Could Promoco avoid tax and interest on airport advertising leases because of oral Department advice and years of agency delay?

Plain-English summary

Promoco owed gross receipts tax on advertising space it leased from the City of Farmington airport and re-leased to customers. Oral advice from an unidentified Department employee, long delays in assessment and protest handling, and the owner's health and financial hardship did not eliminate tax, penalty, or mandatory interest.

Promoco was Phillip Roth's sole proprietorship. From 1995 through 1997, it leased airport advertising display boxes and freestanding kiosks, then re-leased that space to advertisers. Its city concession agreement warned that sales or services could be subject to New Mexico tax.

Roth said that in 1995 an unidentified Department employee in Farmington told him no gross receipts tax was required after he described leasing airport space. Nothing memorialized the conversation. Promoco collected and paid no gross receipts tax for the six semiannual periods at issue.

The Department mailed assessments in July 2002 totaling $4,294.32 of tax, $429.43 of penalty, and $3,701.92 of interest. Promoco protested, but the matter remained inactive until a Department auditor contacted Roth in 2009.

Airport advertising leases produced taxable receipts

New Mexico broadly taxed persons engaging in business and money received from services performed in the state. The cited regulations specifically treated receipts from leasing property used in New Mexico and contracts for in-state advertising placement as taxable.

Promoco received compensation for providing airport advertising space. That activity fell within the statutes and regulations, regardless of the business's small size.

Oral advice did not establish estoppel or nonnegligence

The decision accepted that Roth acted in good faith, but he could not identify the employee, verify the exact exchange, or produce written advice. The lease itself alerted him to possible tax, and another Department employee later told him gross receipts tax was required.

Courts were reluctant to estop the state in tax collection and had rejected reliance based solely on oral representations. The evidence did not show affirmative government misconduct or reasonable reliance. The administrative hearing officer also lacked authority to grant equitable estoppel.

Roth's failure to report and later failure to pursue resolution after receiving the assessments and protest acknowledgment fit the cited negligence rules. The 10% penalty had already reached its maximum by May 1998, so the later Department delays did not add penalty.

Delay did not stop mandatory interest

The Department offered no persuasive explanation for waiting more than five years to assess and roughly seven additional years to resume the protest. The decision nevertheless placed the primary reporting duty on Promoco under New Mexico's self-reporting system.

The 2002 acknowledgment warned that interest would continue and that paying principal would stop further accrual. It also gave Promoco a contact for status questions, but Roth did not follow up before 2009.

Section 7-1-19 gave the Department ten years after assessment to collect, and its action remained within that period. Interest compensated the state for unpaid revenue and continued until principal was paid.

Hardship did not permit compromise

Roth had serious health problems, lived on fixed income, and said the accumulated balance had become impossible to pay. The hearing officer expressed sympathy but cited a regulation barring compromise based on inability to pay and found no authority to alter the statutory liability.

Result: the six assessments for tax, penalty, and continuing interest were upheld.

What this means for you

Small advertising and leasing businesses

Leasing physical advertising space can create gross receipts even when the business itself rents the underlying location from a city or airport.

Taxpayers receiving informal agency answers

Get written, identifiable guidance and verify it against the governing rules. An undocumented conversation with an unnamed employee did not protect Promoco.

Taxpayers with dormant protests

Do not assume silence means the protest was accepted. Track the case, use the provided contact, and understand that interest may continue while the principal remains unpaid.

Taxpayers facing financial hardship

The hearing officer could decide legal liability but could not compromise it based on health, fixed income, or inability to pay under the cited regulation.

Common questions

Q: What activity was taxed?
A: Promoco leased airport advertising boxes and kiosks, then re-leased the space to advertisers for compensation.

Q: Did the Department employee's oral answer protect Promoco?
A: No. The speaker and exact advice were unverified, nothing was written, and the evidence did not establish reasonable reliance or misconduct.

Q: Did the seven-year protest delay erase interest?
A: No. Interest was mandatory, Promoco had been warned it would continue, and the Department remained within its collection period.

Q: How much was assessed in 2002?
A: $4,294.32 of tax, $429.43 of penalty, and $3,701.92 of interest across six periods.

Q: Could hardship reduce the debt?
A: Not in this proceeding. The hearing officer cited a rule prohibiting compromise based on inability to pay.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-9-4, 7-9-3.3, and 7-9-3.5(A)(1) — taxable New Mexico business and service receipts
• Regulations 3.2.1.17(A)(1) and 3.2.1.18(N)-(O) NMAC — leasing and advertising receipts
• NMSA 1978, § 7-1-17(C) (2007) — assessment presumption
• NMSA 1978, § 7-1-67(A) — mandatory interest
• NMSA 1978, § 7-1-69(A)(1) — civil-negligence penalty
• NMSA 1978, §§ 7-1-13 and 7-1-19 — self-reporting responsibility and collection period
• Regulation 3.1.6.14 NMAC — no compromise for inability to pay

Cases cited:

• Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16 (Ct. App. 1976)
• Bien Mur Indian Center, 108 N.M. 228 (Ct. App. 1988)
• AA Oilfield Service v. New Mexico State Corporation Commission, 118 N.M. 273 (1994)
• Kilmer v. Goodwin, 2004-NMCA-122

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Promoco
• Decision PDF: D&O 11-06

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
PROMOCO TO ASSESSEMENTS ISSUED
UNDER LETTER ID NO. 3919323, 3919324, No. 11-06
3919325, 3919326, 3919327 AND 3919328.

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on December 14, 2010, before

Sally Galanter, Hearing Officer. The Taxation and Revenue Department ("Department") was

represented by Peter Breen, Special Assistant Attorney General. Promoco was represented by Mr.

Phillip Roth, its sole proprietorship owner (“Taxpayer”). Based on the evidence and arguments

presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. Between the years of 1995 and 1997, Promoco was a sole proprietorship business

owned by Taxpayer.

2. Taxpayer leased advertising space at the Four Corners Regional Airport in

Farmington and re-leased that space to others.

3. The advertising space included four foot by six foot display boxes and three foot

by five foot free standing kiosks.

4. Taxpayer had an advertising lease and concession agreement with the City of

Farmington. (Taxpayer Exhibit 1).

5. The agreement notified Taxpayer of the possibility that he would be responsible

for sales tax for sales made or services rendered and was specifically subject to New Mexico law

including its statutes and regulations.

6. In 1995, Taxpayer contacted an unidentified Department employee in Farmington

and was told he did not have to collect gross receipts taxes after informing the employee that he

was leasing space from the airport. Taxpayer received no documentation memorializing the

conversation.

7. For the period between January 1, 1995 and December 31, 1997 Taxpayer did not

collect gross receipts taxes and did not pay gross receipts taxes to the Department.

8. Taxpayer was subsequently contacted by another unidentified Department

employee who notified him that he was responsible to collect gross receipts taxes, report and pay

the tax for the leasing and re-leasing of advertising space at the airport.

9. From January 1, 2008 until the time he sold the business Taxpayer collected,

reported and paid gross receipts tax.

10. On July 26, 2002 Taxpayer was mailed the following six separate assessments for

the non-payment of gross receipts taxes plus accrued interest and penalty for the semi-annual

filing periods from January 1, 1995 and December 31, 1997. (Department Exhibit B)

Letter ID Reporting Period Tax Due Penalty Interest

3919323 01/01/95 – 06/30/95 $ 622.82 $ 62.28 $ 660.86
3919324 07/01/95 – 12/31/95 $ 635.34 $ 63.53 $ 626.22
3919325 01/01/96 – 06/30/96 $ 616.41 $ 61.64 $ 561.56
3919326 07/01/96 – 12/31/96 $ 941.11 $ 94.11 $ 785.60
3919327 01/01/97 – 06/30/97 $ 712.48 $ 71.25 $ 542.46
3919328 06/30/97 – 12/31/97 $ 766.16 $ 76.62 $ 525.22

11. By letters dated August 30, 2002, taxpayer filed an individual protest for each

assessment.

12. In his protest letters Taxpayer protested the tax liability because he claimed that

In the Matter of Promoco
Page 2 of 17
the responsibility for his failure to collect gross receipts tax from his customers was attributable

to the inaccurate information provided by a Department employee in Farmington.

13. On September 30, 2002 the Department’s Protest Office acknowledged receipt of

Taxpayer’s protests advising Taxpayer of procedural options and that interest will accrue until

the liability is paid, that payment of the protested assessment will stop the accrual of interest and

that in order not to be charged a maximum 10% penalty Taxpayer would have to proved he

wasn’t negligent in failing to pay the tax.

14. Taxpayer has suffered numerous health serious issues since 2000 and is on a fixed

income making it more difficult for him to pay the tax liability now that had it been settled

before or in 2002. Had the matter been settled before or in 2002 the substantial accumulation of

interest for the unpaid 1995 through 1997 gross receipts taxes would have, arguably, been

avoided.

DISCUSSION

The primarily issue to be decided, after jurisdiction, is whether Taxpayer is liable for the

gross receipts taxes, civil penalty and continuing interest due to the non-reporting of gross

receipts for leasing of advertising space in the airport in the tax periods from January 1, 1995
through December 31, 1997. Taxpayer argued that the Department waited an unreasonable

period of time to initially notify him of the tax liability and waited an additional unreasonable

period to thereafter take action after issuing the assessments and therefore the Department was at

fault. The assessments were not issued until 2002 and thereafter no additional action was taken

until 2009. Taxpayer claimed that had he been notified immediately he would have been in a

much better position to pay the tax due. Taxpayer claimed that as the Department had not

contacted him after 2002 he felt they had accepted his protest and therefore no tax was due.
In the Matter of Promoco
Page 3 of 17
Taxpayer also argued that he was given inaccurate information from the Department which

caused him to fail to collect gross receipts taxes from his customers. Additionally, Taxpayer

claimed that due to the unreasonable delay in notifying him of the tax liability and the inaction

by the Department for seven years, after issuing the assessments; that payment of the tax

liability, interest and penalty will create an extreme financial hardship which he will never be

able to pay as he has limited means. Further he stated that the combined interest and penalty due

are more than the original tax due.
Jurisdiction. The first matter which must be addressed is my jurisdiction to decide this

matter. This is because NMSA 1978, §7-1-24 provides for a 30 day time frame for taxpayers to file

a written protest against an assessment. Subsection B requires that the protest be filed within thirty

days of the date of the mailing to the taxpayer by the Department of the notice of assessment. In this

case the postmark date of the assessments was July 26, 2002. The protest letters from Taxpayer are

all dated August 30, 2002. Nonetheless, the Department acknowledged the Taxpayer's protest,

giving the Taxpayer every indication that the protests had been accepted as valid on September 30,

2002. Section 7-1-24 B also allows for the Secretary to grant a retroactive extension of time to file a

protest if a taxpayer requests an extension within 60 days of the assessment. In this case, the

Taxpayer's protest letter was filed within 60 days of the Assessment and since the Department
acknowledged the protest as valid, the Department's acknowledgement will be treated as an

effective grant of extension of time to protest the assessment. Thus, jurisdiction lies to determine

this matter.

Burden of Proof. NMSA 1978, §7-1-17(C) (2007) provides that any assessment of tax

by the Department is presumed to be correct. Regulation 3.1.6.12 (A) NMAC explains that once

an assessment is mailed to a taxpayer that the presumption of correctness attaches and therefore

the taxpayer has the burden with to dispute the correctness with evidence. Also NMSA 1978, §7-

1-3 NMSA (2009) defines tax to include not only the amount of tax principal imposed but also,
In the Matter of Promoco
Page 4 of 17
unless the context otherwise requires, “the amount of any interest or civil penalty relating

thereto." See El Centro Villa Nursing Center v. Taxation and Revenue Department, 108 N.M.

795, 779 P.2d 982 (Ct. App. 1989). See also, Regulation 3.1.6.13 NMAC. Accordingly, the

presumption of correctness applies to the assessment of principal tax, to the penalty and interest,

and it is Taxpayer’s burden to present evidence and legal argument to establish that he is not

liable for the gross receipts tax and is entitled to an abatement of interest and penalty. This was

also the law at the time the taxes were due but not paid.

Gross Receipts Tax Due. NMSA 1978, §7-9-4 (1990) imposes an excise tax on the gross

receipts of any person engaging in business in New Mexico. The definition of “engaging in

business” is very broad including “carrying on or causing to be carried on any activity with the

purpose of direct or indirect benefit.” NMSA, 1978, § 7-9-3.3 (2002). The statute makes no

distinction between activities engaged in by large corporations and activities engaged in by

individuals.

Pursuant to NMSA 1978, §7-9-3.5 A (1) (2007), gross receipts “means the total amount

of money…received…from performing services in New Mexico.” Regulation 3.2.1.17 A (1)

NMAC states, “Receipts derived from the rental or leasing of property employed in New Mexico

are subject to the gross receipts tax.” Additionally, Regulation 3.2.1.18 N and O NMAC explain

that receipts derived in regard to contracts to placement of advertising within the state are

receipts from performing an advertising service in New Mexico and are subject to gross receipts

tax.

In this case, Taxpayer, Taxpayer entered into a lease and concession agreement with the

city of Farmington to lease its advertising display cases and free-standing advertising kiosks at
In the Matter of Promoco
Page 5 of 17
the airport after which Taxpayer would lease the space to its customers receiving compensation

for the service. Because this activity is included in “engaging in an activity” with the result of

receiving a monetary benefit and because Taxpayer was performing this service in New Mexico,

Taxpayer was liable for gross receipts tax on the income he received from those services.

Interest Due on Unpaid Principal.

NMSA 1978 Section 7-1-67 (1995 Repl. Pamp.) governs the imposition of interest on

late payments of tax and provides, in pertinent part:

A. If a tax imposed is not paid on or before the day on which it
becomes due, interest shall be paid to the state on that amount from
the first day following the day on which the tax becomes due,
without regard to any extension of time or installment agreement,
until it is paid... (emphasis added).

NMSA 1978, Sec.7-1-67(A) (2007). The legislature’s use of the word “shall” indicates that the

assessment of interest is mandatory rather than discretionary. State v. Lujan, 90 N.M. 103, 105,

560 P.2d 167, 169 (1977).

While the Department offered no explanation as to why its audit took so long and certainly it

is a concern when the amount of time to issue the assessments was over five years from the end

period of the tax liability, the Department’s delay in issuing the assessments does not provide a

defense to the imposition of interest. While the evidence established that Taxpayer acted in good

faith and did not intend to avoid paying his proper share of taxes, Taxpayer’s argument

misapprehends the nature of interest. The legislature has directed the Department to assess

interest whenever taxes are not timely paid. Interest is not a penalty and the assessment of

interest is not designed to punish taxpayers, but to compensate the state for the time value of

unpaid revenues. Even taxpayers who obtain a formal extension of time to pay tax are liable for
In the Matter of Promoco
Page 6 of 17
interest from the original due date of the tax to the date the principal balance is paid in full. See,

NMSA 1978, §7-1-13(E) (2007).

Interest must be assessed on tax that is due and unpaid, and continues to accrue until the

principal amount of tax is paid. In the acknowledgment letter of September 30, 2002 the

Department notified Taxpayer that interest would continue to accrue on any unpaid balances of

principal. The letter also informed Taxpayer that he could pay the principal to stop the accrual of

interest. Taxpayer had sufficient notice that interest would continue to accrue on any unpaid

principal tax due. As the principal amount was not paid, interest on the tax is also due and

owing.

Penalty due for failure to pay tax. NMSA 1978 Section 7-1-69 (1993 Repl. Pamp.)

states in regard to the imposition of a penalty for failure to pay tax due and provides in pertinent

part:

A. in the case of failure due to negligence or disregard of rules and
regulations, but without intent to defraud, to pay when due any amount of tax
required to be paid…there shall be added to the amount as penalty the greater of::
(1) two percent per month or any fraction of a month from the date the tax was
due multiplied by the amount of tax due but not paid, not to exceed ten percent of
the tax due but not paid…(emphasis added).

The term “negligence” as used in Sec. 7-1-69 is defined in Regulation 3.1.11.10 NMAC as:

(A) failure to exercise that degree of ordinary business care and prudence which
reasonable taxpayers would exercise under like circumstances; (B) inaction by
taxpayers where action is required; (C) inadvertence, indifference, thoughtlessness,
carelessness, erroneous belief or inattention.

The statute imposes a penalty based on negligence for failure to timely pay a tax due. The good faith

of a Taxpayer is not an issue. What is to be determined is whether Taxpayer was negligent in failing

In the Matter of Promoco
Page 7 of 17
to report his taxes properly.

In this matter Taxpayer had notification when signing the lease agreement that he could be

responsible for state sales tax. The information, as understood by Taxpayer, received from a

Farmington Department employees was not correct. Thereafter taxpayer received the assessments

from the department that taxes were due. Other than file his written protests to the assessments,

Taxpayer failed to pursue his objections to the assessments with the ordinary care and prudence that

a reasonable taxpayer would exercise under like circumstances upon being notified that taxes were

due based on non-payment of gross receipts taxes. Taxpayer did not act to pursue resolution of the

assessment when action was required. Taxpayer did not take action to ensure that the assessment

was resolved arguing that the Department’s lack of pursuing collection established that the

Department had waived the requirement that he pay the liability. Taxpayer erroneously believed that

he was not liable for tax based on the Department not sending any additional request for payment or

not contacting Taxpayer. However by its acknowledgement of the protest, the Department notified

Taxpayer that the way to avoid payment of a penalty would be to establish that he was not negligent

in his failure to pay the tax liability.

In its letter the Department notified Taxpayer that penalty “will be assessed at a rate of 2%

per month (to a maximum of 10%) on the principal amount of tax due until such tax is paid.”

Taxpayer certainly had sufficient notice that a penalty would be assessed due to non-payment of the

principal tax due. This error meets the definition of negligence set out in Department regulations

and in New Mexico case law. Taxpayer failed to carry his burden to establish that he was not

negligent in not reporting and paying his gross receipts as he was unable to recall which

Department employee he spoke with, had no documentation memorializing the conversation and
In the Matter of Promoco
Page 8 of 17
was unable to verify the information from the employee as to the circumstances of which the

information was given. While unintentional, Taxpayer failed to pay the tax when due. Therefore

Taxpayer is liable for the penalty assessment. See, C & D Trailer Sales v. Taxation and Revenue

Dept., 93 N.M. 697, 699, 604 P.2d 835, 837 (Ct. App. 1979) (a taxpayer's mere belief that he is

not liable to pay taxes is tantamount to negligence within the meaning of the statute); El Centro

Villa Nursing Center v. Taxation & Revenue Department, 108 N.M. 795, P.797, 779 P.2d 982,

984 (Ct. App. 1989) (§ 7-1-69 is designed specifically to penalize unintentional failure to pay

tax.).

Delay by Department in Issuing Assessments. Taxpayer asserts liability by the

Department for the delay in notifying him of his gross receipts tax liability. By the time

Taxpayer received the Department’s assessment in July 2002, the penalty had reached its

statutory maximum of 10% and substantial interest had accrued. The Taxpayer testified that if

he had been notified immediately he would have been better able to pay the principal amount but

now the penalty and interest are substantially more than what was originally owed and he

believes the Department is at fault for the accrual of additional penalty and interest. Mr. Dillon,

Protest Auditor for the Department, testified that he was unable to explain the long delay other

than the heavy workload of the protest auditor initially handling the protest.

Although it is unfortunate that there was such a long lapse of time between the non-

payment of gross receipts and when the Department issued its assessment, Taxpayer’s argument

does not take into account, as explained previously, New Mexico’s self-reporting tax system.

While the Department has the power to assess taxes when not properly reported, such does not

shift the primary responsibility to accurately report and pay taxes, from the Taxpayer to the
In the Matter of Promoco
Page 9 of 17
Department. The legislature has placed the obligation on taxpayers, who have the more accurate

and direct knowledge of their activities, to determine their tax liabilities and accurately report those

liabilities to the state. See, NMSA 1978, §7-1-13(B) (2007). “Every Person is charged with the

reasonable duty to ascertain the possible tax consequences of his action.” Tiffany Construction Co.

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

255, 561 P.2d 1348 (1977). Therefore a taxpayer is bound to determine when his taxes are due,

accurately report same to the Department and pay the taxes. It is not an excuse that the Taxpayer

was unaware that he owed taxes.

Even though the mistake was not realized immediately, Taxpayer found out after

December 1997 in conversation with another Department employee that he was required to pay

gross receipts tax on his earnings. Taxpayer knew when the assessment was issued of his

obligation and thereafter had a responsibility to make sure that the matter was settled. Because

Taxpayer was a non-filer, the Department had no knowledge initially that Taxpayer might owe

taxes. The fact that Taxpayer was a non-filer for income earned in New Mexico would be a reason

for some delay in the Department knowing that any tax was owed and in particular gross receipts

taxes.

NMSA 1978, §7-1-18 (1994) sets out four different time periods within which the

Department may assess unpaid taxes. In most cases, the Department has three years from the

end of the calendar year in which payment of the tax was due to issue an assessment. In certain

circumstances, however, the assessment period is extended: Subsection (B) of §7-1-18 gives the

Department ten years to issue an assessment when the taxpayer has filed a fraudulent return;

Subsection (C) gives the Department seven years “from the end of the calendar year in which
In the Matter of Promoco
Page 10 of 17
the tax was due” to issue an assessment when the taxpayer has failed to file a tax return; and

Subsection (D) gives the Department six years to issue an assessment when the taxpayer has

underreported his tax liability by more than twenty-five percent. In Taxation & Revenue

Department v. Bien Mur Indian Market Center, Inc., 108 N.M. 228, 770 P.2d 873 (1989), the

New Mexico Supreme Court held that the assessment periods set out in § 7-1-18 are mandatory

and must be adhered to by the Department. As the court explained:

Section 7-1-17(A) makes assessment mandatory when a taxpayer owes more
than ten dollars in unpaid taxes; the various provisions of Section 7-1-18
simply limit the number of years following the filing of a return during which
the Department is authorized to exercise this mandate. If the Department may
make the assessment under one of the provisions in Section 7-1-18, Section 7-
1-17(A) mandates the Department shall do so.... (emphasis added)

Id. 108 N.M. at 231-232, 770 P.2d at 876-877.

Taxpayer attempted to accurately report and pay his tax liability. The taxes assessed in

2002 are for gross receipts owed in 1995, 1996 and 1997. While acknowledging that the burden is

on Taxpayer to ensure that taxes are reported and paid in a timely manner and acknowledging the

workload of protest auditors it does not appear reasonable that it took between four and a half and

six and a half years for the Department to assess Taxpayer for the non-filing of gross receipts tax.

Obviously, the sooner such matters are discovered and dealt with, the easier it is for everyone

creating less accumulation of significant amounts of interest. It is reasonable that Taxpayer would

be upset about how this matter was handled. However, noting that gross receipts were unpaid for a

three year period as a result of non-filing, Section 7-1-18 C allows for an extended assessment

period of seven years. Therefore if the earliest amount of tax unpaid was due June 1995, the

assessment must be issued by December 31, 2002. The assessments were issued in July 2002.

Therefore are assessments were issued within the statutorily mandated time period.

Inaction by the Department after receipt of Taxpayer’s formal protest. Taxpayer
In the Matter of Promoco
Page 11 of 17
protested the assessment by mailings dated August 30, 2002. By letter dated September 30, 2002 the

Protest Office of the Department acknowledged Taxpayer’s protest. Taxpayer testified that he heard

nothing from the Department from that time on until 2009 when Mr. Dillon contacted him regarding

the tax liability. Taxpayer did not make any other attempts to contact the Department and follow up

on his protest until receiving Mr. Dillon’s letter in 2009. Taxpayer testified that based on the long

delay he understood that the Department had accepted his protest and dismissed the assessments

forgiving the liability. Mr. Dillon testified that the protest had been assigned to another protest

auditor, that he received the file in 2009 and then contacted Taxpayer. Mr. Dillon testified that either

party could have and should have followed up to finalize the matter earlier and that while it could be

assumed that someone in the Department did not actively pursue finalization of the matter,

Taxpayer also should have followed up to ensure he was fully complying with his legal

responsibilities.

The protest acknowledgement letter from the Department does notify Taxpayer that the

assigned protest auditor will contact Taxpayer if additional information is needed, that an informal

conference may be scheduled and a formal hearing, if necessary. It further notifies Taxpayer that

interest will continue to accrue until the principal amount of the tax is paid and that should Taxpayer

have any “questions concerning the status” of his request he was provided a name and telephone

number to call. No follow up was completed by either Taxpayer or the Department. While it would

have been beneficial for the Department to have followed up with Taxpayer the responsibility was

actually on Taxpayer to ensure he reported and paid the correct amount of tax so having received

the protest acknowledgement and having received the assessments the onus was on Taxpayer to

pursue finalization of the matter.
In the Matter of Promoco
Page 12 of 17
NMSA 1978, §7-1-19 states that the Department has ten years from the date of the

assessment to collect taxes due the state and “no action or proceeding shall be brought to collect

taxes” after that date. While there was no good reason provided why the period between the

assessment and formal protest and subsequent contact with Taxpayer was approximately seven

years, the law allows the Department a ten year period and the Department acted within the

mandatory allowed time.

The evidence does not indicate that the interest on the assessments should be abated or

waived. Taxpayer was warned in September 2002 that the interest on taxes owed would continue to

accrue until the principal was paid. Taxpayer did not make any attempts to contact the Department

after receiving the acknowledgement of his protest to discuss the status of his protest even though he

had been notified that interest would continue to accrue. The Department, through Mr. Dillon,

contacted Taxpayer in 2009 to pursue collection of the unpaid tax liability. The length of time it

took the Department to proceed with Taxpayer’s protest is not reason to abate or waive the interest,

especially when Taxpayer had knowledge that interest continued to accrue. In this case it was the

obligation of taxpayer to pursue resolution of the assessment once being notified that the

Department assessed based on gross receipt taxes being due and not paid.

With respect to the delay in issuing the assessments and finalizing the investigation prior to

hearing, it is noted that the Department’s delay did not result in an accrual of additional penalty as

the negligence penalty accrued at 2% of the unreported taxes per month maximizing at 10%.

Therefore within five months of the month that the return was due the penalty had reached the 10%

cap. Here the last reporting period was December of 1997 therefore any penalty on unpaid taxes

would have maximized by May of 1998. Even had the Department completed its audit more
In the Matter of Promoco
Page 13 of 17
expeditiously, by the time the audit was completed, it is highly unlikely that the assessments would

have been issued prior to May 1998.

Estoppel. The evidence established that Taxpayer was properly assessed for unpaid

principal gross receipts tax, penalty and interest. Taxpayer claimed, however, that the principal,

interest and penalty should be abated as he, in good faith, relied on information he obtained from

a Department employee who told him that he did not need to collect or pay gross receipts.

Taxpayer in effect argued that the Department should be stopped from collecting the tax, interest

and penalty from him.

The adjudicative functions of an administrative agency like the Department are

considered by New Mexico courts to be “quasi-judicial” powers. According to the New Mexico

Supreme Court, the quasi-judicial powers of an administrative agency do not include the

authority to grant equitable relief to a party before the agency, although a court may later do so

after the administrative action is completed. See AA Oilfield Service v. New Mexico State

Corporation Commission, 118 N.M. 273, 279, 881 P.2d 18, 24 (1994).

Even if the Department’s administrative Hearing Officers had the authority to grant

equitable relief, principals of equitable estoppels generally do not apply to the facts in this case.

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. See Kerr-McGee Nuclear Corp. v. Property Tax Division, 95 N.M. 685, 625 P.2d 1202

(Ct. App. 1980). Our courts have determined that estoppel will not be applied against a state

governmental entity “unless there is a shocking degree of aggravated and overreaching conduct

or where right and justice demand it.” Wisznia v. State, Human Servs. Dep’t, 1998-NMSC-11,
In the Matter of Promoco
Page 14 of 17
P17, 125 N.M. 140, 958 P.2d 98. Additionally, “Estoppel cannot lie against the state when the

act sought would be contrary to the requirements express by statute.” Rainaldi v. Pub Employees

Ret. Bd., 115 NM 650, 658-59, 857 P.2d 761, 769-70 (1993). In determining whether estoppel is

appropriate, the conduct of both parties must be considered Gonzales v. Public Employees

Retirement Board, 114 NM 420, 427, 839 P.2d 630, 637, cert. denied, 114 Nm 227, 836 P.2d

1248 (1992).

In the Matter of the protest of Val Kilmer and Joanne Whalley v. Jan Goodwin,

Secretary, New Mexico Taxation and Revenue, 2004-NMCA-122, 136 N.M. 440, 99 P.3d 690,

¶27, the court sets out that an individual seeking to establish estoppel against the government

must prove:

(1) the government knew the facts; (2) the government
intended its conduct to be acted upon or so acted that
plaintiffs had the right to believe it was so intended; (3)
plaintiffs must have been ignorant of the true facts; and (4)
plaintiffs reasonably relied on the government’s conduct to
their injury…the party seeking to establish estoppel must
show that reliance was reasonable). In addition to these
four factors the plaintiff must demonstrate ‘affirmative
misconduct on the part of the government.’”

In examining the conduct of both parties, the courts have been willing to grant estoppel

when a party has relied on written representations but unwilling to grant estoppel when a party

has relied solely on oral representations. See Bien Mur Indian Ctr., 108 NM 228, 231, 770 P.2d

873, 876 (refusing to apply estoppel when only oral representations were made and relied on).

Here, Taxpayer claimed that he relied on the oral representations of an employee of the

Department’s Farmington office although not being able to recall the name of the individual or

having received anything in writing from the employee. The oral statements of a Department
In the Matter of Promoco
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employee do not give rise to estoppel. In Bien Mur, 108 N.M. at 231, 770 P.2d at 876, the court

held that the taxpayer “did not act reasonably in relying on the oral representation of the

Department.” Also, Rinaldi v. Public Employees Retirement Board, 115 N.M. 650, 658-659, 857

P.2d 761, 769-770 (1993) (estoppel cannot lie against the state when the act sought would be

contrary to the requirements expressed by statute).

Taxpayer was ignorant of the true facts in that he was required to pay gross receipts tax

based on his re-leasing the advertising space at the airport. Taxpayer detrimentally relied on the

employee’s representations such that he would otherwise have collected the gross receipts tax

from his customers. However as there was insufficient evidence as to exactly who Taxpayer

spoke to and the exact verbal exchange the evidence did not establish that the reliance was

reasonable or that there was “affirmative misconduct on the part of the government.” Taxpayer

did not meet his burden of establishing that estoppel is appropriate in this matter and even if he

had been able to establish such New Mexico law does not allow such relief at an administrative

proceeding.

Financial Hardship and Physical Disability. The Taxpayer asks that the tax, penalty

and interest be waived as he is on a fixed income, he has had multiple health issues and because

payment of these amounts will create an extreme financial hardship for him testifying that he

will never be able to pay the debt now that the interest is significantly greater than the original

principal owed. While certainly empathizing with Taxpayer, unfortunately, this is not something

that the Hearing Officer can consider. Department Regulation 3.1.6.14 NMAC specifically states

that the Secretary “may not compromise a taxpayer’s liability because of the taxpayer’s inability to

pay.” Nor does the Hearing Officer have authority to relieve a taxpayer of his statutory liability for
In the Matter of Promoco
Page 16 of 17
tax, penalty, or interest. In State ex rel. Taylor v. Johnson, 1998-NMSC-015 ¶ 022, 961 P.2d 768,

774-775, the New Mexico Supreme Court held that “the Legislature, not the administrative

agency, declares the policy and establishes primary standards to which the agency must

conform” and that an “administrative agency’s discretion may not justify altering, modifying or

extending the reach of a law created by the Legislature.”

CONCLUSIONS OF LAW

A. Taxpayer filed a timely, written protest to the assessments of gross receipts tax

issued under Letter ID No. 3919323 through 3919328 and jurisdiction lies over the parties and the

subject matter of this protest.

B. Taxpayer failed to meet his burden of proving that income received during January

1995 through December 1997 is not subject to New Mexico gross receipts tax. Therefore, the

amounts of $4,294.32 is subject to New Mexico gross receipts tax.

C. The amount of civil penalty added to the principal tax was correctly added and

assessed, pursuant to NMSA 1978, §7-1-69(A)(1).

D. The Department’s delay in issuing the assessments and in responding to Taxpayer’s

protest is not a valid defense to the imposition of interest on unpaid taxes and the interest was

properly imposed. Interest continues to accrue pursuant to NMSA 1978, §7-1-67 until the principal

is paid in full.

Dated: March 8, 2011.

In the Matter of Promoco
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