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James and Terri Holt



In February 2000, the Taxpayers filed their 1999 personal income tax returns reporting zero federal adjusted gross income on their federal income tax return and reporting zero New Mexico taxable income and zero New Mexico tax due on their state return. The Taxpayers’ 1999 W-2 forms showed they had earned income from their employers and that federal and state tax had been withheld.  The Taxpayers requested a refund of the tax withheld.  In April 2000, the Department notified the Taxpayers that the Department had recalculated their 1999 New Mexico personal income tax and determined that they were not entitled to a refund, but owed additional tax. The Taxpayers protested the Department’s denial of the claim for refund making the following arguments: 1) the wages the Taxpayers earned were not subject to New Mexico income tax because wages are not “income” for purposes of reporting federal income tax; 2) the State of New Mexico did not have authority to recalculate the federal adjusted gross income reported on the Taxpayers’ federal tax return, and 3)  the Taxpayers’ refund should be granted because the Department failed to set a prompt hearing on their protest as required by Section 7-1-24 NMSA 1978. Held: The Taxpayers’ 1999 wages were subject to New Mexico income tax; the Department’s investigative authority includes the authority to recalculate federal adjusted gross income for purposes of determining New Mexico income; and the Department’s delay in setting a hearing does not provide a basis for granting the Taxpayers’ refund.  Protest denied.