The Taxpayer submitted a claim for refund on November 4, 2015 for an overpayment of gross receipts taxes for reporting periods from February to December of 2012. On November 18, 2015, the Taxpayers claim for refund was denied by the Department due to the information provided not matching the deduction requirements. On February 10, 2016, the Taxpayer filed a timely protest with the Department. The grounds of the protest were that the Taxpayers former certified public accountant (CPA) had incorrectly reported his gross receipts tax in 2012 and did not claim the applicable deduction for prescription drugs under Section 7-9-73.2 NMSA 1978. During the time at issue, the taxpayer was a physician authorized to dispense prescription medications approved by the Federal Drug Administration (FDA) and obtained through FDA-approved pharmacies. As part of his practice the Taxpayer would purchase medications, administer the medications to his patients, and bill the appropriate party for payment of the medications. From 2003 to 2014, the Taxpayer employed an out-of-state CPA. The Taxpayer felt that too much gross receipts tax was being paid monthly in 2014 and hired a CPA in New Mexico. The CPA reviewed the Taxpayers records and determined that the Taxpayer was eligible for a deduction under Section 7-9-73.2 NMSA 1978 for the sale of prescription drugs. The Taxpayer then filed an application for refund for the period at issue. In early 2012, it was brought to his attention by the FDA that since July of 2010 the Taxpayer was purchasing non-FDA approved drugs from a specific pharmaceutical company. The Taxpayer clarified that he was unaware that the company in question was selling non-FDA approved drugs until it was brought to his attention by the FDA. The taxpayer is seeking the deduction for prescription medications for all receipts, both from the authentic FDA-approved medications and the counterfeit non-FDA approved medications for the time at issue. The Taxpayer argued that at the time the medications were purchased he was unaware that one of the companies he was purchasing prescription drugs from was not FDA-approved. Therefore, the Department should allow the claim for the deduction based on the full cost of medication incurred during the time at issue. The Department argued the Taxpayer filed the application for refund when he was fully aware of which pharmacy the non-FDA approved prescription drugs or counterfeit drugs were purchased from. Under Section 7-9-73.2 NMSA 1978, the statute has very specific qualifications of what is considered a “prescription drug” and the Hearing Officer was persuaded that the prescription drug deduction was not applicable for counterfeit drugs. The Taxpayer did not provide any documentation to differentiate deductions claimed for legitimate prescriptions and counterfeit non-FDA approved prescriptions. The Taxpayer acknowledged that the information could be provided but it would be time consuming and costly. The Hearing Officer determined that as the Taxpayer was unable or unwilling to provide documentation for only the legitimate prescription drugs that the Taxpayer did not establish a right to claim the deduction and therefore the Taxpayer’s protest is denied.
Mohamed B. Aswald, M.D., P.C