?The Taxpayer was a resident of New Mexico in 2009 and 2010, and during that time was a member of an LLC and served as Chief Executive Office (CEO) for the LLC. For his duties as CEO, the Taxpayer received guaranteed payments, and as a member of the LLC, the Taxpayer received distributive shares of income. The Taxpayer filed personal income tax returns with New Mexico for 2009 and 2010 and claimed refunds for both of those years. The Taxpayer allocated and apportioned his income from the distributive shares to various states in which the LLC does business. The Taxpayer allocated all of his income from the guaranteed payments to New Mexico as compensation and applied for credit for taxes paid to other states. The Department denied the Taxpayer’s claims for refund and assessed additional tax for each year. The Taxpayer filed protests to these denials. The Department abated the assessments and partially granted the claims for refund, but left some amounts at issue for each year. The dispute was regarding the allocation of all of the guaranteed payments to New Mexico and the credit for taxes paid to other states. At the hearing, the Taxpayer argued that the guaranteed payments were compensation for his services as CEO, but the Department argued that the payments do not meet the statutory definition of compensation as the Taxpayer was a member of the LLC and not considered an employee. The hearing officer determined that the Taxpayer received guaranteed payment from the LLC for services rendered, and as there are not any statutory or regulatory provisions regarding allocation and apportionment of guaranteed payments made for services rendered by an individual, the Taxpayer appropriately allocated the entire amount to New Mexico. The Taxpayers claims for refund were valid and should have been granted. The Taxpayer’s protest was granted.
Stuart Schoenmann and Charlotte Coulombe