Could New Mexico reject a successor-liability protest as late when it did not prove when the assessment was actually mailed?

Plain-English summary

The Department failed to prove when it mailed a $282,332.06 successor-liability assessment to Humberto and Petra Morales d/b/a Bobcat Supermarket. Their August 7, 2006 protest therefore had to be accepted as timely, and they were entitled to a later hearing on the merits.

This ruling decided only protest timing. It did not decide whether Bobcat Supermarket was a successor to OK Grocery, whether the underlying gross receipts tax was owed, or whether the tax lien was substantively valid.

The Department relied on a printed date and secondhand understanding

The GenTax system generated an assessment dated April 3, 2006 for:

• $282,332.06 tax principal
• $29,465.58 penalty
• $81,802.03 interest

The Moraleses did not remember whether or when they received it. They did acknowledge receiving a later tax-lien notice, which eventually claimed $398,345.66 with accrued additions.

The Department rejected the assessment protest as late because it treated April 3 as the mailing date. Its witness was a protest auditor who understood that assessments were generated early enough to be mailed on their printed date.

She had never worked in the Revenue Processing Division or mailroom, had no personal knowledge of this assessment, and did not explain how GenTax assessments reached the mailroom or the Postal Service.

The party relying on mailing had to prove it

The assessment's presumption of correctness arose only after mailing or personal delivery. Because the Department relied on mail service to start the protest period, it bore the burden of proving the mailing date.

The decision compared the evidence with a Court of Appeals case where knowledgeable officials supplied affidavits describing the agency's specific pickup and mailing practices. No comparable first-hand or routine-practice evidence was presented here.

The hearing officer reversed the oral evidentiary ruling made during the hearing and concluded that the printed assessment and protest-auditor testimony were insufficient.

Result: the Department was ordered to accept the August 7, 2006 letter as a timely protest of both the assessment and tax lien and to proceed to a scheduled merits hearing.

Source-name and date notes

• The official post title names only Humberto and Petra Morales, while the PDF caption identifies them “d/b/a Bobcat Supermarket.” The public name and slug follow the decision caption.
• Findings 3 and 4 date the lien notice and county filing in May 2006. Later passages call the lien notice a May 10, 2007 document. This summary follows the detailed chronology but does not silently correct the inconsistent later references.

What this means for you

Taxpayers facing a late-protest defense

Check proof of mailing, not just the date printed on the assessment. The statutory clock depends on the legally relevant delivery event.

Agencies and businesses proving routine mailing

Use witnesses or records with first-hand knowledge of the actual mail process. General understanding from another department may not establish routine practice.

Taxpayers challenging a lien and underlying assessment

A procedural win restores the right to a merits hearing; it does not erase the tax. Keep the timing issue separate from substantive liability.

Common questions

Q: Did this decision cancel the $282,332.06 tax assessment?
A: No. It only required the Department to accept the protest and hear the merits later.

Q: Why wasn't April 3 treated as the mailing date?
A: It was the date printed on the GenTax assessment, but the Department did not prove actual mailing on that date.

Q: What was missing from the Department's evidence?
A: First-hand or adequately grounded evidence about how and when this assessment was transferred to the mailroom and deposited with the Postal Service.

Q: Was the lien protest also accepted?
A: Yes. The order accepted the letter as a protest of both the assessment and the lien.

Q: What happened next?
A: The order scheduled a separate administrative hearing on substantive successor liability.

Citations and references

Statutes and regulation:

• NMSA 1978, § 7-1-17(C) — assessment presumption after mailing or delivery
• NMSA 1978, § 7-1-24(B) — protest deadline and extension
• Regulation 3.1.6.12 NMAC — assessment presumption after mailing or delivery

Cases cited:

• Myers v. Kapnison, 93 N.M. 215, 598 P.2d 1175 (Ct. App. 1979)
• Schneider National, Inc. v. State, Taxation and Revenue Department, 2006-NMCA-128, 140 N.M. 561, 144 P.3d 120
• Bouldin v. Bruce M. Bernard, Inc., 78 N.M. 188, 429 P.2d 647 (1967)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Humberto & Petra Morales
• Decision PDF: D&O 07-09

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
HUMBERTO & PETRA MORALES, d/b/a BOBCAT No. 07-09
SUPERMARKET, ID NO. 03-053698-00-7, TO
ASSESSMENT ISSUED UNDER LETTER ID L1980041472
AND NOTICE OF CLAIM OF TAX LIEN NO. 195104

DECISION AND ORDER
ON TIMELINESS OF TAXPAYERS’ PROTEST

An administrative hearing on the above-referenced protest was held on May 30, 2007, before

Margaret B. Alcock, Hearing Officer. The Taxation and Revenue Department (“Department”) was

represented by Lewis J. Terr, Special Assistant Attorney General. Humberto and Petra Morales d/b/a

Bobcat Supermarket (“Taxpayers”) were represented by their attorney, Albert J. Costales. Based on

the evidence and arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On April 3, 2006, the Department’s “GenTax” computer system generated a Notice

of Assessment of Taxes and Demand for Payment to “Bobcat Supermarket, P. O. Box 3915,

Roswell, NM 88202,” as successor in business to OK Grocery, Inc., in the amount of $282,332.06,

plus $29,465.58 penalty and $81,802.03 interest.

2. The Taxpayers do not recall whether or when they received the assessment.

3. On May 10, 2006, the Department issued Notice of Claim of Tax Lien No. 195104

against “Humberto & Petra Morales, Bobcat Supermarket, P. O. Box 3915, Roswell, NM 88202-

3915,” claiming a lien in the amount of $398,345.66, representing the $282,332.06 of tax principal

previously assessed, plus accrued interest and penalty.

4. The Notice of Claim of Tax Lien was filed on the records of Chavez County, New

Mexico, on May 15, 2006.

5. The Taxpayers acknowledge receiving the Department’s Notice of Claim of Tax

Lien, which referenced the Department’s earlier assessment against them.

6. On July 17, 2006, the Department mailed a Final Notice Before Seizure to “Bobcat

Supermarket, P. O. Box 3915, Roswell, NM 88202-3915.”

7. On August 7, 2006, the Taxpayers’ attorney faxed and mailed a letter to the

Department’s Protest Office protesting the “taxes assessed against my client Humberto and Petra

Morales,” and requesting a retroactive extension of time to protest the tax lien issued on May 10,

2006.

8. On September 26, 2006, the Department acknowledged the Taxpayers’ protest to the

Notice of Claim of Tax Lien No. 195104, but denied the Taxpayers’ protest of the underlying tax

assessment as untimely.

DISCUSSION

The issue to be addressed in this decision is whether the Taxpayers may challenge the validity

of the Department’s May 10, 2006 Notice of Claim of Tax Lien by presenting evidence that they are not

a successor in business to OK Grocery, Inc., the taxpayer who incurred the gross receipts tax liability on

which the lien is based. The Department maintains that the Taxpayers may not challenge the

underlying tax liability because they failed to timely protest the April 3, 2006 assessment issued against

them. For this reason, the Department limited its acknowledgment of the Taxpayers’ protest to the

May 10, 2006 Notice of Claim of Tax Lien and rejected the Taxpayers’ protest of the underlying

assessment. In response, the Taxpayers argue that the Department failed to establish the date on which

the successor-in-business assessment was mailed and, therefore, their August 7, 2006 protest should be

accepted as a timely protest of both the assessment and the claim of tax lien.

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Burden of Proof. NMSA 1978, § 7-1-17(C) provides that any assessment of tax by the

Department is presumed to be correct. The presumption of correctness does not arise, however, until

after the assessment “has been mailed or personally delivered to a taxpayer….” See, Department

Regulation 3.1.6.12 NMAC. When the matter at issue concerns the date of mailing of an assessment,

the applicable rule is that the “party relying on service by mail has the burden of proving the

mailing.” Myers v. Kapnison, 93 N.M. 215, 216, 598 P.2d 1175, 1176 (Ct. App. 1979); Schneider

National, Inc. v. State, Taxation and Revenue Department, 2006-NMCA-128, ¶ 14, 140 N.M. 561,

144 P.3d 120. In order to establish that the Taxpayers’ protest of the Department’s assessment was

untimely, thereby foreclosing the Taxpayers from presenting evidence concerning the underlying tax

liability, the Department first must establish that the assessment was mailed more than 90 days prior

to the date of the Taxpayers’ protest.1

Evidence of Mailing Date. At the May 30, 2007 administrative hearing, the Department called

the protest auditor to testify concerning the assessment issued to the Taxpayers as successor in business

to OK Grocery, Inc. The auditor has worked in the Department’s Protest Office for about one year;

prior to that, she spent six years as a collector in the Audit and Compliance Division. She first

identified Department Exhibit A, which is a copy of the assessment generated by the Department’s

“GenTax” computer system and is a business record of the Department. She then testified to her

understanding that the Department’s Revenue Processing Division generates assessments sufficiently in

advance to insure that they are mailed out to taxpayers by the date printed on the assessment. In this

case, the date on the assessment is April 3, 2006. On cross-examination, the auditor acknowledged that

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NMSA 1978, § 7-1-24(B) gives taxpayers “thirty days of the date of the mailing to the taxpayer” of the notice
of assessment to file a protest, but allows the Department to grant an extension of up to sixty additional days
upon written request of the taxpayer. In this case, the Department granted the Taxpayers’ written request for a
retroactive extension of time to file their protest.

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she has never worked in the Revenue Processing Division, which includes the Department’s mail room

operations, and has no personal knowledge concerning the assessment issued to the Taxpayers.

The Taxpayers both testified that they do not remember whether they received the

Department’s April 3, 2006 assessment. Ms. Morales does remember receiving the Notice of Claim of

Tax Lien issued on May 10, 2007, which referenced the earlier assessment. She testified that she may

have received the assessment, but cannot find a copy of it in her records. (Ms. Morales was also unable

to produce a copy of an authorization form she provided to the Department, indicating that her records

may not be complete.)

Based on the foregoing testimony, Exhibit A was admitted as evidence that the Department’s

assessment was mailed to the Taxpayers on April 3, 2006 and that the Taxpayers’ protest of their

liability as successor in business to OK Grocery, Inc. was untimely. After further research and

consideration, however, I find that this ruling was in error.2 Although not cited by either of the parties,

the recent case of Schneider National, Inc. v. State, Taxation and Revenue Department, 2006-

NMCA-128, 140 N.M. 561, 144 P.3d 120, contains a detailed analysis of the evidence required to

establish the mailing date of notices that trigger the running of statutory deadlines under the Tax

Administration Act. Given the discussion in Schneider, it is my conclusion that the evidence

presented by the Department is not sufficient to prove that the assessment dated April 3, 2006 was

actually mailed to the Taxpayers on that date and that the Taxpayer’s August 7, 2006 protest was

untimely.

In Schneider, the Department moved to dismiss a taxpayer’s refund suit in district court,

arguing that the complaint was filed seven days beyond the statutory deadline. In response, the

2
Oral rulings are merely evidence of the court’s intentions, which can change at any time before the entry of a
final judgment. Bouldin v. Bruce M. Bernard, Inc., 78 N.M. 188, 189, 429 P.2d 647, 648 (1967); In re Estate
of Harrington, 2000-NMCA-058, ¶ 8, 129 N.M. 266, 5 P.3d 1070.

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taxpayer challenged the sufficiency of the two affidavits filed in support of the Department’s motion,

asserting that the affidavits failed to establish when the notices used to calculate the 90-day

limitations period were mailed. The first affidavit was signed by the manager of the Department’s

Commercial Vehicles Bureau and stated:

Although I do not remember specifically mailing the Schneider partial denial letters,
it is my business practice to mail the letters the same business day by depositing them
in our office mailbox. That box is collected several times a day for mailing by our
mail room.

Id. at ¶ 3. The second affidavit was signed by the chief of the Department’s Postal Processing Center

and stated that, based on established business practices, his employees would have made two or

more trips to the outgoing mailbox of the Commercial Vehicles Bureau on the pertinent dates to pick

up mail and that ordinary mail picked up on those days would have been mailed the same day.

On appeal, the Court of Appeals upheld the district court’s summary judgment in favor of the

Department, finding that the affidavits presented sufficient circumstantial evidence of the

Department’s routine mailing practices to support a prima facie case that the Department acted in

accordance with those practices on the two dates at issue. The court distinguished a New Jersey case

cited by the taxpayer where the evidence of mailing was limited to testimony that two company

employees prepared letters which were left on their desks for pickup, noting: “In this case,

Fletcher’s [the postal processing chief] affidavit provides the evidence of mailing practice that was

missing in Cook.”

Based on the discussion of routine business practices in Schneider, the evidence in this case

falls short. The only testimony concerning the date of mailing of the Department’s assessment was

that of the protest auditor. Although she testified that all assessments are generated sufficiently in

advance to insure mailing on the date printed on the assessment, she did not explain how she came

by this knowledge. As an employee of the Protest Office and a former employee of the Audit and

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Compliance Division, there is no indication that she has personal knowledge of the mailing practices

of the Department’s Revenue Processing Division. The auditor did not explain how or when an

assessment generated by the GenTax system is transported to the Department’s mail room or how it is

deposited with the United States Postal Service. In the absence of such testimony, the Department has

not met its burden of proving when the successor-in-business assessment generated against the

Taxpayers was mailed or that the August 7, 2006 protest of that assessment was untimely.

IT IS THEREFORE ORDERED that the Department accept the Taxpayers’ August 7, 2006

letter as a timely protest of the assessment issued under Letter ID L1980041472, as well as to the

Notice of Claim of Tax Lien No. 195104 issued on May 10, 2007.

IT IS FURTHER ORDERED that an administrative hearing on the merits of the Taxpayers’

protest will be held on September 12, 2007 in accordance with the enclosed Scheduling Order.

DATED June 7, 2007.

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