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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 > 2018

10/18/2018

18-31

New Mexico Food Distributors Inc & Affiliates

On July 16, 2018, the Department assessed the Taxpayers, NM Foods Distributors, Inc, and affiliated entities Los Curates Restaurant and Little Anita’s Mexican Food in separate assessments for gross receipts and withholding tax penalty as well as interest for the CRS filing period ending May 31, 2018. There were nine different assessment letters of varying amounts, the largest penalty of $495.15 being for gross receipts tax. The Department received the protest for all these assessments on July 18, 2018. The taxpayer did not dispute the fact they owed tax but requested an abatement of the penalty for late filing and payment. The Taxpayers explained that in June of 2018 an accounting assistant whose duty it was to file and pay the tax, was diagnosed with T-Cell Lymphoma, left work to receive treatment, and died 16-days later due to complications. While this was happening in the week the gross receipt tax was due, an accounting manager who would have been the back up to file and pay the tax was on vacation. These events were sudden and unexpected and because of this the taxpayers argued they were not negligent in filing and paying the tax late. In response the Department first explained that its GenTax software had incorrectly calculated withholding penalty which should have been entirely for gross receipts. The Department then reasoned that since the Taxpayers used a payroll service to pay the withholding tax on time the same firm should have been given instruction to pay the gross receipt tax. The Hearing Officer, however, found this argument wholly unconvincing, stating that this case was a “quintessential example” of when Regulation 3.1.11.11 (B) NMAC requires the abatement of penalty. This regulation states that non-negligence is shown when “the taxpayer, disabled because of injury or prolonged illness, demonstrates the inability to prepare a return and make payment and was unable to procure the services of another person to prepare a return because of the injury or illness.” This having been established the Hearing Officer granted the Protest and ordered that all penalty be abated.


10/03/2018

18-30

Thomas W and Linda L Krumland

 On August 1, 2016, the Department assessed both Taxpayers in two assessments for gross receipts tax, penalty and interest for the CRS filing periods ending June 30, 2009 through June 30, 2015. On September 8, 2016 the taxpayers filed a formal protest through their accounting firm. Delayed by various continuances, requests for admissions and interrogatories, and other motions the hearing eventually occurred on May 29, 2018. The primary issue in this protest concerned whether a partner’s income from “guaranteed payments” and reported by the partnership on IRS form Schedule K-1 are subject to gross receipts tax. The Department assessed only receipts that were termed guaranteed payments and determined that these payments were made in consideration of services. The Taxpayers argued that they saw themselves only as owners of the businesses and that the activities performed were in keeping with that of an owner and not an employee or a contractor providing services. They also claimed they were entirely ignorant of the implications of reporting these distributions as guaranteed payments. The IRS defines guaranteed payments as being for compensation of services or capital without regard for the income of the partnership. Though there are taxable benefits to characterizing the payments in this way, the Hearing Officer said that he would interpret that these payments were appropriately characterized as the weight of evidence suggested. The Taxpayer also argued that the receipts might be exempt under Regulation 3.2.1.14 (S) (4) NMAC, but the Hearing Officer determined that this regulation was inappropriate as it applied to services provided to third parties. However, after the Hearing and before a decision was made in the protest, the Taxpayers noted the proposal of an amended regulation that would favor their position and requested that the decision in the protest be held until the new rule might be approved and decide the matter. The amended regulation specifically states that guaranteed payments are not gross receipts. The Hearing Officer decided to allow this request and then made the determination, after the amendment to 3.2.1.14 NMAC was approved, that this Regulation could be applied in this case, not he said because a new law was being retroactively applied but because it was instead reinterpreting the preexisting law and seeking to clarify it. The application of the rule being allowed, the Hearing Officer ordered that the guaranteed payments were not gross receipts and not subject to gross receipts tax.


09/14/2018

18-29

Precheck Inc

On November 17, 2017, the Department notified the Taxpayer that it reviewed and denied its claim for CRS refund in the amount of $178,341.46 for periods in years 2011 to 2015. On November 20, 2017 the taxpayer submitted a formal written protest of the Department’s refund denial. On October 24, 2017 the Taxpayer had applied for a refund that requested the amount of the High Wage Jobs Tax Credit which had been previously only partially approved. The Taxpayer had sought a credit for $186,140.03 for the same periods and was only partially approved in the amount of $7,798.57. Though the Taxpayer had received notice of the partial denial of the tax credit on June 12, 2017, the Taxpayer did not protest the denial within the 90 days after the date of the notice as required by Section 7-1-24, NMSA 1978. Instead, the Taxpayer filed an application for refund to claim the remaining amount of the High Wage Jobs Tax Credit and then protested the denial. The sequence of these events was key to the decision of the Hearing Officer. After having failed to protest the partial denial, the Hearing Officer determined that the Taxpayer was claiming the same credit again only to later protest the decision. Though Section 7-1-26 NMSA 1978 refers to protesting the claim for “a credit,” this does not specifically mean a credit like the High Wage Jobs Tax Credit and is not intended to offer a second opportunity to protest the same denied credit. Because of these conclusions, the Hearing Officer ordered that the Taxpayer did not file a timely written protest of Department’s refund denial and the claim for refund is denied.


09/04/2018

18-28

Diamond T U.S. Mail Service Inc

On August 4, 2017 the Department assessed the Taxpayer gross receipts tax, penalty and interest for the CRS reporting periods ending April 30, 2013 to December 31, 2016. On August 28, 2017, the Department received the Taxpayer’s timely protest of the assessment. The taxpayer transports bulk mail for the United States Postal Service under a Highway Contract Route, transporting mail from and to Lubbock, Texas and to various delivery points in New Mexico. This protest involved deciding the extent to which the Taxpayer was entitled to a deduction from gross receipts for these deliveries under Section 7-9-55 NMSA 1978 as transactions in interstate commerce. The taxpayer argued that all the receipts were in interstate commerce because its trucks crossed state boundaries to and from New Mexico. The Hearing Officer, however, found this argument unconvincing as many of the trips were made entirely in New Mexico. The Department argued that the amount of the deduction should be measured by employing Regulation 3.2.213.10 B NMAC which provides that a person who holds a contract for the transportation of United States mail from points within New Mexico to other points outside of New Mexico may deduct a portion of gross receipts which were derived from transactions in interstate commerce. The statute specifies the method on which a deduction is to be calculated and importantly defines “delivery point” as any point where mail is required to be delivered under the contract. After reviewing the information provided in the Highway Contract Route, the Hearing Officer determined that the calculation made by the auditor, which had concluded that the total number of delivery points in Texas was 12.5 percent, had not been calculated correctly. Allowing for the change in the number of delivery points, the Hearing Officer found that Taxpayer’s deduction from receipts should be 17 percent rather than the 12.5 percent originally calculated. Therefore, the Taxpayer’s protest is granted in part and denied in part and, allowing for the increased deduction, the Taxpayer is ordered liable for the adjusted amount of tax, penalty and interest.


08/29/2018

18-27

Active Solutions Inc

On March 21, 2017 the Department assessed the Taxpayer for tax, penalty and interest for the CRS filing periods ending January 31, 2010 through February 29, 2016. The taxpayer filed a formal protest on June 19, 2017. The chief issue in this protest was whether receipts the Taxpayer derived from providing Family Living Services under the Developmental Disabilities Medicaid Waiver Program were excluded from gross receipts tax. The taxpayer initially argued that it had not been assessed by the Department within the limitations specified in Section 7-1-18 (A) NMSA 1978 which states an assessment must be sent within three years from the end of the calendar year in which the tax was due. The Hearing Officer however cited the exception to this rule found in Section 7-1-18 (C) NMSA 1978 which explains that if a taxpayer understates by more than twenty-five percent the amount of liability for any tax the Department may assess within 6 years from the end of the calendar year in which the tax was due. The taxpayer then argued that the amounts were received solely on behalf of another in a disclosed agency capacity, stating that it was reimbursed for approved expenditures incurred on the state’s behalf in furthering specific state programs. Regulation 3.2.1.19 (C) (1) NMAC provides an exception for reimbursement when acting in a disclosed agency capacity. However, the Hearing Officer found that the Taxpayer’s evidence clearly established that it would not satisfy its own obligations to its direct service providers until after it had received payment from the state and therefore was not being reimbursed. Because of this the Hearing Officer concluded that the Taxpayer failed to establish that it incurred those expenditures in a disclosed agency capacity. The evidence also failed to establish any authority for the Taxpayer to bind the state to an obligation created by an agent. At no place in the Taxpayer’s provider agreement with the state, the Hearing Officer found, or within any cited statute or regulation, does the state express any grant of authority consistent with the creation of a disclosed agency relationship. The totality of the evidence, the Hearing Office decided, established that payments to the Taxpayer were not amounts received solely on behalf of another in a disclosed agency capacity and therefore were not excludable from taxable gross receipts. The taxpayer also argued that the receipts should be exempt pursuant to Regulation 3.2.1.12 E – F NMAC which excludes payments to individuals providing foster care, certain caretakers, and home care. The Hearing Officer determined however that none of these designations were applicable to the Taxpayer. Because of these conclusions the Taxpayer’s receipts were decided to be taxable gross receipts. The Taxpayer is liable for accrued interest as well as penalty under the negligence definition found under Regulation 3.1.11.10 (C) NMAC.


08/10/2018

18-26

Michael Andrew & Meredith L. Hartnagle

On July 10, 2017, the Department issued a notice of assessment of taxes for gross receipts tax, penalty, and interest. On October 5, 2017, the Taxpayer filed a timely protest with the Department. The Taxpayers’ argued that the income in question were the result of businesses that are in Colorado and that the income should not have been allocated to New Mexico on their PIT-B. Even though the services provided by those businesses were for New Mexico clients, the Taxpayer explained that all services were performed exclusively in Colorado either by telephone or the internet. The main issue to be determined in this protest is if gross receipts derived from services performed in Colorado, for a New Mexico purchaser, are taxable in New Mexico. The Department stated that the product of the services was the emails or telephone communications which represented deliverables and those deliverables were initially used in New Mexico resulting in them being subject to gross receipts tax. The Hearing Officer determined that because the services being performed where all completed out-of-state and because the services were not a result of research and development they qualified for the exemption under Section 7-9-13.1, NMSA 1978. For the foregoing reasons, the Taxpayers’ protest is granted. The Department is ordered to abate tax, penalty, and interest under the assessment.


08/03/2018

18-25

The Red Onion

On February 5, 2018, the Department assessed the Taxpayer as a successor in business for tax, penalty, and interest. The Taxpayer filed a timely protest with the Department on February 26, 2018. The Taxpayer and the previous business owner entered into a contract on July 17, 2017 for purchase of the restaurant business. The contract included the transfer of furniture and equipment. The Taxpayer operated the restaurant in the same business location but hired new employees, had a new menu, and obtained its own tax identification number. The issue to be decided in this protest is if the Taxpayer is a successor in business. The Hearing Officer used Regulation 3.1.10.16 NMAC to help determine if the Taxpayer was considered a successor in business. Based on the eight factors, the Hearing Officer determined that the Taxpayer is a successor in business. The Taxpayer argued that the liability owed should be limited to the value of the equipment that was transferred with the business based on Section 7-1-63, NMSA 1978. The Taxpayer argued that the amount should not include any of the property that was repossessed by third parties that were found to not belong to the prior owner. The Hearing Officer determined that based on the way that the contract was written, the purchase was for intangible property and goodwill and therefore the full purchase price was the amount that would have been looked at in applying Section 7-1-63, NMSA 1978. However, the amount of tax, penalty, and interest that was due was less that the amount that the Taxpayer purchased the business for. For the foregoing reasons, the Taxpayer’s protest is denied.


08/02/2018

18-24

TVSLR, LLC

On September 28, 2016, the Department assessed the Taxpayer, as a successor in business for the tax periods from December 31, 2014 through July 31, 2016. On December 19, 2016, the Taxpayer filed a formal protest with the Department. On or about August 1, 2016, the Taxpayer, who is a landlord, took over operations of a restaurant that was rented by a tenant that had become delinquent on rent, taxes, and other business expenses. The Taxpayer retained all of the employees that were employed by the prior owner and assumed possession of perishable and non-perishable items from the prior owner. The issue to be determined during this hearing is if the tax liability from the prior owner of the restaurant transfers to the Taxpayer after the default and eviction. Both the prior owner and the taxpayer are limited liability companies (LLC) with a shared member. The property that is transferred or acquired by a LLC is property belonging to the LLC and not of the LLC’s members. For the purpose of this hearing, the Hearing Officer notes that the LLC’s shall be treated as separate and district entities apart from their members. During the hearing, the Hearing Officer went through the eight factors that are used to determine if a business is a successor. These eight factors are presented in Regulation 3.1.10.16(A) NMAC. The Hearing Officer determined that six of the eight factors established that the Taxpayer was a successor in business. However, the time frame that the Department could go back would be limited based on Section 7-1-63(C), NMSA 1978. The Hearing Officer determined that the Taxpayer’s liability may be capped by an amount that is equal to the full value of the transferred tangible and intangible property based on the facts in this protest. The Department is ordered to abate part of the tax assessed. For the forgoing reasons, the Taxpayer’s protest is partially granted and partially denied.


08/01/2018

18-23

High Desert Bicycle Inc

On December 4, 2017, the Department denied the Taxpayer claim for refund for the penalty paid for the tax periods between January 1, 2016 and January 31, 2016. On January 10, 2018, the Department denied a second claim for refund for the penalty paid for the tax periods between June 1, 2014 and June 30, 2014. On February 27, 2018, the Department received a timely protest from the Taxpayer. The main issue to be determined in the protest is if the Taxpayer is entitled to the refund of the assessed penalties that were paid for the two periods at issue for failing to file timely returns. The Taxpayer argues that the late filings were due to non-negligence because it relied on the Department’s call center for information and that it was not notified by the Department that there was anything incorrect about the way that it had been filing its returns. During the time at issue, the Taxpayer had signed up to use the Departments online filing system. The Taxpayer was submitting payments to the Department but failed to file the returns associated with those payments. The error was located by the Taxpayer’s accountant and when the error was noticed all of the missing returns were filed in November of 2016. The Hearing Officer determined that because the Taxpayer found a way to continue submitting electronic payments that its intent was not to evade taxes. The Hearing Officer determined that the Taxpayer acted without negligence when relying on the advice from the Departments employee in the call center and that the penalty should be abated. For the forgoing reasons, the Taxpayer’s protest is granted.


07/31/2018

18-22

18-22 El Terrero Construction LLC

On February 22, 2018, the Department denied the Taxpayer’s claim for refund for the combined reporting system period ending December 31, 2017. On March 23, 2018, the Taxpayer filed a timely formal protest with the Department. The protest requested that the associated penalty and interest associated with the denial be forgiven. The Taxpayer missed the deadline for the period in question and penalty and interest was charged. The Taxpayer is asking for the penalty to be forgiven as there was staff changes and short staffing for the period in question. The Hearing Officer points out that “penalty shall be added” and that the Taxpayer was negligent when failing to pay the taxes due on time for the period in question. The Hearing Officer determined that the Taxpayer did not establish that it was entitled to the refund requested and that the Department properly denied the claim for refund. For the forgoing reasons, the Taxpayer’s protest is denied.


07/24/2018

18-21

CCA of Tennessee

On November 9, 2016, the Department assessed the Taxpayer for gross receipts tax, withholding tax, penalty, and interest for the periods starting January 31, 2010 through September 30, 2015. On December 7, 2016, the Taxpayer filed a formal protest with the Department. During the time at issue, the Taxpayer incarcerated, detained and housed inmates on behalf of Torrance County under a contract. In April of 2002, Torrance County entered into an intergovernmental service agreement with a Third Party that would allow for incarceration of federal inmates at the Taxpayer’s facility. However, the Taxpayer directly invoiced the Third Party and required that payment be submitted directly to the Taxpayer. The main issue to be determined during the protest is if the Taxpayer was eligible to claim the deduction under Section 7-9-47, NMSA 1978 (1994). The receipts in question are those between the Taxpayer and the Third Party which were based on the agreement between the Third Party and Torrance County. The Taxpayer argues that it is entitled to the deduction because it sold licenses to Torrance County and Torrance County resold them to the Third party. The Taxpayer also argues that based on an email between it and a Department employee that it reasonably relied on that email when deciding to claim the deduction and accept a Type 2 NTTC for the transactions in question. Lastly, the Taxpayer argues that when it took direct payment from the Third Party it was acting as an agent on behalf of Torrance County. However, the Department argues that the Taxpayer was selling services to Torrance County which does not qualify for the deduction in question. Secondly, the Taxpayer was invoicing the Third Party directly making it a direct sale of services. The Hearing Officer determined that the Taxpayer could not claim “safe harbor protection” for acceptance of the NTTC because there is not a deduction that applied to the transactions in question and that the Taxpayer was not acting as an agent when accepting direct payment. It was also decided that as the facts presented in the email with a Department employee did not match the facts in this protest and so the email could not be reasonably relied upon. The Department has no statute authority to abate interest and the Hearing Officer determined that penalty is due. For the foregoing reasons, the Taxpayer’s protest is denied.


07/05/2018

18-20

Raytheon Company

On June 15, 2016, the Department issued a denial letter and partial denial letter to the Taxpayer for applications that were submitted for the high wage jobs tax credit. On September 20, 2016, the Department received a timely protest of those denial letters. The denials were the result of most jobs that were claimed for the credit not meeting the statutory requirements. During the time of this hearing, the issues to be resolved are what enactment date of the law these credit claims are subject to and if the credit was denied correctly. If the Taxpayer is successful in the protest they are requesting recovery of legal fees and costs under Section 7-1-29.1(A), NMSA 1978. The Department denied one of the applications in whole and part of the second application because it was determined that those employees did not occupy newly created jobs. The jobs they were hired in were a result of an acquisition. Other claims were denied as documentation proving that certain employees were residents of New Mexico were not provided. The Taxpayer acquired assets from another business and that exchange was documented in an agreement. Based on the agreement that was in place from the prior owner of a business and the Taxpayer, the Hearing Officer determined that not only did the Taxpayer acquire specific assets but it also benefitted from the knowledge and experience of the prior owners vested workforce. In the agreement, the Taxpayer agreed to utilize the employees in positions having similar functions immediately prior to their employment ending with the other business.  The Hearing Officer noted that in the agreement the Taxpayer acknowledged itself as a “successor employer”. The Hearing Officer determined that the governing law will be the 2013 enactment and that the jobs being claimed were not newly created jobs by the Taxpayer. As the Taxpayer did not prevail on the protests main issue, the request for attorney’s fees and costs were denied. In regards to certain employee’s residency, the Hearing Officer allowed for the testimony of two employees to establish that they were New Mexico residents but specified that the Department would have to do research to see if the jobs they held at the time qualified for the credit. If they were qualified jobs then the Hearing Officer determined that the credit shall be granted for the positions specified in an amount to be determined by the Department. For the foregoing reasons, the Taxpayer’s protest is denied.


06/29/2018

18-19

HMX Construction

On September 14, 2016, the Department assessed the Taxpayer as a successor in business for tax, penalty, and interest for tax periods starting March 31, 2009 ending August 31, 2015. On December 12, 2016, the Taxpayer filed a formal protest letter with the Department. The Taxpayers was the owner of a prior company of which is now being assessed as a successor in business. The first company did not own any property or inventory and most of its construction work was built on tribal lands. The first company was having issues due to late payments from customers and so the Taxpayer started another business to bid on other contracts outside of tribal lands. The Department had issued an audit selection letter on September 5, 2014 and the Taxpayer created the second company on September 29, 2014. Per Regulation 3.1.10.16(A) NMAC, there are eight factors that help determine if there is a successor in business. During the hearing, the Hearing Officer went through each factor and evaluated them against the facts provided to determine if the Taxpayer was in fact a successor in business. The Hearing Officer determined that the Taxpayer is a successor in business and that the tax is due. However, the Hearing Officer determined as the Taxpayer was originally assessed in September 2016 the penalty and interest should be abated. This decision was based on a recent legislative law change in 2017 to Section 7-1-61 NMSA 1978, which now specifically states that a successor in business is responsible for tax, penalty, and interest. For the forgoing reasons, the Taxpayer’s protest is granted in part and denied in part.


06/21/2018

18-18

Guglielmo & Associates PLLC

On January 5, 2018, the Department issued an assessment asserting liability for penalty and interest based on the Taxpayer’s failure to timely report, pay or deliver property which falls under the Uniform Unclaimed Property Act. The Taxpayer submitted a timely protest on January 29, 2018. The Taxpayer is a creditor rights law firm engaging in debt collection activities in New Mexico and is based in Arizona. In some cases, the collection resulted in overpayments and the funds could not be refunded because the remitter of the funds could not be located or because negotiable instruments issued to remitters were never negotiated. The issue of the protest is based on a 49 day late report of Unclaimed Property being filed with the Department. The Taxpayer argues that the return was late due to sudden and unanticipated employee turnover with the accounting staff. The Taxpayer does not dispute that the return was late but argues that the penalty should be abated because it acted in good faith and without negligence. The Hearing Officer determined that the Taxpayer was unable to provide sufficient evidence to establish good cause or non-negligence. It was also determined that based on statute, the Department is without discretion to abate the penalty and the assessment of penalty under the facts of this protest. For the foregoing reasons, the Taxpayer’s protest is denied.


06/06/2018

18-17

JTC Inc.

On February 3, 2011, the Department assessed the Taxpayer for gross receipts tax, penalty, and interest for the tax periods starting January 31, 2004 through December 31, 2009. On February 24, 2011, the Taxpayer filed a timely formal protest with the Department. The assessment was a result of an audit that was conducted for the period at issue. The Taxpayer argues that there are deductions and exemptions they are allowed to claim that were not allowed during the Departments audit. The Hearing Officer indicated that the Taxpayer was not eligible for specific deductions under Section 7-9-54, NMSA 1978, as the deduction is only eligible for the sale of tangible personal property and it specifically excludes services. The Hearing Officer recognized that the Taxpayer may have been eligible to claim a deduction under Section 7-9-57, NMSA 1978, but points out that the deduction specifically references that a nontaxable transaction certificate (NTTC) or other evidence acceptable to the Department must be provided. The Department did not disagree that the Taxpayer may be eligible to claim the deduction but it does not believe that the evidence provided met the necessary requirements to establish entitlement to the deduction. It was not disputed by the Taxpayer that it did not have the NTTC’s for the transactions in question. The Hearing Officer also pointed out that even if the NTTC’s were submitted there was no evidence provided to establish that the buyer of the service did not make initial use or take delivery of the product of the service in New Mexico. The Hearing Officer determined that in regards to Section 7-9-57,  NMSA 1978, the Taxpayer failed to establish entitlement to this deduction. However, the Taxpayer was able to provide evidence to establish that a specific amount of sales were exempt from gross receipts. The Hearing Officer determined that the Taxpayer provided enough evidence to establish that the amount specified was not gross receipts and that the amount of gross receipts tax associated to that amount should be abated. The Taxpayer is liable for the remaining gross receipts tax, penalty, and interest. For the foregoing reasons, the Taxpayer’s protest is denied in part and granted in part.


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