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Sept. 28, 2016
New Mexico’s MeF programs to leverage FTA’s Secure Exchange System for access to development resources for TY2016.

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. 



01/09/2017

17-04

Autoglass Technologies, LLC

On September 9, 2015 the Department assessed the Taxpayer as a successor in business. On October 6, 2015 the Taxpayer filed a timely written protest. The issue to be determined in the hearing was whether the Taxpayer is liable under the assessment as a successor in business to the former company. The Taxpayer renewed its argument that the Department’s violation of the Section 7-1B-8 NMSA 1978 that the protest be granted. During the time at issue the prior company owner was going out of business and the current company owner/the Taxpayer wanted to start her own business doing automobile glass repair. With the help of the former company owner the Taxpayer started her own business. With the assistance of the former company’s accountant the Taxpayer filed for business licenses and taxes. Taxpayer first filed a zero gross receipts tax for December 2014. The former company was still operating and receiving payments in December 2014 and the Taxpayer was conducting business and receiving payments in December 2014 despite reporting zero gross receipts for that month. It was also discovered that the former company and the Taxpayer were providing service to some of the same customers and paying some of the same employees. The Taxpayer continued to do business with customers from the prior business but did not have formal agreements to assume any of the prior business outstanding contracts. Based on Regulation 3.1.10.16 NMAC it was determined by the hearing officer that the Taxpayer is presumed to be a successor in business to the former company due to the Taxpayer first and continuing customers being the goodwill of the former company. Based on the Taxpayers renewed argument the Departments response was that the tardiness of the request and the hearing are not jurisdictional and are not grounds to grant the protest. The Hearing officer determined that the Department was in violation of the statute by failing to refer the protest for hearing within 45 days per Section 7-1B-8 NMSA 1978. However, it was also determined the Departments violation of the statutory time limits for requesting a hearing does not necessitate that the protest be granted. The hearing officer determined that even though the Taxpayer is a successor in business to the former company, it is not liable for penalty and interest but is still liable for the gross receipts tax due. The Taxpayer’s protest is granted in part and denied in part.


01/09/2017

17-03

CORE

On May 17, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty, and interest for periods from March 31, 2010 through October 31, 2015. The taxpayer filed a timely protest letter July 28, 2016. During the tax periods at issue, the Taxpayer was providing educational services in New Mexico. For the periods they outsourced payroll and corporate filings to a corporate services provider which at the time of the hearing it was not found that the service provider was a competent tax counsel or an accountant capable of providing tax advice. At no time did the Taxpayer consult with any New Mexico taxing authority or tax professional to determine if the Taxpayer was in compliance with New Mexico Law. The Taxpayer stated that it was unaware of New Mexico’s “unique gross receipts tax for services” and that the Taxpayer was never given notice by the Department of GRT tax obligation during the periods at issue. However, the Taxpayer acknowledged the Registration Certificate dated in 2008 that refers to “Gross Receipts, County Gross Receipts, Municipal Gross Receipts, Compensating, and Withholding Taxes.” In 2014, a non-filers notice was acknowledged by the Taxpayer for the same CRS number in which the Registration Certificate was issued to. No evidence or documents were provided to the Department for the periods at issue supporting the Taxpayer of being tax-exempt from gross receipts tax or support their finding that the transactions during the periods were exempt or subject to a deduction. Under New Mexico’s self-reporting tax system, “every person is charged with the reasonable duty to ascertain the possible tax consequences” of his or her actions. The Taxpayer filed Corporate Income Tax returns for the time periods and concluded that it owed gross receipts tax and interest, but disputed the amount of penalty owed to the Department due to the statute of limitations and the earliest periods being assessed by the Department. With review of the statute of limitations based on the non-filer status of the account under 7-1-18 (C) NMSA 1978 the Department may asses at any time within seven years from the end of the calendar year in which the tax was due. Based on the information above the hearing officer determined that the Department properly assessed the Taxpayer and that the gross receipts tax, penalty, and interest is due. The Taxpayer’s protest is Denied.


01/04/2017

17-02

17-02 Diamond T US Mail Services Inc.

On December 28, 2015, the Department denied the Taxpayer’s claim for refund for the CRS reporting period ending July 31, 2015. On January 8, 2016, the Department received the Taxpayer’s protest of the Departments denial of claim for refund. The taxpayer is a mail courier under a Highway Contract Route, with the United States Postal Service transporting mail from and to Lubbock, Texas. The refund denial was based on the Taxpayer being a star route contractor and the lack of sufficient documentation to support the deductions being claimed. The grounds of the protest sent in by the CPA indicated that the Taxpayer was not a “star route” contractor with the United States Postal Service and that the Taxpayer had incorrectly reported receipts earned in interstate commerce. The Taxpayer argued that the refund is due under Section 7-9-55 and Section 7-9-56 NMSA 1978. The CPA response to the denial is that the term “star route” contractor is obsolete and for that reason the claim for refund should not have been denied. Based on one of the Exhibits provided in the hearing by the Taxpayer, a publication from the United States Postal Service suggests that the term “star route” has been replaced by “HCR” or “Highway Contract Route”.  The hearing officer interprets the parenthetical as signifying that the term “star route” has been supplanted by “HCR” or “Highway Contract Route”, but that the underlying definition are functionally equivalent. For this reason it was determined that the activity falls squarely within the scope of Regulation 3.2.213.10 NMAC The Department established that the relevant documentation needed in order to consider the claim for refund are addressed in Regulation 3.2.213.10 NMAC. The Department asked for documents or logs to help assist in apportioning taxes between services provided in New Mexico and those provided in interstate commerce but the documents requested were never received. The Taxpayer argued that the refund is due under Sections 7-9-55 and Section 7-9-56 NMSA 1978. The Department’s position is that the deductions can be claimed if the necessary documents establishing the right to the deduction are provided.  The evidence provided to the Department was insufficient to clearly establish the right to the deduction upon which the claim for refund relies. The Taxpayer did not establish entitlement to any refund with the evidence presented at the hearing for this reason the Taxpayer’s protest is denied.


01/04/2017

17-01

Jerry Ritchie

On February 17, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the CRS reporting periods between January 1, 2011 and December 31, 2012. On April 22, 2016, the Taxpayer filed a timely protest of that assessment. During the period at issue, the Taxpayer was a limited partner in a holding company that invests in, starts, and operates businesses in the medical field. The Taxpayer had a side agreement with the holding company in which the company agreed to forgive or offset half of the Taxpayers financial commitment in the partnership in exchange for the Taxpayers expertise and relationship in guiding the overall strategy of the company. The CPA confirmed that the LLC used Forms 1099-Misc indicating that the Taxpayer received non-employee compensation in 2011 and 2012 which was reported on the Taxpayer’s federal Schedule C. Based on the Departments Schedule C mismatch program with the IRS it was detected that business income was reported to the IRS and gross receipts tax was not reported to the state. The Hearing Officer was not persuaded by the evidence presented that the Taxpayer overcame the presumption of correctness under Section 7-1-17 (C) NMSA 1978 due to the partnerships unwillingness or inability to confirm that the forgiveness of debt was not due to services rendered in New Mexico for the periods at issue. The hearing officer was persuaded that the Taxpayer was engaging in business in that he carried on the purpose of achieving a direct or indirect benefit, which in this case was the value of consideration received in the form of debt forgiveness from selling services performed in New Mexico and that the value of the consideration received was subject to gross receipts tax. It was agreed by the Department that the penalty would be abated because it was convinced that the Taxpayer reasonably relied on the advice of the competent tax counsel or accountant as to the Taxpayer’s liability after full disclosure of all relevant facts. At the time of the hearing it was determined that the outstanding principal and the interest were due. The protest is denied in part with respect to the relief requested for gross receipts tax principal and interest. The protest shall be granted in part with respect to the abatement of penalty.


12/19/2016

16-57

Hilario Leos & Christina Luchetti-Leos and C&R Nutritional Club

On July 20, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the tax periods from January 1, 2010 through December 31, 2012 for account A and January 1, 2012 through December 31, 2012 for account B. On August 23, 2016 the Taxpayer entered into a Short Term payment Plan with the Department for the period of January 1, 2010 to December 31, 2011. The Taxpayers timely protested the assessments for the periods included in the plans in addition to reporting period in 2012. The Department acknowledged the receipt of a valid protest with respect to the 2012 assessments. In a separate piece of correspondence the Department asserted that there was no right of protest with respect to the period’s subject of the Short Term Payment Plans because the Taxpayer waived those rights by executing the plans. Starting in 2009 the Taxpayers started using a tax preparer to file their federal and state income taxes during the relevant period of time. The tax preparer provided documents in the protest claiming that the Taxpayer were not subject to pay New Mexico gross receipts tax because the goods they were selling were purchased out of state and they paid tax in the other state. The Taxpayers informed the Department that the tax preparer did not inform them of any gross receipts tax obligations in New Mexico. It was found that the taxpayers were selling goods in New Mexico and were subject to gross receipts tax. The evidence provided was insufficient to find that the tax preparer was a competent tax accountant due to lack of the individual being qualified, credentials, or competent in the area of New Mexico gross receipts tax. Despite the good faith intentions of the Taxpayers in this case, it was determined when a taxpayer fails to make timely payment of taxes to the state interest shall be paid per Section 7-1-67 NMSA 1978. The assessment of interest is mandatory and the Department is without legal authority to abate it despite the Taxpayers’ good faith intentions. Penalty may only be abated when a Taxpayer is able to show that he or she was not negligent in failing to file. Pursuant to the definition of negligence in Regulation 3.1.11.10 NMAC, the Taxpayer was negligent in failing to report and pay gross receipts tax. The Taxpayer’s protest was denied.


11/30/2016

16-56

US Field Service Inc. 

On June 16, 2010, the Department assessed the Taxpayer for gross receipts tax and interest for the CRS reporting periods from December 31, 2004 through December 31, 2006.  On August 6, 2010, the Taxpayer filed a protest to the assessment.  During the period at issue, the Taxpayer was engaged in business doing construction, maintenance and equipment rental.  The Taxpayer was hired to do work in New Mexico by a wind power company, who was a subcontractor to the project manager.  The Taxpayer provided a crane and a crane operator to the wind power company and assisted in the construction of several windmills.  The Taxpayer invoiced the wind power company for the services it provided and included gross receipts tax on its invoice.  The wind power company executed a nontaxable transaction certificate (NTTC), a Type used for construction, to the Taxpayer.  The Taxpayer accepted payment from the project manager on behalf of the wind power company and, due to relying to the NTTC, did not collect gross receipts tax.  The Taxpayer filed its gross receipts tax return, and deducted the receipts related to this situation because of the NTTC.  Several years later, the Department issued a notice of audit to the Taxpayer and issued a letter informing the Taxpayer that it had 60 days to obtain any NTTCs to support its deductions.   The Taxpayer responded to the audit and provided documentation, including the NTTC, invoice and payment information.  The Taxpayer paid the assessed tax, but does not believe it was owed.  The Taxpayer only protested the assessed interest.  The Taxpayer argued that it should not have to pay interest because it relied on the NTTC in good faith.  The Department argued that the reliance on the NTTC was not reasonable because it was not the correct type to use for leasing, and that the Taxpayer conceded the tax was owed by paying it and therefore interest is due as well.  The Department also argued that the NTTC could not be used to deduct receipts from the wind power company because the project manager made the payment.  The hearing officer found that the Taxpayer reasonably relied on the NTTC and accepted it in good faith.  The interest was ordered to be abated.  The Taxpayer’s protest was granted.


11/30/2016

16-55

ATC Healthcare Services Inc. 

On August 16, 2012, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the CRS reporting periods from January 31, 2004 through August 31, 2010.  On November 13, 2012, after having been granted an extension to protest, the Taxpayer filed a protest of the assessment.  The Taxpayer is a Georgia corporation with its principal place of business in New York.  In 1998, the Taxpayer entered into a franchise agreement with a New Mexico company.  Under the agreement, the New Mexico company operated a franchise in New Mexico that offered and sold temporary medical healthcare personnel services, programs, products and activities in accordance with the Taxpayer’s developed style, system and technique of business operations.  The Taxpayer terminated the franchise agreement on May 12, 2009.  The Taxpayer was the legal employer of the New Mexico company’s temporary employees and processed payroll and issued tax forms, but the company was responsible for recruitment, training, testing and selection of employees, hiring and firing them, determining salary and benefits, and setting rates for their customers to pay the healthcare workers.  Beginning on October 8, 2010, the Department conducted an audit of the Taxpayer for the reporting periods from January 1, 2004 through August 31, 2010.  As a result of the audit, the Department issued the assessment to the Taxpayer.  There were five issues involved in the protest.  First, is money the Taxpayer received from the company’s clients received in a disclosed agency capacity and not subject to gross receipts tax? Second, is money the Taxpayer received from the company for the granting of a franchise and license to use a trademark before June 27, 2007 subject to gross receipts tax?  Third, is money received after June 27, 2007 for the same purpose not subject to gross receipts tax under the definition of “property” in Section 7-9-3(J)?  Fourth, is money the Taxpayer received from Indian Health Services deductible under Section 7-9-93 NMSA 1978?  Fifth, if the Taxpayer is liable for the assessed tax, is it entitled to an abatement of penalty for non-negligence under Section 7-1-69 NMSA 1978?  As to the first issue, the hearing officer found that the Taxpayer failed to establish that it collected receipts as a disclosed agent.  Regarding the second and third issues, the hearing  officer found that the franchise royalties prior to June 27, 2007 were not subject to tax, but subject to gross receipts tax after that time.  The Taxpayer’s receipts from providing temporary employees to Indian Health Service facilities were found to be deductible, as was already indicated in the audit narrative.  On the last issue, the hearing officer concluded that the Taxpayer was not subject to penalty as it established that it made a mistake of law, in good faith and on reasonable grounds.  The hearing officer ordered assessed tax related to the pre-June 27, 2007 franchise fees and royalties, as well as all assessed penalty to be abated.  The Taxpayer was ordered to pay all remaining assessed tax and interest.  The Taxpayer’s protest was granted in part and denied in part.


11/29/2016

16-54

Joseph D. & Rebecca A. Chwirka 

On August 10, 2016, the Department assessed the Taxpayer an underpayment penalty for Personal Income Tax for the tax year ending December 31, 2015.  On August 23, 2016, Ms. Chwirka filed a protest of the assessment.  The Taxpayer’s were married for 36 years.  Until his illness and death, Mr. Chwirka had always prepared the Taxpayers’ income tax returns.  The Taxpayer were never required to make estimated payments in previous tax years as their annual payments were always accomplished through withholdings.  In March 2015, Mr. Chwirka was diagnosed with cancer.  He maintained employment as long as he could, which was until October 2015.  He received disability income for October, November and December 2015.  There were no withholdings from this disability income.  Mr. Chwirka passed away in January 2016.  Ms. Chwirka sought assistance in preparing the Taxpayers’ 2015 personal income tax returns.  When the New Mexico return was prepared, the total payments and credits through withholding were significantly less that the Taxpayers’ liability.  The tax due was paid on March 29, 2016, prior to the due date.  The Department assessed the underpayment penalty because the required annual payment requirement is 90 percent of the tax liability for 2015, or 100 percent of the tax liability for 2014.  The Taxpayer does not protest the income tax due for 2015, and the Department did not assess interest.  The only issue at hearing was the Taxpayer’s request that penalty be abated because of the circumstances.  The hearing officer found that the Department correctly assessed the Taxpayer’s as a result of their annual underpayment.  However, the hearing officer also found that one of the indicators of non-negligence listed in Regulation 3.1.11.10 NMAC, which allows abatement of penalty for non-negligence, was applicable in this situation.  One of the factors listed for finding a taxpayer non-negligent is for a taxpayer who is disabled because of injury or prolonged illness, and who demonstrates inability to prepare a return and make payment and is unable to procure the services of another because of this injury or illness.  Due to this, the hearing officer ordered the penalty to be abated. The Taxpayer’s protest was granted.


11/18/2016

16-53

Good Karma Art & Design

On June 15, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the tax periods from January 1, 2011 through December 31, 2013.  On June 28, 2016, the Taxpayer filed a protest.  The Taxpayer was providing services during the periods in question and was issued 1099s for that work.  The Taxpayer conceded that it owed tax, penalty and interest, but disputed the amount owed.  The Taxpayer argued that some of the assessment was beyond the statute of limitations and that some of the services were performed outside of New Mexico.  The Taxpayer provided additional documentation to show that its services were for work done entirely outside of New Mexico.  The Department conceded that part of the assessment was beyond the statute of limitations, and also accepted the documentation showing that some of the work was done outside of New Mexico.  The Department abated a portion of the assessment accordingly.   The remainder of the assessment was correct and owed by the Taxpayer.  The Taxpayer’s protest was granted in part and denied in part.


11/14/2016

16-52

Emily W. Metzloff 

On July 29, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the tax periods from January 1, 2012 through December 31, 2013.  This assessment came about after the Department detected a mismatch between income reported by the Taxpayer on her federal Schedule C and her not having filed gross receipts tax.  By correspondence dates August 16, 2016, the Taxpayer’s CPA requested on behalf of the Taxpayer that the Department waive the assessed penalty.  The Department accepted this correspondence as a formal protest.  During the period at issue, the Taxpayer worked as an independent contractor, editing text for clients for publication on the internet.  The Taxpayer did not protest the assessment of principal or interest, only the assessment of penalty.  The Taxpayer resided in New Mexico during the periods at issue, and used a CPA in New York to prepare her income taxes.  In response to the assessment, the CPA wrote in his correspondence that because they were not aware of the gross receipts tax, they could not properly advise the client and he asked that the penalty be waived.  The Taxpayer never consulted with a tax professional based in New Mexico.  Penalty may only be abated when a Taxpayer is able to show that he or she was not negligent in failing to file.  Pursuant to the definition of negligence in Regulation 3.1.11.10 NMAC, the Taxpayer was negligent in failing to report and pay gross receipts tax.  Regulation 3.1.11.11 NMAC provides other grounds for abatement of penalty in certain circumstances, but again the Taxpayer was unable to show non-negligence.  The Taxpayer’s protest was denied.


10/28/2016

16-51

James R. Hellerman

On February 3, 2015, the Department assessed the Taxpayer for personal income tax, penalty and interest for the 2011, 2012 and 2013 tax years.  On February 11, 2015, the Taxpayer filed a protest to the assessment.  The Taxpayer admitted that he and his wife were residents of New Mexico from 2000 until 2008.  The Taxpayer and his wife jointly purchased a home in Lamy, New Mexico in 2005.  The relationship between the Taxpayer and his wife became strained, and they chose not to divorce or legally separate, but to live separately and remain married.  In 2008, the Taxpayer and his wife jointly purchased a second home in Tennessee.  The Taxpayer renovated that home to his specifications and the intention was for the Taxpayer to live at the Tennessee home while his wife remained in the Lamy home.  In 2008, the Taxpayer executed a last will and testament which was signed, executed and witnessed in New Mexico, and listed his wife as his sole heir.  In 2009, the Taxpayer obtained a Tennessee driver’s license.  The Taxpayer continued to register his vehicles in New Mexico until late 2013.  Throughout 2012 and 2013, the Taxpayer was living and working full-time in Tanzania, where he leased an apartment, bought a car, and obtained a driver’s license.  The Taxpayer was rarely in the United States.  When he did visit the United States, most of his time was spent with his wife, who also visited him in Tanzania.   In 2012, the Taxpayer’s wife died.  During the tax years in question, the majority of the Taxpayer’s mail was sent to the Lamy address and collected by his wife, and later a neighbor.  After his wife’s death, the Taxpayer continued to travel to New Mexico to deal with the estate and the sale of the Lamy home.  For several months after his wife’s death, the Taxpayer continued to house vehicles in New Mexico, and renewed the registrations in New Mexico in early 2013.  The Taxpayer conceded that he was liable for New Mexico personal income tax for 2011, so the issue to be decided at hearing was whether the Taxpayer was also liable for personal income tax, penalty and interest for the 2012 and 2013 tax years.  The Taxpayer argued that he intended to establish Tennessee as his home by moving there in 2008, doing substantial home renovations, and moving his prized African art collection there.  The Department argues that the Taxpayer’s intent was not sufficient.  He was an admitted resident of New Mexico for several years and continued to spend the majority of his time here while working abroad. The Department argues that the Taxpayer continued to treat New Mexico as his residence in a number of ways.  Regulation 3.3.1.9 NMAC uses a number of criteria to determine domicile, and in this case the hearing officer found that the majority of those indicated that the Taxpayer was domiciled in New Mexico for the tax years in question.  The Taxpayer’s protest was denied.


10/27/2016

16-50

S.J. Tile

On February 23, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the tax period from January 1, 2012 through December 31, 2012.  The Taxpayer filed a protest to the assessment on May 20, 2016.  On March 21, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the tax periods from January 1, 2010 through December 31, 2011.  The Taxpayer filed a protest to that assessment on June 16, 2016.  On July 29, 2016, a telephonic scheduling hearing occurred and the Taxpayer’s protests were consolidated.  The Taxpayer was in business from 1987 through 2012, and was a one-person operation in the business of tile setting.  Beginning in 2008, the Taxpayer only worked for construction contractors and did not collect or pay gross receipts tax.   The Taxpayer did not produce any nontaxable transaction certificates (NTTCs) from the construction contractors that he provided services to during the periods at issue.  The Taxpayer argued that he did not collect gross receipts tax and that the contractors he worked for paid the taxes.  The Taxpayer has been diabetic for the past twenty-two years.  He also became disabled and no longer works.  The Taxpayer suffers from kidney failure and blindness.  The issue to be determined is whether the Department properly assessed the Taxpayer for gross receipts tax, penalty and interest for the periods at issue.  New Mexico has a self-reporting tax system and it is the obligation of the Taxpayer to obtain and retain the necessary NTTCs, as well as file any necessary gross receipts taxes.  Because the Taxpayer failed to obtain the necessary NTTCs necessary to claim a deduction, the gross receipts tax, along with the mandatory interest, were found to be properly assessed.    In spite of his health problems, the Taxpayer was not able to prove that he was non-negligent in not filing gross receipts taxes, so the penalty was deemed to have been properly assessed as well.  The Taxpayer’s protest was denied.


10/17/2016

16-49

A & W Restaurants, Inc.

On September 27, 2013, the Department assessed the Taxpayer for gross receipts tax and interest for the periods from June 30, 2007 to December 31, 2011.  The Taxpayer filed a protest of the assessment on December 23, 2013.  The Taxpayer entered into franchise agreements with New Mexico businesses.  Section 1 of this agreement, entitled “Grant of License” grants a franchisee a limited license to use specific trademarks identified in the appendix to the agreement.  The authority to use the trademarks is limited exclusively to use in connection with sales from a single restaurant established under the agreement.  The agreement also sets the amounts that a franchisee is to pay the Taxpayer.  Some of these are one-time fees, while others are paid on a monthly basis and are calculated based on the prior month’s gross sales.  The Department audited the Taxpayer for gross receipts tax for the periods from January 1, 2006 through December 31, 2011.  The Department concluded that the continuing royalty fee was subject to gross receipts tax because the payments by franchisees to the Taxpayer represented receipts from granting a right to use a franchise employed in New Mexico.  The Taxpayer argues that the continuing royalty fee is consideration for the Taxpayer’s granting of a limited license to utilize its trademarks, which it claims is then exempt from gross receipts tax under the definition of “property” as provided in Section 7-9-3(J) NMSA 1978, which excludes trademarks.  The Department asserts that the royalty fees paid are taxable as gross receipts because they are receipts from granting a right to use a franchise employed in New Mexico, which is subject to gross receipts tax under Section 7-9-3.5(A)(1) NMSA 1978.  While the Taxpayer held that the trademarks must be unbundled from the other receipts, the hearing officer found that, based on prior case law, a franchise is to be treated as a compound or bundled form of property, which includes a license to use trademarks.  The Taxpayer is obligated to pay gross receipts tax on the total receipts received from granting a right to use a franchise employed in New Mexico.  The Taxpayer’s protest was denied.


09/30/2016

16-48

Anthony Martinez

On April 27, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the tax periods from January 1, 2011 through December 31, 2013.  On May 13, 2016, the Taxpayer filed a protest.  A healthcare company was providing services to the Taxpayer’s grandfather through a federal program.  The Taxpayer was working as an independent contractor for the healthcare company so that he could be paid for providing services to his grandfather.  The healthcare company issued 1099s to the Taxpayer.  In 2013, the Taxpayer’s grandfather became dissatisfied with the healthcare company and switched to another provider.  The Taxpayer also ceased being an independent contractor to that healthcare company and began working as an independent contractor for the new provided so that he could continue to help his grandfather.  The Taxpayer and the first healthcare company became involved in a lawsuit at some point after the split, and there has been some animosity between them.  The Department audited the Taxpayer because of a mismatch it found between business income on his federal tax return and no gross receipts reported to New Mexico.  The Taxpayer received the audit notice that informed him he had 60 days to obtain any necessary nontaxable transaction certificates (NTTCs) needed to support any claimed deductions.  The Taxpayer contacted the healthcare company and was told that the company paid gross receipts tax on the services he provided, but refused to provide any proof of tax payments or provide an NTTC.  The Taxpayer was providing services and had receipts that were subject to the gross receipts tax.  Because the Taxpayer was not in possession of the necessary NTTC, he was not entitled to take a deduction.  The Taxpayer was also unable to prove that the healthcare company paid gross receipts tax on his behalf.  The hearing officer found that the Taxpayer was properly assessed.  The Taxpayer’s protest was denied.


09/28/2016

16-47

Sonja Foote

On April 11, 2016, the Department assessed the Taxpayer for personal income tax, penalty and interest for the tax periods from January 1, 2011 through December 31, 2013.  On May 2, 2016, the Taxpayer filed a protest.  The Taxpayer and her husband owned approximately 1300 acres of land in Quay County, which they purchased in 2009.  The Taxpayer’s husband earned a substantial income from work unrelated to the land and cattle.  The Taxpayer’s husband retired, became ill, and passed away prior to the assessment.  The Taxpayer made improvements to the land, which included fencing and drilling wells, and bought three cows to begin a cattle-breeding operation.  The Taxpayer’s herd now has 19 pairs of heifers and calves, and the Taxpayer intends to continue breeding until the herd is 50 head.  The Taxpayer’s cattle-breeding operation and land improvements have generated substantial losses, which the Taxpayer claimed against her income.  The Taxpayer did not provide any evidence to show that the operation has made a profit.  The issue to be decided at hearing is whether the Taxpayer is liable for the assessment.  The parties agree that the determination hinges on whether the Taxpayer’s cattle operation should be considered as a for-profit business or not under 26 USCS Section 183.  There is a federal deduction allowed for expenses occurred when engaging in any trade or business, but this deduction is disallowed when the activity is not for-profit.  The federal regulations list nine factors to aid in determining whether an activity is for-profit or not.  In examining each of these factors, the Hearing Officer found that some factors weighed against finding that the activity is for-profit, while others weighted for it, but in the end seven of the nine factors indicated that the activity engaged in by the Taxpayer was not for-profit and the deductions were correctly disallowed by the Department.  The Taxpayer’s protest was denied.


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