Could an oncology practice recover gross receipts tax on medication receipts when its refund records combined authentic FDA-approved drugs with counterfeit nonapproved drugs?

Plain-English summary

Mohamed B. Aswad, M.D., P.C. could not recover $15,728 of gross receipts tax because its records combined authentic prescription-drug receipts with receipts from counterfeit, non-FDA-approved drugs. The practice did not prove what portion qualified for the statutory deduction.

Dr. Aswad operated an oncology practice in Deming. The practice bought medications, administered them to patients, and billed for both the medication and the infusion service.

For years, its out-of-state CPA reported the entire payment as taxable gross receipts without claiming the prescription-drug deduction. After a New Mexico CPA firm identified the issue, the practice requested a refund for February through December 2012.

Counterfeit drugs did not qualify as prescription drugs

Section 7-9-73.2 allowed deduction of receipts from prescription drugs meeting three requirements, including the federal restrictions governing approved prescription substances.

The practice had unknowingly purchased counterfeit medications from a company misrepresenting itself as a legitimate FDA-approved pharmaceutical supplier. Federal authorities disclosed the scheme in 2012. Some counterfeit products lacked the active ingredients they purported to contain.

The AHO strictly construed the deduction and held that counterfeit, non-FDA-approved substances were not “prescription drugs” within Section 7-9-73.2.

The practice did not separate authentic and counterfeit receipts

Other suppliers used by the practice were FDA-approved, so receipts from authentic qualifying medications potentially could have been deductible.

But the refund data commingled the two categories. Because the practice used cash-basis reporting, 2012 receipts could relate to earlier services during the period when both authentic and counterfeit medications were administered.

Dr. Aswad acknowledged that the underlying information could be reconstructed but said separating it would be costly and time-consuming. Without that work, the AHO could not determine how much of the $15,728 claim arose from authentic FDA-approved medications.

The taxpayer bears the burden to clearly establish a deduction and refund. The inability or unwillingness to quantify the qualifying receipts defeated the entire claim.

Court-ordered restitution was not a buyer refund

Dr. Aswad also argued that the practice had paid more than $2 million in fines, fees, and restitution arising from the counterfeit-drug matter. The AHO considered whether the $1,298,543 court-ordered federal restitution payment could support the deduction for refunds and allowances in Section 7-9-67.

It could not. The statute used “refund” to mean returning money to a buyer who overpaid or returned goods. Criminal restitution paid as a condition of probation was a different legal concept, and the Legislature had not included it in the deduction.

The AHO would not add “restitution” to the statute or treat a criminal-law payment as a commercial buyer refund.

Accountant reliance did not establish the refund

The former CPA's failure to claim a prescription-drug deduction did not shift the burden. The decision reiterated that a taxpayer remains responsible for determining tax consequences even when an accountant handles reporting.

The practice also sought to add January 2012 orally at the hearing. The AHO found that issue moot because the same failure of proof would defeat the added period even if amendment were allowed.

Result: protest DENIED. No portion of the $15,728 refund was allowed.

What this means for you

Medical practices claiming prescription-drug deductions

Maintain invoice-, drug-, patient-, and payment-level records that identify qualifying FDA-approved medication receipts separately from infusion fees and nonqualifying items.

Businesses discovering mixed eligible and ineligible receipts

Reconstruct and document the qualifying portion before filing a refund claim. A hearing officer cannot estimate a deduction when the taxpayer leaves the categories commingled.

Taxpayers making restitution or other legal payments

Do not assume every repayment is a “refund” for gross receipts purposes. Section 7-9-67 addressed commercial refunds and allowances, not court-ordered criminal restitution.

Common questions

Q: Could authentic FDA-approved medications qualify for the deduction?
A: Potentially yes, but the practice did not prove the amount attributable to those medications.

Q: Why did counterfeit drugs fail the deduction?
A: They were not FDA-approved substances subject to the federal prescription-sale restrictions incorporated into Section 7-9-73.2.

Q: Could the practice have separated the receipts?
A: Dr. Aswad said it was possible, but costly and time-consuming. The required analysis was not provided.

Q: Did paying restitution create a gross receipts deduction?
A: No. The AHO held that restitution was not a refund or allowance to a buyer under Section 7-9-67.

Q: Why was the entire $15,728 denied?
A: The claim did not quantify the authentic qualifying receipts separately from nonqualifying counterfeit-drug receipts.

Q: Was January 2012 added to the claim?
A: The AHO did not decide the amendment issue because the same substantive proof failure made it moot.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-9-73.2 — prescription-drug deduction
• NMSA 1978, § 7-9-67 — deduction for refunds and allowances
• NMSA 1978, § 7-9-5 — presumption that business receipts are taxable
• NMSA 1978, § 7-1-26 — refund claim period
• 21 U.S.C. §§ 353(b)(1) and 355 — prescription-sale restrictions and FDA approval
• Regulations 3.2.227.8 through 3.2.227.12 NMAC — examples of refunds and allowances

Cases cited:

• Wing Pawn Shop v. Taxation & Revenue Department, 1991-NMCA-024 — strict construction of deductions
• Corrections Corp. of America of Tennessee v. State, 2007-NMCA-148 — refund denial and narrow construction of the underlying deduction
• Tiffany Construction Co. v. Bureau of Revenue, 1976-NMCA-127 — taxpayer's duty to determine tax consequences
• El Centro Villa Nursing Center v. Taxation & Revenue Department, 1989-NMCA-070 — accountant appointment does not eliminate taxpayer responsibility

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Mohamed B. Aswad, M.D., P.C.
• Decision PDF: D&O 17-19

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF No. 17-19
MOHAMED B. ASWAD, M.D., P.C.
TO REFUND DENIAL
ISSUED UNDER LETTER
ID NO. L1204312112

DECISION AND ORDER

A protest hearing occurred in the above-captioned protest on March 14, 2017 before

Chris Romero, Esq., Hearing Officer, in Santa Fe. New Mexico. At the hearing, Mohamed B.

Aswad, M.D. appeared pro se for Mohamed B. Aswad, M.D., P.C. (“Taxpayer”). Staff Attorney

Elena Morgan appeared representing the State of New Mexico Taxation and Revenue

Department (“Department”). Protest Auditor Milagros Bernardo appeared as a witness for the

Department. Department Exhibits A, B and D were admitted into the record. Taxpayer Exhibits

1-1, #1-2, and #3 (except for #3-6) were not admitted as irrelevant. The remainder of Taxpayer

Exhibit #1, Taxpayer Exhibit #2, and Taxpayer Ex. #3-6 were admitted into the record at

hearing. 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 or about February 6, 2015, Taxpayer asserted a claim for refund for the

overpayment of gross receipts taxes paid for the periods ending February through December of

2012. The Department did not take action on the claim within 210 days, but provided Taxpayer

with an opportunity to re-file the claim for refund because there was still sufficient time under
the applicable statute of limitations. The claim for refund was in the amount of $15,728.00.

[Taxpayer Ex. 2-3].

2. On November 4, 2015, Taxpayer re-submitted his claim for refund for the periods

ending February through December of 2012. [Taxpayer Ex. 2-1; 2-2].

3. On November 18, 2015, through Letter ID No. L1204312112, the Department

denied Taxpayer’s claim for refund of $15,728.00 in CRS taxes for the reporting ending

December 31, 2012. [Dept. Ex. D; Testimony of Ms. Bernardo].

4. The Department denied Taxpayer’s application for refund because the deductions

sought did not align with the information Taxpayer provided in support of the deduction. Many

of the prescription drugs for which the deduction was sought failed to come within the definition

of “prescribed drugs” as provided in NMSA 1978, Section 7-9-73.2 (2007) requiring that

prescription drugs be approved by the U.S. Food and Drug Administration (FDA). [Testimony of

Ms. Bernardo; Dept. Ex. D].

5. On February 10, 2016, Taxpayer, by and through Beasley, Mitchell & Co,

Certified Public Accountants, protested the Department’s denial of claim for refund. As grounds

for the protest, Taxpayer indicated that his former certified public accountant had incorrectly

reported his gross receipts in 2012 in that the CPA did not claim the applicable deduction for

prescription medications. [Testimony of Dr. Aswad].

6. On November 17, 2016, the Taxpayer’s protest was received in the Department’s

Protest Office. It was unclear why a period of approximately nine months elapsed from the date

indicated on Taxpayer’s protest to the date the protest office received it. The Department and the

Taxpayer stipulated that communications between the parties were ongoing and the Department

did not assert that the protest was untimely.

In the Matter of the Protest of Mohamed B. Aswad, M.D., P.C.
Page 2 of 20

7. On November 29, 2016, the Department’s protest office acknowledged receipt of

a valid protest.

8. On January 9, 2017, the Department filed a Hearing Request with the

Administrative Hearings Office, a separate agency, for a protest hearing.

9. On January 10, 2017, the Administrative Hearings Office issued a Notice of

Administrative Hearing, setting this matter for a merits protest hearing on February 9, 2017.

10. On February 9, 2017, the Taxpayer submitted a request for continuance which

was neither granted nor denied prior to the hearing scheduled to occur at 1 p.m.

11. The Department appeared in person for the hearing. The Taxpayer failed to

appear. The Department opposed the request for a continuance. The continuance was granted

over the Department’s objection.

12. The hearing of February 9, 2017 was held within 90 days of the Department

receiving the Taxpayer’s protest.

13. On February 10, 2017, the Administrative Hearings Office issued a Continuance

Order and Second Notice of Administrative Hearing setting a hearing on the merits to occur on

March 14, 2017 in Santa Fe. That order also found that the Administrative Hearings Office had

set the hearing to occur within 90-days, and that any delay was attributable to Taxpayer’s

continuance request.

14. On February 21, 2017, Taxpayer requested permission to appear by telephone for

the hearing on the merits. The Department opposed the request.

15. On March 2, 2017, the Administrative Hearings Office entered an Order Denying

Request for Telephonic Appearance.

In the Matter of the Protest of Mohamed B. Aswad, M.D., P.C.
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16. Taxpayer is a medical doctor practicing in oncology. [Testimony of Dr. Aswad].

Taxpayer’s medical practice is based in Deming, New Mexico.

17. At all relevant times, Taxpayer was a physician authorized to dispense

prescription medications approved by the FDA and obtained through FDA-approved pharmacies.

[Testimony of Dr. Aswad].

18. As part of his practice, he purchased medications, administered medications to

patients, and billed the appropriate entities or persons for payment. [Testimony of Dr. Aswad].

19. Billings under these circumstances would typically include the costs of the

medications in addition to the costs and fees associated with infusing the medications.

[Testimony of Dr. Aswad].

20. Taxpayer employed the services of an out-of-state certified public accountant

from 2003 to 2014. During that period of time, the certified public accountant handled

Taxpayer’s gross receipts tax reporting in New Mexico. [Testimony of Dr. Aswad].

21. In 2014, Taxpayer recognized that he was paying $7,000 to $8,000 per month in

gross receipts taxes. Taxpayer was alarmed at the amount of gross receipts taxes that were being

paid. [Testimony of Dr. Aswad].

22. Taxpayer sought the advice of Beasley, Mitchell & Co, Certified Public

Accountants (hereinafter “Beasley”), which after a review of Taxpayer’s records, determined

that the Taxpayer’s previous accountant was not claiming all applicable deductions, particularly

for prescribed medications. [Testimony of Dr. Aswad].

23. The deduction applicable to prescription medications is NMSA 1978, Sec. 7-9-

73.2.

In the Matter of the Protest of Mohamed B. Aswad, M.D., P.C.
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24. As an example, Taxpayer said that if a medication cost $1,000, and the

professional fee associated with administering the medication was $200, then he could expect

payment to reflect the sum of the medication and the professional fee in the amount of $1,200.

Taxpayer’s former CPA was reporting and paying gross receipts taxes on the entire amount of

$1,200 rather than reporting and deducting the receipts attributable to the prescription

medications. [Testimony of Dr. Aswad].

25. Taxpayer had no prior knowledge, before seeking advice from Beasley, that a

deduction from gross receipts was available for prescription medications. [Testimony of Dr.

Aswad].

26. Taxpayer’s practice regularly purchased oncology medications from three or four

pharmaceutical companies. However, one of those pharmaceutical companies, unbeknownst to

Taxpayer, was not approved by the FDA. [Testimony of Dr. Aswad].

27. The fact that Taxpayer had been purchasing medications through a non-FDA

approved pharmaceutical company came to Taxpayer’s attention for the first time in early 2012

when his office was raided by FDA authorities pursuant to a federal search warrant. [Testimony

of Dr. Aswad; Dept. Ex. A].

28. Taxpayer was one of several targets of a scam by a company misrepresenting

itself as a legitimate FDA-approved pharmaceutical company selling authentic FDA-approved

pharmaceuticals. The scam affected more than 250 medical providers in 37 states. [Testimony of

Dr. Aswad; Dept. Ex. A].

29. The medications acquired from the non-FDA approved pharmaceutical company

were determined to be non-approved. [Testimony of Dr. Aswad]. Moreover, the New Mexico

Medical Board determined that the medications were actually counterfeit. In some instances,

In the Matter of the Protest of Mohamed B. Aswad, M.D., P.C.
Page 5 of 20
chemical analysis of the counterfeit medications indicated that they did not contain any of the

active ingredients that they were purported to contain [Dept. Ex. A] despite the fact that they

were marketed as being the same or the equivalent to the FDA-approved medications Dr. Aswad

required. [Testimony of Dr. Aswad; Dept. Ex. A-010].

30. Taxpayer had unknowingly been acquiring counterfeit medications from the non-

FDA approved pharmaceutical company since July of 2010 until the FDA brought the issue to

his attention in 2012. [Testimony of Dr. Aswad; Dept. Ex. A-007].

31. The other pharmaceutical companies utilized by Taxpayer were FDA-approved.

[Testimony of Dr. Aswad].

32. As a result of his dealings with the non-FDA approved pharmaceutical company,

particularly the acquisition and administration of counterfeit medications, Taxpayer incurred

professional and criminal sanctions which included, but were not limited to fines, fees,

restitution, and restrictions on his license to practice medicine. [Testimony of Dr. Aswad; Dept.

Ex. A].

33. Although Taxpayer was subjected to civil and criminal penalties, the New Mexico

Medical Board did not find that Taxpayer’s actions were intentional or that any of his patients

suffered any actual harm. [Testimony of Dr. Aswad; Dept. Ex. A-013].

34. Taxpayer seeks application of the deduction for prescription medications for all

receipts for both the authentic FDA-approved medications and the counterfeit non-FDA-

approved medications. [Testimony of Dr. Aswad].

35. Taxpayer did not provide for any relevant period of time any documentation to

differentiate deductions claimed for legitimate prescriptions from those claimed for the

counterfeit non-FDA-approved prescriptions. The data provided in support of Taxpayer’s claim

In the Matter of the Protest of Mohamed B. Aswad, M.D., P.C.
Page 6 of 20
comingles the receipts from the counterfeit non-FDA-approved prescription medications with the

legitimate prescription medications. [Testimony of Ms. Bernardo; Testimony of Dr. Aswad].

Taxpayer acknowledged that the information could have been provided but it would be time

consuming and costly to do so. [Testimony of Dr. Aswad].

36. Taxpayer prepared and submitted a sample of data to illustrate the amounts of

gross receipts taxes he claimed he should have paid after application of the prescription

medication deduction versus the gross receipts taxes he actually paid. [Taxpayer Ex. 1]. Dr.

Aswad’s sample covered February 2012 [Taxpayer Ex. 1-3; 1-4], March 2012 [Taxpayer Ex. 1-

5; 1-6], April 2012 [Taxpayer Ex. 1-7; 1-8], May 2012 [Taxpayer Ex. 1-9; 1-10]; and October

2012 [Taxpayer Ex. 1-11; 1-12].

37. For February of 2012, Taxpayer asserted that he overpaid by $1,573.35.

[Testimony of Dr. Aswad; Taxpayer Ex. 1-3; 1-4].

38. For March of 2012, Taxpayer asserted that he overpaid by $2,167.15. [Testimony

of Dr. Aswad; Taxpayer Ex. 1-5; 1-6].

39. For April of 2012, Taxpayer asserted that he overpaid by $2,431.49. [Testimony

of Dr. Aswad; Taxpayer Ex. 1-7; 1-8].

40. For May of 2012, Taxpayer asserted that he overpaid by $1,879.20. [Testimony of

Dr. Aswad; Taxpayer Ex. 1-9; 1-10].

41. For October of 2012, Taxpayer asserted that he overpaid by $1,486.96.

[Testimony of Dr. Aswad; Taxpayer Ex. 1-11; 1-12].

42. Since Taxpayer reported gross receipts utilizing the cash reporting method,

receipts during the relevant periods in which records were provided for review indicated that the

dates of services extended back into the period of time that Taxpayer was administering

In the Matter of the Protest of Mohamed B. Aswad, M.D., P.C.
Page 7 of 20
counterfeit non-FDA-approved medications in addition to authentic FDA-approved medications.

[Testimony of Ms. Bernardo].

43. Although possible, it would be costly and time consuming to provide documents

to differentiate the portions of the claimed deductions that apply to the receipts for authentic

FDA-approved medications from the deductions claimed for the counterfeit non-FDA-approved

medications. [Testimony of Dr. Aswad].

44. The Department does not interpret the deduction provided for prescription drugs

as being applicable to receipts from the sale of counterfeit non-FDA-approved drugs. [Testimony

of Ms. Bernardo].

45. Taxpayer did not know that a portion of the prescription medications for which he

paid gross receipts taxes were counterfeit at the time he reported gross receipts and remitted

payment. [Testimony of Dr. Aswad].

46. As of the date that Taxpayer sought application of the deduction for prescription

medications, on February 6, 2015 [Taxpayer Ex. 2-3], the Taxpayer was fully aware of the

circumstances regarding the issues stemming from the unwitting acquisition and resale of

counterfeit non-FDA-approved prescription medications. [Dept. Ex. A].

47. Taxpayer paid more than $2,000,000 in fines, fees, and restitution to federal and

state authorities in order to resolve the matter and resume his medical practice. [Testimony of Dr.

Aswad; Dept. Ex. A-013; Taxpayer Ex. 3-6].

48. Over the entire course of his transactions with the non-FDA-approved

pharmaceutical company, Taxpayer paid it $1,086,667.97 for counterfeit non-FDA-approved

medications. [Dept. Ex. A-011; Para. 36]. During the same period of time, Taxpayer was

reimbursed the amount of $1,298,543.00 by Medicare, Medicaid, and Tricare for all medications

In the Matter of the Protest of Mohamed B. Aswad, M.D., P.C.
Page 8 of 20
he purchased, including both authentic FDA-approved medications and counterfeit non-FDA-

approved medications. [Dept. Ex. A-011; Para. 37]. Consequently, Taxpayer’s reimbursements

exceeded his actual costs by $211,875.03. [Dept. Ex. A-011; Para. 38].

49. As a requirement of resolving the criminal matter against the Taxpayer, he was

court-ordered to pay restitution in the sum of $1,298,543.00 to the federal government. This

amount included amounts received for authentic FDA-approved medications and counterfeit

non-FDA-approved medications. Taxpayer made payment on or about August 5, 2015.

[Testimony of Dr. Aswad; Taxpayer Ex. 3-6].

DISCUSSION

This protest involves a question of whether Taxpayer is entitled to the application of the

deduction for prescription drugs under NMSA 1978, Section 7-9-73.2 (2007). Although

application of Section 7-9-73.2 may seem relatively direct on its face, the issue is complicated by

the circumstances in which Taxpayer found himself when the FDA notified him that he had been

purchasing counterfeit medications from an illegitimate source misrepresenting itself as a

legitimate pharmaceutical company.

Although the Department did not issue Taxpayer an assessment in this matter, Taxpayer

still has the burden of establishing it was entitled to the claimed refund at issue. Taxpayer’s

claim for refund is premised on a deduction from gross receipts tax. “Where an exemption or

deduction from tax is claimed, the statute must be construed strictly in favor of the taxing

authority, the right to the exemption or deduction must be clearly and unambiguously expressed

in the statute, and the right must be clearly established by the taxpayer.” Wing Pawn Shop v.

Taxation and Revenue Department, 1991-NMCA-024, ¶16, 111 N.M. 735 (internal citation

omitted); See also TPL, Inc. v. N.M. Taxation & Revenue Dep't, 2003-NMSC-7, ¶9, 133 N.M.

In the Matter of the Protest of Mohamed B. Aswad, M.D., P.C.
Page 9 of 20
447; See also Corr. Corp. of Am. of Tenn. v. State, 2007-NMCA-148, ¶17 & ¶29, 142 N.M. 779

(Court of Appeals reviewed a refund denial through “lens of presumption of correctness” and

applied the principle that deductions underlying the claim for refund are to be construed

narrowly). Consequently, Taxpayer still must show that it is entitled to the deduction that is the

basis of its claim for refund.

Deduction for Prescription Drugs.

The Taxpayer’s claim for refund is based on the application of NMSA 1978, Section 7-9-

73.2 (2007) which provides as follows:

7-9-73.2. Deduction; gross receipts tax and governmental gross
receipts tax; prescription drugs; oxygen.

A. Receipts from the sale of prescription drugs and oxygen and
oxygen services provided by a licensed medicare durable medical
equipment provider may be deducted from gross receipts and
governmental gross receipts.

B. For the purposes of this section, “prescription drugs” means
insulin and substances that are:

(1) dispensed by or under the supervision of a licensed pharmacist
or by a physician or other person authorized under state law to do
so;

(2) prescribed for a specified person by a person authorized under
state law to prescribe the substance; and

(3) subject to the restrictions on sale contained in Subparagraph 1
of Subsection (b) of 21 USCA 353.

The testimony in this case established that over the course of many years, Taxpayer

reported as gross receipts all reimbursements he received from the purchase and sale of

prescription drugs. Dr. Aswad never availed himself of the benefit of the prescription drug

deduction. Realizing that he was paying $7,000 to $8,000 per month in gross receipts taxes, Dr.

Aswad sought the opinion of Beasley, a certified public accounting firm based in New Mexico.

In the Matter of the Protest of Mohamed B. Aswad, M.D., P.C.
Page 10 of 20
Beasley informed Taxpayer that his out-of-state certified public accountant had not been

claiming the deduction available for prescription drugs. Taxpayer apparently acted on the advice

of Beasley and submitted an Application for Refund which was executed on February 6, 2015.

The sole basis for the refund was that Taxpayer’s former CPA did not claim the applicable

prescription drug deduction. When the Department failed to act on his refund by October 27,

2015, the Department notified the Taxpayer of his ability to refile his claim, which he did on

November 4, 2015.

In the years leading up to Taxpayer’s Application for Refund, Taxpayer had been

unwittingly involved in a counterfeit medication scheme which resulted in serious civil and

criminal sanctions. It was established that from July of 2010 until his office was raided by

federal agents in April of 2012, that Taxpayer had unknowingly been administering counterfeit,

non-FDA approved medications. The Application for Refund in this protest applies to reporting

periods from February of 2012 through December of 2012. The periods in protest overlapped, in

part, with those periods of time in which the Taxpayer was unknowingly administering

counterfeit drugs. In other words, during the relevant periods of time, an unknown portion of

gross receipts taxes were paid on the gross receipts reported from an unknown amount of

counterfeit drugs for which Taxpayer now seeks a refund.

Despite the fact that Taxpayer had never previously claimed the deduction for

prescription medications, Taxpayer apparently determined that refund applications for earlier

periods were precluded by NMSA 1978, Section 7-1-26 which establishes that no refund of any

amount may be allowed within three years of the end of the calendar year in which the payment

was originally due. See NMSA 1978, Section 7-1-26 D (1) (a) (2015). Consequently, Taxpayer

limited his protest to the periods ending between February 2012 through December 2012.

In the Matter of the Protest of Mohamed B. Aswad, M.D., P.C.
Page 11 of 20
Considering the Taxpayer’s protest, the Department determined that the Taxpayer could

not assert a deduction for prescription drugs which were counterfeit because they were not

subject to the restrictions on sale contained in Subparagraph 1 of Subsection (b) of 21 USCA

353, which among other requirements, establishes the condition that prescription drugs be

approved by the FDA. See 21 U.S.C. Sec. 355. In other words, the Department concluded that

the Taxpayer could not claim a deduction from gross receipts deriving from the sale of

counterfeit drugs because counterfeit drugs were not “prescription drugs” as that term is defined

by Section 7-9-73.2 B (3) (2007).

To the extent Taxpayer’s refund application could have applied to legitimate FDA-

approved prescription drugs, Taxpayer was unable to distinguish the portions of his refund

application that arose from the sale of counterfeit prescription drugs from the receipts received

from the sale of legitimate prescription drugs. Taxpayer testified that although extrapolating such

information from his records would have been possible, it could not have been accomplished

without undue burden and significant expense.

As previously stated, where an exemption or deduction from tax is claimed, the statute

must be construed strictly in favor of the taxing authority, the right to the exemption or deduction

must be clearly and unambiguously expressed in the statute, and the right must be clearly

established by the taxpayer. See Wing Pawn Shop. Construing Section 7-9-73.2 in favor of the

Department pursuant to Wing, the Hearing Officer was persuaded that the prescription drug

deduction was not applicable to counterfeit drugs.

To the extent the deduction could have been appropriately asserted to receipts deriving

from legitimate prescription drugs, the Taxpayer was unable or unwilling to incur the cost or

In the Matter of the Protest of Mohamed B. Aswad, M.D., P.C.
Page 12 of 20
expend the effort necessary to extrapolate evidence from his records that could have clearly

established a right to the deduction for legitimate prescription drugs.

Under the circumstances, the Taxpayer did not establish a right to the claimed deduction

because he was unable to establish that portion of the refund that derived from the receipts of

authentic FDA-approved prescription drugs which could have been lawfully deducted under

NMSA 1978, Sec. 7-9-73.2.

To the extent Taxpayer relied on the advice of a certified public accountant, whether or

not to his detriment, it is the Taxpayer’s duty under Tiffany Constr. Co. v. Bureau of Revenue,

1976-NMCA-127, ¶5, to ascertain the tax consequences of his 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. Although the task may seem formidable, the Department

provides a variety of publications available at no cost intended to provide general guidance on

various topics, including gross receipts taxes and deductions. See FYI-105 Gross Receipts &

Compensating Taxes: An Overview at www.tax.newmexico.gov/forms-publications.aspx.

Effect of Restitution

In addition to Taxpayer’s reliance on the deduction for prescription drugs at NMSA 1978,

Sec. 7-9-73.2, the Taxpayer urged the Hearing Officer to grant his protest because he paid more

than $2,000,000 in criminal and civil penalties, including restitution to reimburse the entities that

paid him for the costs of the counterfeit non-FDA-approved prescription drugs. Although the

Taxpayer did not expressly reference any deductions in making this argument, the Hearing

Officer considered whether the court-ordered restitution intended to reimburse third-parties for

In the Matter of the Protest of Mohamed B. Aswad, M.D., P.C.
Page 13 of 20
the costs of counterfeit medications might qualify for the deduction provided for refunds and

allowances under NMSA 1978, Section 7-9-67.

In relevant part, NMSA 1978, Section 7-9-67 (A) provides that “[r]efunds and allowances

made to buyers or amounts written off the books as an uncollectible debt by a person reporting

gross receipts tax on an accrual basis may be deducted from gross receipts.” In this protest, the

Taxpayer paid restitution as a condition of his federal probation. Payment was made in August of

2015. The question then is whether the term “refund” as used in Section 7-9-67 includes court-

ordered restitution.

Questions of statutory construction begin with the plain meaning rule. See Wood v. State

Educ. Ret. Bd., 2011-NMCA-20, ¶12. In Wood, ¶12 (internal quotations and citations omitted),

the Court of Appeals stated “that the guiding principle in statutory construction requires that we

look to the wording of the statute and attempt to apply the plain meaning rule, recognizing that

when a statute contains language which is clear and unambiguous, we must give effect to that

language and refrain from further statutory interpretation.” A statutory construction analysis

begins by examining the words chosen by the Legislature and the plain meaning of those words.

State v. Hubble, 2009-NMSC-014, ¶13, 206 P.3d 579, 584. Extra words should not be read into

a statute if the statute is plain on its face, especially if it makes sense as written. See, Johnson v.

N.M. Oil Conservation Comm'n, 1999-NMSC-21, ¶ 27, 127 N.M. 120, 126, 978 P.2d 327, 333.

“Tax statutes, like any other statutes, are to be interpreted in accordance with the legislative

intent and in a manner that will not render the statutes’ application absurd, unreasonable, or

unjust." City of Eunice v. State Taxation & Revenue Dep't, 2014-NMCA-085, ¶8 (internal

citations and quotations emitted). It is a canon of statutory construction in New Mexico to adhere

to the plain wording of a statute except if there is ambiguity, error, an absurdity, or a conflict

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among statutory provisions. See Regents of the Univ. of New Mexico v. New Mexico Fed'n of

Teachers, 1998-NMSC-20, ¶28, 125 N.M. 401. Only if the plain language interpretation would

lead to an absurd result not in accord with the legislative intent and purpose is it necessary to

look beyond the plain meaning of the statute. See Bishop v. Evangelical Good Samaritan Soc'y,

2009-NMSC-036, ¶11, 146 N.M. 473. When applying the plain meaning rule, the statutes should

be read in harmony with the provisions of the remaining statute or statutes dealing with the same

subject matter. See State v. Trujillo, 2009-NMSC-012, ¶22, 146 NM 14. See also Hayes v.

Hagemeier, 1963-NMSC-095, ¶9, 75 N.M. 70 (“All legislation is to be construed in connection with

the general body of law.”).

As provided by Hubble, the statutory construction analysis begins by examining the

words chosen by the Legislature. In this case, the relevant word chosen by the legislature was

“refund.” Black’s Law Dictionary, 1394 (9th ed. 2009), defines “refund” as “[t]he return of

money to a person who overpaid[.]” This definition is consistent with the manner in which the

Department has interpreted the term “refund” for the purposes of Section 7-9-67. Examples

provided in Regulation 3.2.227.8 – 3.2.227.12 NMAC include circumstances in which a buyer

who purchases goods from a seller then returns those goods for a reimbursement of the purchase

price.

Applying Johnson, and finding that the statute is plain on its face, the Hearing Officer is

then prohibited from reading extra words into the statute, including the word “restitution.” In

fact, the Hearing Officer determined that reading “refund” to include “restitution” would lead to

an absurd result not in accord with legislative intent and purpose which the rules of statutory

construction seek to avoid. The Legislature did not include the term “restitution” when it

fashioned the deduction for refunds, despite the fact that “restitution” is a term that is well-

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known to the Legislature because it has defined and utilized the term in numerous other

legislative acts such as NMSA 1978, Section 31-17-1 (addressing victim restitution by criminal

offenders under the Criminal Code).

To the extent any doubt remains regarding the Legislative intent underlying NMSA 1978,

Section 7-9-67, the same rule applied in reference to the application of Section 7-9-73.2 applies

when considering the application of a deduction for refunds. Where an exemption or deduction

from tax is claimed, the statute must be construed strictly in favor of the taxing authority, the

right to the exemption or deduction must be clearly and unambiguously expressed in the statute,

and the right must be clearly established by the taxpayer. See Wing Pawn Shop. Applying these

rules, the Hearing Officer was not persuaded that the Taxpayer was entitled to a deduction under

Section 7-9-67 for restitution.

As previously stated, the Taxpayer never expressly asserted a claim to a deduction under

NMSA 1978, Section 7-9-67, but the Hearing Officer nevertheless considered his arguments

under the only potentially applicable deduction. The Taxpayer did not establish a right to a right

to a deduction under these circumstances.

Taxpayer’s Policy Arguments.

Taxpayer commented that the Department, by failing to refund gross receipts taxes

deriving from the sale of counterfeit prescription drugs was incurring a financial benefit from an

illegal activity. Despite Taxpayer’s policy arguments, it is also unlikely that the Legislature

intended that one convicted of a crime receive a tax benefit in the form of a deduction for court

ordered restitution intended to compensate third parties for a criminal acts. Had this been the

intention of the Legislature, then it would have expressly included “restitution” when it crafted

the deduction for refunds under Section 7-9-67. Otherwise, NMSA 1978, Sec. 7-9-5 states that

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“[t]o prevent evasion of the gross receipts tax and to aid in its administration, it is presumed that

all receipts of a person engaging in business are subject to the gross receipts tax.” (emphasis

added).

Motion to Supplement or Amend Protest

Taxpayer indicated that his application for refund erroneously omitted January of 2012

despite his intention to seek a refund for all reporting periods in 2012. The Hearing Officer

treated the request as an oral motion to supplement or amend Taxpayer’s protest. The

Department opposed the motion and argued that the period to supplement or amend Taxpayer’s

protest lapsed pursuant to Regulation 3.1.7.11 (A) which provides that a taxpayer may

supplement a protest no later than 10 days prior to a hearing or as otherwise provided in a

scheduling order. The Department also argued that the statute of limitations precluded an

amendment or supplement to include January of 2012. The Hearing Officer reserved ruling on

the motion and permitted the Taxpayer to present evidence relevant to January of 2012.

The Hearing Officer declines to make a finding on the question of whether Taxpayer can

orally amend or supplement his protest at the hearing because the issue is moot in light of the

substantive analysis above. That is, even if the Hearing Officer were to find that Taxpayer was

entitled to amend his protest at such a late stage in the proceeding, and that the period ending

January of 2012 was not precluded by the statute of limitations, the Taxpayer still failed to

establish an entitlement to the deduction underlying his Application for Refund.

For the stated reasons, the Taxpayer’s protest should be denied.

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.

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B. A hearing was timely set and held within 90-days of the Department’s

acknowledgment of receipt of a valid protest under NMSA 1978, Section 7-1B-8 (2015).

C. Taxpayer did not establish by a preponderance that Taxpayer was entitled to the

claimed deductions or any refund resulting from the application of NMSA 1978, Section 7-9-

73.2.

D. Taxpayer did not establish by a preponderance that Taxpayer was entitled to the

claimed deductions or any refund resulting from the application of NMSA 1978, Section Sec. 7-

9-67.

For the foregoing reasons, the Taxpayers’ protest DENIED.

DATED: April 14, 2017

Chris Romero
Hearing Officer
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502

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NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, Section 7-1-25 (2015), 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. If an appeal is not filed with the Court of Appeals within 30 days, this

Decision and Order will become final. Rule of Appellate Procedure 12-601 NMRA articulates

the requirements of perfecting an appeal of an administrative decision with the Court of Appeals.

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 begin preparing the record proper. The parties will each be provided with a

copy of the record proper at the time of the filing of the record with the Court of Appeals, which

occurs within 14 days of the Administrative Hearings Office’s receipt of the docketing statement

from the appealing party. See Rule 12-209 NMRA.

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