deny the claim.  Taxpayer is considered a non-resident of the United Kingdom for tax purposes as he is a seafarer and his sole source of income is from overseas employment.  The indicais of residency include permanent resident status in the United States, a New Mexico address, permanent resident card was mailed to New Mexico, issued a social security number, obtained an employment authorization card and a New Mexico driver’s license. Taxpayer also purchased a home in New Mexico, had three vehicles registered in New Mexico, and spent the majority of his non-working days in New Mexico. Taxpayers are resident of New Mexico, despite husband having a job that takes him on a cruise ship.  Taxpayers are liable for unpaid tax and interest that they have been assessed for the tax years in question.  Penalty was abated because they relied on advice of legal counsel who also prepared their taxes established that they did not act negligently or intentionally disregard the tax laws, so the penalty is abated.  Taxpayers protest was granted in part and denied in part.


03/18/2010

10-03

Bryan C. Templeton

The Taxpayer went to work at Sandia Food Group Inc., founded by Mark Day, in March 2000 as chief operating officer.  The corporation’s primary business was to develop and manage a series of restaurant franchises.  The Taxpayer did the accounting and paid the bills for the corporation.  The corporation later restructured and became a limited partnership called SFG, LP.  The Taxpayer was the chief accounting officer of the partnership.   The partnership received all revenues and paid all obligations for all restaurants and corporate entities that it managed and maintained all bank accounts for all of these restaurants and entities.  The Taxpayer signed all paychecks for employees working in the restaurants and signed tax payment checks and CRS filings for entities managed by the partnership.  The Taxpayer also personally provided money for franchise development rights, which increased his interest in the partnership.  The Taxpayer was listed as a limited partner in at least eight corporate entities under the Sandia Food Group, Inc. umbrella.  Mr. Day died in July, 2006.  The limited partnership and corporation filed for bankruptcy shortly after his death.  On the bankruptcy petition the Taxpayer listed himself as “President” of the company.  The companies were unable to reorganize in bankruptcy and discontinued operations of their restaurants.  In 2007, the Department assessed the Taxpayer for unpaid withholding tax, penalty and interest for two of the company’s under the partnership’s control.  The Taxpayer filed timely protests to both of these assessments.  The Taxpayer argued that he was not an officer, agent or employee of either of these companies and was not in control of the payment of wages for either.  He stated that Mr. Day was in control of everything associated with the companies.  The evidence established that the Taxpayer was an officer, agent, employer or employee as he applied for and obtained the CRS number for the companies, signed their tax payments and CRS filings, and signed employee paychecks.  Because the Taxpayer was found to have had control over the payment of wages for employees and he falls within the definition of an employer, he is liable for unpaid withholding tax, penalty and interest. The Taxpayers’ protest was denied.


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