I overpaid gross receipts tax for years on income that was actually deductible. Can I get all of it refunded?

Plain-English summary

A landlord paid gross receipts tax for years on rental income that was actually deductible. When the mistake was caught, the Department refunded the last three years but not the older overpayments — the three-year refund deadline had passed, and the Department could not be "estopped" out of it because the deductions were public and the owner simply never read them. Protest DENIED.

Bienvenidos Resort rented apartments. Its receipts from renting real property were deductible from gross receipts tax (Section 7-9-53; Regulation 3 NMAC 2.28.10), and a landlord with three or fewer units is exempt from reporting altogether — but the company paid the tax anyway for years. When the owner, Bonifacio Vasquez, first registered in 1991, he was given a CRS Filer's Kit that listed the available deductions; he used it to calculate his tax but never read the deductions section. Only in 1997 or 1998 did his tax preparer ask why he was paying tax on rental income and tell him it was deductible.

The company filed a refund claim on January 20, 2000 for all gross receipts tax paid from August 1992 through October 1999. The Department:

• Granted a refund of $1,566.04 for December 1996 through October 1999 (within the three-year window); and
• Denied $2,605.87 for August 1992 through November 1996 as outside the limitations period.

Everyone agreed the tax was never actually owed. The only question was whether the older overpayments could still be refunded.

The three-year refund deadline

Section 7-1-26(C)(1)(a) bars any refund unless claimed within three years of the end of the calendar year in which the payment was due (or made, or resulted from an assessment — whichever is later). Tax for the August 1992 period was due in September 1992, so the refund window closed December 31, 1995; even the November 1996 period closed December 31, 1999. The January 2000 claim missed all of those, so the pre-December-1996 portion was properly denied.

Estoppel did not save the older claim

The company argued the Department misled it into paying tax it did not owe. Courts are reluctant to apply estoppel against the state, especially in tax cases, and it applies only by statute or when "right and justice demand it" (Bien Mur Indian Market):

• Statutory estoppel (Section 7-1-60) applies only when a taxpayer acts in accordance with a regulation or a revenue ruling specifically addressed to the taxpayer. Neither happened here — in fact, if Vasquez had read the regulations he would have seen the tax was not due. No statutory basis to estop.
• "Right and justice" estoppel to toll a limitations period requires the taxpayer to show the other side took action preventing a timely claim, and — critically — that the taxpayer both lacked knowledge of the truth and lacked the means to obtain it (Continental Potash; Kern). The tax laws are public record, available from the Department and in libraries, and the Filer's Kit spelled out the deductions. The owner had the means to learn the truth and simply did not use it. The taxpayer, who bears the burden of proving estoppel (Estates of Salas), showed no fraudulent conduct by the Department.

The hearing officer also noted (in a footnote) that a hearing officer has no authority to grant an equitable remedy not authorized by statute; even if estoppel were warranted, the taxpayer would have to seek it from the Court of Appeals.

Result: protest DENIED — the last three years were refunded, but the older overpayments were time-barred.

What this means for you

Refund claims have a hard three-year deadline

New Mexico refunds an overpayment only if you claim it within three years of the end of the year the tax was due. It does not matter that the tax was never owed — miss the window and that money is gone. If you discover you have been overpaying, file the refund claim immediately to preserve every year still open.

Read the deductions before you pay — the CRS Filer's Kit lists them

This entire loss was avoidable. Rental receipts were deductible and the Filer's Kit said so; the owner used the kit to compute tax but skipped the deductions section for years. When you register or change your business, read the deductions that apply to your activity, or have your accountant do it, rather than assuming everything you receive is taxable.

You generally cannot "estop" the state out of a tax deadline

Estoppel against the Department is rare. It applies only when you followed a regulation or a ruling addressed to you, or when justice truly demands it — and the latter requires that you had no reasonable way to learn the truth. Because tax statutes and regulations are public, a taxpayer who could have looked up the answer will almost never meet that standard.

Common questions

Q: I paid tax I never owed. Doesn't the Department have to give all of it back?
A: No. A refund is allowed only if claimed within three years of the end of the year the tax was due (Section 7-1-26). Overpayments older than that are barred, even though the tax was not actually owed.

Q: The Department registered me and never told me my income was deductible. Can't I use that to recover the older years?
A: Not here. Statutory estoppel applies only if you followed a regulation or a ruling addressed to you, and "right and justice" estoppel requires that you had no means to learn the truth. The deductions were public and were listed in the Filer's Kit, so estoppel did not apply.

Q: What should I do if I realize I have been overpaying?
A: File a refund claim right away. You can recover only the periods still within the three-year window, so every month of delay can permanently cost you another period.

Q: Can the hearing officer just do what's fair and refund it anyway?
A: No. The hearing officer applies the statutes and has no authority to grant equitable relief that the statutes do not authorize. A taxpayer seeking an equitable remedy would have to pursue it on appeal to the Court of Appeals.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-26(C)(1)(a) — no refund unless claimed within three years of the end of the calendar year in which the payment was due, was made, or resulted from an assessment, whichever is later
• NMSA 1978, § 7-1-60 — the Department is estopped only when the taxpayer acted in accordance with a regulation or a revenue ruling specifically addressed to that taxpayer
• NMSA 1978, § 7-9-53; Regulation 3 NMAC 2.28.10 — receipts from renting real property (apartments) are deductible from gross receipts tax
• NMSA 1978, § 7-1-17 — assessment provision referenced in the refund limitations statute

Cases cited:

• Taxation and Revenue Dep't v. Bien Mur Indian Market, 108 N.M. 228, 770 P.2d 873 (1989) — estoppel against the state in tax cases applies only by statute or when right and justice demand it
• Kerr-McGee Nuclear Corp. v. Property Tax Division, 95 N.M. 685, 625 P.2d 1202 (Ct. App. 1980) — reluctance to apply estoppel against the state is heightened in tax assessment and collection cases
• Continental Potash, Inc. v. Freeport-McMoran, Inc., 115 N.M. 690, 858 P.2d 66 (1993) — a party invoking estoppel to toll a limitations period must show both a lack of knowledge of the truth and a lack of means to obtain it
• Kern v. St. Joseph Hospital, Inc., 102 N.M. 452, 697 P.2d 135 (1985) — estoppel to avoid a limitations period turns on whether the estopped party acted to prevent a timely suit
• Bolton v. Board of County Comm'rs of Valencia County, 119 N.M. 355, 890 P.2d 808 (Ct. App. 1994) — no estoppel where public records would have provided complete information
• In re Estates of Salas, 105 N.M. 472, 734 P.2d 250 (Ct. App. 1987) — the party relying on estoppel bears the burden of proving it
• AA Oilfield Service v. New Mexico State Corporation Comm'n, 118 N.M. 273, 881 P.2d 18 (1994) — a hearing officer has no authority to grant an equitable remedy not authorized by statute

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Bienvenidos Resort Inc.
• Decision PDF: D&O 00-21

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
BIENVENIDOS RESORT INCORPORATION No. 00-21
ID NO. 02-325365-00-7
DENIAL OF CLAIM FOR REFUND

DECISION AND ORDER

A formal hearing on the above-referenced protest was held July 17, 2000, before Margaret B.

Alcock, Hearing Officer. Bienvenidos Resort Incorporation (“Taxpayer”) was represented by its

president, Bonifacio I. Vasquez. The Taxation and Revenue Department ("Department") was

represented by Bridget A. Jacober, Special Assistant Attorney General. Based on the evidence and

arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer is engaged in the business of renting apartments.

2. The Taxpayer started business with two apartment units in 1991. At that time, the

Taxpayer’s president, Bonifacio I. Vasquez, went to the Department to ask what he needed to do to

comply with New Mexico’s tax laws.

3. Mr. Vasquez was told to register for payment of gross receipts tax and was given a

CRS Filer’s Kit containing forms and instructions, including a list of deductions taxpayers are

entitled to take against their gross receipts.

4. Mr. Vasquez used the Filer’s Kit to determine how to calculate his monthly gross

receipts tax, but did not read the explanation of deductions available to taxpayers.

5. In 1992 or 1993, the Taxpayer acquired a third apartment unit. At that time, Mr.

Vasquez returned to the Department to ask whether having a third apartment unit required any
changes to the way he was filing gross receipts tax. Mr. Vasquez was told that the addition of a third

apartment did not affect his method of reporting the tax.

6. On a couple of occasions, Mr. Vasquez missed a reporting period and received

notices from the Department informing him that he needed to file returns for those periods.

7. In 1997 or 1998, Mr. Vasquez’s tax preparer asked Mr. Vasquez why he was paying

gross receipts tax on the income from his rental units and told him these receipts were deductible.

8. Mr. Vasquez returned to the Department to ask about the deduction. After reviewing

the statutes and Department regulations, a Department employee told Mr. Vasquez he could deduct

receipts from renting apartments and that a taxpayer with three or fewer rental units was exempt

from all reporting.

9. Mr. Vasquez asked whether he was entitled to a refund of the tax previously paid and

was told he could claim a refund for tax paid during the last three years.

10. On January 20, 2000, the Taxpayer filed a claim for refund for all gross receipts tax it

had paid for reporting periods August 1992 through October 1999.

11. On February 18, 2000, the Department partially granted the Taxpayer’s claim for

refund in the amount of $1,566.04, representing tax paid for reporting periods December 1996

through October 1999.

12. At the same time, the Department partially denied the Taxpayer’s claim for refund in

the amount of $2,605.87, representing tax paid for reporting periods August 1992 through November

1996. The Department’s refund denial letter explained that this portion of the refund claim was

denied because it was not filed within three years of the end of the calendar year in which the tax

was due.

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13. On February 28, 2000, the Taxpayer filed a written protest to the denial of its claim

for refund.

DISCUSSION

The issue to be determined is whether the Department properly denied the Taxpayer’s claim

for refund of gross receipts tax paid for reporting periods August 1992 through November 1996. The

Department acknowledges the Taxpayer did not owe gross receipts tax on its rental receipts. See,

Section 7-9-53 NMSA 1978 and Regulation 3 NMAC 2.28.10. The Department’s only reason for

denying the Taxpayer’s refund claim was the expiration of the limitations period set out in Section 7-

1-26 (C)(1)(a) NMSA 1978, which provides, in pertinent part:

[N]o credit or refund of any amount may be allowed or made to any
person unless as the result of a claim made by that person as provided in
this section:

(1) within three years of the end of the calendar year in which:

(a) the payment was originally due, the payment was made or
the overpayment resulted from an assessment by the department pursuant
to Section 7-1-17 NMSA 1978, whichever is later;

In this case, gross receipts tax for reporting period August 1992 was due on or before September 25,

1992; the time within which the Taxpayer could claim a refund of this tax expired December 31,

1995. Gross receipts tax for reporting period November 1996 was due on or before December 25,

1996; the time within which the Taxpayer could claim a refund of this tax expired December 31,

1999. The Taxpayer’s January 20, 2000 refund claim was not filed within the limitations period

required by Section 7-1-26 NMSA 1978 and was properly denied by the Department.

In its protest, the Taxpayer raises an estoppel argument, asserting the Department misled the

Taxpayer into paying tax it did not owe. As a general rule, courts are reluctant to apply the doctrine of

equitable estoppel against the state. This general rule is given even greater weight in cases involving

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the assessment and collection of taxes. Kerr-McGee Nuclear Corp. v. Property Tax Division, 95 N.M.

685, 625 P.2d 1202 (Ct. App. 1980). In such cases, estoppel applies only pursuant to statute or when

“right and justice demand it.” Taxation and Revenue Department v. Bien Mur Indian Market, 108

N.M. 228, 231, 770 P.2d 873, 876 (1989).

Estoppel Based on Statute. Section 7-1-60 NMSA 1978 provides for estoppel against the

Department in two circumstances: when the taxpayer acted according to a regulation or when the

taxpayer acted according to a revenue ruling specifically addressed to the taxpayer. In this case, the

Taxpayer’s payment of gross receipts tax was not in accordance with any Department regulation or

ruling. To the contrary, if Mr. Vasquez had read the Department’s regulations, he would have realized

that no taxes were due on the Taxpayer’s rental receipts. Given these facts, there is no statutory basis to

estop the Department from applying the limitations period set out in Section 7-1-26 NMSA 1978 to the

Taxpayer’s claim for refund.

Estoppel Based “Right and Justice”. Case law provides for estoppel against the state where

right and justice demand its application. When estoppel is invoked to avoid application of a statute of

limitations, the issue is whether the party to be estopped has taken some action to prevent the other

party from bringing suit within the prescribed period. Kern v. St. Joseph Hospital, Inc., 102 N.M.

452, 455-456, 697 P.2d 135, 138-139 (1985). In Continental Potash, Inc. v. Freeport-McMoran,

Inc., 115 N.M. 690, 698, 858 P.2d 66, 74 (1993), the New Mexico Supreme Court emphasized that

the party asserting equitable estoppel to toll a statute of limitations must show not only a lack of

knowledge of the truth as to the facts in question, but also “the lack of means by which knowledge

might be obtained.” See also, Bolton v. Board of County Commissioners of Valencia County, 119

N.M. 355, 369, 890 P.2d 808, 822 (Ct.App. 1994), cert. denied 119 N.M. 311, 889 P.2d 1233 (1995)

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(estoppel not warranted where plaintiffs had access to public records that would have provided them

with complete information concerning the bond ordinance at issue).

The facts of this case do not establish a basis for applying equitable estoppel against the

Department.1 New Mexico’s tax laws are a matter of public record available to all of the state’s

taxpayers. Copies of the tax statutes and accompanying regulations can be obtained from the

Department and are also available in public libraries. If Mr. Vasquez had reviewed the provisions of

the Gross Receipts and Compensating Tax Act—or asked his accountant to do so—he would have

realized that no tax was due on the Taxpayer’s rental receipts. He also could have made this

determination by simply reading the CRS Filer’s Kit provided to him at the time he registered with the

Department. At the hearing, Mr. Vasquez testified that he referred to the Filer’s Kit to calculate the

amount of tax, but did not read the explanation of the various deductions available to gross receipts

taxpayers.

The party relying on estoppel has the burden of establishing all facts necessary to support the

claim. In re Estates of Salas, 105 N.M. 472, 475, 734 P.2d 250, 253 (Ct. App. 1987). The Taxpayer

in this case has not met its burden of showing that the Department engaged in fraudulent conduct

that prevented the Taxpayer from discovering its error in reporting gross receipts tax or prevented the

Taxpayer from filing a timely claim for refund to recover its overpayments of tax.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to the Department’s denial of its claim for

refund, and jurisdiction lies over the parties and the subject matter of this protest.

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It should be noted that the hearing officer’s powers do not include authority to grant an equitable remedy not
authorized by statute. See, AA Oilfield Service v. New Mexico State Corporation Commission, 118 N.M. 273, 881
P.2d 18 (1994). Even if the hearing officer determined that equitable estoppel was appropriate in a particular case,
the taxpayer would have to appeal to the New Mexico Court of Appeals to obtain such relief.

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2. The Taxpayer's claim for refund of gross receipts tax paid for reporting periods August

1992 through November 1996 is barred by the limitations period set out in Section 7-1-26 NMSA 1978.

3. The Department is not estopped from denying the Taxpayer's claim for refund.

For the foregoing reasons, the Taxpayer's protest IS DENIED.

DATED July 19, 2000.

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