Could Unique Dental Laboratory recover gross receipts tax it said it overpaid when it did not respond to the Department's request for invoices, did not protest or sue after 120 days of inaction, and filed a new refund claim after the three-year limit?

Plain-English summary

Unique Dental Laboratory could not recover its claimed $31,525.38 gross receipts tax overpayment because it missed two separate refund deadlines. The hearing officer did not decide whether the laboratory's underlying deductions were valid.

The laboratory provided dental services to local dentists in transactions it said were supported by NTTCs. It alleged that from December 2003 through January 2007 it mistakenly reported and paid gross receipts tax on service-for-resale transactions that should have been deducted.

After an accountant identified the apparent overpayment, the laboratory filed a refund claim on February 22, 2008. The Department requested invoices matching the NTTCs. Owner Loretta Molina called to confirm what was needed but, overwhelmed by gathering all the invoices, did not submit them.

The first refund claim became stale after Department inaction

The Department neither approved nor denied the February 2008 claim within 120 days. Under Section 7-1-26(B)(2), that inaction gave the taxpayer 90 days to file either a formal protest or a civil action in Santa Fe County District Court.

The laboratory did neither by September 19, 2008, the 210th day after filing its claim. The decision held that this failure abandoned the claim and barred the Department from later approving or denying it.

The decision relied on Kilmer v. Goodwin, where the Court of Appeals held that the taxpayer bears responsibility for keeping a refund claim active after Department inaction and that the Department lacks authority to grant a stale claim.

The second refund claim was independently late

Section 7-1-26(D)(1) required a refund claim within three years after the end of the calendar year in which the tax was due. For the January 2007 gross receipts tax period, the tax was due February 25, 2007, so the refund deadline was December 31, 2010.

Unique Dental Laboratory filed no other claim by that date. Its new claim in May 2012 came more than 16 months after the deadline.

Hardship and possible merit could not extend the deadlines

The laboratory asked for a waiver or another route to approval and described financial difficulty during the recession. The decision found no authority allowing the Department to extend the refund deadline for economic hardship.

The hearing officer found Molina credible that she had made an honest mistake and may have paid too much tax. But the Department had no legal authority to reach the merits after the deadlines expired. The invoices and NTTCs offered at the hearing were therefore not admitted because they addressed only the underlying merits.

Result: protest denied; the refund claim was time-barred.

What this means for you

Businesses waiting on a refund claim

Department silence is not an indefinite extension. Under the law applied in this decision, inaction for 120 days started a 90-day period to protest or sue.

Taxpayers asked for supporting records

Respond promptly. Unique Dental Laboratory's original claim was timely, but it did not provide the requested invoices and then did not preserve the claim after the Department failed to act.

Businesses discovering older overpayments

Track the separate outside deadline for filing a refund claim. Even after the first claim became stale, the laboratory could have filed another claim through December 31, 2010, but it did not do so.

Common questions

Q: Did the decision find that the dental services were taxable?
A: No. It did not decide the merits of the claimed service-for-resale deductions because the refund claims were procedurally time-barred.

Q: What should the laboratory have done after 120 days without a decision?
A: It needed to file a protest or commence a civil action in Santa Fe County District Court within the next 90 days.

Q: Why could the Department not simply reopen the 2008 claim?
A: Section 7-1-26(B)(2), as applied through Kilmer, made the unpreserved claim stale and left the Department without statutory or implied authority to grant it.

Q: Could economic hardship waive the deadline?
A: No. The decision found no legislative authority for a hardship exception.

Q: Why were the invoices and NTTCs excluded?
A: They went to whether the refund was substantively justified, an issue the hearing officer could not reach after finding both claims untimely.

Citations and references

Statutes:

• NMSA 1978, § 7-1-26(B)(2) — protest or civil-action deadline after Department inaction on a refund claim
• NMSA 1978, § 7-1-26(D)(1) — three-year refund-claim deadline
• NMSA 1978, § 7-9-11 — gross receipts tax due date used to calculate the outside refund deadline

Cases:

• Kilmer v. Goodwin, 136 N.M. 440, 2004-NMCA-122, 99 P.3d 690 (N.M. Ct. App. 2004)
• Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16, 558 P.2d 1155 (Ct. App. 1976), cert. denied, 90 N.M. 255, 561 P.2d 1348 (1977)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Unique Dental Laboratory LLC
• Decision PDF: D&O 13-01

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
UNIQUE DENTAL LABORATORY, LLC No. 13-1
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L1459749184

DECISION AND ORDER

A protest hearing occurred on the above captioned matter on December 18, 2012 before

Brian VanDenzen, Esq., Tax Hearing Officer, in Santa Fe. Ms. Loretta Molina appeared pro se

on behalf of Unique Dental Laboratories (“Taxpayer”). Staff attorney Laura E. Sanchez

represented the Taxation and Revenue Department of the State of New Mexico (“Department”).

Protest Auditor Thomas Dillon appeared as a witness for the Department. Department Exhibits

A-G were admitted into the record. The hearing officer reserved ruling on Taxpayer’s tendered

exhibits 1-3 depending on relevancy. All exhibits are more thoroughly described in the

Administrative Exhibit Coversheet. Based on the evidence and arguments presented, IT IS

DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. Ms. Loretta Molina started a small dental laboratory business called Unique

Dental Laboratories.

2. Initially, Taxpayer only had one employee. Taxpayer grew to two and then three

employees.

3. Taxpayer provides quality dental laboratory services to local dentists in

transactions supported by executed Non Taxable Transaction Certificates (“NTTCs”). Taxpayer

In the Matter of the Protest of Unique Dental Laboratory, LLC, page 1 of 9
did not impose gross receipts taxes on any invoices for those dental services during the relevant

period.

4. From December 2003 through January 2007, Taxpayer alleged that it calculated,

reported, and paid its gross receipts liability including otherwise deductable transactions for the

sale of a service for resale.

5. In March 2007, Taxpayer hired an accountant, Jerry Kegerreis, to handle its tax

obligations.

6. Taxpayer’s accountant made Taxpayer aware of Taxpayer’s apparent failure to

claim meritorious deductions resulting in the overpayment of gross receipts tax in the previous

CRS filings.

7. On February 22, 2008, Taxpayer submitted a claim for refund to the Department

for $31,525.38 in paid gross receipts taxes from December 2003 through January 20071.

8. On March 19, 2008, the Department sent Taxpayer a letter acknowledging receipt

of Taxpayer’s claim for refund and requesting copies of invoices matching Taxpayer’s NTTCs.

9. Taxpayer called Ms. Eloysa Archuleta of the Department after receipt of this

letter to confirm what information Taxpayer needed to provide in order to substantiate the

February 22, 2008 claim for refund. Taxpayer was informed that it needed to provide all invoices

relating to the NTTCs to the Department.

10. Taxpayer was overwhelmed with the prospects of obtaining all the invoices to

support Taxpayer’s claim for refund and did not submit those invoices in response to the

Department’s March 19, 2008 letter.

1
Neither party could actually produce a copy of the February 22, 2008 claim for refund, so the basis for the claim,
the exact amount of the claim, and tax period of the claim cannot conclusively be found as findings of fact; this
information comes from Taxpayer’s representations in the protest letter and testimony.

In the Matter of the Protest of Unique Dental Laboratory, LLC, page 2 of 9

11. Other than requesting additional information from Taxpayer, the Department took

no action to either approve or deny Taxpayer’s February 22, 2008 claim for refund within 120-

days (June 21, 2008).

12. Taxpayer did not file a formal protest of the Department’s inaction on the original

claim for refund or commence a civil action in the district court on the original claim for refund

within 210-days (September 19, 2008) of its filing of the claim for refund with the Department.

13. Taxpayer filed no other claim for refund before December 31, 2010, three-years

since the end of the calendar year in which Taxpayer’s January 2007 CRS taxes were due.

14. Taxpayer suffered financial difficulties because of the deep economic recession

beginning in 2008. As a result, Taxpayer had to reduce its staff from three employees to two

employees.

15. On May 12, 2012, Taxpayer filed another claim for refund with the Department

for $31,525.38 in gross receipts taxes for periods ending December 2003 through January 2007.

The claim for refund was again premised on deductable transactions supported by NTTCs.

16. On May 21, 2012, via letter identification number L1459749184, the Department

denied Taxpayer’s May 12, 2012 claim for refund on the basis that Taxpayer’s claim for refund

was outside of the three year statute of limitations under NMSA 1978, Section 7-1-26 (2007).

17. On June 14, 2012, Taxpayer protested the Department’s denial of the May 12,

2012 claim for refund, asking that the “statute of limitations be waived or another option be

identified for approving my claim.”

18. Taxpayer submitted copies of its protest to the Department’s Secretary and to the

Governor.

In the Matter of the Protest of Unique Dental Laboratory, LLC, page 3 of 9

19. On July 13, 2012, the Department acknowledged receipt of Taxpayer’s protest

and informed Taxpayer that the Department’s Thomas J. Dillon, CPA, had been assigned

Taxpayer’s protest.

20. On July 18, 2012, Mr. Dillon sent Taxpayer a letter reiterating the lapse of the

statutes of limitations basis for the Department’s denial of the claim for refund.

21. On September 7, 2012, the Department requested a hearing in this matter.

22. On September 11, 2012, the Hearing Bureau sent Notice of Administrative

Hearing, scheduling this matter for December 18, 2012.

23. Taxpayer submitted three exhibits containing it invoices and NTTCs to the

Hearing Bureau before the hearing. At the hearing, the undersigned hearing officer reserved

ruling on the admission of those exhibits and directed Taxpayer to maintain possession of those

exhibits until ordered to produce them to the Hearing Bureau.

DISCUSSION

The legal question at protest in this matter is straightforward in light of the controlling

statute and case-law: whether the Department has any authority to grant a claim for refund after

the Taxpayer failed to timely confront the Department’s inaction on an initial claim for refund

and after the statute of limitations for a new claim had passed? In short answer, regardless of the

merits of Taxpayer’s claim for refund, the Department may not grant Taxpayer’s claim for

refund because the claim is time-barred by operation of law.

In pertinent part under NMSA 1978, Section 7-1-26 (D) (1) (2007), no refund can be

granted unless as a result of a claim made within three-years of the end of the calendar year in

which the tax was due. In this case, Taxpayer claimed a refund for CRS gross receipts tax

reporting period ending January 31, 2007. Under NMSA 1978, Section 7-9-11, those gross

In the Matter of the Protest of Unique Dental Laboratory, LLC, page 4 of 9
receipts taxes were due on February 25, 2007. The end of the calendar year from that gross

receipts tax deadline was December 31, 2007. Under NMSA 1978, Section 7-1-26 (D) (1)

(2007), Taxpayer had until December 31, 2010 to make any claim for refund to the Department.

Taxpayer did make a timely claim of refund on February 22, 2008. On March 19, 2008,

the Department requested additional Taxpayer information to substantiate Taxpayer’s claim for

refund. At that time, Taxpayer did not submit the requested information for the Department.

Probably because the Department never received the additional requested information from

Taxpayer, the Department neither granted nor denied Taxpayer’s February 22, 2008 claim for

refund within 120-days, which occurred on June 21, 2008.

Under NMSA 1978, Section 7-1-26 (b)(2) (2007), when the Department takes no action

on a claim for refund within 120-days from that claim for refund, a taxpayer has 90-days to

either file a protest or commence a civil action in the Santa Fe County District Court. In other

words, a taxpayer has 210-days from the date of filing a claim for refund to either protest the

Department’s inaction or commence a civil action. In this case, when the Department failed to

act on Taxpayer’s February 22, 2008 claim for refund by June 21, 2008, Taxpayer needed to

either file a written protest or commence a civil action by September 19, 2008. Taxpayer did not

assert either option by that September 19, 2008 deadline. By not filing either a protest or civil

action, Taxpayer abandoned the February 22, 2008 claim for refund and the Department was

prohibited by the statute from either approving or disapproving the claim for refund under

NMSA 1978, Section 7-1-26 (b)(2) (2007).

Relevant case law affirms that when the Department takes no action on a claim for

refund, that refund is time barred unless preserved through timely filing of either a protest or a

civil action. In Kilmer v. Goodwin, 136 N.M. 440, 2004-NMCA-122, 99 P.3d 690 (N.M. Ct.

In the Matter of the Protest of Unique Dental Laboratory, LLC, page 5 of 9
App. 2004), the New Mexico Court of Appeals dealt with a similar set of facts and circumstances

as this present protest. In Kilmer, the taxpayer had filed a New Mexico personal income tax

return for tax year 1995. See id. at 443. In 1998, the State of California began auditing the Kilmer

taxpayer because California believed that the taxpayer had been a resident of California in 1995

rather than New Mexico. See id. In response to this California audit, in 1999 the Kilmer taxpayer

filed a protective claim for refund with the Department for the 1995 personal income taxes paid

to New Mexico. See id. The facts in Kilmer establish that the Department took no action on the

Kilmer taxpayer’s protective claim for refund within 120-days of the initial filing of that claim.

See id. at 444. Like in the present protest, the Kilmer taxpayer failed to preserve her claim for

refund within 90-days of the Department’s inaction by either filing a protest or a civil suit. See

id. at 445. And like in the present protest, the statute of limitations prevented the Kilmer taxpayer

from refilling a new claim for refund. See id.

The New Mexico Court of Appeals found in Kilmer that the Legislative purpose with the

deadlines set out in NMSA 1978, § 7-1-26 (D) (1) (2007) is “to avoid stale claims, which

protects the Department's ability to stabilize and predict, with some degree of certainty, the funds

it collects and manages.” id. at 445. The Kilmer court further found that the Legislature placed

the responsibility on a taxpayer to maintain an active claim and to timely confront the

Department’s inactions on a claim. See id. The Kilmer court ultimately held that the Department

lacked either explicit statutory authority under NMSA 1978, § 7-1-26 (D) (1) or implied

authority as an administrative agency to grant that taxpayer’s stale claim for refund beyond the

210-days from the initial filing of that refund. See id. 444-446.

Like in Kilmer, because Taxpayer in this matter failed to either protest or initiate a civil

action for its claim for refund within 210-days of filing that claim, Taxpayer’s claim for refund

In the Matter of the Protest of Unique Dental Laboratory, LLC, page 6 of 9
became stale and the Department was statutorily barred from considering that February 22, 2008

claim for refund any further.

Taxpayer did not file another claim for refund before the expiration of the statute of

limitations on December 31, 2010. Taxpayer’s May 5, 2012 claim for refund was more than 16-

months after the expiration of the statute of limitations. The Department denied that May 5, 2012

claim for refund because it was past the statute of limitations. That denial triggered this protest.

Taxpayer asks that the “statute of limitations be waived or another option be identified for

approving (the) claim.”

However, under the plain language of NMSA 1978, Section 7-1-26 (D) (1) (2007), the

Department had no statutory authority to grant a claim for refund made after three years from the

end of the calendar year in which the tax was due. The reasoning the Court of Appeals cited in

Kilmer, as discussed above, equally applies to a claim for refund filed after the expiration of

statute of limitation under NMSA 1978, Section 7-1-26 (D) (1) (2007). Pursuant to Kilmer, the

Department further lacks any implied authority that might allow it, as Taxpayer requests, to

waive or otherwise find a manner to approve a claim for refund after the expiration of the statute

of limitations. See id. 446. Although Taxpayer points to economic hardship as a basis for

granting the untimely claim for refund, the Legislature has not provided any authority that allows

the Department to consider economic hardship as a basis to grant a claim for refund beyond the

statute of limitations. See NMSA 1978, § 7-1-26 (2007) generally.

Regarding the merits of the underlying claim for refund, it must be noted that Taxpayer

was completely credible in her testimony that she made an honest mistake in paying too much

gross receipts tax to the State. However, under New Mexico's self-reporting tax system, every

person is charged with the reasonable duty to ascertain the possible tax consequences of his or her

In the Matter of the Protest of Unique Dental Laboratory, LLC, page 7 of 9
actions. Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16, 558 P.2d 1155 (Ct. App.

1976), cert. denied, 90 N.M. 255, 561 P.2d 1348 (1977). While Taxpayer made an honest mistake,

it was nevertheless a mistake. Taxpayer could have avoided that mistake initially by further

research or by consultation with a tax professional at the time of the CRS filings. Even after the

mistake was made, Taxpayer still had the power to timely correct that mistake by submitting the

requested invoices to the Department to support the February 22, 2008 claim for refund when

requested in March of 2008 or by timely filing a protest or civil action by September 19, 2008.

The Department has no legal basis to grant Taxpayer’s claim for refund after the

expiration of the statute of limitations regardless of the merits of the underlying claim. To that

end, the undersigned Hearing Officer does not admit Taxpayer’s proposed exhibits, as the

exhibits relate to the merits of the claim for refund. Taxpayer’s protest is denied.

CONCLUSIONS OF LAW

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

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

B. Taxpayer failed to timely preserve its February 22, 2008 claim for refund of 2007

gross receipts tax under the time limitations set out in NMSA 1978, Section 7-1-26 (B)(2) (2007).

C. Taxpayer’s May 5, 2012 claim for refund was beyond the three-year statute of

limitations deadline for the filing of a claim for refund under NMSA 1978, Section 7-1-26 (D) (1)

(2007).

D. The Department lacks the statutory or implicit authority to grant Taxpayer’s claim

for refund pursuant to the rationale and holding of Kilmer v. Goodwin, 136 N.M. 440, 2004-

NMCA-122, 99 P.3d 690 (N.M. Ct. App. 2004).

In the Matter of the Protest of Unique Dental Laboratory, LLC, page 8 of 9
For the foregoing reasons, the Taxpayer's protest IS DENIED.

DATED: January 22, 2013.

Brian VanDenzen, Esq.
Tax Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

In the Matter of the Protest of Unique Dental Laboratory, LLC, page 9 of 9