Could Strategic Consulting recover 2006-2008 gross receipts tax in 2014 by relying on oral Department advice that out-of-state consulting receipts were taxable?

Plain-English summary

Strategic Consulting Associates could not recover $5,693.42 of gross receipts tax paid for 2006 through March 2008 because its October 2014 refund claim came years after the three-year deadline. Ambiguous oral advice from unidentified Department employees did not permit an administrative hearing officer to order a refund contrary to the statute.

Gene Polito began the consulting sole proprietorship in late 2005 or early 2006. It performed most services outside New Mexico and some within the state.

Polito called Department employees while setting up the business. He understood them to say gross receipts tax applied to all receipts from in-state and out-of-state clients, and the business paid tax on out-of-state consulting receipts through March 2008.

After operations stopped during the recession, Polito revived the business as a corporation in 2013. A tax preparer then told him that receipts from services performed outside New Mexico were not taxable. The Department granted a refund for an unspecified 2013 period, and Strategic later sought the older refund.

The final claimed period had expired by 2011

Section 7-1-26(D)(1) allowed a refund only on a claim made within three years after the end of the calendar year in which tax was due.

The final reporting period ended March 31, 2008, and its tax was due April 25, 2008. The claim for that period therefore was due by December 31, 2011. Every earlier claimed period expired no later.

The Department had no authority to grant the October 28, 2014 claim, regardless of when Polito learned that tax might not have been owed.

The oral advice was too uncertain to establish error

Polito did not know the employees' names and received nothing in writing. He could not specifically recall whether he told them that services would be performed outside New Mexico.

That distinction mattered. Section 7-9-3.5(A)(1) covered services performed in New Mexico and out-of-state services whose product was initially used in New Mexico. Advice that receipts from out-of-state clients could be taxable was not necessarily wrong if the service location or initial-use facts brought them within the statute.

Without the exact disclosed facts and exact response, the AHO could not conclude that the Department gave incorrect advice.

Estoppel could not override the refund deadline

Even assuming the advice was inaccurate, Polito did not consult another tax professional at the time and had no written Department direction. New Mexico's self-reporting system charged the taxpayer with determining possible tax consequences.

The AHO found equitable estoppel unavailable as an administrative remedy and noted that courts apply it reluctantly against the state in tax collection. Oral statements generally were insufficient, and estoppel could not compel a refund barred by an express statute.

Result: protest DENIED. The $5,693.42 refund remained denied.

What this means for you

Consultants serving out-of-state customers

Customer location alone does not answer New Mexico gross-receipts treatment. Document where each service is performed and where the service product is initially used.

Taxpayers seeking Department guidance

Preserve the question, all relevant facts, the responder's identity, and written guidance. An undocumented phone conversation may be impossible to reconstruct years later.

Businesses discovering historical overpayments

Calculate refund deadlines immediately by reporting period. Later professional advice or a refund for a newer year does not reopen expired older periods.

Common questions

Q: How much refund did Strategic seek?
A: $5,693.42.

Q: What years were covered?
A: Reporting periods from January 2006 through March 2008.

Q: What was the last possible timely date identified in the decision?
A: December 31, 2011 for the March 2008 reporting period.

Q: Did the AHO find that the Department definitely gave wrong advice?
A: No. The content of the calls and the facts disclosed were too ambiguous.

Q: Did the 2013 refund preserve the older periods?
A: No. Each older reporting period had its own expired limitation date.

Q: Could equitable estoppel require the refund?
A: No. It could not compel agency action contrary to the statutory deadline.

Citations and references

Statutes:

• NMSA 1978, § 7-1-26(D)(1) — three-year refund-claim limitation
• NMSA 1978, § 7-9-3.5(A)(1) — receipts from New Mexico services and certain services performed outside New Mexico

Cases cited:

• Kilmer v. Goodwin, 2004-NMCA-122 — stale refund claims, oral statements, and lack of agency authority after the deadline
• Tiffany Construction Co. v. Bureau of Revenue, 1976-NMCA-127 — taxpayer duty to ascertain possible tax consequences
• AA Oilfield Service v. New Mexico State Corporation Commission, 1994-NMSC-085 — equitable remedies outside an administrative agency's quasi-judicial authority
• Taxation & Revenue Department v. Bien Mur Indian Market Center, Inc., 1989-NMSC-015 — reluctance to apply estoppel against the state in tax matters
• Rainaldi v. Public Employees Retirement Board, 1993-NMSC-028 — estoppel cannot require conduct contrary to statute

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Strategic Consulting Associates
• Decision PDF: D&O 15-22

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
STRATEGIC CONSULTING ASSOCIATES No. 15-22
TO THE DENIAL OF REFUND ISSUED
UNDER LETTER ID NO. L0984153040

DECISION AND ORDER

A protest hearing occurred on the above captioned matter on June 18, 2015 before Brian

VanDenzen, Esq., Chief Hearing Officer, in Santa Fe. At the hearing, Gene Polito, President of

Strategic Consulting Associates (“Taxpayer”) appeared pro se. Staff Attorney Elena Morgan

appeared representing the State of New Mexico Taxation and Revenue Department

(“Department”). Protest Auditor Mary Griego appeared as a witness for the Department.

Taxpayer Exhibits #1-8 and #11-15 were admitted into the record. Department Exhibit J was

admitted into the record. 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. On October 28, 2014, Taxpayer filed a claim for refund with the Department for

$5,693.42 in gross receipts tax for the CRS reporting periods from January 1, 2006 through

March 1, 2008.

2. On November 10, 2014, through letter id. no. L0984153040, the Department

denied Taxpayer’s claim for refund, citing that the statute of limitations had expired.

3. On November 20, 2014, Taxpayer protested the Department’s denial of claim for

refund.

4. On March 31, 2015, the Department’s protest office received the protest.

5. On April 2, 2015, the Department’s protest office acknowledged receipt of the

protest.

6. On May 20, 2015, the Hearings Bureau1 first learned of this protest when the

Department filed its request for hearing.

7. On May 21, 2015, the Hearings Bureau set this matter for a scheduling hearing on

June 5, 2015.

8. On June 5, 2015, a scheduling hearing occurred in this matter where a merits

hearing date was selected.

9. On June 5, 2015, the Hearings Bureau sent Notice of Administrative Hearing,

scheduling this matter for a merits hearing on June 18, 2015.

10. Mr. Polito began Taxpayer as a sole proprietorship sometime in late 2005 or early

2006.

11. Taxpayer performed consulting services mainly outside of New Mexico, with

some of the services occurring within New Mexico.

12. As part of setting up his business, in late 2005 and/or early 2006, Mr. Polito

consulted with Department employees over the phone about Taxpayer’s gross receipts tax

obligations. Department employees apparently informed Mr. Polito orally that gross receipts tax

was required on all of Taxpayer’s receipts, whether from in-state or out-of-state clients2.

[Taxpayer Ex. #1].

1
On July 1, 2015, pursuant to enacted Senate Bill 356, the Hearings Bureau became the Administrative Hearings
Office (“AHO”). Since most of the events, except issuance of this decision, occurred before that date, the Hearings
Bureau will be referenced in the findings of fact even though the decision is issued under AHO’s caption.
2
It is unclear whether the Department employees told Taxpayer that receipts from out-of-state clients were subject
to gross receipts tax or that the performance of a service out-of-state was subject to gross receipts tax, which will be
addressed further in the discussion section.

In the Matter of the Protest of Strategic Consulting Associates, page 2 of 8

13. Mr. Polito did not receive any written advice from Department employees and did

not know the names of the Department employees he had consulted with about Taxpayer’s gross

receipts tax obligations.

14. In 2005 or 2006, Mr. Polito did not consult with any other tax professionals about

Taxpayer’s potential gross receipts tax liabilities.

15. During the relevant periods, from the combined reporting periods ending on

January 31, 2006 through March 31, 2008, Taxpayer paid gross receipts tax totaling $5,693.42

for receipts he earned from out-of-state consultation services. [Taxpayers Ex. #5]

16. In 2008, the downturn in the economy caused Taxpayer’s business to stagnate and

Mr. Polito sought employment rather than continue to operate Taxpayer’s business.

17. Mr. Polito worked as an employee from January 2009 through approximately

April 2013. During that time, Taxpayer stopped business operations.

18. In April 2013, Mr. Polito left his previous employment to revive defunct

Taxpayer as a corporation.

19. Taxpayer received a new CRS number when it incorporated in 2013.

20. As part of reviving Taxpayer’s business in 2013, Mr. Polito consulted with a tax

preparer, whom informed Mr. Polito that any receipts derived from the performance of an out-of-

state service was not subject to gross receipts tax, including the previous receipts in 2006 through

2008.

21. In January of 2014, Taxpayer filed a claim for refund for an unspecified CRS

reporting period that ended at some point during 2013. The Department granted Taxpayer’s

claim of refund of 2013 gross receipts tax.

In the Matter of the Protest of Strategic Consulting Associates, page 3 of 8

22. After filing this first claim for refund, on October 28, 2014 Taxpayer filed the

claim for refund at issue in this protest and discussed in finding of fact #1.

23. The Department provided a complete list of when each of Taxpayer’s claims for

refund for each reporting period must have been filed to satisfy the statute of limitations. For the

last reporting for which Taxpayer claimed a refund, for the reporting period ending on March 31,

2008, any request for refund would have been due no later then December 31, 2011. [Department

Ex. J].

24. The statute of limitations for each of Taxpayer’s refund claims had lapsed for

each period by the time Taxpayer filed the claim for refund. [Department Ex. J].

DISCUSSION

There are two legal issues in this protest. The first issue is whether the Department has

the authority to grant Taxpayer’s claim for refund on reporting periods where the statute of

limitations had lapsed by the time of Taxpayer’s claim. The second issue is whether Taxpayer is

nevertheless entitled to relief despite the statute of limitations issue because of the oral

statements of Department employees made when setting up the sole proprietorship in late 2005

or early 2006 that gross receipts tax was required for receipts from out-of-state clients.

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. The statute does not require a finding that Taxpayer was aware of the

statute of limitations deadlines. At issue in this protest is the payment of gross receipts tax. Gross

receipts tax are due on the 25th of the following month after the taxable receipts were received.

See NMSA 1978, Section 7-9-1. Looking to the last period at issue, the reporting period ending

on March 31, 2008, gross receipts tax were due on April 25, 2008. Therefore, under NMSA

In the Matter of the Protest of Strategic Consulting Associates, page 4 of 8
1978, Section 7-1-26 (D) (1) (2007), Taxpayer had three years from the end of 2008 to file a

claim for refund for the March 31, 2008 gross receipts tax, which was December 31, 2011.

After this December 31, 2011, any claim for refund for the March 31, 2008 period (and

those periods before March 31, 2008), were time barred by the statute of limitations. 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. In Kilmer v. Goodwin, 2004-NMCA-122, ¶16, 136 N.M. 440, the Court

of Appeals noted that the Legislative purpose of the deadlines under NMSA 1978, 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.” The Department properly denied

the refund claim because it lacked authority to grant Taxpayer’s claim for refund filed after the

expiration of the statute of limitations. See Kilmer, ¶24.

Taxpayer also argued that despite the statute of limitations issue, the refund must be

granted because Mr. Polito relied on the advice of Department employees in late 2005 and/or

early 2006 to pay gross receipts taxes on receipts received from out-of-state clients. These

conversations apparently occurred during a series of telephone calls in late 2005 and/or early

2006 when Taxpayer was starting its business. During testimony, Mr. Polito could not

specifically recall telling the Department employees that the services would be performed out-of-

state. Mr. Polito also testified that some of the services were performed in New Mexico as well

as traveling out-of-state.

Regarding the statements themselves, it is unclear whether the Department employees

advised that gross receipts tax was owed on receipts from out-of-state clients, as suggested in

Mr. Polito’s description of the advice in Taxpayer Ex. 1, or from the performance of a service

In the Matter of the Protest of Strategic Consulting Associates, page 5 of 8
outside of New Mexico. This is an important distinction under NMSA 1978, Section 7-9-3.5 (A)

(1) (2007) in determining Taxpayer’s potential gross receipts tax liability (gross receipts includes

“selling a service outside of New Mexico, the product of which is initially used in New Mexico,

or from performing services in New Mexico.”). If the Department employees believed that

Taxpayer was performing the service in New Mexico, even if the receipts were received from

out-of-state clients, or if they believed that the product of the out-of-state service would be

initially used in New Mexico, their advice was not necessarily in error in light of Section 7-9-3.5

(A) (1). Without knowing exactly what Mr. Polito informed the Department employees about the

nature of Taxpayer’s business transactions and what exact advice the Department employees

provided Taxpayer in 2006, it cannot be conclusively stated that the Department employees

provided incorrect information.

Nevertheless, assuming for the sake of discussion that the Department employee’s advice

was inaccurate, Taxpayer never received any written direction from the Department or the

employees he spoke with that gross receipts was due from the performance of an out-of-state

service. Given that the nature of the advice is unclear, as discussed in the preceding paragraph,

such a written statement would have been particularly helpful in this matter. Moreover, Mr.

Polito did not consult any tax professional at the time, which would have been prudent given that

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 actions. See Tiffany Construction Co. v.

Bureau of Revenue, 1976-NMCA-127, ¶5, 90 N.M. 16, 17 (Ct. App. 1976).

Taxpayer’s argument amounts to a claim for equitable estoppel. Equitable estoppel does

not appear to be a possible remedy in an administrative protest hearing before the Department.

See AA Oilfield Service v. New Mexico State Corporation Commission, 1994-NMSC-085, ¶18,

In the Matter of the Protest of Strategic Consulting Associates, page 6 of 8
118 N.M. 273 (equitable remedies are not part of the “quasi-judicial” powers of administrative

agencies). Even if it is available in this context, courts are reluctant to apply the doctrine of

equitable estoppel against the state in cases involving the assessment and collection of taxes. See

Taxation & Revenue Dep’t v. Bien Mur Indian Mkt. Ctr., Inc., 1989-NMSC-015, ¶9, 108 N.M. 22.

In such cases, estoppel applies only pursuant to statute or when “right and justice demand it.” Bien

Mur Indian Market, ¶9. Oral statements not reduced to writing, like the ones that Mr. Polito cites

in his argument, are generally not grounds to grant equitable estoppel. See Kilmer, ¶28. Estoppel

cannot lie against the state when the act sought would be contrary to the requirements expressed

by statute. See Rainaldi v. Public Employees Retirement Board, 1993-NMSC-028, ¶18-19, 115

N.M. 650. Here, granting a refund after expiration of the statute of limitations would be contrary

to NMSA 1978, Section 7-1-26. Therefore, there is no basis for granting Taxpayer’s equitable

relief argument.

CONCLUSIONS OF LAW

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

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

B. Taxpayer’s October 28, 2014 claim for refund of 2006, 2007, and 2008 gross

receipts tax 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. Taxpayer is not entitled to equitable estoppel relief for reliance on the somewhat

ambiguous oral statements of Department employees, see Kilmer, ¶28, and because granting such

relief would be contrary to requirements expressed by statute. See Rainaldi, ¶18-19.

In the Matter of the Protest of Strategic Consulting Associates, page 7 of 8
For the foregoing reasons, the Taxpayers’ protest IS DENIED.

DATED: July 13, 2015.

Brian VanDenzen
Interim Chief Hearing Officer
Administrative Hearings Office
P.O. Box 6400
Santa Fe, NM 87502

NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, Section 7-1-25 (1989), the parties have 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 will become final. Either party filing an appeal shall file a courtesy copy of

the appeal with the Administrative Hearings Office contemporaneous with the Court of Appeals

filing so that the Administrative Hearings Office may being preparing the record proper.

In the Matter of the Protest of Strategic Consulting Associates, page 8 of 8