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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 > 2002



John F. Gilliam Jr. and Martha L. Gilliam

The Taxpayers failed to file New Mexico income tax returns for the 1994 and 1995 tax years.  In 1997, the Department assessed the Taxpayers for personal income tax, penalty, and interest for those years.  The Taxpayers protested the assessment, arguing:  1)  the Taxpayers are not "individuals" or "persons" upon whom the income tax is imposed and 2) New Mexico does not have authority to make an independent determination of the Taxpayers' federal adjusted gross income for purposes of assessing New Mexico personal income tax.  Held:  1) the Taxpayers are "natural persons" and thus "individuals" who are subject to the imposition of personal income tax pursuant to the New Mexico Income Tax Act; and 2) the Department has authority to determine the Taxpayers' federal adjusted gross income for purposes of determining their New Mexico taxable income, regardless of whether the Taxpayers' federal return has been adjusted by the IRS. Protest denied.



Kent R. and Gail K. Carter

The Taxpayers filed a joint New Mexico income tax return in 1993.  The Taxpayers did not file New Mexico income tax returns for tax years 1994 through 1998.  In July 1999, the Department assessed the Taxpayers for personal income tax and interest for tax years 1995 through 1998.  The Department also assessed a 50-percent civil fraud penalty.  The Taxpayers protested the Department's assessment, raising numerous arguments disputing the right of the federal and state government to tax the earnings of individuals.  A hearing was scheduled on the Taxpayers' protest, but they failed to appear.  After the hearing was concluded, the Department submitted evidence that a suit the Taxpayers filed in federal district court on essentially the same grounds as those raised in their protest had been dismissed as frivolous.  Held: Because they did not appear to present evidence and legal argument to support their protest, the Taxpayers failed to overcome the presumption of correctness that attaches to the Department's assessment of tax and interest.  The Department failed to meet its burden of proving, by clear and convincing evidence, that the Taxpayer's failure to pay personal income tax was motivated by a willful intent to defraud the state.  Protest granted in part and denied in part.



Dlorah, Inc

The Taxpayer is a corporation with its principal offices in South Dakota,  The Taxpayer is engaged in the business of operating for-profit educational institutions in six states,  including New Mexico.  Following an audit, the Department assessed the Taxpayer for gross receipts tax, penalty and interest attributable to the Taxpayer's failure to pay gross receipts tax on its tuition receipts during the period June 1991 through November 1997. The Taxpayer protested the imposition of penalty, arguing that it reasonably relied on its South Dakota accounting firm to insure that all of the Taxpayer's taxes were properly paid.  The Taxpayer failed, however, to provide any evidence that the accounting firm was asked to prepare or review the taxpayer's gross receipts tax returns or that it was ever consulted concerning the Taxpayer's liability for tax on the receipts at issue.  Held:  In order to support a finding of nonnegligence, a taxpayer's reliance on a tax professional must be active and informed, not passive and unaware.  In this case, the Taxpayer's lack of knowledge concerning its liability for gross receipts tax comes within the definition of negligence in Section 7-1-69 (A) NMSA 1978, and penalty was properly imposed.  Protest denied.



Val Kilmer & JoAnne Whalley

The Taxpayers filed a joint New Mexico personal income tax (“PIT”) return as New Mexico residents for the 1995 tax year.  On December 21, 1999, the Taxpayers mailed an amended 1995 PIT return to the Department claiming a refund.  The stated basis for the refund was that one of the Taxpayers had been found to be a California resident and not a New Mexico resident as of the end of 1995.  After receiving the amended return, the Department asked the Taxpayers’ CPA for a copy of their 1995 California return and told the CPA that it would be some time before action was taken on the refund.  In July 2000, the CPA inquired as to the status of the refund.  The Department subsequently sent the CPA a letter informing her that the Taxpayers’ claim for refund had been denied pursuant to Section 7-1-26 NMSA 1978 because the claim was stale and could no longer be acted on by the Department.  The Taxpayers protested the Department's determination, raising the following arguments: 1) the Department’s letter denying the refund opened up a new protest period, even though the denial was made after the Department lost its statutory authority to act on the claim; 2) the Department’s denial was made within the statutory limitations period if that period is calculated from the date the Post Office delivered the refund claim rather than from the date of mailing; and 3) the Department is equitably estopped from denying the Taxpayer’s refund claim.  Held: 1) because the period of limitations set out in 7-1-26 had expired, the Department’s denial letter was ultra vires and did not open up a new protest period; 2) the statutory period for acting on a claim for refund runs from the date of mailing and not from the date the Post Office delivers the claim to the Department; and 3) the Taxpayers failed to establish that the Department should be equitably estopped from refusing to take action on their refund claim.  Protest denied.



Oscar Herrera

In 1995, the Taxpayer worked as a trucker hauling materials in New Mexico. In May 1999, as a result of information received from the IRS, the Department assessed the Taxpayer for gross receipts tax, interest and penalty on the business income reported on his 1995 federal income tax return. The Taxpayer paid the assesment, then filed a claim for refund for the amount paid. When the Department denied the Taxpayer's claim for refund, the Taxpayer filed a written protest and argued that: 1) the Taxpayer was an employee during 1995 and is entitled to claim the deduction for employee wages provided in Section 7-9-17 NMSA 1978 and 2) in the event the Taxpayer was working as an independent contractor, the NTTC issued to the Taxpayer should be accepted to support the deduction for selling services for resale provided in Section 7-9-48 NMSA 1978. Held: 1) The Taxpayer worked as an independent contractor and is not entitled to the exemption for employee wages; and 2) The Taxpayer was not in possession of required NTTC's within the 60-day period set out in Section 7-9-43 NMSA 1978 and is not entitled to the deduction for receipts from selling services for resale. Protest denied.



Rachelle Shaw, DDS, PC

The Taxpayer was assessed for CRS taxes, penalty and interest due as a result of a dishonored check. The Taxpayer protested the penalty and interest, and the Department subsequently abated the penalty portion of the assessment. At the administrative hearing on the Taxpayer's protest of interest, the only evidence the Taxpayer presented was the sworn affidavit of the Taxpayer's office manager. The Department objected to admission of the affidavit. The objection was sustained, because admitting the office manager's affidavit would deprive the Department of its right to cross examination and because New Mexico follows the legal residuum rule, which holds that an administrative decision based solely on inadmissible hearsay cannot stand. Even assuming the Taxpayer’s allegations concerning the Department’s failure to resubmit the dishonored check are true, Section 7-1-13.4 NMSA 1978 provides that neither the Department nor its fiscal agent is obligated to resubmit a dishonored check for payment. When a dishonor causes a tax payment to be late, interest is due on that payment. Held: The Taxpayer failed to meet its burden of proving that the Department's assessment of interest was incorrect. Protest denied. 



Micro-Treat, Inc.

The Taxpayer is engaged in the business of treating oil wells in New Mexico, Oklahoma and Texas. In 1994, when the Taxpayer began servicing oil wells in New Mexico, he called the Taxation and Revenue Department to determine his tax liability in New Mexico. A Department employee incorrectly advised the Taxpayer that he was not subject to tax. In 2000, a friend told the Taxpayer he should be paying tax to New Mexico, and the Taxpayer again contacted the Department.  The first two employees could not answer his question. He was finally transferred to a supervisor, who correctly advised the Taxpayer that he should be paying gross receipts tax on his receipts from treating oil wells in New Mexico. The Taxpayer then filed six years of back gross receipts tax returns.  In June 2001, the Department assessed the Taxpayer for penalty and interest on his late payment.  The Taxpayer protested, arguing that he should not be liable for penalty and interest when his failure to make timely payment was due to incorrect advice received from the Department. Held: The Taxpayer was affirmatively misled by a Department employee and was not negligent in failing to report gross receipts tax to New Mexico. Accordingly, the negligence penalty should be abated. Although the Taxpayer's failure to pay tax was not intentional, the Taxpayer had the use of the state's tax funds during the period at issue, and interest remains due pursuant to Section 7-1-67 NMSA 1978. Protest granted in part and denied in part.



Misty Blue

The Taxpayer was employed as the marketing director of a 501(c)(3) organization from February 1988 through July 1994.  In August 1994, the Taxpayer entered into a contract to perform marketing services as an independent contractor for the same 501(c)(3) organization, at which time the organization gave the Taxpayer a Type 9 nontaxable transaction certificate (NTTC). The Taxpayer did not report gross receipts tax on her receipts from performing services under the contract.  In August 1998, as a result of information received from the IRS, the Department assessed the Taxpayer for gross receipts tax, penalty and interest on her 1995 receipts. The Taxpayer protested the assessment arguing: 1)  it was not clear to the Taxpayer that she was performing services as an independent contractor rather than as an employee; 2)  the Taxpayer was entitled to rely on the Type 9 NTTC issued by the 501(c)(3);  3)  the Department's delay in assessing the Taxpayer and in setting a hearing should relieve the Taxpayer of her liability for all or part of the assessment, and 4)  the Taxpayer has limited financial resources and is unable to pay the full amount of the Department's assessment. Held: 1) The Taxpayer's failure to understand the difference between an employee and an independent contractor does not excuse her from payment of the tax due on her receipts; 2) the NTTC form delivered to the Taxpayer clearly states that Type 9 certificates may be issued "for the purchase of Tangible Personal Property Only" and does not support the Taxpayer's deduction of receipts from performing services; 3) There was no undue delay in the Department's assessment, which was issued within the time limitations set by the New Mexico Legislature; the Department's delay in setting a hearing on the Taxpayer's protest does not provide a legal basis for abating or reducing the Department's assessment; and 4) the hearing officer is not authorized to consider a taxpayer's individual financial circumstances in determining whether the Taxpayer is liable for tax, penalty and interest assessed by the Department.   Protest denied



Harry's Roadhouse

The Taxpayer is registered with the Department for payment of monthly CRS taxes. The Taxpayer's bookkeeper was late preparing the CRS return for the October 2000 reporting period, and the return was hand-delivered to the Department one day after the statutory due date. The Department assessed the Taxpayer for penalty and interest on the late payment. The Taxpayer protested the assessment, arguing: (1) the state did not suffer any loss of revenue because the Department received the Taxpayer's hand-delivered payment on the same day that it would have received a timely payment mailed on the statutory due date; (2) the Taxpayer should be given the benefit of the amendment to Section 7-1-67 NMSA 1978 which became effective January 1, 2001, that requires interest on late payments to be calculated on a daily-rather than a monthly-basis, and (3) the Taxpayer has an exemplary reporting history and should be allowed one mistake without having to pay penalty and interest. Held: (1) the version of Section 7-1-67 in effect at the time the tax was due requires imposition of interest whenever payment is not made by the statutory due date. The Department is not authorized to substitute its judgment for that of the legislature or give retroactive effect to amendments to the state's tax laws.  The Taxpayer was negligent in failing to pay its taxes on time, and penalty was properly assessed pursuant to Section 7-1-69 NMSA 1978.   Protest denied.



Robert N. Harris

The Taxpayer, a New Mexico resident, filed a 1998 New Mexico Personal Income Tax return in April 1999 claiming a $1,331 credit for prescription drugs.  In January 2002, the Department assessed the Taxpayer for tax, penalty and interest as a result of his claiming a prescription drug credit in excess of the $300 allowed by law. The Taxpayer protested the penalty and interest portion of the assessment, asserting that: (1) he properly completed his return based on the information contained on the Department’s PIT-1 form; and (2) the Department had an obligation to notify him of the additional tax due as soon as it processed his return. Held: (1) the Taxpayer was negligent in failing to read the Department’s instructions, which clearly notified taxpayers of the $300 limit on the credit for prescription drugs; (2) the Department’s assessment was issued within the statutory time limits set by the New Mexico Legislature and there is no basis for abating penalty or interest on the grounds of undue delay.  Protest denied.



D & H Pump Service, Inc.

The Taxpayer is a Texas corporation with its principal office in Texas and two additional business locations in New Mexico.  Following an audit, the Department assessed the Taxpayer for gross receipts and compensating taxes, plus penalty and interest, and the Taxpayer protested the assessment. The only issue presented at the hearing was whether the Taxpayer was liable for penalty on receipts from selling goods and services ordered by out-of-state companies and delivered to third parties in New Mexico.  The Taxpayer argued that it was not negligent because:  (1) the transactions were very complex and the Taxpayer reasonably believed they were not subject to tax; (2) out-of-state companies should be held to a lower standard of negligence than in-state companies; (3) the transactions represented a small percentage of the Taxpayer’s total business volume. Held: (1) the fact that an out-of-state company with business locations in New Mexico is subject to gross receipts tax when it performs services or delivers goods into the state is not a new legal concept, and the Taxpayer was negligent in failing to pay the tax due; (2) out-of-state taxpayers are subject to the same negligence standard as in-state taxpayers; (3) the fact that a taxpayer may have paid 99 percent of its tax correctly does not excuse the Taxpayer from its negligent failure to pay the remaining one percent of tax due.  Protest denied.



Gecko Southwest Homes, Ltd.

In May 1996, Gerald Tabet started a construction business, which was operated as a sole proprietorship under the name Gecko Southwest Homes, Ltd.  Mr. Tabet registered Gecko for payment of New Mexico CRS taxes and filed returns for a few months.  Mr. Tabet stopped filing returns at the same time that Gecko sold its first home and generated its first taxable receipts. Even after Mr. Tabet stopped filing returns, Gecko continued to include gross receipts tax in its charges to customers and on cost estimates submitted with its loan applications. Gecko also issued NTTCs to its suppliers without paying tax on its receipts from the final construction projects.  During the period that Gecko failed to pay its gross receipts taxes, Mr. Tabet withdrew substantial sums of money from the business as “management fees.” In 1999, the Department began a field audit of Mr. Tabet’s business. When the Department’s auditor asked Mr. Tabet for a list of homes built during the audit period, Mr. Tabet failed to disclose seven of the eleven homes ultimately found to be subject to gross receipts or compensating tax. The audit also determined that in November 1996, Mr. Tabet formed a corporation with the same name as his sole proprietorship. Mr. Tabet subsequently used his individual name, the name of his proprietorship, and the name of the corporation to conduct his business.  When the audit started, Mr. Tabet gave the Department a letter stating that Gecko had always operated as a sole proprietorship and that “the corporation was never funded nor intended to be in business.” Mr. Tabet later changed his position, maintaining that his earlier statement was false and that Gecko had actually operated as a corporation.  In March 2000, the Department assessed Mr. Tabet’s sole proprietorship for unpaid gross receipts and compensating taxes, plus interest and a 10 percent negligence penalty. The assessment was subsequently amended to impose the 50 percent civil fraud penalty.  Mr. Tabet filed timely protests to both assessments, asserting (1) that the Department incorrectly assessed his sole proprietorship for taxes owed by his corporation, and (2) that the failure to report or pay tax was not the result of his willful intent to evade or defeat that tax.  Held:  There was substantial evidence to support Mr. Tabet’s written admission that his construction business never operated as a corporation, and the Department’s assessment was correctly issued against the sole proprietorship. There was clear and convincing evidence that Mr. Tabet’s failure to pay the taxes at issue was motivated by the willful intent to evade and defeat those taxes, and the 50 percent civil penalty was properly assessed pursuant to Section 7-1-69 NMSA 1978.  Protest denied.



Sarcon Construction Corp.

The Taxpayer is registered with the Department for monthly payment of CRS taxes. In 1999, the Taxpayer switched its accounting software to accommodate growth in its business and insure the system would be Y2K compliant.  The software change increased the workload on the Taxpayer’s bookkeeper, to the extent that she simply forgot to file CRS-1 returns for January and February of 2000. In March 2000, the bookkeeper discovered her oversight and filed the Taxpayer’s delinquent tax returns.  A check in payment of the tax principal accompanied the returns. In April 2000, the Department assessed the Taxpayer for penalty and interest on its late payments.  The Taxpayer protested the assessment on the grounds that the error was unintentional. Held: The Taxpayer was late in paying CRS taxes due to the state and interest was properly assessed pursuant to Section 7-1-67 NMSA 1978.  The 10 percent negligence penalty was properly assessed because forgetting to file tax returns clearly comes within the definition of negligence set out in Section 7-1-69(A) NMSA 1978 and the Department’s regulations. Protest denied.



Chaparral Van Lines

In December 1999, the Department audited the Taxpayer for payment of IFTA and weight distance taxes for the period January 1997 through December 1999. Since the Taxpayer retained its accounting records for only six months, the Department had to use the limited records available to determine a sample error rate for the entire audit. In December 2001, the Department assessed the Taxpayer for underreported IFTA and weight distance taxes. The Taxpayer protested the assessments. Upon further review and discussion between the parties, the Department made several adjustments to the audit. As a result of these adjustments, the Taxpayer withdrew its protest to the tax principal assessed, but proceeded with its protest of interest, arguing that the Department's delay in completing the audit caused an unnecessary amount of additional interest to accrue. Held: The Department’s delay did not relieve the Taxpayer from its liability for interest under Section 7-1-67 NMSA 1978. The Department neither caused the Taxpayer’s erroneous reporting nor prevented the Taxpayer from correcting its errors prior to issuance of the Department’s assessment.  Protest denied.



Condev West, Inc.

The Taxpayer owns and operates five retail stores in New Mexico and is registered with the Department for payment of CRS taxes. Following an audit, the Department assessed the Taxpayer compensating tax, interest, and penalty for the time period January 1997 through April 2000. The Department also determined that the Taxpayer made a number of overpayments during the audit period.  After the Taxpayer filed a claim for refund, these overpayments were credited against the amount of tax principal due on the assessment. The Taxpayer filed a written protest to the assessment of penalty, arguing: 1) the amount of underreported tax is insignificant when compared to the amount of tax paid during the same period and does not provide grounds to conclude that the Taxpayer acted negligently; 2) the penalty should be based on the net amount of tax due after application of the Taxpayer's overpayments for the same period; 3) the sampling method the Department used to determine the Taxpayer's liability has a margin for error and should not be the basis for determining penalty; and 4) the Taxpayer employs three in-house CPA's to insure taxes are correctly reported and this establishes that the Taxpayer was not negligent in failing to properly report compensating tax. Held: The Taxpayer's underpayment of compensating tax during the audit period was due to negligence or disregard of rules and regulations, and penalty was properly imposed pursuant to Section 7-1-69 NMSA 1978.

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