Could an occupational therapist recover 2004-2009 gross receipts tax after later being told that Medicaid-waiver services might be exempt?

Plain-English summary

Tawanda Latham's June 2013 claim for gross receipts tax paid during 2004 through 2009 was untimely, and the decision also found that her Medicaid-waiver occupational-therapy receipts were taxable. A later employee's statement that she “probably” was exempt did not extend the refund deadline or establish estoppel.

Latham was a licensed occupational therapist and independent contractor. She provided community-based services to people with disabilities enrolled in New Mexico's developmental-disability waiver program, contracted directly with the Department of Health, and received payments from state and federal sources through the Medicaid system.

She had been told when starting the business that she needed to file and pay gross receipts tax. Her 2004–2008 filing and payment history was sporadic.

The refund claim missed both applicable periods

Latham filed the claim on June 21, 2013. For tax paid by its original due date, Section 7-1-26 generally allowed a claim within three years after the end of the calendar year in which payment was due or the overpayment resulted.

Every monthly period from 2004 through 2009 fell outside that deadline.

Latham also asked about two payments toward audited 2008 liability: $5,742.17 paid July 15, 2010 and $778.78 paid September 30, 2010. Because those payments occurred after the original due date, the separate one-year-from-payment limit applied. The 2013 claim missed that period too.

The Medicaid service receipts were taxable

The decision reviewed possible health-care deductions and found none.

Latham was not paid by the United States for services to Medicare beneficiaries, so Section 7-9-77.1 did not apply. She also was not paid by a managed health-care provider or insurer, and the regulation under Section 7-9-93 specifically said receipts from services to Medicaid patients were not deductible.

Her standard Department of Health provider agreement required proof of New Mexico tax registration and said gross receipts tax was the provider's obligation as appropriate. The hearing officer found that the original advice to report and pay tax had been correct.

The Department had granted Latham refunds for 2010 through 2012, but that fact did not change the ruling on the older periods.

No affirmative misconduct supported estoppel

The early Department statements concerned whether Latham should report and pay tax—not whether or when she should file a refund claim. The decision found those statements correct and found no affirmative misconduct.

The later statement that she probably was exempt also did not establish the elements needed to estop a government agency or override the statutory deadline.

Result: protest DENIED. The claim for 2004 through 2009 remained barred, and the services were held taxable.

The claim requested $17,301.97, but the Department's payment history totaled $17,201.97, which Latham did not dispute. The decision repeats the larger requested figure in its conclusion without resolving the $100 discrepancy.

What this means for you

Medicaid service providers

Government funding does not itself create a gross receipts tax deduction. Identify who legally pays you and whether the statute expressly covers that payer and service.

Taxpayers discovering a possible overpayment

File promptly. Different limitation periods may apply depending on whether tax was paid by the original due date or later after an audit or assessment.

Businesses relying on agency conversations

Oral statements about taxability do not necessarily address refund deadlines. Preserve written advice and independently calendar the statutory claim period.

Common questions

Q: Why didn't the Medicare deduction apply?
A: Latham provided Medicaid-waiver services and was not paid by the United States for services to Medicare beneficiaries.

Q: Why didn't the managed-care deduction apply?
A: She was not paid by a managed health-care provider or insurer, and the cited regulation excluded services to Medicaid patients.

Q: Were the two 2010 payments within three years of the claim?
A: That was not enough. Because the 2008 tax was paid late, the decision applied a one-year-from-payment deadline.

Q: Did the ruling decide whether the requested amount was $17,301.97 or $17,201.97?
A: No. It identified the payment-history total as $17,201.97 and noted Latham did not dispute it, but the claim and conclusion used $17,301.97.

Citations and references

Statutes and regulation:

• NMSA 1978, § 7-1-26(D) — refund limitation periods
• NMSA 1978, § 7-9-11 — monthly gross receipts tax due date
• NMSA 1978, §§ 7-9-77.1 and 7-9-93 — specified medical, Medicare, managed-care, and insurer deductions
• Regulation 3.2.241.12(C) NMAC — Medicaid-patient services not deductible under Section 7-9-93
• 42 U.S.C. §§ 1302, 1396, and 1397 — Medicaid under Title XIX

Cases cited:

• Kilmer v. Goodwin, 2004-NMCA-122 — strict refund deadline and stale-claim policy
• Gallegos v. Pueblo of Tesuque, 2002-NMSC-012 — elements and affirmative-misconduct requirement for government estoppel
• Bien Mur Indian Market Center v. Taxation and Revenue Department, 1988-NMCA-104 — reluctance to apply estoppel based only on oral representations

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Tawanda Latham
• Decision PDF: D&O 14-14

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
TAWANDA LATHAM No. 14-14
TO DENIAL OF REFUND ISSUED UNDER LETTER
ID NO. L0002120144

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on January 6, 2014, before

Monica Ontiveros, Hearing Officer. The Taxation and Revenue Department (“Department”) was

represented by Elena Morgan, attorney for the Department. Ms. Mary Griego appeared and

testified as a witness for the Department. Ms. Tawanda Latham (“Taxpayer”) appeared and

testified. The Department introduced into the record Exhibit D. Taxpayer presented Exhibits 1

and 2. Based on the evidence and arguments presented, IT IS DECIDED AND ORDERED AS

FOLLOWS:

FINDINGS OF FACT

1. Taxpayer filed an application or claim for refund for tax years 2004 through 2009

on June 21, 2013. Exhibit 1.

2. Taxpayer requested a refund of $17,301.97 in gross receipts taxes in the application

or claim for refund. Exhibit 1.

3. The Department denied the refund request on October 3, 2013 because the June

2013 application or claim for refund was filed beyond the three year statute of limitations. Letter

ID No. L0002120144.

4. Taxpayer protested the denial of the refund on October 9, 2013.

5. The Department requested a hearing in this matter on November 6, 2013.

6. On November 14, 2013, the Hearings Bureau mailed a Notice of Administrative
   Hearing in this matter setting the hearing for January 6, 2014.

7. During the tax period, Taxpayer provided community based services as a licensed

occupational therapist to individuals with disabilities who were enrolled in the developmental

disability waiver program with the State of New Mexico. Taxpayer contracted directly with the

Department of Health, State of New Mexico but received payment for services from both federal

and state sources.

8. Taxpayer is an independent contractor and began her business in 2004, but she

starting contracting with the Department of Health, State of New Mexico in 2005. (This testimony

is unclear since Taxpayer’s application for refund included the 2004 tax year.)

9. Taxpayer was told by a Department employee in 2004 or 2005 that she was

required to file returns and pay taxes on the gross receipts she received from performing services

for the Department of Health.

10. Taxpayer sporadically filed paid gross receipts taxes for tax periods 2004 through

11. Exhibit D. The total amount of payments for these tax periods is $17,201.97. Exhibit D.

Taxpayer did not dispute that the payments add to $17,201.97 instead of 17,301.97.

11. Taxpayer was issued a limited scope audit by the Department for tax year 2008.

Taxpayer made two payments towards the liability of tax for tax year 2008. One payment was

made for $5,742.17 on July 15, 2010 and the other payment was for $778.78 made on September

30, 2010.

12. Taxpayer requested a refund of any gross receipts taxes paid for tax years 2010

through 2013. The Department granted Taxpayer’s request for a refund for these tax periods.

In the Matter of Tawanda Latham
page 2 of 10

13. In September 2012, Taxpayer was notified that she was not in compliance with her

reporting requirements.

14. On October 25, 2012, Taxpayer went to the Department’s office in Albuquerque to

discuss the matter and she was provided a list of non-filed reporting periods from Mabel. (CD

05:21-05:38). Taxpayer was in the process of working out a payment plan when Taxpayer was

directed to speak with Michelle Gonzales from the Department. (CD 05:50-5:58).

15. Taxpayer stated in her protest letter that she was audited in November 2012 and

that she spoke with Michelle Gonzales on December 7, 2012. Protest Letter dated October 9,

2013.

16. At some point, Taxpayer was told by Michelle Gonzales from the Department that

she probably was exempt from paying gross receipts taxes. (CD 06:50-06:55).

17. Taxpayer applied and received a refund from the Department for tax years 2010

through 2012.

18. Taxpayer testified that “nobody ever let her know” that she was entitled to a refund.

(CD 32:47-34:03).

19. Taxpayer does not have any nontaxable transaction certificates (NTTCs) for any

transactions.

DISCUSSION

The issue to be determined is whether Taxpayer is entitled to a refund amount of

$17,301.97 which she requested on June 21, 2013. There are no factual issues in dispute.

Taxpayer argued that she was unable to file a timely refund claim because she did not know that

In the Matter of Tawanda Latham
page 3 of 10
she was entitled to the refund because she had initially been told by a Department employee that

she should be filing and reporting gross receipts taxes.

Claim for Refund.

Generally speaking, a claim for refund must be filed within three years from the end of the

calendar year in which the payment was originally due or the overpayment was made. NMSA

1978, §7-1-26 (D) (2007). The statute is fairly clear and states that: “…no credit or refund of any

amount may be allowed or made to any person … (1) within three years of the end of the calendar

year in which: (a) the payment was originally due or the overpayment resulted from an

assessment…”. The payment for each monthly reporting period was due on or before the 25th of

the month following the month in which the taxable event occurred. NMSA 1978, §7-9-11

(1969). In addition, a claim for refund may be filed one year after the tax was paid if the tax was

not paid by the original due date. NMSA 1978, §7-1-26(D)(4)(2013).

The claim for refund statute absolutely bars the Department from acting on a claim for

refund that is not filed within the time period set out in the statute. See Kilmer v. Goodwin, 2004-

NMCA-122, 136 N.M. 440, 99 P.3d 690. It is incumbent on a taxpayer to file the protest or action

in court within the statutory period. See id. at ¶21. The court in Kilmer stated that “The purpose

of the time deadline in Section 7-1-26 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.”

See id. at ¶16.

In this case, the claim for refund of $17,301.97, which was filed on June 21, 2013, was

filed untimely for all of the tax periods from 2004 through 2009. Taxpayer was required to file

In the Matter of Tawanda Latham
page 4 of 10
her claim for refund no later than the end of the calendar year following three years after each

monthly return was due. The protest auditor, Mary Griego, nicely set out the three year statute of

limitations for each reporting period on a spreadsheet and the spreadsheet clearly indicates that the

application for refund was filed untimely. Exhibit D. Therefore, the claim for refund was filed

untimely by Taxpayer.

The other issue Taxpayer raised at the hearing was whether the statute of limitations

applied to her payments made in 2010 for tax year 2008. For tax year 2008, Taxpayer was issued

a limited scope audit indicating she had a tax liability. Taxpayer made two payments towards the

liability of tax for tax year 2008: One payment was made for $5,742.17 on July 15, 2010 and the

other payment of $778.78 was made on September 30, 2010. While the three year statute of

limitation does not apply, the one statute of limitation found in Section 7-1-26(D)(4) prohibits the

Department from granting a refund if the application or claim for refund is filed more than one

year after the tax was paid. In this case, the claim for refund was filed more than one year from

the date the payments were made. Therefore the refund of the payments made in 2010 is time

barred.

Taxpayer argued that the reason she did not file her claim for refund timely was that

initially she had been told that she was required to pay gross receipts taxes for performing services

under the developmental disability waiver program administered through the Department of

Health. In reviewing the Gross Receipts Tax Act for both exemptions and deductions, the

information provided to Taxpayer when she started her business and the information provided by

Mabel from the Department of Taxation and Revenue appears to be in compliance with the Gross

In the Matter of Tawanda Latham
page 5 of 10
Receipts Tax Act, §§7-9-1 through 7-9-114. Taxpayer provided a service directly to the State of

New Mexico, Department of Health to Medicaid recipients, and she received payments through

the Medicaid Management Information System through the Human Services Department, State of

New Mexico. Taxpayer was a provider of Medicaid services under Title XIX of the Social

Security Act, 42 U.S.C §§ 1302, 1396, 1397(2009).

In reviewing Taxpayer’s assertion that the information initially provided to her was

incorrect, a review of deductions which may apply to Taxpayer is warranted. Taxpayer did not

receive payments from the United States government for services provided to Medicare

beneficiaries and therefore she was not eligible for the deduction under §7-9-77.1 (2007).

Taxpayer was did not receive payment from a managed health care provider or health care insurer

and therefore was not eligible for the deduction under NMSA 1978, §7-9-93 (2007). In fact

regulation 3.2.241.12(C) NMAC (5/31/06) states that “receipts from providing services to

medicaid patients” are not deductible under §7-9-93. (Emphasis added). Therefore, the

information provided by the Department employee in 2004 or 2005 and by Mabel from the

Albuquerque office of the Department appears to be correct: Taxpayer’s services to Medicaid

recipients were gross receipts and she was required to file returns and pay tax on those receipts.

The Hearing Officer is unaware of any exemption that may apply to Taxpayer.

Equitable Estoppel.

Taxpayer did not use the phrase “equitable estoppel” when she argued that she was entitled

to a refund, but a quick review of the elements of equitable estoppel will be discussed. The

argument proposed by Taxpayer is that the statements made by Department employees in 2004 or

In the Matter of Tawanda Latham
page 6 of 10
2005 and again by Mabel relating to her whether she was required to file gross receipts somehow

now require the Department to refund her $17,301.97.

Generally, the courts are reluctant to apply equitable estoppel against a government to

agency. Gallegos v. Pueblo of Tesuque, 2002-NMSC-12, §24, 132 N.M. 207, 46 P.3d 668.

Before the courts will apply estoppel, the state’s conduct must be “shocking degree of aggravated

and overreaching conduct or where right and justice demand it.” Wisznia v. State, Human Servs.

Dep’t, 1998-NMSC-11, §17, 125 N.M. 140, 958 P.2d 98. Moreover, the courts are reluctant to

apply equitable estoppel against a government agency if there are no written assurances made and

only oral representations exist. Bien Mur Indian Mkt. Ctr., 1988-NMCA-104,108 N.M.355, 772

P.2d 885. The elements Taxpayer would need to prove that estoppel applies against the

Department are: “(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.” Gallegos 2002-NMSC-12, §24 n.5. In addition to these four elements,

there must be “affirmative misconduct on the part of the government.” Gallegos 2002-NMSC-12,

§24 n.5.

In applying these principals to Taxpayer’s argument, the statements made by Mabel and

the Department employee who met with Taxpayer when she started her business, do not relate to

when or if Taxpayer should file a claim for refund. The statements relate to whether Taxpayer

should be filing and paying gross receipts taxes and they have nothing to do with whether

Taxpayer should file a refund claim. These employees believed, as this Hearing Officer believes,

In the Matter of Tawanda Latham
page 7 of 10
Taxpayer was required to pay gross receipts taxes on the services she performs as described

herein. For estoppel to apply, there needs to be affirmative misconduct on the part of the

government employees. Since there is no affirmative misconduct and since there are no

statements that relate to Taxpayer’s claim for refund, equitable estoppel does not apply in this

case.

In preparing this Decision and Order, the Hearing Officer requested a copy of Taxpayer’s

contract (public record) with the Department of Health from the Department of Health to better

understand the contractual agreement between Taxpayer and the Department of Health. The

Hearing Officer reviewed the contract (public document) and she is taking notice of the contract

pursuant to regulation 3.1.8.10(C) NMAC (2001). The terms of the agreement do not relate in any

way to whether the claim for refund was filed timely, nor are the terms of the contract “material”

to the facts. The contract and its terms are not relevant to the statute of limitation issue, which is

the sole issue of this case. The contract is made part of this record.

The contract provided by the Department of Health is a standard contract entered into with

all “providers” for “medicaid reimbursed services” to developmental disabled recipients. See

TERM OF PROVIDER AGREEMENT, page 1 of the contract and Title of contract. Most

importantly, under Article 35 of the contract titled GROSS RECEIPTS AND INCOME TAXES,

Taxpayer was required to provide “proof” that she was registered with the New Mexico Taxation

and Revenue Department for the payment of gross receipts tax and that “any payment of gross

receipt tax shall be the obligation of the provider as appropriate.” This evidence is additional

evidence that Taxpayer was required to file and pay gross receipts taxes and that Taxpayer was

In the Matter of Tawanda Latham
page 8 of 10
properly informed of her tax obligations.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely written protest on October 3, 2013 to the denial of the claim

for refund for $17,301.97 and jurisdiction lies over the parties and the subject matter of this protest.

B. The application or claim for refund for tax years 2004-2009 was filed on June 21,

2013 and it was filed untimely pursuant to NMSA 1978, §7-1-26 (D) (2007).

C. The application or claim for refund of the payments made in 2010 for the 2008 tax

liability was filed untimely pursuant to NMSA 1978, §7-1-26(D)(4)(2013).

D. Equitable estoppel does not apply in this matter because there was no affirmative

misconduct by the Department.

E. Taxpayer was required to file and pay gross receipts taxes for all tax years she

provided services to the Medicaid recipients under the contract with the Department of Health.

For the foregoing reasons, the Taxpayer's protest is DENIED.

DATED: April 17, 2014.

Monica Ontiveros
Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

In the Matter of Tawanda Latham
page 9 of 10
NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, Section 7-1-25 (1989), Taxpayer has the right to appeal this

decision by filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the

date shown above. See, Rule 12-601 NMRA. If an appeal is not filed within 30 days, this

Decision and Order shall become final. A copy of the Notice of Appeal should be mailed to John

Griego, Taxation & Revenue Hearings Bureau at P.O. Box 630 Santa Fe, New Mexico 87504-

630. Mr. Griego may be contacted at 505-827-0466.

In the Matter of Tawanda Latham
page 10 of 10