Could CORE avoid gross receipts tax penalties or limit the assessment period because it did not know New Mexico taxes services?
Apply this to your situation
This page answers the general question as of 2017. Ezel answers yours, under current New Mexico tax law, with citations.
Plain-English summary
CORE owed New Mexico gross receipts tax on its educational services, and its genuine ignorance of the tax did not excuse penalty or interest. The AHO also held that the Department's May 17, 2016 assessment for periods beginning March 31, 2010 was within the extended limitations periods.
CORE—identified in the decision as Consortium on Reading Excellence Inc., with some documents using Consortium on Reaching Excellence—provided educational services in New Mexico and operated in about 20 states in a typical year. It filed New Mexico corporate income tax returns but did not report gross receipts tax for March 2010 through October 2015.
The Department assessed:
- $81,827.86 of gross receipts tax;
- $16,273.74 of penalty; and
- $9,294.97 of interest, which continued to accrue until the tax principal was paid.
CORE conceded the gross receipts tax and interest during the proceeding, although its closing argument asked for reduced interest. It principally argued that the penalty should be abated because it did not know New Mexico taxed services and that part of the assessment was too old.
The educational-service receipts were taxable
Section 7-9-4 imposed gross receipts tax on anyone engaging in business in New Mexico, and Section 7-9-3.5 applied to money received from selling services.
CORE did not claim a deduction or exemption. It suggested that much of its work involved Bureau of Indian Education schools, but presented no evidence establishing exempt or deductible transactions.
Because CORE undisputedly provided services in New Mexico, the receipts were subject to gross receipts tax.
Genuine ignorance did not establish nonnegligence
CORE's COO/CFO and CPA testified credibly that they did not know about the gross receipts tax before a September 17, 2015 Department letter. The AHO found that CORE did not act to avoid tax.
But the record also showed warning signs:
- CORE obtained a 2008 registration certificate referring to gross receipts, county gross receipts, municipal gross receipts, compensating, and withholding taxes;
- its CRS number appeared in company correspondence;
- its COO/CFO signed a 2014 non-filer notice; and
- CORE never asked the Department, a New Mexico tax professional, or another adviser familiar with New Mexico tax law whether it was compliant.
The AHO found that CORE should have investigated its filing duties as early as the 2008 registration.
Section 7-1-69 made penalty mandatory when late payment resulted from negligence. An honest mistake could still be inadvertence. The good-faith mistake-of-law exception did not apply because CORE made no informed judgment based on reasonable grounds.
CORE also failed the potentially relevant nonnegligence indicators in Regulation 3.1.11.11 NMAC. No Department employee affirmatively misled it, and its silence was not misinformation. Its outsourced payroll provider, tax preparer, CPA, and tax software had not been asked to research New Mexico gross receipts tax, so there was no reasonable reliance on advice given after full disclosure.
The AHO concluded that CORE had not exercised ordinary business care and prudence.
Interest was mandatory
Section 7-1-67 required interest when tax was not paid by its due date. The AHO described interest as compensation for the time value of unpaid revenue rather than punishment and had no discretion to reduce it.
The assessment was timely under the extended periods
CORE filed no gross receipts tax returns, producing 100% underreporting. Section 7-1-18(C) allowed assessment within seven years after the end of the calendar year when a required return was not filed. Section 7-1-18(D) allowed six years when a return understated liability by more than 25%.
The oldest assessed quarter ended March 31, 2010 and was due April 25, 2010. The May 17, 2016 assessment was within both extended periods, so the AHO upheld all periods through October 31, 2015.
The detailed discussion relies on subsections (C) and (D). Conclusion D instead cites subsections (A) and (D), an internal citation inconsistency in the decision.
Result: protest DENIED. CORE was ordered to pay $81,827.86 tax, $16,273.74 penalty, and $9,294.97 interest, with interest continuing to accrue until the principal was paid.
What this means for you
Multistate service businesses
Do not assume that filing a state's income-tax return covers every state tax obligation. New Mexico gross receipts tax can apply to services performed in the state, and registration documents or non-filer notices should trigger a specific review.
Businesses relying on payroll providers or return preparers
Hiring a provider is not the same as receiving tax advice. Penalty relief based on professional reliance requires advice from a competent adviser after full disclosure of the relevant facts.
Businesses discovering an old filing obligation
The ordinary assessment period may be extended when required returns were never filed or liability was substantially understated. Waiting for the Department to identify the problem can increase both the number of periods assessed and accrued interest.
Common questions
Q: Did the AHO believe CORE genuinely did not know about the tax?
A: Yes. It found the COO/CFO and CPA credible and found no intent to avoid tax, but ignorance alone did not establish reasonable care.
Q: Did work for Bureau of Indian Education schools make the receipts exempt?
A: Not on this record. CORE supplied no evidence of exempt or deductible transactions.
Q: Why did reliance on outside providers fail?
A: CORE did not ask them to research its New Mexico obligations, did not show full disclosure followed by advice, and did not establish that the payroll provider or software could give competent tax advice.
Q: Why was the penalty upheld?
A: CORE was not affirmatively misled, had not made an informed good-faith legal judgment, and did not exercise ordinary business care in determining its New Mexico filing duties.
Q: Why could the Department reach back to March 2010?
A: CORE filed no gross receipts returns. The decision applied the seven-year non-filer period and, alternatively, the six-year period for an understatement exceeding 25%.
Q: What amounts remained due?
A: $81,827.86 of tax, $16,273.74 of penalty, and $9,294.97 of interest, with interest continuing to accrue on the unpaid tax principal.
Citations and references
Statutes and regulations:
- NMSA 1978, §§ 7-9-3.5 and 7-9-4 — gross receipts and tax on engaging in business
- NMSA 1978, §§ 7-1-3 and 7-1-17 — definition of tax and presumption that an assessment is correct
- NMSA 1978, § 7-1-18(C) and (D) — seven-year non-filer and six-year substantial-understatement periods
- NMSA 1978, §§ 7-1-67 and 7-1-69 — interest and negligence penalty
- Regulations 3.1.11.8, 3.1.11.10, and 3.1.11.11 NMAC — penalty, negligence, and indicators of nonnegligence
Cases cited:
- Tiffany Construction Co. v. Bureau of Revenue, 1976-NMCA-127 — duty to ascertain possible tax consequences
- C & D Trailer Sales v. Taxation and Revenue Department, 1979-NMCA-151 — absence of informed consultation
- El Centro Villa Nursing Center v. Taxation and Revenue Department, 1989-NMCA-070 — a taxpayer cannot transfer its duty to learn tax obligations merely by appointing an accountant
- Marbob Energy Corp. v. New Mexico Oil Conservation Commission, 2009-NMSC-013 — mandatory meaning of “shall”
Source
- Listing: New Mexico Decisions & Orders
- Decision post: CORE
- Decision PDF: D&O 17-03
Original ruling text
STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT
IN THE MATTER OF THE PROTEST OF
CORE No. 17-03
TO THE ASSESSMENT ISSUED UNDER
LETTER ID NO. L1384973872
DECISION AND ORDER
A formal hearing on the above-referenced protest was held on December 7, 2016 before
Hearing Officer Ignacio V. Gallegos, Esq. The Taxation and Revenue Department (Department)
was represented by Mr. Marek Grabowski, Staff Attorney. Mr. Nicholas Pacheco, Auditor, also
appeared as a witness for the Department. Mr. Ted Krejdovsky, CPA for CORE (Taxpayer),
appeared telephonically representing Taxpayer for the hearing, and as a witness. Mr. Mark
Simmons, Chief Operating Officer and Chief Financial Officer for Taxpayer also appeared
telephonically as witness for the Taxpayer. The Hearing Officer took notice of all documents in
the administrative file. Taxpayer presented Exhibits 1.1, 1.2 and 2. The Department presented
Exhibits A through H. The exhibits were admitted upon stipulation of parties. Based on the
evidence and arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:
FINDINGS OF FACT
- On May 17, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty,
and interest for the tax periods from March 31, 2010 through October 31, 2015. The
assessment was for $81,827.86 tax, $9,294.97 interest, and $16,273.74 penalty.
- On July 28, 2016, the Taxpayer filed a formal protest letter, received by the Department
on August 1, 2016. The protest was timely.
- On August 8, 2016, the Department acknowledged receipt of the formal protest.
CORE
Letter ID No. L1384973872
page 1 of 13 - On September 29, 2016 the Department filed a Request for Hearing asking that the
Taxpayer’s protest be scheduled for a formal administrative hearing.
-
On September 30, 2016, the Administrative Hearings Office issued a notice of hearing.
-
On October 27, 2016, a telephonic scheduling hearing was held. The parties agreed that
the telephonic hearing satisfied the 90-day requirement of the statute.
-
On October 27, 2016, a scheduling order and notice was issued.
-
On November 8, 2016, the Administrative Hearings Office issued an Order Granting
Stipulated Continuance and Amended Notice of Administrative Hearing.
-
On December 7, 2016 a hearing on the merits took place.
-
The Taxpayer is the Consortium on Reading Excellence Inc., or CORE. 1
-
The Taxpayer was providing services in New Mexico during the tax periods.
-
The Taxpayer did not claim a deduction or an exemption applied.
-
Taxpayer is a company that provides educational services across the United States, and
operates in approximately twenty states in any given year.
-
The Taxpayer filed Corporate Income Tax returns for its income in New Mexico.
-
The Taxpayer conceded that it owed gross receipts tax and interest, but disputed the
penalty owed. The Taxpayer argued that some of the assessment was beyond the statute
of limitations and that the penalty should be abated because Taxpayer was not given
notice, therefore was unaware of New Mexico’s unique gross receipts tax for services,
and the non-payment was a result of non-negligence.
1
Documents admitted into evidence also refer to the Taxpayer as “Consortium on Reaching Excellence.” See
Footnote 2.
CORE
Letter ID No. L1384973872
page 2 of 13
- Taxpayer claimed by reference to its correspondence with Alma Amador, Department’s
Auditor (Taxpayer’s Exhibit 2) that it did business almost exclusively with Bureau of
Indian Education schools, suggesting that doing business with such schools was
somehow exempt. Taxpayer provided no evidence of tax-exempt transactions to support
a finding that its transactions were somehow exempt or subject to deduction during the
tax periods at issue.
- Taxpayer’s Chief Operating Officer and Chief Financial Officer Mark Simmons
(COO/CFO) has a master’s of science degree in Accounting and Finance.
- Taxpayer outsourced payroll for New Mexico-based employees to another company,
CTS, a corporate services provider, to handle the corporate filings with the New Mexico
Secretary of State. Evidence presented did not support a finding that CTS filed reports of
gross receipts during the contested tax periods. Evidence presented did not support a
finding that CTS was a competent tax counsel or an accountant capable of providing tax
advice.
- Taxpayer engaged Bregante and Company, a company with many years of experience, to
file corporate income taxes for federal and state income tax returns. The relationship was
established before Mr. Krejdovsky (Taxpayer CPA) was hired with the company.
Research into particular state taxation issues is not something that Bregante and
Company does, and Taxpayer CPA was not contracted to do research into tax obligations
for Taxpayer.
- Taxpayer CPA uses a tax software called Lacerte in preparing Taxpayer’s corporate tax
filings, and this software is relied upon by Bregante and Company. The evidence
CORE
Letter ID No. L1384973872
page 3 of 13
provided was not sufficient to find that the Lacerte software is a competent tax counsel or
an accountant capable of giving advice.
- At no time did Taxpayer inquire with or seek advice from the New Mexico taxing
authority, a local tax professional, an out-of-state tax professional with knowledge of
New Mexico tax laws, or its hired service providers to determine if Taxpayer was in
compliance with New Mexico tax laws.
- Taxpayer COO/CFO first acknowledged notice of a gross receipts tax due upon receipt of
a letter, dated September 17, 2015 from Department Audit Supervisor Duane Spitzer
(Taxpayer’s Exhibit 1).
- Taxpayer COO/CFO acknowledged that the Registration Certificate (Exhibit B), dated in
2008, would have been a document obtained by Taxpayer in 2008, and it refers to “Gross
Receipts, County Gross Receipts, Municipal Gross Receipts, Compensating and
Withholding Taxes.” Taxpayer should have known of an obligation to review its tax
filing requirements when it obtained the Registration Certificate in 2008.
- Taxpayer COO/CFO did not recall receipt of the Registration Certificate (Exhibit C),
dated 2010, on behalf of the Taxpayer.
- Taxpayer COO/CFO acknowledged that the letter (Exhibit D) from Taxpayer’s
accounting manager, Daphne Simmons, was authentic and referenced the CRS number
assigned to Taxpayer. 2
- Taxpayer COO/CFO acknowledged that he signed the Non-filer notice (Exhibit E), in
2014, with the same CRS number for Taxpayer, but believed it to be solely for Workers
2
It should be noted that in the letter Exhibit D, the taxpayer name is “CORE” and “Consortium on Reaching
Excellence” and in other documents it is named “Consortium on Reading Excellence, Inc.” (Exhibit B, Exhibit C,
Exhibit E, and Exhibit G). The decision herein applies to each of these variations of the Taxpayer’s name.
CORE
Letter ID No. L1384973872
page 4 of 13
Compensation fees. Taxpayer and Taxpayer COO/CFO should have known of an
obligation to review its tax filing requirements when it received a Non-filer notice in
2014.
- Taxpayer COO/CFO did not inquire with tax professionals at any time about the Non-
filer notice (Exhibit E), since it appeared to him to be a simple form.
- Taxpayer COO/CFO acknowledged that the Withholding Tax payment stub (Exhibit F)
was unfamiliar to him, but did not doubt its authenticity because CTS was the company
hired to file payroll taxes. CTS did not ever discuss the contents of the tax filing with
COO/CFO.
- Taxpayer COO/CFO testified that he never received a CRS-1 Filer’s Kit, an example of
the front page is Exhibit H.
- Taxpayer COO/CFO and Taxpayer CPA testified credibly, and appeared genuinely
unaware of the gross receipts tax requirements of New Mexico before September 17,
-
Taxpayer did not act or omit action in order to avoid a tax.
-
Despite the genuine lack of awareness, the Taxpayer should have known to inquire about
gross receipts tax obligations as early as its first CRS registration in 2008.
- Department witness Nicholas Pacheco, protest auditor, testified that the CRS-1 Filing Kit
is sent to every business registered with the Taxation and Revenue Department twice a
year to the address on file with the Department. The Department does not keep records
of those mailings. Evidence is sufficient to find that the Department sent CRS-1 Filing
Kits during the contested timeframes to the Taxpayer.
CORE
Letter ID No. L1384973872
page 5 of 13
- Department witness Nicholas Pacheco testified that if a business non-filer has
underreported gross receipts of 100%, the Department will audit and assess up to seven
years of past due taxes.
- The Taxpayer was a non-filer of gross receipts, therefore the underreported gross receipts
was 100%. Evidence presented shows no gross receipts tax filings for the Taxpayer.
- Department witness Nicholas Pacheco was unable to determine why the Taxpayer was
not audited and assessed earlier than 2015.
- The Department advised that it had not prepared an updated list of liabilities. Interest
will accrue until the tax principal is paid.
DISCUSSION
The issues to be decided are whether the Taxpayer is liable for the assessment of penalty,
interest and tax during the reporting periods. Taxpayer raised the issue of whether the
assessment was within the statute of limitations. Taxpayer conceded that it owed tax and
interest, but later argued against imposition of tax, interest, and penalty.
Burden of Proof.
Assessments by the Department are presumed to be correct. See NMSA 1978, § 7-1-17.
Tax includes, by definition, the amount of tax principal imposed and, unless the context
otherwise requires, “the amount of any interest or civil penalty relating thereto.” NMSA 1978, §
7-1-3. See also El Centro Villa Nursing Ctr. v. Taxation and Revenue Department, 1989-NMCA-
070, 108 N.M. 795. Therefore, the assessment issued to the Taxpayer is presumed to be correct,
and it is the Taxpayer’s burden to present evidence and legal argument to show that it is entitled
to an abatement.
Gross receipts tax.
CORE
Letter ID No. L1384973872
page 6 of 13
Anyone engaging in business in New Mexico is subject to the gross receipts tax. See
NMSA 1978, § 7-9-4. Gross receipts tax applies to the total amount of money received from
selling property or services. See NMSA 1978, § 7-9-3.5. It was undisputed that the Taxpayer
was providing services. Therefore, the Taxpayer was subject to the gross receipts tax. The
Taxpayer also conceded that it owed tax, but sought to have assessment limited to tax periods
that were not beyond the statute of limitations, and sought to have penalties abated for non-
negligence.
Assessment of Penalty.
The Taxpayer conceded its failure to pay its gross receipts taxes. The Taxpayer
explained that it was not aware of the gross receipts tax on services, and believed that it is a tax
unique to New Mexico. The Taxpayer explained that it was not trying to evade its taxes; it just
was never brought to awareness of the tax.
Penalty “shall be added to the amount assessed” when a tax is not paid on time due to
negligence. See NMSA 1978, § 7-1-69 (2007) (emphasis added). The word “shall” indicates that
the assessment of penalty is mandatory, not discretionary. See Marbob Energy Corp. v. N.M. Oil
Conservation Comm’n., 2009-NMSC-013, ¶ 22, 146 N.M. 24. Assessments of penalty are
presumed to be correct and it is a taxpayer’s burden to show that the assessment was not correct.
See 3.1.11.8 NMAC (2001). See NMSA 1978, § 7-1-17. See also El Centro, 1989-NMCA-070.
It is a taxpayer’s responsibility to make payments, whether they are done electronically or in
another fashion. See NMSA 1978, § 7-1-13.1 (2005). Negligence includes inadvertence. See
3.1.11.10 (C) (2001). Under the statute and regulations, an honest mistake is tantamount to
inadvertence, and is subject to penalty. See id.
CORE
Letter ID No. L1384973872
page 7 of 13
In instances where a taxpayer might otherwise fall under the definition of civil negligence
generally subject to penalty, Section 7-1-69 (B) provides a limited exception: “[n]o penalty shall
be assessed against a taxpayer if the failure to pay an amount of tax when due results from a
mistake of law made in good faith and on reasonable grounds.” Here, there is no evidence that
Taxpayer made an informed judgment or determination based on reasonable grounds that when
Taxpayer failed to report and pay CRS taxes. See C & D Trailer Sales v. Taxation and Revenue
Dep’t, 1979-NMCA-151, ¶8-9, 93 N.M. 697 (penalty upheld where there was no evidence that the
taxpayer “relied on any informed consultation” in deciding not to pay tax). Consequently, this
mistake of law provision of Section 7-1-69 (B) does not mandate abatement of penalty in this
case.
The other grounds for abatement of civil negligence penalty are found under Regulation
3.1.11.11 NMAC. That regulation establishes eight indicators of non-negligence where penalty
may be abated. Based on the argument of Taxpayer and the evidence presented, only two
factors under Regulation 3.1.11.11 NMAC are potentially pertinent in this proceeding:
A. the taxpayer proves the taxpayer was affirmatively misled by a
department employee;
…
D. the taxpayer proves that the failure to pay tax or to file a return was
caused by reasonable reliance on the advice of competent tax counsel or
accountant as to the taxpayer's liability after full disclosure of all relevant
facts; failure to make a timely filing of a tax return, however, is not
excused by the taxpayer's reliance on an agent;
Taxpayer asserted that it was never informed by the Department that it would be subject
to gross receipts tax over the entire course of doing business in New Mexico, a colorable
argument under 3.1.11.11 (A) NMAC. However, this regulation only applies to instances where
a taxpayer is affirmatively misled by a Department employee, not simply uninformed. Under
CORE
Letter ID No. L1384973872
page 8 of 13
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. Tiffany Construction Co. v. Bureau
of Revenue, 1976-NMCA-127, ¶5, 90 N.M. 16. It is the duty of Taxpayer to determine what CRS
(Combined Reporting System) taxes need to be reported and paid. Unless a specific Department
employee affirmatively told Taxpayer that the gross receipts taxes and withholding taxes were not
due on the relevant CRS returns, which there is no evidence of in this protest, Taxpayer’s own
failings in developing an accurate tax reporting system does not abrogate Taxpayer of its
responsibility to file and pay the tax nor does 3.1.11.11 (A) NMAC provide relief to Taxpayer.
The other factor potentially relevant in this case is found under Regulation 3.1.11.11 (D)
NMAC, where civil negligence penalty may be abated if Taxpayer reasonably relied on the
advice of competent tax counsel or accountant after full disclosure of all relevant facts. Here, the
only evidence is that the accountants and companies the Taxpayer outsourced its responsibilities
to did not inform Taxpayer that a gross receipts tax obligation existed. There is no evidence that
the Taxpayer’s outsourced agents, accountants, employees, or CPA were ever tasked with
gathering information to ensure full compliance or that Taxpayer fully disclosed all relevant facts
to those capable of giving advice. Given a taxpayer’s duty under Tiffany Construction Co., 1976-
NMCA-127, ¶5, to ascertain the tax consequences of its actions, a taxpayer cannot “abdicate this
responsibility [to learn of tax obligations] merely by appointing an accountant as its agent in tax
matters.” El Centro Villa Nursing Center v. Taxation and Revenue Department, 1989-NMCA-070,
¶14, 108 N.M. 795.
Taxpayer next argued that the list found in NMAC 3.1.11.11 is not exclusive, citing the
non-precedential decision of Kidz Karousel, Inc. d/b/a Children’s Orchard, Decision and Order No.
01-15, and there should be a finding of non-negligence because the taxpayer was never made
CORE
Letter ID No. L1384973872
page 9 of 13
aware of the obligation. The Hearing Officer in that Decision and Order determined that “the eight
scenarios set out in 3.1.11.11 NMAC are only examples. There are many situations that will
support a finding of nonnegligence. The ultimate question is whether a taxpayer has exercised
ordinary business care and prudence with respect to its obligation to timely report and pay taxes.”
This is consistent with the Department’s definition of negligence, NMAC 3.1.11.10 (A), which
refers to the ordinary degree of prudence and business care. Nothing in the record indicates that
Taxpayer exercised ordinary business care and prudence in determining its New Mexico tax
obligations. Therefore, the Department’s imposition of penalty was legally supported and properly
assessed.
Assessment of Interest.
Through documents in the Administrative Record, and at the hearing, Taxpayer
acknowledged that the underlying tax and interest was not at issue. However, in closing
arguments, Taxpayer’s representative requested that the interest assessed should be reduced.
Interest “shall be paid” on taxes that are not paid on or before the date on which the tax is due.
NMSA 1978, § 7-1-67 (A). Again, the word “shall” indicates that the assessment of interest is
mandatory, not discretionary. See Marbob Energy Corp. v. N.M. Oil Conservation Comm’n.,
2009-NMSC-013, ¶ 22, 146 N.M. 24. The assessment of interest is not designed to punish
taxpayers, but to compensate the state for the time value of unpaid revenues. Because the tax
was not paid when it was due, interest was properly assessed.
Notice.
Taxpayer, without reference to authority, contends that because Taxpayer was not
informed by the State of New Mexico Taxation and Revenue Department of the obligation to
submit CRS-1 forms and pay gross receipts tax on services provided in New Mexico, he should
CORE
Letter ID No. L1384973872
page 10 of 13
be excused from the assessed penalty. NMSA 1978 Section 7-1-4.2 is the “New Mexico
taxpayer bill of rights.” Within that document are several enumerated rights afforded all New
Mexico taxpayers. Among those rights is “A. the right to available public information and
prompt and courteous tax assistance.” There was no allegation or fact in evidence to support a
finding that information about the state gross receipts tax was not publicly available. “[E]very
person is charged with the reasonable duty to ascertain the possible tax consequences” of his or her
actions. Tiffany Construction Co. v. Bureau of Revenue, 1976-NMCA-127, ¶5, 90 N.M. 16.
Statute of Limitations.
Taxpayer contends that the assessment should have been made earlier, challenging the
statute of limitations, and asserting that the late-received notice of the tax obligations has led to
high interest and penalty. Again, the assessment bears the presumption of correctness. The
Taxpayer presented no evidence to justify its position that the Department was under an
obligation to limit the tax interest and penalty consequences to the Taxpayer. The reporting
period at issue is March 31, 2010 through October 31, 2015. The Department initiated its
assessment on May 17, 2016. NMSA 1978 § 7-1-18 allows the Department authority to assess
taxes up to three years “from the end of the calendar year in which payment of the tax was due”
with several enumerated exceptions extending that three-year limit. The Department applies the
non-filer exception under NMSA 1978 § 7-1-18 (C): “In case of the failure by a taxpayer to
complete and file any required return, the tax relating to the period for which the return was
required may be assessed at any time within seven years from the end of the calendar year in
which the tax was due.” The Department’s secondary position applies the exception under
NMSA 1978 § 7-1-18 (D): “If a taxpayer in a return understates by more than twenty-five
percent the amount of liability for any tax for the period to which the return relates, appropriate
CORE
Letter ID No. L1384973872
page 11 of 13
assessments may be made by the department at any time within six years from the end of the
calendar year in which payment of the tax was due.”
Under both extended time limit scenarios, the assessment bears the presumption of
correctness, and Taxpayer has not undercut the presumption with evidence that it did not
understate its CRS-1 returns. Nevertheless, to exemplify, we apply the law to the oldest of the
reporting periods assessed. The gross receipts tax period of March 31, 2010, under the quarterly
filing frequency, would have come due by April 25, 2010, the end of which year is within the
extended six-year (25% underreported) and seven-year (non-filer 100% underreported)
limitations. The Department properly assessed the Taxpayer for the tax periods from March 31,
2010 through October 31, 2015 and the assessment dated May 17, 2016 was within the extended
limits of the statute.
CONCLUSIONS OF LAW
A. The Taxpayer filed a timely written protest to the assessment of penalty issued
under Letter ID number L1384973872, and jurisdiction lies over the parties and the subject matter
of this protest.
B. A hearing was held within 90 days of the protest. See NMSA 1978, § 7-1B-8 (A)
(2015).
C. The Taxpayer conceded that it owed gross receipts tax. See NMSA 1978, § 7-9-4.
D. The assessment was not beyond the statute of limitations. See NMSA 1978, § 7-1-
18 (A) and (D).
E. The Taxpayer was properly assessed for penalty and interest. See NMSA 1978, §
7-1-67 and § 7-1-69.
CORE
Letter ID No. L1384973872
page 12 of 13
F. The assessment is still outstanding as to $81,827.86 tax, $9,294.97 interest, and
$16,273.74 penalty. Interest continues to accrue until the tax principal is paid.
G. Failure to pay the assessment will cause the Taxpayer to become a delinquent
taxpayer under Section 7-1-16 NMSA 1978.
For the foregoing reasons, the Taxpayer's protest is DENIED. Taxpayer is ordered to pay
the assessment of $81,827.86 gross receipts tax, $9,294.97 interest, and $16,273.74 penalty.
DATED: January 3, 2017.
Ignacio V. Gallegos, Esq.
Hearing Officer
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502
NOTICE OF RIGHT TO APPEAL
Pursuant to NMSA 1978, § 7-1-25, 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. A copy of the Notice of Appeal should be mailed to John Griego,
P. O. Box 6400, Santa Fe, New Mexico 87502. Mr. Griego may be contacted at 505-827-0466.
CORE
Letter ID No. L1384973872
page 13 of 13
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