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Broken Hill Proprietary Inc.



On December 24, 2014, the Taxpayer submitted an Application for Rural Job Tax Credit which was received by the Department on December 30, 2014. The Application sought a Rural Job Tax Credit for 665 Jobs. On September 29, 2015, the Department sent a partial approval letter in which the credit for 80 jobs were disallowed based on the information provided during the application review process. A timely protest was filed on October 28, 2015. The Taxpayer asserted that it was legally entitled to the additional credit for those 80 jobs. During the hearing, the Taxpayers representative asserted that the credit should be allowed as the Taxpayer provided information showing that the jobs were “occupied” during the qualified period in the application. The Taxpayer claimed that relevant inquiry for the tax credit was whether employee “occupied” the job for 48 weeks during the qualified period. Not that the records provided to the Department demonstrated that it paid wages to the employee over the entire duration of that period. The Taxpayer argued that even if an employee was not receiving a paycheck because they were absent with an illness or injury, that employee remained on the payroll register and continued to incur benefits. During the application review process, the auditor followed the correct audit procedure used by the Department. The documents submitted with the application were reviewed to determine whether an eligible employee was in a qualifying position for the minimum period of time as required by Section 7-2E-1.1 NMSA 1978.  An essential part of that review includes looking at the payroll records provided by the Taxpayer and verifying them against the Department of Workforce Solutions database. For any pay period in which a paycheck is missing the time period is to be eliminated from the final week counts for that employee. The Taxpayer was asked for additional documentation needed to confirm whether the Taxpayer paid wages to the employees allegedly occupying the 80 jobs in question during the application review process. When additional documentation was received the Department did not find the information provided was satisfactory to verify the wages paid and the occupancy of the 80 employees in the qualified jobs. A partial approval of the Rural Jobs Tax Credit was sent to the Taxpayer. The total disallowed credit amount reflected the Department’s determination that the 80 employees had failed to occupy their qualifying jobs for 48 weeks during the 12-month qualifying periods. The Department indicated that the information that it looks for to confirm the qualified positions occupancy includes an employee’s pay periods, pay dates, pay rates, hours worked per pay period, wages earned, deductions, and withholdings. The Department deems payment of wages to be evidence of occupancy and reviews all credit applications in the same manner. It was pointed out in the hearing that nearly half of the jobs in question consisted of employees with significant periods of unpaid sick leave,  leave without pay, compensation from a third party (weekly indemnity or workers compensation benefits), and others were classified as “flex employees” or who switched from hourly to salaried employees. The hearing officer determined that definition of “wages “does not include unpaid leave or benefits paid by a third party. The Taxpayer acknowledged that the facts with respect to the 80 disallowed jobs were uncontested. The Taxpayers records for 80 jobs showed that the wages were not paid for the full duration of the 48 weeks relevant to a 12-month period. Wages as defined in Section 7-2E-1.1(N)(10) NMSA 1978 is “all compensation paid by an eligible employer to an eligible employee through the employer’s payroll system, including those wages the employee elects to defer or redirect, such as the employee’s contribution to 401(K) or cafeteria plan programs, but not including benefits or the employer’s share of payroll taxes”. The hearing officer determined that Section 7-2E-1.1 (D) NMSA 1978 states that an employer seeking the rural job tax credit “shall certify the amount of wages paid to each eligible employee during each qualifying period, the number of weeks during the qualifying period the position was occupied and whether the qualifying jobs was in a tier one or tier two area” The hearing officer indicated that because this case involves a tax credit, which has been found to be an act of legislative grace, the language of the credit statute must be narrowly constructed. Taxpayer carries the burden of proving that it is entitled to the claimed credit. The hearing officer determined that the Department’s desire to verify such information was reasonable and consistent with its grant of authority provided in the statute in which an employer must apply to the Taxation and Revenue Department on forms and in the manner the department may prescribe. The hearing officer determined that the disallowed portion of the application, it was reasonable, and well within the Department’s authority to request additional information. When the Taxpayer was unable to provide documentation that the Department found satisfactory to establish an entitlement to the remaining portion of the requested credit, it was well within its authority to disallow the credit for the remaining 80 jobs. For these reasons the Taxpayer’s protest is denied.