R & R Professional Pharmacy, Inc.

00-14

Taxpayer operated a pharmacy in New Mexico during the period 1994-1997. On several occasions, Taxpayer called the Department to inquire if all sales to government agencies were exempt and was consistently told that receipts from sales of tangible personal property to government agencies were deductible and not subject to gross receipts tax. Taxpayer believed that sales to patients covered by the federal Medicare program were sales to the federal government and therefore not subject to gross receipts tax. In 1997, the Department sent a letter to New Mexico pharmacies informing them that gross receipts tax was due on receipts from sales to patients covered by Medicare and other insurance providers. Based on this letter, Taxpayer amended its CRS-1 returns for the period 1994-1997. Taxpayer was subsequently assessed penalty and interest on the underpaid gross receipts tax. Taxpayer protested the assessment of penalty, arguing that it received misleading advice from the Department. The hearing officer found the advice given to Taxpayer concerning sales to the government was correct – Taxpayer never asked whether sales to patients covered by Medicare were sales to the government or whether Medicare payments were subject to gross receipts tax.  Held: The Taxpayer failed to meet its burden of showing that the Department’s assessment of the negligence penalty was incorrect.  Protest denied.