If New Mexico wrongly told a business it owed gross receipts tax and it overpaid for years, can it get all of that money back — or does the three-year refund deadline bar the older years even though the state admits no tax was due?

Plain-English summary

A business that overpaid gross receipts tax for years — because a Department employee wrongly told it the tax was due — could not recover the oldest overpayments, because its refund claim came after the three-year deadline, and a mistaken oral answer did not estop the state. Protest DENIED.

Tanya Zelenkov ran Raven Wolf Communications, a consulting astrology business serving only out-of-state clients by phone. When she registered in 1994, she asked an employee at the Department's Albuquerque counter whether she owed gross receipts tax on services to out-of-state clients, and was told she did. She paid the tax from 1994 through early 1998. After conflicting advice from accountants, she stopped paying in February 1998 and eventually sought a written ruling in June 2000. The Department then agreed she owed nothing — her receipts were deductible under Section 7-9-57 because her services were delivered to and used by clients outside New Mexico — and refunded about $10,000 for December 1996 forward. But when she claimed a refund for March 1994 through November 1996, the Department denied it as time-barred.

The three-year refund deadline barred the older years

Section 7-1-26 lets a taxpayer claim a refund only within three years of the end of the calendar year in which the tax was originally due. Tax for March 1994 was due in April 1994, so the refund window closed at the end of 1997; tax for November 1996 closed at the end of 1999. Her November 2000 claim missed both. Even though the Department conceded she never owed the tax, the claim for those periods was properly denied as untimely.

A Department employee's wrong oral advice did not estop the state

Courts rarely estop the state, especially in tax cases, and will do so only under a statute or when "right and justice demand it" (Bien Mur).

• Statutory estoppel (Section 7-1-60) applies only when a taxpayer acts under a Department regulation or a written ruling addressed to that taxpayer. Zelenkov relied on neither — just an oral answer at a counter. Had she read the regulations under Section 7-9-57, she could have seen no tax was due. So there was no statutory basis to override the deadline.
• "Right and justice" estoppel also failed. It requires, among other things, a false representation or concealment of material facts by the state and reasonable, blameless reliance by the taxpayer. Here all the facts were the taxpayer's own; the employee was mistaken about the law but did not conceal facts or act fraudulently. To use estoppel to toll a limitations period, a taxpayer must show not only ignorance of the truth but a lack of means to learn it, plus due diligence and some fraudulent concealment (Continental Potash). Zelenkov had the means — the tax law is public, and she in fact obtained opinions from six accountants — so the elements were not met.

New Mexico is a self-reporting system, and a taxpayer cannot substitute an unidentified employee's oral advice for reading the statutes and regulations or consulting a qualified professional. The hearing officer also noted that her powers did not include authority to grant an equitable remedy not authorized by statute; that relief, if available at all, would have to come from the Court of Appeals.

Result: protest DENIED; the refund for March 1994 through November 1996 was time-barred.

What this means for you

File refund claims within three years — the clock is unforgiving

New Mexico's three-year refund window (Section 7-1-26) runs from when the tax was due, not from when you discover you overpaid. Even overpayments the Department agrees you never owed are lost if you claim them too late. If you think you may be overpaying, file protective refund claims promptly.

Do not rely on oral advice from a counter or phone call

An employee's spoken answer — even a wrong one — does not bind the Department and will not estop it later. Only a written ruling addressed to you or a regulation gives you statutory protection under Section 7-1-60. Get key positions in writing.

Overpaying because you were misinformed usually is not "estoppel"

Because tax law is public and you are expected to determine your own liability, a mistaken (but non-fraudulent) answer generally will not toll the refund deadline. Estoppel to extend a limitations period requires fraudulent concealment and a genuine lack of any means to learn the truth.

When in doubt about taxability, get a written ruling early

Had this taxpayer requested a written ruling or solid professional advice sooner, she could have filed her refund claim in time and recovered all the overpaid years. A prompt written ruling both fixes the answer and starts you toward a timely claim.

Common questions

Q: The state admits she never owed the tax — why can't she get all of it back?
A: Because the refund claim for the older periods came after the three-year deadline in Section 7-1-26. That deadline applies even when the Department agrees no tax was due; it recovered only the years still within the window.

Q: A state employee told her the tax was due — doesn't that make it the state's fault?
A: The employee was mistaken, but oral advice does not estop the Department. Statutory estoppel requires reliance on a regulation or a written ruling addressed to the taxpayer, and there was no fraudulent concealment to justify equitable estoppel.

Q: Why did she get a refund for some periods but not others?
A: The Department refunded the periods still within the three-year window (December 1996 forward) and denied the earlier periods (March 1994–November 1996), which fell outside it.

Q: Could the hearing officer just do what was fair?
A: No. The hearing officer has no authority to grant an equitable remedy not authorized by statute. Any such relief would have to be sought from the New Mexico Court of Appeals.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-26 — three-year limitations period for claiming a tax refund (§ 7-1-26(D)(1)(a))
• NMSA 1978, § 7-9-57 — deduction for receipts from services delivered to and initially used by clients outside New Mexico
• NMSA 1978, § 7-1-60 — statutory estoppel against the Department only when the taxpayer acted under a regulation or a written ruling addressed to the taxpayer
• NMSA 1978, § 7-1-13 — self-reporting: taxpayer's obligation to determine and pay tax

Cases cited:

• Kerr-McGee Nuclear Corp. v. Property Tax Division, 95 N.M. 685, 625 P.2d 1202 (Ct. App. 1980)
• Taxation and Revenue Department v. Bien Mur Indian Market, 108 N.M. 228, 770 P.2d 873 (1989)
• Gonzales v. Public Employees Retirement Board, 114 N.M. 420, 839 P.2d 630 (Ct. App. 1992)
• Johnson & Johnson v. Taxation and Revenue Department, 123 N.M. 190, 936 P.2d 872 (Ct. App. 1997)
• Kern v. St. Joseph Hospital, Inc., 102 N.M. 452, 697 P.2d 135 (1985)
• Continental Potash, Inc. v. Freeport-McMoran, Inc., 115 N.M. 690, 858 P.2d 66 (1993)
• Bolton v. Board of County Commissioners of Valencia County, 119 N.M. 355, 890 P.2d 808 (Ct. App. 1994)
• AA Oilfield Service v. New Mexico State Corporation Commission, 118 N.M. 273, 881 P.2d 18 (1994)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Raven Wolf Communications
• Decision PDF: D&O 01-25

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
RAVEN WOLF COMMUNICATIONS No. 01-25
ID NO. 02-240078-00-8
DENIAL OF CLAIM FOR REFUND

DECISION AND ORDER

A formal hearing on the above-referenced protest was held October 11, 2001, before

Margaret B. Alcock, Hearing Officer. Raven Wolf Communications was represented by its owner,

Tanya Zelenkov (“Taxpayer”). The Taxation and Revenue Department ("Department") was

represented by Donald F. Harris, 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 a consulting astrologer who provides her services to both business

and individual clients by telephone.

2. All of the Taxpayer’s clients are located outside New Mexico.

3. When the Taxpayer started business in 1994, she registered with the Department for

payment of gross receipts tax. At that time, she asked the employee at the information counter of the

Department’s Albuquerque office whether she had to pay gross receipts tax on receipts from

providing services to out-of-state clients. The employee told the Taxpayer she had to pay gross

receipts tax on receipts from both in-state and out-of-state clients because her services were being

performed in New Mexico.

4. From March 1994 through January 1998, the Taxpayer filed CRS-1 reports and paid

gross receipts tax on her receipts from providing consulting services to out-of-state clients.

5. Sometime in 1996 or 1997, the Taxpayer had a casual conversation with someone

who happened to be an accountant. The Taxpayer complained that she did not think it was fair for

the state to tax her on services provided to out-of-state clients. The accountant told her she might not

have to pay gross receipts tax on these services.

6. Following this conversation, the Taxpayer contacted six accountants whose names

she obtained from the Yellow Pages and asked each for an informal opinion on whether her receipts

were subject to gross receipts tax. Fifty percent of the accountants she spoke with said her receipts

were taxable and fifty percent said her receipts were not taxable.

7. In February 1998, the Taxpayer stopped paying gross receipts tax on her receipts.

8. In June 2000, the Taxpayer contacted the Department’s Santa Fe office to obtain a

definitive answer as to whether she should be paying gross receipts tax on her receipts from

providing consulting services to out-of-state clients. The Department told her to submit something

in writing so it could be reviewed by the Department’s legal counsel.

9. The Taxpayer subsequently submitted documentation explaining her situation.

Based on this submission, the Department determined that the Taxpayer did not owe gross receipts

tax on her receipts and granted her a $10,000 refund of taxes paid for reporting periods December

1996 forward.

10. On November 11, 2000, the Taxpayer submitted a claim for refund of taxes paid for

reporting periods March 1994 through November 1996.

11. On December 14, 2000, the Department denied the claim for refund because it was

filed beyond the three-year limitations period set out in Section 7-1-26 NMSA 1978.

12. On March 7, 2000, the Taxpayer filed a written protest to the denial of her claim for

refund.

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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 March 1994 through November 1996. The

Department acknowledges that no tax was due for this period because the Taxpayer was entitled to

deduct her receipts from providing consulting services delivered to and initially used by clients

outside New Mexico. See, Section 7-9-57 NMSA 1978. 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

(D)(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 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 March 1994 was due on or before April 25, 1994;

the time within which the Taxpayer could claim a refund of this tax expired December 31, 1997.

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 November 11, 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.

The Taxpayer raises an estoppel argument, asserting the Department misled the Taxpayer

into paying tax she 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

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

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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 written 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 addressed to the Taxpayer. To the contrary, if the Taxpayer had read the Department’s

regulations under Section 7-9-57 NMSA 1978, she could have determined that no taxes were due on

receipts from services delivered and used outside New Mexico. 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 on “Right and Justice”. Case law provides for estoppel against the state

where right and justice demand its application. In determining whether estoppel is appropriate, the

conduct of both parties must be considered. Gonzales v. Public Employees Retirement Board, 114

N.M. 420, 427, 839 P.2d 630, 637 (Ct. App.), cert. denied, 114 N.M. 227, 836 P.2d 1248 (1992).

The following elements must be shown as to the party to be estopped: (1) conduct that amounts to a

false representation or concealment of material facts, (2) actual or constructive knowledge of the true

facts, and (3) an intention or expectation that the other party will act on the representations. As to

the party claiming estoppel, the following must be shown: (1) lack of knowledge of the true facts,

(2) detrimental reliance on the adverse party's representations or concealment of facts, and (3)that

such reliance was reasonable. Id. See also, Johnson & Johnson v. Taxation and Revenue Department,

123 N.M. 190, 195, 936 N.M. 872, 877 (Ct. App.), cert. denied, 123 N.M. 167, 936 P.2d 337 (1997).

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When estoppel is invoked to avoid application of a statute of limitations, the issue is whether

the defendant has taken some action to prevent the plaintiff 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.” The party asserting estoppel has the

burden of showing that he exercised due diligence and that some affirmative act of fraudulent

concealment frustrated discovery of the cause of action at issue. Id. See also, Bolton v. Board of

County Commissioners of Valencia County, 119 N.M. 355, 890 P.2d 808 (Ct.App. 1994), cert.

denied 119 N.M. 311, 889 P.2d 1233 (1995).

The evidence presented in this case does not establish a basis for applying equitable estoppel

against the Department.1 First, there was no concealment or misrepresentation of material facts by

the Department. All of the facts concerning the transactions at issue were provided by the Taxpayer

and were within the Taxpayer’s knowledge. Although the Department employee was mistaken in

her interpretation of the tax law applicable to those facts, there is no evidence the employee acted

fraudulently or intended to induce the Taxpayer to pay tax the employee knew was not due. Turning

to the other side of the equation, the Taxpayer had access to the information needed to make her own

determination concerning the taxability of her receipts. New Mexico’s tax laws and regulations are a

matter of public record available to all of the state’s taxpayers. The law itself provides notice to

taxpayers as to which transactions are subject to tax and which are not. In this case, the Taxpayer

1
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

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obtained informal opinions from six certified public accountants. Although the advice she received

was conflicting, it was sufficient to cause the Taxpayer to stop paying gross receipts tax on her

business receipts in February 1998 and to seek a written ruling from the Department in June 2000.

Had the Taxpayer sought professional advice or a written ruling earlier, she would have had the

information necessary to file her claim for refund within the limitations period set out in Section 7-1-

26 NMSA 1978.

New Mexico has a self-reporting tax system and taxpayers have a statutory obligation to

determine their tax liabilities and accurately report and pay those liabilities to the state. See, Section 7-

1-13 NMSA 1978. While the Department makes every effort to give correct advice to taxpayers who

contact the Department, the ultimate responsibility for payment (or nonpayment) of tax remains with

the taxpayer. A taxpayer is not entitled to rely on the oral advice of an unidentified Department

employee as a substitute for making his or her own independent review of the statutes and

regulations or consulting with a qualified tax professional. Taxation and Revenue Department v. Bien

Mur Indian Market, 108 N.M. 228, 231, 770 P.2d 873, 876 (1989) (in light of New Mexico’s statute

providing for estoppel, taxpayer’s reliance on the oral representations of a Department employee was

not reasonable).

CONCLUSIONS OF LAW

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

Taxpayer’s claim for refund of gross receipts tax paid for tax periods March 1994 through November

1996, and jurisdiction lies over the parties and the subject matter of this protest.

2. The Taxpayer's claim for refund is barred by the limitations period set out in Section 7-

1-26 NMSA 1978.

P.2d 18 (1994). Even if the hearing officer determined that equitable estoppel was appropriate in a particular case,

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3. The Department is not estopped from asserting the statute of limitations as a bar to

the Taxpayer's claims.

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

Dated October 22, 2001.

the taxpayer would have to appeal to the New Mexico Court of Appeals to obtain such relief.

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