Did leasing a small Texas apartment for work make a New Mexico homeowner a Texas resident whose wages escaped New Mexico income tax?

Plain-English summary

Joseph and Kathy Mailander were New Mexico residents for 2004 and owed $4,832 of personal income tax, plus penalty and interest. Joseph's studio apartment near his Texas job did not replace the couple's permanent Las Cruces home as his domicile.

Joseph worked six days a week for an El Paso automobile dealer and sometimes finished at eight or nine at night. He rented a 430-square-foot studio in El Paso for nights when the one-hour drive home was inconvenient.

At the same time, the Mailanders kept their home on more than two acres in Las Cruces. Kathy lived there full-time and ran a mobile-home brokerage from the property. They remained registered to vote in New Mexico, held New Mexico driver's licenses, and registered several vehicles in the state.

The Texas apartment did not establish a new domicile

The residency regulation described domicile as a true, fixed, permanent home to which a person intends to return. New Mexico voter registration and a New Mexico driver's license were examples supporting a presumption of residency.

Joseph conceded at the hearing that the couple were New Mexico residents during the period. The decision also found that merely leasing the El Paso studio was insufficient while he maintained the larger family home and the other New Mexico ties.

Earlier Department responses did not create estoppel

When Joseph began the Texas job, he called the Department and was told that Texas wages would not be taxed if he established Texas residence and spent fewer than 185 days a year in New Mexico. The decision found that statement correct.

The problem was incomplete information. In later inquiries for 2000 and 2001, Joseph described a “full time residence in El Paso TX” and supplied the apartment lease, but did not disclose his regular commute, permanent New Mexico home, wife living there, voter registration, driver's license, or vehicle registrations. The Department initially said no tax was due for those years based on what it had been told.

That did not establish a precedent for 2004. Section 7-1-60 protected reliance on a written regulation or written ruling addressed to the taxpayer, and there was no such ruling. Reliance on oral employee statements also was not reasonable grounds for estoppel, especially when the taxpayer did not supply the material facts or research the residency rules.

The 185-day test supplied an independent basis

Joseph kept no calendar or other record of the nights spent in Texas. Using his own estimate of 3.5 Texas nights per week for 50 weeks, the decision calculated that he would still have been physically present in New Mexico for 190 days.

He therefore failed to prove fewer than 185 New Mexico days. The decision held that physical presence alone independently supported the 2004 assessment, regardless of domicile.

Result: protest DENIED. The $4,832 tax assessment, penalty, and interest stood.

What this means for you

New Mexico residents working across state lines

Renting a work-week apartment elsewhere does not by itself change domicile. Permanent housing, family location, licenses, registrations, and voting ties all matter.

Taxpayers relying on a day-count rule

Keep contemporaneous travel records. The Department was not required to accept an unsupported estimate, and even that estimate placed this taxpayer above the threshold.

Taxpayers asking the Department for guidance

Disclose every fact that may affect residency and seek a written ruling if statutory reliance protection matters. A correct oral answer to an incomplete question did not bind the Department here.

Common questions

Q: Why did Joseph rent the El Paso apartment?
A: He used it when his long work hours made the one-hour commute to Las Cruces inconvenient.

Q: What facts supported New Mexico domicile?
A: The permanent family home, his wife's full-time residence and business there, New Mexico voter registration, driver's license, and vehicle registrations.

Q: Why didn't the Department's treatment of 2000 and 2001 control 2004?
A: Those responses were based on incomplete facts and were not a written taxpayer ruling establishing estoppel.

Q: Did the 185-day rule help the Mailanders?
A: No. They lacked records, and Joseph's own estimate implied 190 days in New Mexico.

Q: Did Kathy's New Mexico business matter?
A: Yes. She lived and worked from the Las Cruces home and conceded that the business income should have been reported to New Mexico.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-24 — retroactive protest extension
• NMSA 1978, § 7-1-17(C) — presumption that an assessment is correct
• NMSA 1978, § 7-1-60 — estoppel based on written regulation or taxpayer ruling
• NMSA 1978, § 7-2-2 — resident and domicile definition
• NMSA 1978, § 7-1-13 — self-reporting responsibility
• NMSA 1978, § 7-1-10(A) — tax recordkeeping
• Regulation 3 NMAC 3.1.9 (1998) — residency and domicile
• Regulation 3.1.6.12 NMAC — records supporting tax computation

Cases cited:

• Taxation and Revenue Department v. Bien Mur Indian Market, 108 N.M. 228, 770 P.2d 873 (1989)
• Wisznia v. State of New Mexico, Human Services Department, 1998-NMSC-011, 125 N.M. 140, 958 P.2d 98
• Johnson & Johnson v. Taxation and Revenue Department, 1997-NMCA-030, 123 N.M. 190, 936 P.2d 872
• Kilmer v. Goodwin, 2004-NMCA-122, 136 N.M. 440, 99 P.3d 690
• Patten v. Santa Fe National Life Insurance Co., 47 N.M. 202, 138 P.2d 1019 (1943)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Joseph & Kathy Mailander
• Decision PDF: D&O 08-02

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
JOSEPH & KATHY MAILANDER No. 08-02
TO ASSESSMENT OF 2004 PERSONAL INCOME
TAX ISSUED UNDER LETTER ID L0704564864

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on April 16, 2008, before

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

represented by Peter Breen, Special Assistant Attorney General. Joseph and Kathy Mailander were

represented by Joseph Mailander (“Taxpayer”). Based on the evidence and arguments presented, IT

IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer is a life-long resident of New Mexico.

2. Since at least 1998, the Taxpayer and his wife have owned a home on 2+ acres in Las

Cruces, New Mexico, have been registered to vote in New Mexico, have held New Mexico driver’s

licenses, and have had several vehicles registered in New Mexico.

3. During this same period, Mrs. Mailander has operated a small business as a mobile

home broker out of the couple’s Las Cruces home.

4. In July 1998, the Taxpayer accepted a manager position with an automobile dealer in

El Paso, Texas.

5. The Taxpayer was at the dealership six days a week; he was the closing manager two

to three nights a week and, on those nights, did not leave the dealership until eight or nine o’clock.

6. Because of his hours, the Taxpayer leased a 430-square-foot studio apartment in El

Paso where he could stay on nights when it was too late to make the hour-long commute to his home

and family in Las Cruces.

7. When he began working for the Texas dealership, the Taxpayer called the

Department to ask whether his Texas wages would be subject to New Mexico income tax.

8. The Taxpayer was told that he would not be subject to tax in New Mexico if he

established residence in Texas and spent fewer than 185 days in New Mexico each year.

9. The Taxpayer did not ask what factors were used to determine residency and did not

make any attempt to research New Mexico’s tax laws, tax regulations or personal income tax

instructions defining residency.

10. The Taxpayer did not maintain a log, calendar or other record of the number of days

that he remained in El Paso overnight rather than returning to his home in Las Cruces.

11. After the Taxpayer leased the studio apartment in El Paso, he and his wife stopped

filing New Mexico income tax returns.

12. In 2005, the Taxpayer received inquiries from the Department regarding his 2000 and

2001 taxes. He responded in writing that he had a “full time residence in El Paso TX” and provided

the Department with a copy of his Texas apartment lease.

13. The Department did not make any further inquiries, and the Taxpayer did not advise

the Department that he regularly commuted from El Paso to a home he owned in New Mexico,

where his wife continued to live full-time, or that he maintained New Mexico voter and vehicle

registrations and a New Mexico driver’s license.

14. Based on the Taxpayer’s response to its inquiry letters, the Department told the

Taxpayer that he was not liable for New Mexico income tax for tax years 2000 and 2001.

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15. The Taxpayer heard nothing further from the Department until 2007, when he

received an inquiry concerning income taxes for the 2004 tax year.

16. At the Taxpayer’s request, the matter was referred to a Department supervisor.

17. The supervisor conducted additional research and discovered that the Taxpayer had a

New Mexico voter registration, a New Mexico driver’s license and four vehicles registered in the

state. After discussing the matter with the Taxpayer, the supervisor also learned that the Las Cruces

address the Taxpayer used to report his federal income taxes was a permanent home that was

significantly larger than the Texas apartment the Taxpayer identified as his full-time residence.

18. Based on this new information, the Department assessed the Mailanders for

$4,832.00 of New Mexico personal income tax for the 2004 tax year, plus interest and penalty.

19. On December 5, 2007, the Taxpayer filed a written protest to the assessment of 2004

personal income tax, which was accepted by the Department under a retroactive extension of time

granted pursuant to NMSA 1978, § 7-1-24.

DISCUSSION

The issue to be decided is whether the Mailanders are required to pay the $4,832.00 of New

Mexico income tax, plus interest and penalty, assessed against them for the 2004 tax year. At the

administrative hearing, the Taxpayer conceded that he and his wife were residents of New Mexico

during the period in question, but raised an argument of estoppel. The Taxpayer maintains that the

Department accepted his representations that he was a Texas resident for tax years 2000 and 2001

and should not be allowed to “go back in time and review an established precedent.” Taxpayer

Exhibit 2.

Burden of Proof. Any assessment of tax made by the Department is presumed to be correct.

NMSA 1978, § 7-1-17(C); Holt v. New Mexico Department of Taxation & Revenue, 2002 NMSC 34,

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¶ 4, 133 N.M. 11, 59 P.3d 491. In addition, a party relying on the doctrine of estoppel has the burden

of establishing all facts necessary to support his claim. In re Estates of Salas, 105 N.M. 472, 475,

734 P.2d 250, 253 (Ct. App. 1987). Accordingly, it is the Mailanders’ burden to come forward with

evidence and legal argument to establish that they are entitled to an abatement of the Department’s

assessment of 2004 personal income tax.

Rules Pertaining to Estoppel. As a general rule, courts are reluctant to apply the doctrine of

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. 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. NMSA 1978, § 7-1-60 provides for estoppel against the

Department when a taxpayer has acted according to a written regulation or a written ruling addressed to

the taxpayer. There is no evidence that the Taxpayer in this case requested a ruling from the

Department. Nor is there any regulation that would have led the Taxpayer to believe he had established

a Texas residence for purposes of New Mexico income tax. The Department regulation in effect in

1998 defined a resident as follows:

3 NMAC 3.1.9 RESIDENCY SHOWN BY VOTER REGISTRATION AND OTHER
EVIDENCE

9.1 Section 7-2-2 defines a “resident” as an individual who is domiciled in this state on
the last day of the taxable year. Every individual has a domicile somewhere and each
individual has only one domicile at one time.

9.2 A domicile is a place of a true, fixed home and a permanent establishment to which
one intends to return when absent and where a person has voluntarily fixed habitation
of self and family with the intention of making a permanent home.

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The regulation gave several examples of activities that would create a presumption of residency for tax

purposes, including being registered to vote in New Mexico and holding a New Mexico driver’s

license. The Department’s regulation was amended in 2000, 2005 and 2006 to provide additional

information and examples of residency and domicile. The 2005 changes also addressed the

legislature’s 2003 amendment of the definition of a “resident” to include individuals who are physically

present in New Mexico for 185 days or more during the tax year. There is nothing in the Department’s

regulation that would support a finding of estoppel.

Estoppel Based “Right and Justice.” Equitable estoppel is applied against the state in

exceptional circumstances where there is “a shocking degree of aggravated and overreaching

conduct or where right and justice demand it.” Wisznia v. State of New Mexico, Human Services

Department, 1998-NMSC-11, ¶17, 125 N.M. 140, 958 P.2d 98. The party seeking estoppel must

show: (1) lack of knowledge of the true facts in question; (2) detrimental reliance on the other

party's conduct; and (3) that the reliance was reasonable. Johnson & Johnson v. Taxation and

Revenue Department, 1997-NMCA-030, ¶ 28, 123 N.M. 190, 936 N.M. 872, cert. denied, 123 N.M.

167, 936 P.2d 337 (1997). New Mexico courts have also held that a taxpayer’s reliance on oral

representations of Department employees is not reasonable and will not support a finding of estoppel.

Taxation and Revenue Department v. Bien Mur Indian Market, 108 N.M. 228, 231, 770 P.2d 873, 876

(1989); Kilmer v. Goodwin, 2004-NMCA-122, ¶ 28, 136 N.M. 440, 99 P.3d 690.

In this case, the Taxpayer was told that he would not have to pay New Mexico income tax on

his Texas wages if he established his residence in Texas and spent fewer than 185 days in New

Mexico during the tax year. This information was correct. A misunderstanding arose because the

Taxpayer never asked how residency was determined, nor did he provide the Department with all of

the facts necessary to accurately determine his state of residence. In response to the Department’s

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2005 and 2007 inquiries, the Taxpayer represented that he worked in Texas and maintained a “full

time residence in El Paso TX.” (emphasis added). See, Taxpayer’s handwritten notes on inquiry

notices dated August 3, 2005 and May 9, 2007. The Taxpayer’s response did not indicate that he

was regularly commuting between El Paso and a home that he owned in Las Cruces, New Mexico.

Nor did the Taxpayer disclose that he was still registered to vote in New Mexico, that he held a New

Mexico driver’s license or that his vehicles were registered in the state. This information did not

come to the Department’s attention until October 2007 when it was investigating the Taxpayer’s

2004 tax liability.

In the Taxpayer’s response to the Department’s October 2007 letter setting out its findings

concerning his driver’s license and voter registration, he objected that “[t]he items that you list as

indicators of NM residency have never been discussed with me....” Taxpayer’s Exhibit 2. The

Taxpayer apparently believes that it was the Department’s responsibility to ascertain the details of his

living arrangements and advise him as to every circumstance that could affect his residency status. This

misunderstands the nature of New Mexico’s self-reporting tax system. It is not possible for the

Department to conduct a detailed investigation into the facts underlying each of the thousands of

taxpayer accounts its deals with each year. For this reason, the legislature has placed the obligation on

taxpayers, who have the most direct knowledge of their activities, to determine their tax liabilities and

accurately report those liabilities to the state. See, NMSA 1978, § 7-1-13; Tiffany Construction Co. v.

Bureau of Revenue, 90 N.M. 16, 17, 558 P.2d 1155, 1156 (Ct.App.1976).

Here, the Taxpayer had first-hand knowledge of the facts that established his liability for New

Mexico income tax. Unfortunately, he failed to fully communicate these facts to the Department. He

also failed to review New Mexico’s statutes, regulations and instructions on the subject of residency.

Had he done so, he would have known that leasing a studio apartment in Texas was not sufficient to

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change his New Mexico tax residence when he continued to maintain a home, driver’s license and

voter registration in New Mexico. As the New Mexico Supreme Court noted in Patten v. Santa Fe

National Life Ins. Co., 47 N.M. 202, 208, 138 P.2d 1019, 1023 (1943), a party seeking estoppel

“must have exercised such reasonable diligence as the circumstances of the case require. If he

conducts himself with a careless indifference to means of information reasonably at hand...he cannot

invoke the doctrine of estoppel.”

Failure to File. The Taxpayer’s belief that he had established his residence in Texas does

not adequately explain why the Mailanders have not filed New Mexico income tax returns for the

last ten years. Although the Taxpayer was working full time in Texas, his wife continued to work

and live in New Mexico. Mrs. Mailander testified that she operated a business as a mobile home

broker out of the couple’s Las Cruces home. Upon questioning, she conceded that the income from

this business should have been reported to New Mexico.

In addition, the Taxpayer was unable to prove that he was not physically present in New

Mexico for 185 days during the 2004 tax year at issue. NMSA 1978, § 7-1-10(A) requires every

person to "maintain books of account or other records in a manner that will permit the accurate

computation of state taxes...." Although the Taxpayer estimates that he spent three to four nights a

week in El Paso, the Department is not required to accept an unsubstantiated estimate in lieu of

proper record keeping. See, Regulation 3.1.6.12 NMAC. Even assuming that the Taxpayer spent an

average of 3.5 nights a week in El Paso for 50 weeks a year (allowing two weeks for sick leave,

holidays and vacation) he still would have been physically present in New Mexico for 190 days.

Regardless of the issue of residency, this alone would subject him to New Mexico income tax and

justify the Department’s assessment of 2004 personal income taxes.

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CONCLUSIONS OF LAW

A. The Taxpayer filed a timely, written protest to the assessment issued under Letter ID

L0704564864, and jurisdiction lies over the parties and the subject matter of this protest.

B. The Taxpayer and his wife were residents of New Mexico during the 2004 tax year and

were subject to New Mexico personal income tax.

C. The Taxpayer has not met his burden of proving that the Department misled him into

believing that he did not owe New Mexico income tax on his 2004 income or that he reasonably

believed he was not subject to tax in New Mexico.

D. The Taxpayer has not met his burden of proving that he was not physically present in

New Mexico for 185 days or more during the 2004 tax year.

For the foregoing reasons, the protest of Joseph and Kathy Mailander IS DENIED.

Dated May 2, 2008.

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