I was assessed for a prior owner's unpaid tax as a successor in business — can I get the hearing officer to bar the state from collecting the penalty and interest before it happens?

Plain-English summary

The Local Vapory, LLC is a Las Cruces vapor-products shop whose sole member is Chaz Betts. The Department assessed it about $28,459 — roughly $22,770 in tax plus about $4,554 in penalty and $1,135 in interest — as a "successor in business" for the unpaid tax liability of a prior owner (the assessment covered mid-2014 periods, before Betts started operating in July 2016). The Local Vapory did not protest that underlying assessment (Betts said he never received it), and the Department moved to collect: it issued liens and served a warrant of levy on Wells Fargo, securing $5,507.43, which the Department applied entirely to principal.

The Local Vapory then filed a protest to the Notice of Levy and asked Hearing Officer Chris Romero for a specific, forward-looking remedy: an order prohibiting the Department from collecting the penalty and interest at all. Its argument rested on Hi-Country Buick GMC, Inc. v. Taxation & Revenue Department (2016-NMCA-027) and several AHO decisions (Autoglass Technologies 17-04, Sol Bookkeeping 16-13, Mountain Liquors 16-15), which hold that a successor in business is not liable for the penalties and interest incurred by its predecessor.

The Hearing Officer denied the protest — but on procedural grounds, without deciding the successor-liability question:

• Not ripe. Ripeness is a jurisdictional question decided before the merits. It uses a two-part fitness and hardship test. Fitness failed because the Department had not actually collected any penalty or interest — every dollar taken so far went to principal — so whether it ever would remained "uncertain or contingent." (Under Section 7-1-28(A), the Department can still abate an assessment it finds incorrect.) Hardship failed because the claimed injury was speculative: the taxpayer was "in no different position than any other taxpayer" paying a liability it may later seek to refund.
• No injunctive power. The Administrative Hearings Office Act does not give a hearing officer authority to enjoin a party's future conduct, so he could not bar the Department from hypothetical future collection.
• Rights preserved. The taxpayer can still pay, apply for a refund, and protest the underlying successor liability on the merits — the very strategy its counsel described — and raise Hi-Country Buick then.

Result: the protest was DENIED as not ripe, leaving the taxpayer to its normal pay-and-refund remedy.

What this means for you

Buyers of an existing business (successors)

New Mexico can assess a successor in business for a prior owner's unpaid tax. Under Hi-Country Buick, that successor liability generally does not include the penalty and interest the predecessor ran up — but this decision shows the protection is enforced when the Department actually tries to collect that penalty and interest, not through a pre-emptive order forbidding it in advance. Watch how the Department applies your payments (here, all to principal) and raise the Hi-Country Buick limit if and when penalty/interest is actually collected from you.

Taxpayers who missed the deadline to protest an assessment

If you did not protest the original assessment in time, your path is usually to pay, then claim a refund, then protest the refund denial — which lets you argue the merits later. A hearing officer generally will not short-circuit that by issuing an advance order about what the Department may do in the future.

Accountants and tax professionals

The lever that lost here was ripeness, not the substance. Asking an adjudicator to police "future wrongdoing" that has not occurred invites a fitness-and-hardship dismissal, and the AHO has no injunctive power. Frame the challenge around a concrete, completed act (an actual collection of penalty/interest, or a refund denial), where the harm is direct and immediate.

Common questions

Q: As a business successor, am I on the hook for the previous owner's penalties and interest?
A: Generally no — Hi-Country Buick GMC holds successor liability does not include the predecessor's penalty and interest. But this decision did not rule on that; it dismissed the request as premature because no penalty or interest had actually been collected yet.

Q: Why couldn't the hearing officer just order the state not to collect penalty and interest?
A: Two reasons: the issue was not ripe (the harm was speculative, since only principal had been collected), and the Administrative Hearings Office Act gives a hearing officer no power to enjoin a party's future conduct.

Q: I missed the window to protest my assessment. Is there any way to still contest it?
A: Yes — you can pay the assessment, apply for a refund, and if the refund is denied, protest that denial and argue the merits then. The taxpayer here planned exactly that, and the decision confirmed it keeps those rights.

Citations and references

Statutes:

• § 7-1-28(A) NMSA 1978 — the Department retains authority to abate any portion of an assessment it determines is incorrect
• § 7-1-25 NMSA 1978 — right to appeal a Decision and Order to the New Mexico Court of Appeals within 30 days
• Administrative Hearings Office Act — does not confer power on a hearing officer to enjoin a party's future conduct

Cases cited:

• Hi-Country Buick GMC, Inc. v. Taxation & Revenue Dep't, 2016-NMCA-027 — a successor in business is not liable for the penalties and interest incurred by its predecessor
• Manning v. Mining & Minerals Div., 2006-NMSC-027, 140 N.M. 528 — lack of ripeness is a jurisdictional defect that may be raised at any stage
• N.M. Indus. Energy Consumers v. N.M. Pub. Serv. Comm'n, 1991-NMSC-018, 111 N.M. 622 — the purpose of ripeness is to conserve adjudicatory resources for real, present problems, not abstract or remote ones
• AFSCME Council 18 v. Bd. of Cty. Comm'rs of Bernalillo Cty., S-1-SC-35248 (N.M. 2016) — ripeness turns on a two-prong fitness-and-hardship analysis
• State v. Tower, 2002-NMCA-109, 133 N.M. 32 — everyone is presumed to know the law; ignorance of the law is no excuse

Related AHO decisions cited: Autoglass Technologies, LLC (No. 17-04), Sol Bookkeeping Services, LLC (No. 16-13), and Mountain Liquors, LLC (No. 16-15) — each holding a successor in business not liable for its predecessor's penalty and interest.

Source

• Listing: New Mexico Decisions & Orders
• Decision post: The Local Vapory
• Decision PDF: D&O 17-27

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
THE LOCAL VAPORY No 17-27
TO NOTICE OF LEVY
ISSUED UNDER LETTER
ID NO. L0058714416

DECISION AND ORDER

A formal hearing in the above-referenced protest was held May 11, 2017, before Chris

Romero, Hearing Officer, in Santa Fe, New Mexico. The Taxation and Revenue Department

(Department) was represented by Mr. Marek Grabowski, Staff Attorney. Mr. Nicholas Pacheco,

Auditor, appeared and testified on behalf of the Department. Mr. Joshua Dwyer, Esq. (counsel)

represented The Local Vapory (Taxpayer). Mr. Chaz Betts, with the prior authorization of the

Hearing Officer, appeared by telephone and testified on behalf of the Taxpayer. The Hearing

Officer took notice of all documents in the administrative file. Department Exhibits A – G were

admitted. The Taxpayer did not seek to introduce any exhibits. A more detailed description of

exhibits submitted at the hearing is included on the Administrative Exhibit Coversheet. Based

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

FINDINGS OF FACT

1. Mr. Chaz Betts is the single member of The Local Vapory, LLC (Taxpayer) which engages

in business in Las Cruces, New Mexico. Taxpayer sells vapor products, including supplies,

and accessories. Mr. Betts has operated the business since July of 2016. [Testimony of Mr.

Betts].

2. Taxpayer is located at 200 S. Solano Dr., Suite 5, Las Cruces, New Mexico 88001. This is

also the Taxpayer’s mailing address of record. [Testimony of Mr. Betts; Testimony of Mr.

Pacheco; Dept. Ex. A, Lines 8 and 9; Dept. Ex. B].

3. Taxpayer has been registered to engage in business since July 8, 2016. [Dept. Ex. B].

4. In 2016, Mr. Betts was in communication with the Department regarding a review of

potential liability against Taxpayer as an alleged successor in business. [Testimony of Mr.

Betts].

5. Mr. Betts believed he provided all documents that the Department had requested as part of its

review. [Testimony of Mr. Betts].

6. On or about September 22, 2016, the Department issued a Notice of Assessment of Taxes

and Demand for Payment to Taxpayer in the amount of $22,770.24 in taxes, $4,553.95 in

penalty, and $1,134.81 in interest for a total amount due of $28,459.00. The assessment was

issued to Taxpayer as a successor in business under Letter ID No. L0177069616. [Dept. Ex.

C].

7. The Taxpayer did not protest the assessment issued under Letter ID No. L0177069616.

8. Mr. Betts denied ever receiving the Notice of Assessment of Taxes and Demand for Payment.

[Testimony of Mr. Betts].

9. Although Taxpayer’s employees may occasionally retrieve Taxpayer’s mail, it is always

delivered to Mr. Betts. To the best of his knowledge, Mr. Betts has never had mail lost or

misplaced. [Testimony of Mr. Betts].

10. A notation in Taxpayer’s electronic file dated September 22, 2016 indicated that the

assessment was mailed to the Taxpayer on or about that date. [Testimony of Mr. Pacheco;

Dept. Ex. D].

11. On or about January 5, 2017, the Department issued a Notice of Intent to Lien under Letter

ID No. L1680298288. The total amount due was $28,717.79.

12. On or about January 18, 2017, the Department issued a Notice of Claim for Tax Lien under

Letter ID No. L0845556016. It was mailed to Taxpayer’s address of record and indicated as

In the Matter of The Local Vapory
Page 2 of 10
due the amounts of $22,770.24 in tax, $4,553.95 in penalty, and $1,393.60 in interest for a

total amount due of $28,717.79.

13. On February 7, 2017, the Department served a Warrant of Levy under Letter ID No.

L0944073008 on Wells Fargo Bank N.A.

14. On or about February 9, 2017, Taxpayer executed a Formal Protest that referenced only the

Notice of Intent to Lien. The Formal Protest, which appeared to reference the incorrect Letter

ID Number, was likely intended to address Letter ID No. L1680298288. The Formal Protest

was received in the Department’s Protest Office on February 10, 2017.

15. On February 14, 2017, Wells Fargo Bank issued a cashier’s check to the Department for

$5,507.43. The payment was secured pursuant to Levy Number 261221. [Testimony of Mr.

Pacheco; Dept. Ex. E; Dept. Ex. F].

16. On or about February 24, 2017, a Notice of Levy was mailed to the Taxpayer under Letter ID

No. L0058714416 at its address of record. The Taxpayer was notified that payment in the

amount of $5,507.43 had been secured from Wells Fargo Bank. The Department also made

demand for the remaining balance due as of that that date in the amount of $23,295.21.

[Testimony of Mr. Pacheco; Dept. Ex. E].

17. On or about March 2, 2017, the Department acknowledged the Taxpayer’s Formal Protest of

its Notice of Claim of Tax Lien filed under Letter ID No. L0845556016 and the Warrant of

Levy under Letter ID No. L0944073008. The acknowledgment did not reference the Notice

of Intent to Lien under Letter ID No. L1680298288.

18. The funds secured from Wells Fargo Bank were applied to Taxpayer’s outstanding principal

liability for the periods July 2014 through October 2014. [Testimony of Mr. Pacheco; Dept.

Ex. G].

19. On April 12, 2017, the Department filed a Hearing Request that referenced only Letter ID

No. L0944073008. The Hearing Request did not reference the Letter ID Numbers in the
In the Matter of The Local Vapory
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Taxpayer’s Formal Protest or the Letter ID Numbers referenced in the Department

acknowledgment of March 2, 2017. The request was submitted with copies of the Notice of

Levy issued under Letter ID No. L0058714416, Warrant of Levy issued under Letter ID No.

L0944073008, Notice of Claim of Tax Lien issued under Letter ID No. L0845556016, and

the Notice of Intent to Lien issued under Letter ID No. L1680298288.

20. On April 14, 2017, the Administrative Hearings Office entered a Notice of Administrative

Hearing setting a hearing on the merits for May 11, 2017 at 1 p.m.

21. On April 17, 2017, the Administrative Hearings Office entered an Amended Notice of

Administrative Hearing setting a hearing on the merits for May 11, 2017 at 3 p.m.

22. On May 10, 2017, Taxpayer filed Taxpayer’s Motion to Participate Telephonically. The

Department did not oppose the motion.

23. On May 11, 2017, the Administrative Hearings Office entered an Order Granting Taxpayer’s

Motion to Participate Telephonically.

24. The caption in this protest has at all times referenced only Letter ID No. L0058714416.

Neither party raised any issues regarding the various Letter ID numbers at issue and this

Decision and Order addresses all issues raised by the parties at the hearing.

25. The Department as a matter of standard practice applies payments on outstanding liabilities

to principal first. [Testimony of Mr. Pacheco].

26. The Department’s ordinary practice is to proceed with collection activities until the

outstanding liability, including accrued penalty and interest are paid in full. [Testimony of

Mr. Pacheco].

27. As of the date of the hearing, penalties and interest have not been abated in the present

matter. Mr. Pacheco could not state as of the date of the hearing whether or not an abatement

of penalty or interest was under consideration. [Testimony of Mr. Pacheco].

In the Matter of The Local Vapory
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DISCUSSION

The issue Taxpayer presented in this protest is whether or not the Hearing Officer may enter

an order prohibiting future conduct by the Department. In summary, the Taxpayer was assessed as a

successor in business for the tax liability of its predecessor but claimed it had no knowledge of the

assessment until it received the Notice of Intent to Lien, at which time it filed its Formal Protest.

The Taxpayer’s strategy in this case, as explained by counsel, is to pay the assessment

and then seek a refund because its opportunity to protest the underlying assessment expired.

Consequently, it will present its defenses to the underlying assessment in a protest to a denial of

refund which will stem from a refund application that it will submit at some time in the future.

At the hearing, Taxpayer requested only that the Hearing Officer enter an order

prohibiting the Department from collecting penalty and interest on the assessment. Since it was

assessed as a successor in business, the Taxpayer relied on Hi-Country Buick GMC, Inc. v

Taxation and Revenue Dept., 2016-NMCA-027 for the authority that the tax liability of a

successor in business does not include penalties and interest that were incurred by its

predecessor. Taxpayer also relied on In the Matter of Autoglass Technologies, LLC (No. 17-04),

In the Matter of Sol Bookkeeping Services, LLC (16-13), and In the Matter of Mountain Liquors,

LLC (16-15). Each of those decisions, consistent with the holding in Hi-Country Buick GMC

concluded that the taxpayer, as a successor in business, was not liable for the penalty and interest

incurred by its predecessor.

The problem in the current protest is one of ripeness. In this case, the Department

assessed tax, penalty, and interest, but has yet to collect any penalty or interest in a manner that

offends Hi-Country Buick GMC. In fact, the Taxpayer did not assert any actual wrongdoing by

the Department. Rather, the Taxpayer seeks to avoid future wrongdoing.

Ripeness
In the Matter of The Local Vapory
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As a jurisdictional matter, ripeness must be addressed prior to any consideration of the

merits. Manning v. Mining & Minerals Div., 2006-NMSC-027, ¶54, 140 N.M. 528, 144 P.3d 87,

(Minzner, J. dissenting) (“Lack of ripeness, like lack of standing, is a potential jurisdictional

defect, which ‘may not be waived and may be raised at any stage of the proceedings, even sua

sponte by the appellate court.’”) (quoting Gunaji v. Macias, 2001-NMSC-028, ¶ 20, 130 N.M.

734, 31 P.3d 1008). Manning, 2006-NMSC-027 at ¶54. The basic purpose of ripeness law is and

always has been to conserve judicial machinery for problems which are real and present or

imminent, not to squander it on abstract or hypothetical or remote problems. N.M. Indus. Energy

Consumers v. N.M. Publ. Serv. Comm’n., 1991-NMSC-018, ¶25, 111 N.M. 622, 808 P.2d 592.

The courts avoid rendering advisory opinions. City of Las Cruces v. El Paso Elec. Co., 1998-

NMSC-006, ¶18, 124 N.M. 640, 954 P.2d 72. “The ripeness doctrine exists ‘to prevent the

courts, through avoidance of premature adjudication, from entangling themselves in abstract

disagreements.’” City of Sunland Park v. Macias, 2003-NMCA-098, ¶23, 134 N.M. 216, 75 P.

3d 816 (quoting US West Communications, Inc. v. N.M. State Corp. Comm’n, 1998-NMSC-032,

¶ 8, 125 N.M. 798, 965 P.2d 917).

Ripeness involves a two pronged analysis. American Federation of State, County &

Municipal Employees, Council 18, AFL-CIO, Locals 1461, 2260 and 2499 v. Board of County

Commissioners of Bernalillo County, No. S-1-SC-35248, slip op. at 19 (N.M. Sup. Ct. May 23,

2016). Fitness and hardship are the two prongs of the analysis. Id. at 19. “Fitness is concerned

with “whether the claim involves uncertain and contingent events that may not occur as

anticipated or may not occur at all.” Id. at 20 (quoting 15 Moore’s Federal Practice

§101.76[1][a] at 101-312.2).

In this case, Taxpayer has not met the fitness prong because, although the Department has

not abated penalty and interest assessed to the Taxpayer as successor in business, whether or not
In the Matter of The Local Vapory
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it will do so remains uncertain or contingent. Mr. Pacheco testified in reference to general

collection practices in other cases, but the Hearing Officer is unwilling to construe his testimony

as an assurance of how the Department will pursue collection against this Taxpayer in these

specific circumstances. Under NMSA 1978, Section 7-1-28 (A), the Department retains the

authority to abate any portion of an assessment when it determines that the assessment is

incorrect. Since the underlying assessment is not in protest, the Department retains its authority

to determine whether the assessment is incorrect and whether an abatement is appropriate.

The second prong in assessing ripeness is whether, and to what extent, the parties will

endure hardship if a decision is withheld. See N.M. Indus. Energy Consumers, 1991-NMSC-018,

¶ 25. “The hallmark of cognizable hardship is usually direct and immediate harm.” 15 Moore’s

Federal Practice § 101.76[2] at 101-331; accord Morgan v. McCotter, 365 F.3d 882, 891 (10th

Cir. 2004) (“[T]he hardship inquiry may be answered by asking whether the challenged action

creates a direct and immediate dilemma for the parties.” (internal quotation marks and citation

omitted)). “In assessing this possibility of hardship, we ask whether the challenged action creates

a direct and immediate dilemma for the parties. The mere possibility of future injury, unless it is

the cause of some present detriment, does not constitute hardship.” N.Y. Civil Liberties Union v.

Grandeau, 528 F.3d 122, 134 (2d Cir. 2008) (internal quotation marks and citations omitted).

The Taxpayer asserted that it intends to pay the assessment and apply for a refund. This

strategy will eventually allow the Taxpayer to protest the liability that it did not previously

protest when the Department issued its assessment. Taxpayer asserted that the hardship arises

because the Taxpayer will be required to pay approximately $6,000 in interest and penalty before

it is entitled to apply for a refund. The specific hardship will be a delay in its ability to apply for

a refund as well as the hardship of paying $6,000 to the Department which Taxpayer could

utilize for other purposes.
In the Matter of The Local Vapory
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For the reasons previously stated, hardship under the circumstances is speculative. As of

the present time, all funds secured pursuant to the Department’s collection activities have been

applied to the principal liability. If the Department were to determine that any part of the

assessment were incorrect, it retains the authority to make an abatement. In the event the

Department chooses not to abate any portion of the assessment, then the Taxpayer retains all

rights under the Tax Administration Act to seek a refund, file a protest, and be heard on the

merits of its case. In fact, the Taxpayer is in no different position than any other taxpayer who is

paying a liability to the department which may be the subject of a future refund application.

Consequently, the issue presented by Taxpayer is not ripe.

Application of Hi-Country Buick GMC

The Department asserted that it had not acted contrary to the law in its collection efforts.

The Taxpayer did not dispute that assertion, but requested that the Hearing Officer enter a

Decision and Order defining the limits of the Department’s future collection activities with

respect to Taxpayer. The Hearing Officer declines to assert any authority over the Department’s

future action absent specific legal authority to do so. The Administrative Hearings Office Act

does not confer injunctive powers on the Hearing Officer.

With respect for the relief Taxpayer requested at this hearing, the Hearing Officer will

acknowledge only what the parties already know. Everyone is presumed to know the law. See

State v. Tower, 2002-NMCA-109, ¶ 9, 133 N.M. 32, 59 P.3d 1264 (“We have often stated that

ignorance of the law is no excuse. Every person is presumed to know the law.”).

Having addressed the only issue raised by Taxpayer, and finding no further dispute

among the parties to this protest, the Hearing Officer finds that the protest should be DENIED.

In the Matter of The Local Vapory
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CONCLUSIONS OF LAW

1. Taxpayer filed a timely written protest to the Notice of Levy, and jurisdiction lies over

the parties and the subject matter of this protest.

2. A hearing was held within 90 days of the Taxpayer’s protest.

3. The issue underlying the specific relief Taxpayer requested is not ripe.

4. The Administrative Hearings Office Act does not grant the authority to enjoin

future conduct of a party in a protest.

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

DATED: June 12, 2017

Chris Romero
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 (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 timely 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 proper with the Court of Appeals,
In the Matter of The Local Vapory
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which occurs within 14 days of the Administrative Hearings Office receipt of the docketing

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

In the Matter of The Local Vapory
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