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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. 



06/21/2017

17-29

Dustin R. and Clarissa Ptolemy

On December 5, 2016, the Department issued an assessment for personal income tax, interest, and penalty for the periods starting January 1, 2011 through December 31, 2015. On February 15, 2017, the Taxpayers submitted a formal protest letter which was acknowledged by the Department on March 13, 2017. The Taxpayer started activities in the agriculture and farming field in 2011. The Taxpayers have since purchased cattle and have tried different business strategies with the goal of having a profitable agricultural and ranching business. When starting the business the Taxpayers both had full time jobs and in the beginning of 2017 decided to pursue the agricultural and ranching activities full time. The Taxpayers have seen a loss from their activities since 2011 but the Taxpayers believe that 2016 will be showing a profit on the activities. However, based on the adjustments for prior year losses and depreciation they are unsure what the 2016 tax returns will show. The Taxpayers argue that there have had losses while starting the business and they are starting to see profits. The Department argues that the deduction for the losses was denied and assessed because the activity during the time at issue was not a for-profit activity. The Hearing Officer determined that the decision on the profit status of the business will be based on 26 U.S. Code § 183and the federal 9 factor test. Federally, the deduction of losses in excess of profits is disallowed when the activity being engaged in is found to not be a for-profit activity. The 9 factors are: 1) the manner in which the person carries on the activity; 2) the expertise of the person and his or her advisors; 3) the time and effort put into the activity; 4) the expectation that assets may appreciate in value; 5) the person’s success in carrying on similar or dissimilar activities; 6) the history of income or loss with respect to the activity; 7) the amount of profits earned; 8) the financial status of the person; and 9) the elements of personal pleasure and recreation. The Hearing Officer determined that six out of the nine factors weigh in favor that the activity is for-profit and that the losses in the startup years of a business are fairly common and should not be used against the Taxpayers. The Hearing Officer determined that the Department’s disallowance of the deduction was not reasonable and that the Taxpayers overcame the presumption of correctness. The Hearing Officer decided that the Taxpayers’ tax, penalty and interest should be abated based on the reasons listed above. The Taxpayers’ protest is granted.


06/14/2017

17-28

Hyundai Corporation USA

On August 12, 2016, the Department issued a Notice of Assessment of Taxes and Demand for Payment of withholding tax penalty and interest for the period ending June 30, 2016. The formal protest was received by the Department on October 4, 2016. The Taxpayer is asking for relief of the penalty and interest owed due to modifications of the Taxpayers internal computer networking system that resulted in an employee not having access to the Departments online filing system during the time at issue. In the protest letter, an employee of the Taxpayers noted that they believed they had until July 31, 2016 to file and make a payment for the tax due for the period at issue. The Taxpayer filed its return and payment on July 28, 2016. The Department confirmed that the return and the payment due date for that reporting period was July 25, 2016. The untimely filed return resulted in the assessment showing penalty and interest due for the period at issue. The Taxpayer did not disagree that the payment and return were late but is asking for leniency due to the circumstances. The Hearing Officer determined that the assessment of interest is mandatory and the Department has no legal authority to abate it. For the issue of penalty, the Hearing Officer Determined that the Taxpayer failed to establish that it was entitled to an abatement of penalty. For the reasons above, the Taxpayer’s protest is denied.


06/12/2017

17-27

The Local Vapory

On September 22, 2016, the Department issued a Notice of Assessment of Taxes and a Demand for Payment letter to the Taxpayer. The Taxpayer denied ever receiving the notice and therefore never protested the assessment. On January 5, 2017, the Department issued a Notice of Intent to Lien. The Taxpayer executed a timely formal protest referencing the Notice of Intent to Lien. On March 2, 2017, the Department acknowledged the Taxpayer’s protest. The issue the Taxpayer presented in this protest is whether or not the Hearing Officer can make a decision based on the future conduct of the Department. At the time of the hearing, the Taxpayers counsel disclosed that the Taxpayer plans to pay the outstanding liability and then submit a claim for refund. Upon the denial of the refund, the Taxpayer would file a formal protest. The Taxpayer explained that making the payment of penalty and interest at this time would be a hardship on the current business. Therefore, the Taxpayer was requesting that the Hearing officer prohibit the Department from collecting penalty and interest on the assessment because the Taxpayer was a successor in business. The Hearing Officer determined that the assessment is not currently in protest and the Department retains its authority to determine if the assessment is incorrect and if any type of abatement is necessary. In the event that the Department chooses not to abate any portion of the assessment, then the Taxpayer retains all rights under the Tax Administration Act to seek a refund, file a protest, and have a hearing on the refund denial. The Hearing Officer untimely decided that the issue presented by Taxpayer is not ripe. The Hearing Officer specified that the relief the Taxpayer was requested was based on a future Department decision that have not taken place yet and the Administrative Hearing Office Act does not grant the hearing office the authority to make decisions on future conduct. For the reason above, the Taxpayer’s protest is denied.


05/31/2017

17-26

A Team Productions

On October 21, 2016, the Department denied the Taxpayers September 14, 2016 untimely submission of a written protest of an assessment. On November 10, 2016, the Taxpayer filed a formal protest for the Departments denial of protest. The original protest was a result of an assessment that was issued June 15, 2016 for gross receipts tax, penalty, and interest for the reporting periods January 1, 2010 through December 31, 2013. The Taxpayers testified that the postmark date on the envelope was June 17, 2016 and that would make the deadline to protest September 15, 2016. The Taxpayers CPA testified that they were unable to locate the envelope to include with the protest. The Department testified that through its mailing process the assessment was printed on June 15, 2016 and the assessment was delivered to the US Postal Service the same day. The Hearing Officer was persuaded that the Notice of Assessment to the Taxpayer was properly mailed on June 15, 2016. The Hearing Officer determined that based on the 90-day timeline to file a protest, the protest should have been filed with the Department on September 13, 2016. Therefore, the protest filed with the Department was not timely and the 90-day deadline was not met. Based on the information above, the protest cannot be accepted as valid by the Department. The Taxpayer’s protest is denied.


05/30/2017

17-25

Louie Casias

On June 24, 2013, the Department issued an assessment for gross receipts tax to the Taxpayer for the periods from March 2006 through September 2011. The Taxpayer filed a protest to the assessment that was later withdrawn. The Taxpayer worked with the Department on the assessment and received a partial abatement. In withdrawing the protest, the Taxpayer agreed to conclusive liability for the tax due for the periods at issue. The Taxpayer ceased business operations around 2014. On August 22, 2016, the Department issued a Notice of Claim of Tax Lien for the remaining tax due, penalty, and interest. The lien was issued to the individual rather than the business because the Taxpayer was listed as a sole proprietorship with the Department. Through his attorney, the Taxpayer filed a protest on September 30, 2016. The Taxpayer argued that the lien should not have been in his name because the company was a limited liability company for the time at issue. The Department argued that there was never any record that the Taxpayer changed his company from a sole proprietorship to a limited liability company (LLC) and that the Taxpayer has already issued a protest withdrawal for the amount of the assessment that was subject to the lien issued. The issues to be determined in the protest are to what extent the Taxpayer is personally responsible to the tax liability of his business and to what extent can the Taxpayer protest the lien based on the assessment and previous protest withdrawal. The Taxpayer argued that he should not be liable for the tax liability because as of 2003 the company became a LLC. During the hearing, the Taxpayer was unable to show evidence that the LLC took over the assets, rights, obligations, liabilities, or tax reporting responsibilities of the sole proprietorship. It was discovered that the Taxpayer never formally updated his business registration with the Department and continued filing with the sole proprietorships combined reporting system (CRS) number. The Department testified that there is a system in place for when businesses changes from one business type to another that results in a new CRS number is issued. Specifically, for a change from sole proprietorship to LLC the company has to close its existing account and open a new account as an LLC. In regards to the protest of the lien, it was determined that the Taxpayer was re-protesting the original tax due and penalty. Even if based on the business changes the protest would be untimely filed and would not be a valid protest. Based on the information provided in the hearing, the Hearing Officer determined that as the Taxpayer did not follow the correct process for changing the business entities business type that the lien was properly assessed to the sole owner of the business. The Taxpayer’s protest is denied.


05/19/2017

17-24

Helmerich & Payne Intnl Drlg

On October 6, 2015, the Department assessed the Taxpayer for corporate income tax, penalty, and interest for the period ending September 30, 2013.  The Taxpayer filed a formal written protest to the Department including a request for costs and fees. The Taxpayer later filed another request for costs and fees and provided a copy of the abatement of the assessment from the Department. The Taxpayer stated again in the motion its stance that the Departments assessment was improper and contrary to established case law. The issue to be decided in the hearing is if the Taxpayer is the prevailing party for purposes of Section 7-1-29.1 NMSA 1978 for the purpose of a judgment or a settlement for reasonable administrative costs. The Department argued that a hearing officer may not order an award of administrative costs without first rendering a decision on the merits of the protest. In this case the abatement was allowed by the Department before the date the hearing was set. If the hearing officer issued an award for costs it would infringe on the separation of powers doctrine because the Administrative Hearing Office (AHO) is attached to the Department of Finance and Administration and that issuing an award of costs would be impermissible formulation of tax policy. The Hearing Officer determined that the statute allows for the award to be reviewed in the same manner on appeal as a decision by the hearing officer. The Department argued that its decision to abate the assessment does not mean that the Taxpayer substantially prevailed since there was not a decision on the merits of the protest and that that allowing a request for attorney’s fees is a second level evaluation of the Department’s internal processes. The Hearing Officer Determined that even if the Department abates the assessment while the protest was pending it does not remove the jurisdiction of the AHO under Section 7-1-.29.1 NMSA 1978 based on the circumstances of this protest. The Hearing Officer determined that as the protest was timely filed, a hearing was scheduled with AHO, the deadlines for discovery and motion were set, and the matter was scheduled for hearing on the issues. The abatement then took place through an administrative procedure or action before the Department, while the protest was pending. The Hearing Officer determined that when the Department abated the assessment in its entirety, the Taxpayer became the prevailing party since the abatement was for the entire amount in protest. The Hearing Officer also noted that there was no evidence or argument presented by the Department indicating that the taxpayer should not be treated as the prevailing party. The Hearing Officer awarded the Taxpayer $50,000.00 for costs and fees. The Taxpayers’ protest was granted.


05/19/2017

17-23

Aventis Pharmaceuticals Inc. & Sanofi-Synthelabo, Inc

On April 4, 2013, the Taxpayers were assessed for corporate income tax, penalty, and interest for the reporting periods starting December 31, 2007 through December 31, 2009. On May 3, 2013, the Taxpayers collectively filed a written protest. The protest was accepted as valid by the Department on May 17, 2013. The Taxpayers involved in this protest are subsidiaries of a large multinational pharmaceutical company. The Taxpayers argued that they are not subject to taxation in New Mexico due to Public Law 86-272 and the Commerce Clause. For the tax years 2007 through 2009, there was a joint income tax audit performed by the Multistate Tax Commission (MTC). MTC determined that the operations of the business fall under a unitary business in the United States. The Taxpayers do employ sales personnel who solicit sales in New Mexico but all sales were submitted to the Taxpayers headquarters in New Jersey. Through the MTC audit, it was discovered that along with the solicitation of sales the doctors were provided with ongoing education, clinical trials, textbooks, funding for training materials, and classes at the doctor’s offices. The MTC audit concluded that the Taxpayers had nexus in New Mexico. The main issue to be determined in the hearing is if the Taxpayers are subject to New Mexico corporate income tax or if they are protected from taxation based on Public Law 86-272 and the Commerce Clause. The next issue to determine is if the Taxpayers present sufficient evidence to support their protest and the election of filling method and whether the Taxpayers are liable for the payment of penalty and interest. The Hearing Officer determined that there was sufficient nexus for the state to impose the assessed tax to the Taxpayers under the Commerce Clause. Both of the Taxpayers had activities in the state beyond the solicitation of sales and those activities increased the Taxpayers market and market potential in the state. The Hearing Officer determined that although the Taxpayers were granted partial summary judgment to allow them to select a reporting method the Taxpayers failed to present their first elected reporting method and there was no factual basis to modify the assessed tax principal. Therefore, the Taxpayers are liable for the entire tax principal assessed. The Hearing Officer determined that the Taxpayers decision to not file and pay New Mexico corporate income taxes was a mistake of law made in good faith and on reasonable grounds based on the circumstances in the case. So, the Taxpayers are not liable for the assessed penalty in this case or civil negligence penalty. The Taxpayers’ protest is denied in part and granted in part.


05/12/2017

17-22

Donald W. Krumrey

On August 3, 2016, the Department assessed the Taxpayer for underpayment penalty of personal income estimated payments for the 2015 tax year. The Taxpayer paid the assessed penalty and filed an application for refund with the Department on October 9, 2016. After 120 days had elapsed without the Department approving or denying the Taxpayers claim for refund the Taxpayer filed a formal protest which was received by the Department on February 13, 2017. The Taxpayer moved to New Mexico in 2014 and relied on the personal income tax instructions to file his return. The Taxpayers primary sources of income for the relevant period were from pensions. From those pensions, only federal tax was withheld. The Taxpayer argued that based on the instructions he did not believe that he was required to make estimated payments in 2015. The Taxpayer believed that as the instructions were not clear on the requirements that the underpayment penalty should be abated. The Department argued that the information was in the instruction packet for personal income tax and that as there was no state withholding taken out from the Taxpayers pensions that the Taxpayer was required to pay estimated payments in order to avoid the underpayment penalty of tax due. Based on Section 7-2-12.2 (A) NMSA 1978, annual payments in installments through withholding or estimated tax payments are required by taxpayers. The Department is required to assess a penalty when a taxpayer underpays the required annual payments based on Section 7-1-67 (B) NMSA 1978. For the period at issue, withholding or estimated payments were not made and the calculation of underpayment penalty was not disputed by the Taxpayer. Although, the Taxpayer believes that the instruction were inadequate. During the hearing, the Taxpayer admitted that the instructions were not fully reviewed. The Hearing Officer determined that based on the statutes use of the word shall that the underpayment penalty is mandatory in all instances where a taxpayer fails to make the required annual payment due to negligence. The Taxpayer failed to overcome the presumption of correctness and the Department’s assessment was correct. For the reasons above, the Taxpayer’s protest is denied.


04/28/2017

17-21

Russell and Anne Farrell

On June 23, 2009, the Department assessed the Taxpayers for gross receipts tax, penalty, and interest for reporting periods for the 2006 and 2005 tax year. The Taxpayers filed a formal protest on July 16, 2009 and the Department acknowledged that protest on July 21, 2009. From 2009 until 2016, no action was taken on the protest by the Department or by the Taxpayer. The taxpayers presumed that the matter of the protest had been concluded and the collection activity was no longer valid due to the statute of limitations. On January 23, 2017, the Department requested a hearing in the matter based on the Taxpayer’s protest. On January 23, 2017, the Administrative Hearing Office issued a notice of the hearing based on the Taxpayer’s protest. During the time at issue, the Taxpayer was a manager for a company and was getting paid based on commission from the sale of tickets for individual travel and freight transportation, vending machine sales, and other sources. The Taxpayer was not considered an employee of the company and was not getting paid wages during the time at issue. The company was a bus transportation entity engaged in the business of interstate and intrastate transportation of passengers and freight. The Taxpayer testified that he was not aware of any obligation to report and pay gross receipts tax for the commission based compensation from the company. All of the Taxpayers income from 2005 and 2006 were reported by the company on Form 1099. The Taxpayer testified that all documents were disregarded after he believed the retention was no longer necessary. At the time of the hearing, the Taxpayer had no records to show the different types of commission income that was earned for the time at issue and was unsuccessful in the attempts to get the information from a third party. The issues to be decided in the hearing were: is the Taxpayer entitled to relief due to a statute of limitations, is the Taxpayer entitled to relief due to the delay in time between the filing of the protest and the hearing, is the taxpayer entitled to any deduction or exemption, and is there are any grounds to abate penalty and/or interest. The Hearing Officer determined that the Department acted within the statute of limitations for collection of the tax due based on the assessment issued in June of 2009. Per Section 7-1-19 NMSA 1978, the Department is allowed to collect taxes 10 years from the date of an assessment or notice. Although, there was a delay in the hearing that the Hearing Officer deemed concerning, there was no evidence showing that the Taxpayers suffered any type of prejudice throughout the protest process. The Hearing Officer reviewed the information by the Taxpayers for multiple possible deductions. However, some of the deductions did not apply as the Taxpayer was not performing the service in which the deduction was available for and the Taxpayer lacked records to clearly support the claim of a deduction or exemption. In concerns to interest, the Hearing officer determined that the assessment of interest is mandatory based on statute and the Department is without the legal authority to abate it. When it comes to penalty, the Hearing officer could not find any evidence in the case to allow for an abatement of penalty based on statute qualifications. For the reasons above, the Taxpayer’s protest is denied.


04/14/2017

17-20

Christopher Roche & Nguyen H. Park

On November 21, 2016, the Department assessed the Taxpayers for penalty and interest owed for the 2015 personal income tax (PIT) period. The Taxpayer filed a timely written protest with the Department on December 23, 2016. The Taxpayers argued that they had originally filed their 2015 state PIT return on time and at the same time they filed there 2015 Federal income tax return. The Taxpayers testified that they mailed in their state return and payment by following the instructions provided by the state. The Taxpayers starting contacting the Department once they noticed that their check for their federal income tax due had cleared but their check for the state had not. Every time the Taxpayers had contacted the Department they would get an automated phone message response indicating that return processing times were taking up to six weeks. In the first or second week of October 2016, they were able to speak with a Department representative that informed them that there was not record of their 2015 PIT return and payment ever being received by the Department. Upon learning this information, the Taxpayers re-mailed their 2015 personal income tax return and payment. This time the payment cleared their account. Shortly after, the Taxpayers were assessed by the Department for penalty and interest for an untimely filed return. During the hearing, the Taxpayers provided evidence that their return and payment were mailed on April 16th or April 17th, 2017 which is in compliance with Section 7-1-9 NMSA 1978. However, per regulation 3.1.4.10 (C) (2) NMAC if the mailed items are not received by the Department the contents are not considered timely. The Hearing Officer determined that the Taxpayers exercised reasonable care when mailing their 2015 personal income tax return and payment through the United States Postal Service and that the Taxpayers did not fail to act when they were required to file and submit payment to the Department. The Hearing Offer decided based on the information above that penalty could be abated. For the issue of interest, the Hearing Officer indicates that the use of “shall” makes the assessment of interest mandatory and not discretionary. As the tax was not paid when it was due, interest was properly assessed. For the reasons above, the Taxpayers protest is granted in part and denied in part.


04/14/2017

17-19

Mohamed B. Aswald, M.D., P.C

The Taxpayer submitted a claim for refund on November 4, 2015 for an overpayment of gross receipts taxes for reporting periods from February to December of 2012. On November 18, 2015, the Taxpayers claim for refund was denied by the Department due to the information provided not matching the deduction requirements. On February 10, 2016, the Taxpayer filed a timely protest with the Department. The grounds of the protest were that the Taxpayers former certified public accountant (CPA) had incorrectly reported his gross receipts tax in 2012 and did not claim the applicable deduction for prescription drugs under Section 7-9-73.2 NMSA 1978. During the time at issue, the taxpayer was a physician authorized to dispense prescription medications approved by the Federal Drug Administration (FDA) and obtained through FDA-approved pharmacies. As part of his practice the Taxpayer would purchase medications, administer the medications to his patients, and bill the appropriate party for payment of the medications. From 2003 to 2014, the Taxpayer employed an out-of-state CPA. The Taxpayer felt that too much gross receipts tax was being paid monthly in 2014 and hired a CPA in New Mexico. The CPA reviewed the Taxpayers records and determined that the Taxpayer was eligible for a deduction under Section 7-9-73.2 NMSA 1978 for the sale of prescription drugs. The Taxpayer then filed an application for refund for the period at issue. In early 2012, it was brought to his attention by the FDA that since July of 2010 the Taxpayer was purchasing non-FDA approved drugs from a specific pharmaceutical company. The Taxpayer clarified that he was unaware that the company in question was selling non-FDA approved drugs until it was brought to his attention by the FDA. The taxpayer is seeking the deduction for prescription medications for all receipts, both from the authentic FDA-approved medications and the counterfeit non-FDA approved medications for the time at issue. The Taxpayer argued that at the time the medications were purchased he was unaware that one of the companies he was purchasing prescription drugs from was not FDA-approved. Therefore, the Department should allow the claim for the deduction based on the full cost of medication incurred during the time at issue. The Department argued the Taxpayer filed the application for refund when he was fully aware of which pharmacy the non-FDA approved prescription drugs or counterfeit drugs were purchased from. Under Section 7-9-73.2 NMSA 1978, the statute has very specific qualifications of what is considered a “prescription drug” and the Hearing Officer was persuaded that the prescription drug deduction was not applicable for counterfeit drugs. The Taxpayer did not provide any documentation to differentiate deductions claimed for legitimate prescriptions and counterfeit non-FDA approved prescriptions. The Taxpayer acknowledged that the information could be provided but it would be time consuming and costly. The Hearing Officer determined that as the Taxpayer was unable or unwilling to provide documentation for only the legitimate prescription drugs that the Taxpayer did not establish a right to claim the deduction and therefore the Taxpayer’s protest is denied.


04/10/2017

17-18

Spirit Halloween

On March 7, 2016, the Department assessed Taxpayer for gross receipts tax, penalty, and interest for the combined reporting system (CRS) for the periods starting January 1, 2009 to December 31, 2012. The Taxpayers filed a timely written protest on May 20, 2016. The Taxpayer requested that the penalty and interest be abated in order to facilitate the payment of the uncontested tax due. The Taxpayers wife testified that the business was started in 1995 as a seasonal pop-up store from September to October and currently has 15 stores in four different states. At all relevant times of the protest the Taxpayer was the sole responsible party for the business and for the filing of the CRS returns. In July of 2014 is when the Taxpayers wife and children started assisting with the business responsibilities. The Taxpayers wife testified that the Taxpayer is currently retired and suffers from a medical condition that affects his eyesight and has affected the Taxpayers well-being for the last 3 to four years. The Taxpayers wife testified that the medical condition possibly occurred during the years at issue in the protest and only grew in severity over the years since. Currently, the Taxpayers wife and children maintain the daily operations of the business and try to limit the Taxpayers exposure to the business to minimize the associated stresses of operating the business. During the hearing, the Taxpayers wife explained that she did not know for how long the medical condition had been affecting her husband and that she did not know if the medical condition rendered him unable to prepare and submit CRS returns and payment or to get assistance from another individual with this task for the business. The Taxpayers wife testified that while doing her research for the protest auditor she determined that the records were not kept in good order but despite poor record keeping she was able to reconstruct the business records upon which the gross receipts taxes should have been paid and was confident that her figures were accurate. With the cooperation of the Taxpayer the Department adjusted the assessment to more accurately reflect the amount of tax, penalty, and interest due for the time at issue. It was determined by the Hearing Officer that the decision of the protest must be based on the facts and the law and must not be influenced by sympathy or prejudice. When it comes to the issue of interest it was determined that interest is mandatory based on statute and for that reason the Department is without legal authority to abate it and the Hearing Officer is without legal authority to grant the relief requested. When it comes to the issue of penalty, it was determined for the time at issue there was no evidence that the Taxpayer consulted with a CPA or reasonably relied on the advice of competent tax counsel and the Taxpayer was unable to provide evidence that the medical condition rendered the Taxpayer unable to find or hire another person to prepare the returns or assist with making payments. Based on the facts there is no basis on which to abate the penalty. For the reasons above the Taxpayer’s protest must be denied.


04/10/2017

17-17

David & Janie Hoffman

On October 13, 2016, the Department assessed the Taxpayers for personal income tax, penalty, and interest for the tax periods beginning January 1, 2009 through December 31, 2015. On November 14, 2016, the Taxpayer filed a timely written protest letter. In 2006, the Taxpayers purchased land with the intent of owning and operating a farm. In 2007 and 2008, the Taxpayers farming operation turned a profit and in 2009 the taxpayers changed the operation to raise grass-fed beef. Since, that time the Taxpayers have reported a loss almost every year resulting in a reduction of the Taxpayers’ taxable state income. The issue to be decided is whether the Taxpayers are liable for the assessment amount based on the whether or not the Taxpayers can deduct the losses from the grass-fed operation. In order to claim the deduction the activity should be considered a for-profit business per 26 U.S. Code § 183. The Taxpayers argument is that the time and effort required for the operation of a grass-fed beef business and the land’s appreciation makes it a for-profit activity. The Department argues that the Taxpayers lacked records and a plan for making the activity profitable and the evidence that was provided to the Department was not sufficient to determine that the activity was for profit. The hearing officer reviewed the activity based on the following factors to determine if the activity is for-profit or not for-profit. These factors are: 1) the manner in which the person carries on the activity; 2) the expertise of the person and his advisors; 3) the time and effort put into the activity; 4) the expectation that assets may appreciate in value; 5) the person’s success in carrying on similar or dissimilar activities; 6) the history of income or loss with respect to the activity; 7) the amount of profits earned; 8) the financial status of the person; and 9) the elements of personal pleasure and recreation. It was determined after the review that six of the nine factors weigh against the Taxpayers and therefore the Departments disallowance of the deduction was reasonable. In the issue of penalty, the Hearing Officer determined as the Taxpayers relied on the expertise of an enrolled agent and were not negligent, penalty should be abated. In the issue of interest, the assessment of interest is mandated by statute and the Department is without legal authority to abate it. As the tax was not paid when it was due, the interest was properly assessed. For the reasons above, the Taxpayer’s protest was denied in part and granted in part.


03/29/2017

17-16

Affordable Cellular

On February 25, 2016, the Department sent an assessment letter to the Taxpayer for the reporting periods January 1, 2009 through December 31, 2011 for gross receipts tax (GRT), penalty, and interest. On April 21, 2016, the Taxpayer filed a timely formal protest with the Department. During the periods at issue, the Taxpayer was in business conducting indirect sales of goods and services. The Taxpayer purchased inventory for resale including equipment and accessories and sold services in the form of service agreements for third party. GRT was collected on the sale of goods and reported to the Department. However, the Taxpayer concluded that the money made on commission for the sale of service agreements for a third party was seen as income that was put back into the business and therefore not taxable under GRT. At the end of the year the Taxpayer received a Form-1099 Misc. with Box 7 indicating “non-employment compensation” for tax years 2009, 2010, and 2011. The Department issued a Notice of Limited Scope Audit for the tax years 2009, 2010, and 2011 as the result of a schedule C mismatch. It was discovered that the mismatch was due to the non-employee compensation from the third party company. The resolution of the audit resulted in the assessment letter being sent to the Taxpayer which is the subject of the protest letter. During the hearing, the Taxpayer mentioned another audit for the 2002 tax year which concluded January 26, 2006 which was also based on a schedule C mismatch. The Taxpayer remembered being satisfied with the result of the first audit but could not recall how the audit was resolved or the documentation that was submitted to the Department. After the audit the Taxpayer went back to operating the business the same way as before the audit and did not consult with a tax professional or the Department on the commission income. The Department was unable to locate any documentation in reference to the basis for the resolution of the audit concluding January 26, 2006. There was also nothing found in Department rulings specific to the Taxpayer or in statutes and regulations regarding commission as a non-employee not being taxable for gross receipts tax. The Taxpayer asserted that she believed based on the outcome of the audit for 2002 that she was reporting and paying her GRT correctly. It was decided in the hearing by talking with the Taxpayer that she was not an employee of the third party in which she received the non-employee compensation from for the periods at issue. Per Section 7-9-3.5 NMSA 1978, “gross receipts” includes the total commission and fees derived from selling services in New Mexico. The hearing officer determined that the Taxpayer was being compensated by commission as an independent contractor for the services of procuring service agreements. For that reason the non-employee compensation was taxable for gross receipts purposes and the income was not subject to any statutory deduction or exemption The Hearing Officer also determined that the Taxpayer did not provide evidence to establish non-negligence and therefore the penalty was assessed correctly. The Department also does not have statutory authority to abate interest and therefore the assessment of the interest is correct. For the reasons above the Taxpayer’s protest is denied.


03/29/2017

17-15

Mosaic Potash Carlsbad, Inc.

On July 24, 2015, the Taxpayer submitted a claim for refund for the periods beginning January 1, 2012 and ending December 31, 2014 for compensating tax which was reported on Combined Reporting System (CRS) return. The Taxpayer filed a timely protest with the Department in which the Taxpayer believed it was entitled to interest of the claim for refund since July 24, 2015. On July 24, 2015, the application for refund along with a single page spreadsheet was provided to the Department. The Taxpayer also filed amended returns electronically for the periods at issue. On August 21, 2015, the Department acknowledged receiving the Taxpayer’s claim for refund and asked for additional information to be submitted including a vendor summary and invoices from the periods at issue. The letter indicated that if the documentation was not provided within 60-days that the claim would be denied. On October 8, 2015, a reminder letter was sent to the Taxpayer for the additional information requested. On October 9, 2016, the Taxpayer emailed a detailed spreadsheet to the Department and the invoices requested were received on December 1, 2016 via email. On January 12, 2016 and March 30, 2016 letters were again sent to the Taxpayer for additional information specifically in reference to vendors not registered with the Department. At that time the refund could only be partially approved based on the documents that had been previously submitted. On April 22, 2016 the Taxpayer emailed the Department and asked that the refund claim not be processed until additional documentation was submitted. On May 6, 2016 additional information was again provided by the Taxpayer. On May 19, 2016, a letter with a partial approval of the refund claim was sent to the Taxpayer. The hearing officer determined that based on Section 7-1-26 NMSA 1978, that the claim for refund was not complete when it was first submitted. The Taxpayer did provide information on what the claim for refund was for and what periods it was claiming the refund for when first submitted. However, the Taxpayer did not provide information showing why it was entitled to the refund with the initial claim. Then after providing partial information on April 22, 2016 the Taxpayer asked that the Department delay review of the claim until it could gather further information. Once, all the information was provided on May 9, 2016 the Department sent a partial approval on May 19, 2016. Under Section 7-1-68 NMSA 1978, the Department acted on the complete claim for refund within 60 days and thus does not owe interest. Based on the information above the Taxpayer’s protest is denied.


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