Could New Mexico sustain a gross receipts tax assessment against Mariah Ranch when the disputed receipts were outside the assessed period or belonged to Lawrence Burke personally?

Plain-English summary

Mariah Ranch won a complete abatement because the assessment targeted receipts outside its stated tax period and director fees received by a different taxpayer. The Department had assessed the sole proprietorship for $24,818.11 tax, $4,963.62 penalty, and $3,705.96 interest for June 1 through December 31, 2009.

The hearing officer held that the $525,046 in disputed wages or receipts attributed to owner Lawrence Burke fell outside the assessed period. The separate $10,000 director's fee was received by Burke personally, not by Mariah Ranch. The Department had not assessed Burke.

The notice defined both the taxpayer and the period at issue

Mariah Ranch was a New Mexico sole proprietorship owned by Lawrence Burke. Mariah Media, Inc. and Mariah Media, LLC were separate entities and were not the taxpayer in this protest.

Section 7-1-17(B)(2) required the assessment to identify the person against whom liability was asserted and state the nature and amount of the tax. Because the notice named Mariah Ranch, the hearing officer treated Mariah Ranch—not Burke or either Mariah Media entity—as the taxpayer whose liability could be decided.

The $525,046 could not be adjudicated under this assessment

The Department conceded that the $525,046 was received outside the assessed period. The decision therefore held that the notice did not state the correct tax period for those receipts and that the hearing officer lacked jurisdiction to decide their merits.

The ruling's dates contain an apparent internal inconsistency worth noting: Finding 13 says the receipts were received from January 1 through June 30, 2009, while the assessed period began June 1; the discussion and conclusions nevertheless treat all $525,046 as outside the assessed period or received before June 1. The final order abated all related tax, penalty, and interest.

The director's fee belonged to Burke, not Mariah Ranch

Burke received $10,000 for services as a director. The Department did not prove that he received those fees while doing business as Mariah Ranch or that the fees were attributable to the proprietorship.

The decision concluded that Burke owed gross receipts tax on the director's fees, but the Department had failed to assess him. Because Mariah Ranch did not earn or receive the fees, its related tax, penalty, and interest were abated.

Result: protest GRANTED. The complete assessment against Mariah Ranch was abated.

What this means for you

Businesses reviewing an assessment

Check the exact legal taxpayer, tax period, and receipts identified in the notice. An assessment against one business does not automatically establish liability against an owner or a separate entity.

Sole proprietors using multiple business entities

Keep records showing which individual or entity earned each payment. Similar names and common ownership do not erase separate taxpayer identities.

Taxpayers facing a period mismatch

Compare transaction dates with the period on the assessment. This decision did not reach the merits of receipts it held were outside that period.

Common questions

Q: Why was the $525,046 removed?
A: The Department conceded, and the decision held, that those receipts were outside the period identified in the assessment.

Q: Why did Mariah Ranch not owe tax on the $10,000 director's fee?
A: Burke received the fee personally, and the Department did not prove it was attributable to Mariah Ranch.

Q: Did the decision say the director's fee was tax-free?
A: No. It said Burke owed gross receipts tax on it, but the Department had not assessed Burke.

Q: Was the assessment only partly reduced?
A: No. The protest was granted and all tax, penalty, and interest assessed against Mariah Ranch were abated.

Citations and references

Statutes:

• NMSA 1978, §§ 7-1-3(Y) and 7-1-17(B), (C) — taxpayer definition, required assessment content, and presumption of correctness
• NMSA 1978, §§ 7-1-24 and 7-1-24.1(A)(1) — protest and hearing jurisdiction

Cases cited:

• Breen v. New Mexico Taxation and Revenue Department, 2012-NMCA-101 — gross receipts tax liability belongs to persons engaging in business
• Comer v. State Tax Commission of New Mexico, 1937-NMSC-032 — gross receipts tax is levied against the owner's or operator's business
• Severns v. New Mexico Taxation and Revenue Department, No. 31,817 (N.M. Ct. App. Apr. 1, 2013) — the protestant is the person or entity named on the assessment

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Mariah Ranch
• Decision PDF: D&O 15-09

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
MARIAH RANCH No. 15-09
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L1681751504

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on February 4, 2015, before

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

represented by Cordelia Friedman, attorney for the Department. Mary Griego, protest auditor,

appeared as a witness for the Department. Mariah Ranch (“Taxpayer”) was represented by

Timothy R. Van Valen, Esq. from the Brownstein Hyatt Farber Schreck, LLP firm. Also

appearing on Taxpayer’s behalf was William Schudlich, Chief Financial Officer of Mariah Media,

Inc. and Mariah Media, LLC, and Dennis R. Burt, CPA and Carol M. Wilkens, CPA, from Burt &

Company CPAs, LLC. No exhibits were introduced into the record. Both parties were

encouraged to review each other’s exhibits and, if possible, stipulate to the authenticity of the

documents.

In addition to the pleadings and filings referred to in the Findings, the record contains the

following: New Mexico Taxation and Revenue Department’s Request to Use Scheduled Merits

Hearing Time to Conduct a Scheduling Conference filed on August 29, 2014; Amended Notice of

Administrative Hearing Setting Telephonic Scheduling Conference issued on September 4, 2014;

Scheduling Order and Notice of Administrative Hearing issued on September 11, 2014; New

Mexico Taxation and Revenue Department’s First Witness and Exhibit List filed on November 17,
2014; Mariah Media Inc.-Lawrence Burke Preliminary Witness and Exhibit List filed on

November 17, 2014; Certificate of Service filed on November 26, 2014; Notice of Reassignment

issued on December 17, 2014; Certificate of Service filed on December 18, 2014; Mariah Media

Inc. (Ranch)-Lawrence Burke’s Responses and Objections to the Department’s First Requests for

Admission, Interrogatories, and Requests for Production of Documents filed on December 24,

2014; Certificate of Service filed on December 24, 2014 and Certificate of Service filed on

January 21, 2015.

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

FOLLOWS:

FINDINGS OF FACT

1. On April 3, 2014, the Department issued an assessment in gross receipts tax to

Taxpayer in the amount of $24,818.11 in principal, $4,963.62 in penalty, and $3,705.96 in interest

for the tax period of June 1, 2009 through December 31, 2009. Letter Id. No. L1681751504.

2. Taxpayer filed a protest to the assessment on June 25, 2014.

3. The Department acknowledged the protest on July 8, 2014. Letter Id. No.

L1798321104.

4. On August 25, 2014, the Department requested a hearing in this matter.

5. On August 28, 2014, the Hearings Bureau mailed a Notice of Administrative

Hearing setting the hearing for September 11, 2014. The hearing was continued to February 4,

2015.

6. Mariah Ranch is a sole proprietorship owned by Lawrence Burke. [02-04-15 CD

10:50-11:10].

7. In this matter, Taxpayer is Mariah Ranch.

In the Matter of Mariah Ranch
page 2 of 6

8. Mariah Ranch is registered as a business in New Mexico.

9. Mariah Media, Inc. is a separate corporate entity and is not Taxpayer in this matter.

10. Mariah Media, LLC is a separate corporate entity and is not Taxpayer in this

matter.

11. Mariah Media, Inc. made payments to Lawrence Burke from January 1, 2009

through June 2009. [02-04-15 CD 12:20-12:31].

12. Lawrence Burke received $10,000.00 in director’s fees and these fees were

remuneration for services performed in New Mexico. [02-04-15 CD 09:52-9:57; 24:40-24:47].1

13. The disputed amount of wages earned or gross receipts received ($525,046.00) was

received by Lawrence Burke from January 1, 2009 through June 30, 2009. [02-04-15 CD 33:23-

35:04].

DISCUSSION

At the commencement of the hearing, the hearing officer raised the issue that Taxpayer in

this matter is Mariah Ranch. Taxpayer responded by stating that the Department did not assess

Lawrence Burke because the Department did not create a CRS number for Lawrence Burke. [02-

04-15 13:52-14:10]. The hearing officer noted that Mariah Ranch is the only taxpayer who is

named on the Notice of Assessment and “whom the liability for tax is asserted.” See NMSA 1978,

Section 7-1-17(B)(2)(2007). A taxpayer is defined by the Tax Administration Act as any

individual or entity “…liable for payment of any tax … to whom an assessment has been made.”

1
The Responses to the Department’s First Requests for Admission, Interrogatories, and Requests
for Production of Documents filed by Taxpayer indicate that the director’s fee, while gross
receipts, were received in January 2009, which is outside of the assessed tax period. [12-24-14
RES 4-5].

In the Matter of Mariah Ranch
page 3 of 6
NMSA 1978, Section 7-1-3(Y)(2013). The protestant is the person or entity named on the Notice

of Assessment. Severns v. N.M. Taxation & Revenue Dep’t., No. 31,817, mem. op at 28 (N.M. Ct.

App. April 1, 2013) (non-precedential). In addition, the court held in Breen v. State of N.M.

Taxation & Revenue Dep't, 2012-NMCA-101, ¶ 31, 287 P.3d 379, “…that only those persons who

engage in business can be held liable for the gross receipts tax. As explained by the Supreme

Court, ‘the [gross receipts] tax is levied against the business of an owner or operator[.]’ Comer v.

State Tax Comm’n of N.M., 41 N.M. 403, 406, 60 P.2d 936, 938 (1937).” Regardless, any wages

or receipts earned or received were received by Lawrence Burke. For purposes of this Decision

and Order, the only Taxpayer in this matter is Mariah Ranch.

Mr. Van Valen raised the issue that the disputed amount of wages or gross receipts

($525,046.00) was earned outside of the assessed tax period. The Department’s attorney, Ms.

Friedman, conceded that Mr. Van Valen was correct insofar as the disputed amount of gross

receipts was received by Lawrence Burke outside of the assessed time period. [02-04-15 CD 33:2-

35:04].2 She also agreed with the hearing officer that the hearing officer has no jurisdiction

because the Notice of Assessment did not incorporate the correct tax period and therefore the

Notice of Assessment failed to state the nature of the amount of tax at issued pursuant to NMSA

1978, Section 7-1-17(B)(2) (2007). See also, Section 7-1-24 (2013) and Section 7-1-24.1(A)(1)

(2013) which provide that a hearing officer shall be designated to hold a hearing of a protest of an

assessment. Therefore, a hearing on the merits cannot proceed because the disputed wages or

gross receipts were earned or received outside of the assessed tax period.

2
The Responses to the Department’s First Requests for Admission, Interrogatories, and Requests
for Production of Documents filed by Taxpayer provide that the wages or gross receipts were
earned or received between January 1, 2009 and June 30, 2009. [12-24-14 RES 4-5].

In the Matter of Mariah Ranch
page 4 of 6
CONCLUSIONS OF LAW

A. Taxpayer filed a timely written protest to the Notice of Assessment Letter Id. No.

L1681751504 for gross receipts tax principal, penalty and interest for the tax period June 1, 2009

through December 31, 2009.

B. Jurisdiction rests over the subject matter of this protest only as it relates to the

director’s fees or $10,000.00, if those fees were earned from June 1, 2009 through December 31,

2009.

C. The Department presented insufficient evidence that Lawrence Burke was doing

business as Mariah Ranch and that the director’s fees were attributable to Mariah Ranch.

D. Jurisdiction does not rest over the subject matter of the disputed wages or gross

receipts of Lawrence Burke in the amount of $525,046.00.

E. The hearing was timely set as required by NMSA 1978, Section 7-1-24.1(A) (2013).

F. Pursuant to NMSA 1978, Section 7-1-17(C) (2007), the Department’s assessment

is presumed to be correct, and it is Taxpayer’s burden to come forward with evidence and legal

argument to establish that it was entitled to an abatement.

G. Any wages or receipts earned or received in the amount of $525,046.00 by

Lawrence Burke were earned or received prior to the tax period at issue or before June 1, 2009 and

therefore any principal tax, penalty and interest assessed is abated.

H. Taxpayer does not owe gross receipts tax on the $10,000.00 in director’s fees

because Mariah Ranch did not earn or receive the director’s fees, and therefore any principal tax,

penalty and interest assessed is abated.

I. Lawrence Burke owes gross receipts tax on the $10,000.00 in director’s fees;

however, the Department failed to assess him.

In the Matter of Mariah Ranch
page 5 of 6
For the foregoing reasons, the Taxpayer's protest IS GRANTED.

DATED: March 5, 2015

Monica Ontiveros

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

In the Matter of Mariah Ranch
page 6 of 6