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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. 



School for Advanced Research

Between December 5, 2018, and December 10, 2018, the Department assessed the Taxpayer for withholding tax, penalty, and interest for three filing periods in 2016. On January 7, 2019, the Taxpayer filed a formal protest of the assessments. The majority the amounts owed were for penalty and interest due to the late filing of the returns in November of 2018. The main issue to be decided in the protest was whether the Taxpayer was liable for the penalty when the returns had been filed unintentionally late and due to what the Taxpayer perceived as confusing changes made to the website at the time. The Taxpayer had paid the tax due for each of the periods in question but had not filed the returns, explaining that an employee who made the payments was confused by changes made to the site and failed to click on the correct link. The Taxpayer argued that by changing the locations of the buttons for filing a return the Department had been affirmatively misleading and therefore the Taxpayer was not negligent. The Taxpayer also argued that the Department should have notified them immediately that it had made payment but not filed returns. The Hearing Officer, however, did not agree and pointed to the requirement of New Mexico’s self-reporting tax system that “every person is charged with the reasonable duty to ascertain the possible tax consequences” of his or her actions. Silence on the part of the Department never means that a return has been filed. Though the Taxpayer might have been confused by the website, the Hearing Officer concluded this is not the same as being affirmatively misled. The Taxpayer is ultimately responsible for its own oversight when using the online filing system. Though the mistake was inadvertent, it still meets the definition of negligence, described in regulation as “inadvertence” and “erroneous belief or inattention.” This having been decided, the Hearing Officer ordered that the late filed returns were subject to penalty.



Michele Giacomo

Between October 12, 2017, and November 1, 2017, the Department issued warrants of levy to multiple entities in order to collect a gross receipts tax liability for Giacomo Medical, Inc, the business of Michael Giacomo, the Taxpayer’s spouse. On January 30, 2018, Michele and Michael Giacomo submitted a written protest of the notice of levy. The primary issue in this protest was whether the Department should be permitted to levy the Taxpayer’s IRA account in order to collect a tax liability for her spouse’s business. The Department argued that the IRA of Ms. Giacomo was community property and therefore could be levied to satisfy a community tax liability. But the Hearing Officer by examining precedent and the law determined that Ms. Giacomo did not meet the definition of a taxpayer in this case. Gross receipts tax is stated in statute to be the responsibility of an individual engaging in business. Though the Taxpayer was a director of the business, she was never engaged in running the business. As a community property state New Mexico recognizes that the responsibility for income tax is shared equally by both spouses but, the Hearing Officer reasoned, this does not make a spouse responsible for gross receipts tax if that spouse was not engaged in business. The asset that was levied was also from an individual retirement account, rolled over from a 401K, which under federal law is created exclusively of the benefit of an individual or their beneficiaries. Moreover, the various statutory requirements for a levy of a person’s property were not followed in this case. Though the Department had sent several letters attempting to collect the liability, including notices of seizures intending to make Mr. Giacomo know of the Department’s imminent Levy of assets, these notices were sent to incorrect addresses and referenced a CRS number for entirely different business that Mr. Giacomo had started but was now defunct. The levies addressed to the entities holding the accounts for Ms. Giacomo stated they were for a liability for “Michele Giacomo DBA: Michael Giacomo.” This was incorrect, as the Taxpayer had never engaged in business under this name. The Department failed to accurately name the Taxpayer, identify the tax liability, or explain when the liability had been due. All of this having been decided, the Hearing Officer ordered that the money that had been seized be refunded and the protest was granted.



Sandia Corporation

On December 23, 2013 the Taxpayer filed an application for refund for the tax periods December 2009 through November 2010 in the amount of $13,331,708.48. On December 19, 2014, Taxpayer filed an application for refund for tax periods December 2010 through September 2011 in the amount of $3,351,289.93. Later the Taxpayer filed protests of the Department’s failure to act on these claims and both were consolidated into one. This protest centered around the question of whether the Taxpayer could take a deduction for services provided to an out-of-state buyer. The Taxpayer worked on many different projects during these periods for various federal agencies. By mutual agreement the Department and Taxpayer settled on 65 projects that exemplified the question at issue. The Taxpayer sought to take deductions under Section 7-9-57 NMSA 1978 which provides that services sold to an out-of-state buyer may be deducted if the buyer does not make initial use or take delivery of the product of the service in New Mexico. The Department maintained that Section 7-9-57 did not apply in this case because the services sold were to the federal government and there was no statute that clearly and unambiguously set out a deduction for the sale of services to a governmental agency. The Department used Section 7-9-54 NMSA 1978 in arguing that the receipts from the sale to a government entity are deductible only for tangible personal property and not the sale of services. But the Hearing Officer could not agree that this statute invalidated Section 7-9-57. After reviewing similar cases, the Hearing Officer could not find an example where the Department had even argued this position before. Long standing precedent had been established in previous decisions, including one by the New Mexico Supreme Court, which allowed the deduction of the sale of services to a government agency when the initial use was made out-of-state. The Hearing Officer further reasoned that when the legislature wrote into Section 7-9-54 a series of exclusions, among them the sale of services, all of these exclusions were intended only for this deduction. Additionally, the guidance the Department provides in its publications concerning the deduction makes no exceptions for services sold to an agency of the federal government. Instead they detail only how the initial use of the product must be outside New Mexico and the buyer must take use of the product of the service outside the state. The Department also argued that the Taxpayer had defined the product of the services sold too narrowly and that, because the product might have national or global benefits, the product could be considered to have been initially used in New Mexico. The Hearing Officer found all of this far too broad and unreasonable. The term “initial use” is defined in statute as “the first employment for the intended purpose.” Using this definition and applying it to one example, a project to engineer and manufacture a system enabling NASA to inspect a spacecraft’s heatshield while in orbit, the intended purpose would appear to be protection of spacecraft in future missions more than a broader purpose of the success of the national space program which might benefit New Mexico. The Department also disputed that an agency of the federal government could be considered an out-of-state buyer because the federal government has presence in the state. But again the Hearing Officer disagreed, explaining how the Department had decided in the past to allow the deduction for services for other federal entities such at United States Air Force which has substantial presence in New Mexico. Regulation NMAC states that if the buyer has presence in the state but the initial use of the product of the services occurs outside the state, the deduction may still be taken. This having been determined, the Hearing Officer granted the protest and ordered the refund approved.



American Power LLC

On September 17, 2018, the Department issued an assessment to the Taxpayer for weight distance tax, penalty, interest, and underreporting penalty. On September 25, 2018, the Taxpayer submitted a letter of protest with support for the grounds of the protest. On March 6, 2019, the Department filed a motion for a summary judgement with the deadline for the Taxpayer to respond by March 21, 2019. As there was no response from the Taxpayer, and there was no dispute of the material facts of the case, the Hearing Officer granted the request to submit a summary judgement in the case. The key issue in the protest was whether the Department could abate penalty and interest when the contractor the Taxpayer used to report the International Fuel Tax Agreement (IFTA) returns failed to report the mileage. The Taxpayer later paid the tax but argued that the penalty should be abated because its contractor, SWX Cleveland, LLC, filed fraudulent returns. The Department did not dispute this and based on the evidence provided agreed to abate the civil penalty portion of the assessment shortly after receiving the protest. The underreporting portion of the penalty, though, was not abated. In reviewing the request for abatement the Hearing Officer noted that under statute civil penalty may be abated by “a mistake of law made in good faith and on reasonable grounds,” but that underreporting penalty does not have this same provision. The statute governing underreporting penalty does not require negligence on the part of the Taxpayer, only that the mileage has not been reported properly. It allows for abatement only if the Department has acted “incorrectly, erroneously, or illegally.” Since this was not the case, ultimately the Hearing Officer found that there was nothing in statute that would allow for the abatement of this portion of the penalty. This having been decided, the Hearing Officer ordered that the underreporting penalty be paid and the protest was denied.



Inner Works

On March 13, 2017, the Department issued two refund denial letters in response to claims for refund for gross receipts tax by the Taxpayer for periods in 2009 and 2012. On May 15, 2018, the Taxpayer submitted two formal protests of the denials. In both cases the Department determined the refund claims were not filed timely. The main issue to be decided in this protest was whether the Taxpayer was timely in its requests for a refund. The Department initiated an audit of the Taxpayer in 2014 and later assessed the Taxpayer on February 9, 2015 for periods in 2009. During the time of the audit, the Taxpayer employed a bookkeeper who then discovered that a deduction of gross receipts had not been taken for services performed outside the state. The Taxpayer submitted amended returns for periods in 2009 on July 1, 2015, which resulted in an overpayment. The Taxpayer also testified that a claim for refund was sent with the returns but that the Department had done nothing. The Department said it believed that based on the date stamp the claim for refund had been received much later. However, the Hearing Officer concluded that the date of July 1, 2015, should be allowed based on the Taxpayer’s testimony. Nevertheless, this date would be beyond the usual statute of limitations which requires that a taxpayer claim a refund within three years of the end of the calendar year in which the payment was originally due. Under this statute, the claim would have been timely if the application for refund was received by December 31, 2013, though if the Taxpayer is assessed by the Department the expiration date is extended for a year from the date of the assessment. In this case the Taxpayer was assessed by the Department, extending the expiration date to February 8, 2016, and making the claim for refund timely. The Department then had 120 days to act on the claim, though after this time elapsed the responsibility to act shifted to the Taxpayer. If the Department does not approve or deny a claim for refund, it is the obligation of the Taxpayer to protest inaction by the Department. Two years went by without any further action by the Taxpayer. Having decided that the inaction of the Taxpayer had allowed the claim for refund to expire, the Hearing Officer ordered that the claim was not filed timely and the protest denied.



Priscilla A Montoya

On August 9, 2018, the Department issued an assessment to the Taxpayer for personal income tax due for the tax year 2017. The Taxpayer’s income tax return had been adjusted by the Department to disallow two dependent exemptions. On November 3, 2018, the Taxpayer filed a timely protest. The sole issue in this protest was whether the Taxpayer was entitled to claim her two dependent grandchildren on her 2017 return. The Department had denied the dependent exemptions because the dependents had been claimed by the dependents’ mother. Both children had been living with the Taxpayer. The determination of whether a dependent may be claimed on the New Mexico return is made by federal law which considers a qualifying child a dependent. Under the law, to claim a dependent child the Taxpayer must have a certain familial relationship, be under 24 years of age (if a student) and have the same principal place of abode. The child cannot provide more than half his or her own support and cannot file a joint return. All these criteria were met by the Taxpayer and both the dependents under her care. Yet another federal statute states that where two individuals are both claiming the same dependent, only the birth parent should be allowed to claim the child. The Hearing Officer, however, sited a series of decisions which determined that if the birth parent cannot provide more than half the child’s support costs that individual may not claim the dependent, nor may an individual claim the dependent if the child was not residing with them. In this case the Taxpayer’s dependent grandchildren were residing with her and not their mother, nor was the mother providing half their support. Because of these reasons, the Hearing Officer decided that the Taxpayer’s dependent exemptions should be allowed and ordered the assessment abated.



Apple Electrical Contractors Inc

On April 6, 2018, the Department assessed the Taxpayer in the amount of $618,186.58 in gross receipt tax, penalty, and interest. The Taxpayer then filed a formal protest of the assessment that was received by the Department on July 5, 2018. The Taxpayer did not dispute the amount of tax due, and later paid the tax principle, but argued that the penalty and interest portion of the assessment should be abated because it was not responsible for the late payment. The Taxpayer provides services to energy companies. The receipts in question were the result of services sold to one oil company located in Texas. When the Taxpayer billed its client for the services provided, the oil company said it was in possession of something called a “direct pay certificate” that would provide proof that it was making payment for the gross receipts tax directly to the Department. Though New Mexico does not use this certificate, the Taxpayer believed this explanation and then made a series of attempts to obtain the certificate from the oil company without success. The oil company was an extremely important client for the Taxpayer and eventually it simply accepted that oil company had been paying the tax without having received this document. There was also at this time no evidence to indicate that the Taxpayer ever sought independent advice from someone with knowledge of New Mexico tax law to better understand its tax obligations. Regulation NMAC provides that “gross receipts tax is imposed on persons engaging in business in New Mexico. Such persons are solely liable for payment of the tax; they are not ‘collectors’ on behalf of the state.” The obligation to pay gross receipts taxes rests squarely with the entity engaging in business in New Mexico. The Hearing Officer determined that, though the Taxpayer might feel understandably misled by the oil company, it relied unreasonably on these assurances instead of taking responsibility for understanding its own tax consequences as the law requires. The resulting tax liability, the Hearing Officer decided, derived entirely from the passivity and a lack of due diligence of the Taxpayer which falls within the definition of negligence and makes the penalty assessed by the Department correct. This having been decided, the Hearing Officer ordered that the penalty and interest to be paid and the protest denied.



Pamela Castaldi

On July 25, 2018, the Department issued an assessment to the Taxpayer for personal income tax for year 2016. On October 6, 2018, the Taxpayer filed a timely protest. The only issue in this protest was whether the Taxpayer was properly assessed when the Department denied the Taxpayer’s head of household filing status. On the New Mexico personal income tax return filing status conforms to the federal rules. The federal regulation 26 C.F.R. 1.2-2 issued by the Department of the Treasury determines whether an individual qualifies as head of household. The law has three requirements: that the Taxpayer is not married, paid more than half the cost of keeping up a home for the year, and that a qualifying person lived with the taxpayer for more than half the calendar year. The federal law considers a qualifying person to be a dependent child, of which there are five requirements. The child must have a certain familial relationship with the individual, have the same principal place of abode, and be under 24 years of age (if a student). The child must not provide more than half his or her own support and must not file a joint return. The Hearing Officer found that the Taxpayer presented credible evidence supporting each of these requirements. Ms. Castaldi was a single person who maintained a home in 2016 at her own expense and provided a home and other necessities, including food, for her adult son who was under the age of 24 at the time and attending college. The Department did not challenge the Taxpayer’s evidence or present any evidence that contradicted this evidence. Because of these reasons, the Hearing Officer granted the Taxpayer’s protest and the assessment was abated.



Halliburton Energy Services Inc

On December 8, 2015, the Taxpayer filed an application for refund with the Department for $44,454,836 in gross receipts tax for periods between 2011 and 2015. The taxpayer then filed another application for refund on December 28, 2015 for $3,462,261 in gross receipts tax for periods between 2012 and 2014. On February 11, 2016, the Department denied the first claim for refund which the Taxpayer then protested, and on March 11, 2016, the Department denied the Taxpayer’s second claim which it also protested. Both protests were consolidated into one by agreement. The Taxpayer provides hydraulic fracturing, or “fracking,” services to oil and gas companies. The primary issue to be decided in the case was whether the Taxpayer was selling products to their customers when it performed fracking. The process involves pumping into the well a mixture of water and certain chemicals to make the well more productive. The Department argued that the tangible chemicals are consumed as part of the performance of the service rather than sold. The Taxpayer argued that under the “predominant ingredient test,” where the relative costs of the chemicals are measured against the costs of the service, the chemicals could be considered the sale of a product and would qualify for a deduction under Section 7-9-65 NMSA 1978. The Hearing Officer, however, determined that a plain language reading of the statute showed that the Legislature intended to distinguish between the sale of chemicals and the sale of a service. The statute provides for a deduction for certain chemicals sold that will be then used in performing various processes, but this is distinct from the sale of a service that uses the chemicals as an ingredient in performing the process. The Hearing Officer found the test suggested by the Taxpayer to determine if the sale was a service did not recognize the intent of the statute and as interpreted by the Taxpayer would almost always result in every challenge to the deduction concluding that the transaction was a sale of tangibles. Regulation NMAC states that when tangible property is consumed in the performance of a service the tangible property is not sold, making the chemicals consumed in fracking not a sale of tangible property. Moreover, the Hearing Officer observed that fracking has been interpreted as performing services by several other states in the decisions of their state supreme courts. This having been decided, the Hearing Officer ordered the protest denied.



Rojo Concrete Construction

On July 24, 2018, the Department issued a Warrant of Levy letter to the bank of the Taxpayer containing a list of assessments of tax owed between October 1, 2010 and May 31, 2017. In response the bank issued a cashier’s check to the Department on July 30, 2018 for $18,607.95. On July 30, 2018, Mr. Guadalupe Rojo, the owner, submitted a formal protest of the levy. The main issue in this protest was whether the Department had lawfully executed collections against the Taxpayer’s bank account. The Taxpayer agreed that he owed the tax but argued that he had believed he was on a payment plan and that a levy like this could not take place. Provisions in the law allow for installment agreements with the Department which must be made in writing and require monthly payments. Once the Department enters into an agreement, “no further attempts to enforce payment of the tax by levy or injunction shall be made.” But if the Taxpayer defaults by failing to make payments or other conditions of the agreement, the Department “may proceed to enforce collection of the tax as if the agreement had not been made.” The Taxpayer had entered previous payment plans with the Department but defaulted. More recently, he explained that he had made attempts to enter into a payment plan by contacting a tax consulting firm to help him with his taxes in 2017, paying them approximately $5,000 with the goal of initiating tax payment plans with the IRS and the Department. He was unhappy with the progress they made and so, on the advice of friend, engaged another individual who held herself out to be an accountant, said she was setting up the payment plan with the Department, and requested regular payments from him in order to pay the state. The Department, however, had no record that the individual ever contacted the Department or made payments on his behalf, and he has now been unable to contact her. Though the Hearing Officer found that Mr. Rojo was honest and sympathetic, and agreed that he appeared to have a cause of action against the individual he gave money to, this did not change the fact that an actual installment agreement had not been set up with the Department. Therefore, the Hearing Officer determined that within the law the Department’s action was justified and ordered the protest denied.



Ernesto and Nancy Hurtado

On September 13, 2016, the Department assessed the Taxpayers for personal income tax, penalty, and interest for the tax years 2009 through 2015. On October 11, 2016, the Taxpayer filed a formal protest letter. The Taxpayers acknowledged that the portion of the assessment which related to Mrs. Hurtado’s business was taxable but argued that the Department was wrong when it disallowed a deduction for business losses at the federal level, increasing the tax due to New Mexico. The protest hinged upon whether Mr. Hurtado was allowed to deduct these losses from his ranching operation. The deduction of losses in excess of profits is disallowed by the state if the activity engaged in is determined not to be a for-profit activity. The determination of whether an activity is a for-profit business is made by examining nine factors. The Hearing Officer looked at each of these and decided that five of the factors had been meant. Some of the considerations were that the taxpayer had recently developed a formal business plan, had contracts with other property owners for grazing rights, and had bought land and equipment for the ranching operation. The Taxpayer has a degree in agriculture and is a member of the Farm Bureau and had consulted regularly with other ranchers. He had spent a substantial amount of time and effort in his ranching operation and expected that his assets, both cattle and land, would appreciate in value. Income had been made on the ranching operation, though the deductions taken for business losses have led to a net loss in recent years, and the Taxpayer did pay for the ranching operation with the income earned from its operations. Though other factors, the activity generating substantial losses with only occasional small profits, the Taxpayer being none reliant on the ranching operation for his livelihood, the activity being one that the Taxpayer obviously enjoys, suggested that the operation was not a for-profit business, the Hearing Officer decided that enough of these factors were met to conclude that it was for-profit and the deductions taken for business losses were appropriate. This having been decided the Hearing Officer ordered the portion of assessment related to the Taxpayer’s ranching operation be abated.



Ronald and Paula Peterson

On August 28, 2018, the Department assessed the Taxpayers for $3,425.63 in tax, interest, and penalty. This amount included $98.02 in estimated payment penalty. On August 17, 2018, the Taxpayers previously had been sent an adjustment notice stating the estimated payments recorded on their 2017 income tax return were more than the amount received by the Department. On September 29, 2018, the Taxpayers protested the Department’s assessment challenging the late penalty, underpayment penalty, and interest. The main issue to be decided in this protest was whether the Taxpayers were negligent in not meeting their requirement to make estimated tax payments when they cashed a check mistakenly sent to them by the Department refunding part of their payments. The Taxpayers had an obligation to make estimated payments for 2017. On their 2016 return they indicated that the amount of the overpayment for that year should be carried forward to the 2017 tax year and be counted toward their estimated payments. But on May 26, 2017, the Taxpayers instead received a refund check from the Department and cashed it, explaining that they had assumed the Department must have been correct to send it to them. Not until they received the adjustment notice the following year did the Taxpayers realize that a portion of their estimated payments were missing. Though they conceded they did owe the tax and the interest, the Taxpayer’s argued that they should not owe the penalty because they had not been negligent. But the Hearing Officer disagreed. The definition of negligence described in statute includes “erroneous belief or inattention.” Though the Hearing Officer agreed it was very unfortunate that the Department had made the mistake of sending the refund check, the Taxpayers had a reasonable duty of asking why they would receive such a check and the possible tax consequences of cashing it. At no time did the Taxpayers contact the Department or a tax adviser about the refund. This, the Hearing Officer decided, falls under the definition of negligence, and so ordered the penalty to be paid and the protest denied.



19-01 Silver Oak Drilling LLC.

On October 6, 2016, the Department denied the Taxpayer’s application for the High Wage Jobs Tax Credit in the amount of $1,144,314.98 for the periods between January of 2010 through December 2014. On January 4, 2017, the Taxpayer executed a protest of the denial of its application. The decision hinged on essentially two points, the first being whether the Taxpayer was an eligible employer and, secondly, the determination of the actual number of new jobs being created in the specified period. The Department argued that the Taxpayer had failed to establish that it made more than fifty percent of its sales of goods or services produced in New Mexico to persons outside the state and therefore was not an eligible employer. The Taxpayer is an oil drilling firm that provided services for two customers that made up 76 percent of their total sales. The Department had determined that each of these had received the services provided inside the state and therefore the Taxpayer could not be seen as having sold to persons outside New Mexico. But the Hearing Officer disagreed. The Department did not consider the location of the headquarters of these customers or where the companies primarily received their capital. He also concluded that it was mistaken when it interpreted that the statute meant the services provided must be received outside the state. A plain language reading of the statute would show that the Taxpayer was an eligible employer as the legislature described. The next point to be determined was whether the number of employees in new jobs calculated by the Taxpayer was correct. Here the Hearing Officer determined the Taxpayer was not precisely following the instructions provided in the statute which state the number is calculated by examining the difference between the total number of employees with high-wage economic-based jobs and the number that there were on the day prior to the date the new job was created. This is what the Department did. This having been established, the Hearing Officer ordered that the protest be granted in part and denied in part, allowing the credit for twelve positions that were disallowed by the Department because of the ineligibility of the employer and disallowing the others because of the incorrect calculation.



Discover Bank

On May 13, 2016, the Taxpayer filed a claim for refund of $233,950.59 for corporate income tax for two filing periods in 2011 and 2012. These years had been converted by the Taxpayer from calendar year reporting to fiscal year. The Department took no action on the claims and so on December 8, 2016, the Taxpayer protested the Department’s failure to act. Later, on November 6, 2017, before the Hearing on the Taxpayers protest, the Department sent a letter notifying the Taxpayer that their claim for refund had been denied. The main issue in this protest was whether the Department’s elimination of the payroll factor from the special regulatory apportionment formula for financial institutions was justified. This formula allowed the Taxpayer to arrive at a percentage to be allocated to New Mexico by comparing its payroll, property, and sales factors. Regulation NMAC provides that a financial company operating inside and outside the state may apportion using this formula, but it also provides that one of these factors may be excluded if they do not fairly represent its business activities in the state. For the two periods in question the Department adjusted the returns eliminating the payroll factor. This factor had reduced the amount of income being allocated to the state creating the refunds that were denied. The Department had determined the percentages allocated to the state for this factor was de minimis and therefore should be eliminated. However, in examining previous decisions where factors had been eliminated because of distortion, the Hearing Officer observed that the amounts had been proportionally much smaller. The Taxpayer argued that it was following the allocation allowed and that disallowing the payroll factor unfairly misrepresented its earnings so that it was being taxed partially on income earned in a different state. The Department explained that the elimination of the payroll factor was initiated because the percentage allocated was so small. The extreme numerical difference, the Department argued, made the percentages distortive. The Hearing Officer, however, found the Department’s argument insufficient to overcome the regulation allowing the Taxpayer to allocate the payroll factor. The Department, the Hearing Officer concluded, could provide no evidence that the Taxpayer had made the allocation improperly, and so decided the overpayments were valid and ordered the claims for refund approved.



Mark A & Ikesha M Owens

On February 27, 2018, the Department issued a Return Adjustment Notice notifying the Taxpayers that their return had been adjusted for 2016 denying the refund claimed. On May 22, 2018, the Taxpayers sent a letter formally protesting the denied refund. On the return the Taxpayers had claimed the Special Needs Adopted Child Tax Credit for each of the four children they had recently adopted. The main issue presented in this protest was whether Mr. and Mrs. Owens were ‘taxpayers’ as defined in the Tax Administration and Income Tax Acts. Both reside outside the state and did not have any business activity in New Mexico. The Taxpayers had argued that they were indeed taxpayers because they were subject to federal taxes, if not New Mexico taxes, but the Hearing Officer determined that this was far too broad a reading of the law which had meant individuals with income-generating activity in the state. The Taxpayers also said they believed they were engaging in business in the state because they had been receiving payments from the state. Since the foster children had been from New Mexico, the state had made payments to the Taxpayers. New Mexico had required the Taxpayers to receive training and become certified in the care of foster children. But the Hearing Officer decided that this type of activity was simply not a business activity. Foster care payments are not taxable nor could foster care ever be construed to be a business. Because the Taxpayers did not engage in business or income-generating activity within the state, they were not “taxpayers” as defined in the statutes and could not be allowed to take the credit. The Taxpayers also argued that the credit should be allowed because the instructions were not clear and left open the possibility that individuals with no tax responsibility to the state might qualify for the credits. Though the Hearing Officer agreed that this was the case, the instructions did not anywhere state that the credit would automatically be allowed if applied for. This having been determined, the Hearing Officer ordered that the Department had been correct in making the adjustment and ordered the credit disallowed.

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