On April 4, 2013, the Taxpayers were assessed for corporate income tax, penalty, and interest for the reporting periods starting December 31, 2007 through December 31, 2009. On May 3, 2013, the Taxpayers collectively filed a written protest. The protest was accepted as valid by the Department on May 17, 2013. The Taxpayers involved in this protest are subsidiaries of a large multinational pharmaceutical company. The Taxpayers argued that they are not subject to taxation in New Mexico due to Public Law 86-272 and the Commerce Clause. For the tax years 2007 through 2009, there was a joint income tax audit performed by the Multistate Tax Commission (MTC). MTC determined that the operations of the business fall under a unitary business in the United States. The Taxpayers do employ sales personnel who solicit sales in New Mexico but all sales were submitted to the Taxpayers headquarters in New Jersey. Through the MTC audit, it was discovered that along with the solicitation of sales the doctors were provided with ongoing education, clinical trials, textbooks, funding for training materials, and classes at the doctor’s offices. The MTC audit concluded that the Taxpayers had nexus in New Mexico. The main issue to be determined in the hearing is if the Taxpayers are subject to New Mexico corporate income tax or if they are protected from taxation based on Public Law 86-272 and the Commerce Clause. The next issue to determine is if the Taxpayers present sufficient evidence to support their protest and the election of filling method and whether the Taxpayers are liable for the payment of penalty and interest. The Hearing Officer determined that there was sufficient nexus for the state to impose the assessed tax to the Taxpayers under the Commerce Clause. Both of the Taxpayers had activities in the state beyond the solicitation of sales and those activities increased the Taxpayers market and market potential in the state. The Hearing Officer determined that although the Taxpayers were granted partial summary judgment to allow them to select a reporting method the Taxpayers failed to present their first elected reporting method and there was no factual basis to modify the assessed tax principal. Therefore, the Taxpayers are liable for the entire tax principal assessed. The Hearing Officer determined that the Taxpayers decision to not file and pay New Mexico corporate income taxes was a mistake of law made in good faith and on reasonable grounds based on the circumstances in the case. So, the Taxpayers are not liable for the assessed penalty in this case or civil negligence penalty. The Taxpayers’ protest is denied in part and granted in part.
Aventis Pharmaceuticals Inc. & Sanofi-Synthelabo, Inc