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Terry and Eva Capehart



In 2006 Taxpayers had an ownership interest in a New Mexico company from which they were paid consulting fees reporting the income on their Federal income but not on their state tax return.  Upon being notified of the discrepancy through a limited scope audit Taxpayers paid the principal balance due but not the assessed penalty and interest requesting an abatement. Taxpayers’ abatement claim was based on other states not charging a similar tax and their mis-understanding that the fees were non-taxable. The hearing officer found that the Taxpayers were negligent in failing to report gross receipts taxes in tax year 2006 and owe the principal amount of gross receipts tax and the assessed interest.  The hearing officer also determined that amount of penalty was limited to ten percent based on the principal tax due prior to the amendment which changed the maximum penalty to twenty percent.  Any amount of penalty in excess of ten percent was ordered to be abated.  The Taxpayer’s protest was granted in part and denied in part.
NOTE: The New Mexico Court of Appeals has overruled the 10% penalty issue mentioned in this decision.  (Case No. 30,932)