Harrington Industrial Plastics

98-53

Taxpayer purchased a division of another New Mexico business without following the procedures outlined in the successor in business statutes, Sections 7-1-61 to 7-1-64 that require a purchaser to escrow a portion of the purchase proceeds for taxes and to seek a determination of taxes due from the business being purchased or obtain a tax clearance. Subsequent to the purchase, the Department audited the predecessor business and assessed a liability for periods occurring before Taxpayer’s purchase of the business. The Taxpayer was not notified of the assessment or the basis for the assessment until almost six years after the assessment, when the Department made a demand for payment of the Taxpayer as a successor in business. The Taxpayer protested the demand on the basis that its failure to escrow a portion of the purchase price was not wrongful as required by the statute. The Taxpayer also argued that the Department’s test month’s audit procedure was improper but that Section 7-1-24, which prohibits the Taxpayer from contesting the underlying basis of the assessment because it did not protest the assessment within thirty days of its issuance, unconstitutionally deprived the Taxpayer of the opportunity to dispute the assessment in violation of procedural due process. Held that because the Taxpayer did not follow the statutory procedures requiring the escrow of a portion of the purchase price, this amounted to a wrongful failure to withhold under Section 7-1-64(A) and the Taxpayer was liable for the tax as a successor in business.  Also held that the Department improperly applied its test months audit procedure resulting in an incorrect assessment of taxes and in the circumstance of this case where the Taxpayer was not given notice of the assessment of tax or the basis for the assessment until after the time for protest had expired, that Section 7-1-24, to the extent it denies the Taxpayer an opportunity to contest the basis for the assessment, denies the Taxpayer due process of law. The Department was ordered to adjust the assessment underlying the demand for payment.