Could a corporate provider of New Mexico Medicaid developmental-disability services exclude state payments from gross receipts as a disclosed agent or under caregiver exclusions for individuals?
Apply this to your situation
This page answers the general question as of 2018. Ezel answers yours, under current New Mexico tax law, with citations.
Plain-English summary
A corporate provider's receipts for Family Living Services under New Mexico's developmental-disabilities Medicaid waiver were taxable gross receipts. Active Solutions Incorporated was not a disclosed agent receiving money solely for the state or its direct-care providers, and regulatory exclusions written for individual caregivers did not apply to the corporation.
Active Solutions contracted with the Department of Health to provide services under the Developmental Disabilities Medicaid Waiver. It then contracted with direct service providers who cared for eligible individuals in their homes. Nearly every aspect of the service was regulated, including qualifications, care standards, billing, documentation, audits, and reimbursement rates.
The company paid gross receipts tax until 2013, when it stopped because it believed it was acting as a state agent. As of the May 30, 2018 hearing, the outstanding liability was $550,469.50 tax, $154,130.86 penalty, and $91,278.21 interest, totaling $795,878.57.
The payments were not disclosed-agency reimbursements
Regulation 3.2.1.19(C)(1) generally treated reimbursed service expenses as gross receipts unless the taxpayer incurred them as an agent for a disclosed principal. An agency relationship required power to bind the principal to a third-party contract and disclosure that the third party could enforce the obligation against the principal.
Active Solutions did not pay its direct service providers until after the state paid Active Solutions. The AHO therefore found no reimbursement of a prior expenditure; the company postponed its own expenditure until it received payment.
The evidence also did not show that Active Solutions could bind the state to obligations owed to the direct providers. Its state Provider Agreement expressly said that service recipients and other third parties could not enforce the agreement or assert claims against the agencies or provider. The direct-provider contracts likewise disclaimed third-party beneficiaries.
The receipts were therefore “payments received for one's own account and then expended to meet one's own responsibilities,” not amounts received solely for another in a disclosed agency capacity.
Individual caregiver exclusions did not cover a corporation
Active Solutions also relied on Regulation 3.2.1.12(E), (F), and (G), which excluded certain receipts of foster parents, critical in-home caretakers, and individuals providing home-based support to developmentally disabled family members.
The AHO held that “individual” in those provisions meant a natural person. The regulatory language referred to people who could be foster parents, have family members, or themselves be developmentally disabled. Applying those terms to a corporation would produce an absurd result.
The most relevant home-care exclusion also required an individual to enter an agreement with the state and receive qualified foster-care payments. Active Solutions was a for-profit corporation contracting as a service-provider agency, not an individual within the regulation.
The state-funded program did not shift the tax obligation
The company argued that taxing state-funded reimbursements merely increased the state's program cost. The AHO responded that gross receipts tax was imposed on the business, not the consumer. Regulation 3.2.4.8 made the business solely liable, and Active Solutions' Provider Agreement expressly placed any gross receipts tax obligation on the provider.
The 2013 assessment was timely
Active Solutions argued that the ordinary three-year assessment limit barred 2013 tax. But its 2013 gross receipts totaled $6,095,606.90, from which it excluded $3,006,354.38 of Family Living Services receipts. Unless those receipts were legally excluded or exempt, that was an understatement exceeding 25 percent.
Section 7-1-18(C) allowed a six-year assessment period for an understatement greater than 25 percent. Because the AHO rejected the company's substantive exclusions, the March 21, 2017 assessment of 2013 liability was timely.
Penalty and interest remained
Interest was mandatory from the original due date under Section 7-1-67. The company also offered no evidence or argument overcoming the negligence penalty. Its failure to pay met the regulatory negligence definition, so the penalty remained under Section 7-1-69.
Result: protest DENIED. Active Solutions was ordered to pay $795,878.57 outstanding as of May 30, 2018, plus interest accruing after that date.
What this means for you
Government contractors and Medicaid providers
Detailed government control over service standards and payment rates does not by itself create a disclosed agency. Review whether your contract actually authorizes you to bind the government to third-party obligations.
Businesses seeking a reimbursed-expense exclusion
Document both the expenditure and the agency relationship. Paying a subcontractor only after receiving customer funds can look like using your own receipts to satisfy your own obligation rather than receiving reimbursement for a principal.
Corporate home-care providers
An exclusion written for an “individual” caregiver may not extend to a corporation or service-provider agency. The exact contracting party and statutory language matter.
Tax teams evaluating limitations periods
The ordinary assessment period may expand when reported liability is understated by more than 25 percent. The validity of a claimed exclusion can therefore determine both taxability and timeliness.
Common questions
Q: Was Active Solutions an agent simply because the state heavily regulated the services?
A: No. The AHO required authority to bind the state to a third-party obligation and disclosure that the third party could enforce against the state. The contracts showed neither.
Q: Were payments to direct service providers reimbursed expenditures?
A: No. Active Solutions did not pay those providers until after the state paid it, so the AHO treated the funds as the company's receipts used to meet its own obligations.
Q: Did the caregiver exclusions apply to the direct service providers?
A: The decision addressed Active Solutions' corporate receipts. It noted that the direct providers were individuals receiving difficulty-of-care payments, but held that the corporation itself did not fit the individual-caregiver exclusions.
Q: Why didn't the state's funding of the program make the receipts nontaxable?
A: Gross receipts tax was the provider's legal obligation. The Provider Agreement expressly assigned any gross receipts tax liability to Active Solutions.
Q: Why was 2013 still open for assessment in March 2017?
A: The company excluded more than 25 percent of its 2013 receipts. Section 7-1-18(C) therefore supplied a six-year assessment period once those exclusions were rejected.
Q: What amount did the final order uphold?
A: $550,469.50 tax, $154,130.86 penalty, and $91,278.21 interest as of May 30, 2018, totaling $795,878.57, plus later-accruing interest.
Citations and references
Statutes and regulations:
- NMSA 1978, § 7-9-3.5(A)(3)(f) — disclosed-agency exclusion
- NMSA 1978, §§ 7-9-4 and 7-9-5 — gross receipts tax and taxable-receipts presumption
- NMSA 1978, § 7-1-18(C) — six-year period for liability understated by more than 25 percent
- NMSA 1978, § 7-1-17(C) — assessment presumption
- NMSA 1978, §§ 7-1-67 and 7-1-69 — interest and negligence penalty
- NMSA 1978, § 37-1-23(A) — governmental contract immunity except for valid written contracts
- Regulation 3.2.1.19(C)(1) NMAC — reimbursed expenses and disclosed agency
- Regulation 3.2.1.12(E), (F), and (G) NMAC — individual foster, caretaker, and home-care exclusions
- Regulation 3.2.4.8 NMAC — business's sole liability for gross receipts tax
- Regulation 3.1.11.10 NMAC — negligence definition
Case cited:
- MPC Ltd. v. New Mexico Taxation & Revenue Department, 2003-NMCA-021 — disclosed agency requires authority to bind the principal and notice of third-party enforcement rights
Source
- Listing: New Mexico Decisions & Orders
- Decision post: Active Solutions Inc
- Decision PDF: D&O 18-27
Original ruling text
STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT
IN THE MATTER OF THE PROTEST OF
ACTIVE SOLUTIONS INCORPORATED
TO ASSESSMENT
ISSUED UNDER LETTER
ID NO. L0983824688
v. No. 18-27
NEW MEXICO TAXATION AND REVENUE DEPARTMENT
DECISION AND ORDER
A hearing occurred in the above-captioned protest on May 30, 2018 before Chris
Romero, Esq., Hearing Officer, in Santa Fe, New Mexico. At the hearing, Mr. Robert D.
Gorman, Esq. (Robert D. Gorman, P.A.), appeared representing Active Solutions Incorporated
(“Taxpayer”) accompanied by Mr. Todd Johnson, president of Active Solutions Incorporated,
and Ms. Ramona Flores-Lopez, both of whom testified on Taxpayer’s behalf. Mr. David Mittle,
Esq., appeared representing the State of New Mexico Taxation and Revenue Department
(“Department”). Protest Auditor, Ms. Mary Griego, appeared as a witness for the Department.
Taxpayer Exhibits 1, 2, 10, 11, and 16 were admitted into the record without objection.
Taxpayer Exhibits 4, 5, 6, 8, 9, 12, 13, and 14 were admitted into the record over the
Department’s objections. Taxpayer Exhibit 3 was excluded from the evidentiary record, but
retained as an exhibit for the record of the hearing and potential appellate review. Department
Exhibit E was admitted into the record without objection. Department Exhibit D was admitted
into the record over Taxpayer’s objection. All exhibits are more thoroughly described in the
Administrative Exhibit Coversheet. Taxpayer also requested an opportunity to prepare a written
closing argument which was filed on June 15, 2018. The Department filed its closing argument
on July 10, 2018. Based on the evidence and arguments presented, IT IS DECIDED AND
ORDERED AS FOLLOWS:
FINDINGS OF FACT
- On March 21, 2017, the Department assessed Taxpayer the amounts of
$770,648.21 in gross receipts tax, $154,129.60 in penalty, and $63,673.54 in interest for a total
tax assessment of $988,451.35 for the CRS reporting periods from January 31, 2010 through
February 29, 2016 under Letter ID No. L0983824688 (hereinafter “Assessment”). [See
Administrative File].
- On June 19, 2017, Taxpayer, by and through its counsel of record executed a
formal protest of the Assessment which was subsequently received in the Department’s Protest
Office on June 26, 2017. [See Administrative File].
- On July 13, 2017, the Department acknowledged receipt of Taxpayer’s formal
protest under Letter ID No. L1192545584. [See Administrative File].
- Although Taxpayer’s formal protest referenced a second assessment under Letter
ID No. L1406105904, Taxpayer’s counsel of record acknowledged that the hearing is limited to
the issues relevant to the Assessment issued under Letter ID No. L0983824688. [See Record of
Hearing – 5/30/2018].
- On August 15, 2017, the Department requested a scheduling hearing in this matter
with the Administrative Hearings Office. [See Administrative File].
- On August 18, 2017, the Administrative Hearings Office entered a Notice of
Telephonic Scheduling Conference setting this matter for a hearing on September 15, 2017. [See
Administrative File].
In the Matter of the Protest of
Active Solutions Incorporated
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- A telephonic scheduling hearing occurred on September 15, 2017 in which the
parties agreed on a date to conduct a hearing on the merits of Taxpayer’s protest as well as all
other associated deadlines. The scheduling hearing was within 90 days of the protest and neither
party objected that the hearing satisfied the 90-day hearing requirement provided by NMSA
1978, Section 7-1B-8 (A). [See Record of Scheduling Hearing (9/15/2017)].
- On September 19, 2017, the Administrative Hearings Office entered a Scheduling
Order and Notice of Administrative Hearing setting a hearing on the merits of Taxpayer’s protest
for May 30, 2018 and establishing other associated deadlines. [See Administrative File].
- On May 15, 2018, the parties filed their Joint Prehearing Statement. [See
Administrative File].
- On May 16, 2018, Taxpayer filed Taxpayer’s Supplement to Prehearing
Statement. [See Administrative File].
- On May 23, 2018, Taxpayer filed Taxpayer’s Unopposed Motion to Permit
Telephonic Testimony. [See Administrative File].
- On May 30, 2018, Taxpayer filed Taxpayer-Protestant’s Expert Witness List
while on the record of the hearing. [See Administrative File].
- On June 15, 2018, Taxpayer filed Taxpayer’s Closing Argument. [See
Administrative File].
- On June 19, 2018, Taxpayer filed Taxpayer’s Motion to Strike Witness
Testimony. [See Administrative File].
- On June 22, 2018, the Department filed Department’s Response to Taxpayer’s
Motion to Strike Witness Testimony and Request for Sanctions. [See Administrative File].
- On July 2, 2018, Taxpayer’s filed Taxpayer’s Reply to Department’s Response to
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Motion to Strike Witness Testimony. [See Administrative File].
- On July 10, 2018, the Department filed Department’s Closing Argument. [See
Administrative File].
- Ramona Flores-Lopez is retired from the State of New Mexico. During 25 years
in state employment, she worked in fields ranging from data processing to health planning. She
worked in Medicaid for nine years and five years for the department of health where she acted as
the director of the long-term services division. [Testimony of Ms. Flores-Lopez; See Taxpayer
Exhibit 16].
- During her career, she developed an expert comprehension of the various
programs administered by those entities, as well as the applicable statutes, rules, regulations,
procedures, and policies pertinent to them. She also participated in various capacities with the
development and implementation of rules, procedures, or policies. [Testimony of Ms. Flores-
Lopez].
- One such program is the Developmental Disabilities Medicaid Waiver Program
(hereinafter “DD Waiver”), a Medicaid program administered by the New Mexico department of
human services under the authority and in conjunction with the federal government. [Testimony
of Ms. Flores-Lopez].
- As a federal-state program administered by the state, the federal government has
established all terms and conditions governing the program, including statewide availability,
non-discrimination, and comparability. However, the federal government has permitted states to
seek waivers of certain non-core program provisions in order to serve specific population in need
of specific services. [Testimony of Ms. Flores-Lopez].
- Under such authority, the human services department has promulgated rules to
In the Matter of the Protest of
Active Solutions Incorporated
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implement the DD Waiver, instituting various requirements for the administration of the program
and addressing various areas such as eligibility, participation by service-provider agencies,
compensation and reimbursement procedures, just to name a few. [Testimony of Ms. Flores-
Lopez].
- Under the provisions of the DD Waiver, the department of human services may
also contract with another state agency to administer portions of the program. In New Mexico,
the department of health administers the DD Waiver program under such agreement with the
department of human services. [Testimony of Ms. Flores-Lopez].
- Under its authority from the human services department, the department of health
establishes more specific service requirements, consistent with pre-existing federal and state
requirements. [Testimony of Ms. Flores-Lopez].
- A variety of services are provided under the DD waiver, including case
management services, supportive living services, nutrition services, nursing services, therapy
services, community integration services, supported employment services, assistive technology
services, environmental modification services, and other services that assist eligible individuals.
[Testimony of Ms. Flores-Lopez].
- The Family Living Program is one of the various services provided under the DD
Waiver. The intent of the Family Living Program is to provide services to developmentally
disabled individuals in the most natural-like environment possible, meaning in a setting as
similar to a home as possible, as opposed to an institutional setting. [Testimony of Ms. Flores-
Lopez; See Taxpayer Exhibit 1].
- The department of health does not provide any direct services under the DD
Waiver. Rather, it contracts with third parties to provide services. Agencies with which it has
In the Matter of the Protest of
Active Solutions Incorporated
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historically contracted include for-profit and non-profit entities in New Mexico. Taxpayer is a
for-profit entity. [Testimony of Ms. Flores-Lopez].
- Conditions tending to qualify an individual as developmentally disabled can be
very complex. Examples of such conditions can include autism spectrum disorders, autism,
intellectual disabilities, or conditions affecting the brain or brain development, just to name a
few. [Testimony of Ms. Flores-Lopez].
- An eligible individual may apply for services by demonstrating clinical eligibility
and by showing that they would qualify for admission into an intermediate care facility for
individuals with intellectual and developmental disabilities, as well as by establishing income
eligibility. [Testimony of Ms. Flores-Lopez].
- Service providers, including Taxpayer, are required to adhere to various service
standards. [Testimony of Ms. Flores-Lopez].
- Service providers are regulated with the state mandating minimum hours of direct
care staff, nursing staff, depending on the needs of the individual, including the amount of
money that it may pay for services and care on behalf of an individual. [Testimony of Ms.
Flores-Lopez].
- The federal government has provided the right for qualified individuals to select a
service-provider. The service provided is bound to the individual’s selection and is generally
prohibited from rejecting individuals who have selected it for providing services. [Testimony of
Ms. Flores-Lopez].
- Other conditions subject of regulation of service include case management
activities, individual rights to select service-provider agencies, authority to deny services to
individuals, nursing assessments, aspiration and pneumonia monitoring, community engagement,
In the Matter of the Protest of
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and other details comprising more than 200 pages of requirements governing the delivery of
services. [Testimony of Ms. Flores-Lopez].
- Services are typically provided 24-hours per day. [Testimony of Ms. Flores-
Lopez].
- The department of health contracts with service-provider agencies to deliver
services to eligible individuals, including Taxpayer. [Testimony of Ms. Flores-Lopez].
- In turn, Taxpayer contracts with qualified individuals to deliver services to
individuals in need of such services (hereinafter “direct service providers”). [Testimony of Ms.
Flores-Lopez].
- Compensation for services under the DD Waiver is established by a rate schedule.
[Testimony of Ms. Flores-Lopez].
- Service providers are paid upon submission of electronic invoices, providing
specific information supporting the provider’s request for payment. Service providers are
required to retain documents supporting invoices. [Testimony of Ms. Flores-Lopez].
- Failure to maintain records in support of a billed service could require a provider
to reimburse the state for the service. [Testimony of Ms. Flores-Lopez].
- Despite her knowledge regarding the DD Waiver program, and the regulations
under which the program operates, Ms. Flores-Lopez has no expertise in the area of state
taxation. [Testimony of Ms. Flores-Lopez].
- Provider Agreements between providers such as Taxpayer and the state require
that the providers be obligated for payment of gross receipts tax. [Testimony of Ms. Flores-
Lopez].
- Mr. Todd Johnson is Taxpayer’s president, having founded Taxpayer in 2002.
In the Matter of the Protest of
Active Solutions Incorporated
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[Testimony of Mr. Johnson].
- During all times relevant to the protest, Taxpayer was under contract with the
department of health as a service provider under the DD Waiver. [Testimony of Mr. Johnson;
See Taxpayer Exhibit 1; Taxpayer Exhibit 2].
- The terms and conditions of its contract, admitted as Taxpayer Exhibit 2, have
remained substantially unchanged during all times relevant to the protest, although the term of
the contract admitted as Taxpayer Exhibit 2 is limited to the term of July 1, 2014 to June 30,
-
[Testimony of Mr. Johnson; See Taxpayer Exhibit 2].
-
Among various terms and conditions contained in the contract, Taxpayer’s
contract specifies that it is contingent on sufficient state funding, requires adherence to state and
federal laws and regulations governing provision of services. [Testimony of Mr. Johnson; See
Taxpayer Exhibit 2].
- Taxpayer bills for its services through an online billing system, and is required to
retain all records relevant to its billings for a period of seven years. Records include a variety of
medical records, progress notes, goal tracking records, and essentially everything else that is
relevant to the services provided to any individual. [Testimony of Mr. Johnson].
- Taxpayer payments to its direct service providers are contingent on Taxpayer first
being paid by the state. [Testimony of Mr. Johnson; See Taxpayer Exhibit 10].
- Taxpayer is subject to audit to verify the provision of services and the proper
maintenance of records. Where an audit may identify a deficiency, Taxpayer may be subject to
sanctions, including the requirement that it reimburse the state for previously-compensated
services. [Testimony of Mr. Johnson].
- Mandatory corrective action to address audit deficiencies may also be imposed by
In the Matter of the Protest of
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the state. [Testimony of Mr. Johnson].
- Nearly all aspects regarding the delivery of Family Living Services are regulated
by the state. [Testimony of Mr. Johnson; Testimony of Ms. Flores-Lopez].
- Taxpayer paid gross receipts tax until 2013, at which time it stopped because it
perceived itself as an agent of the state. [Testimony of Mr. Johnson].
- Taxpayer has not read the regulations governing the exemption of receipts as
reimbursed expenditures. [Testimony of Mr. Johnson].
- Ms. Barbara Cholewka, Ms. Cindy Aragon, and Ms. Angie Griego are direct
service providers having years of experience providing services. Each provides care for
individuals residing with them in their homes. [Testimony of Ms. Cholewka; Testimony of Ms.
Aragon; Testimony of Ms. Griego].
- In order to qualify as a family living provider, Ms. Cholewka, Ms. Aragon, and
Ms. Griego were required to adhere to and maintain compliance with a variety of state and
federal requirements, including training, record keeping, and home maintenance. [Testimony of
Ms. Cholewka; Testimony of Ms. Aragon; Testimony of Ms. Griego].
- During any period of time they were under contract with Taxpayer, Taxpayer
compensated them for their services with the understanding that Taxpayer would be
compensated by the state. [Testimony of Ms. Cholewka; Testimony of Ms. Aragon; Testimony
of Ms. Griego].
- Neither Ms. Cholewka, Ms. Aragon, nor Ms. Griego received Forms 1099
because their income from providing services is not reportable under the Internal Revenue Code
and the regulations implemented by the Internal Revenue Service. [Testimony of Ms. Cholewka;
Testimony of Ms. Aragon; Testimony of Ms. Griego].
In the Matter of the Protest of
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- Taxpayer does not report compensation to direct service providers on Forms 1099
because that income qualifies for a difficulty of care exemption from taxation. [Testimony of Mr.
Johnson; See Department Exhibit D].
- The sole issue in dispute is the taxability of gross receipts derived from providing
Family Living Services under the DD Waiver. [Testimony of Mr. Johnson].
- Taxpayer’s outstanding liability as of May 30, 2018, the date of he hearing, was
$550,469.50 in gross receipts tax, $154,130.86 in penalty, and $91,278.21 in interest for a total
outstanding liability of $795,878.57. [Testimony of Ms. Griego; See Department Exhibit E].
DISCUSSION
The chief issues in this protest are whether receipts derived from providing Family
Living Services under the DD Waiver are excluded from gross receipts under the Gross Receipts
and Compensating Tax Act. In no particular order, Taxpayer asserts (1) that such receipts should
be excluded as “amounts received solely on behalf of another in a disclosed agency capacity”
and (2) that its receipts should also be excluded pursuant to Regulation 3.2.1.12 E – F NMAC
which excludes payments to individuals providing foster care, certain caretakers, and home care,
from gross receipts.
However, prior to addressing the merits of these issues, the Hearing Officer will address
several preliminary issues raised by Taxpayer.
Motion to Strike Testimony of Mary Griego.
On June 19, 2018, Taxpayer filed Taxpayer’s Motion to Strike Witness Testimony, in
which it asserted that Ms. Griego’s testimony should be stricken for at least two reasons. First, it
alleged that Ms. Griego improperly expressed expert opinion in the absence of expert
qualifications. Second, it alleged that her personal knowledge of the relevant facts was limited to
In the Matter of the Protest of
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a review of the audit documents because she had no personal involvement in the audit that gave
rise to the Assessment subject of this protest.
The hearing in which Ms. Griego testified occurred on May 30, 2018. She was the sole
and primary witness for the Department. During her testimony, Taxpayer, by and through its
counsel of record, made objections to specific questions posed by the Department. In each
instance, the Hearing Officer ruled on the objection, and the examination proceeded. Taxpayer
then cross-examined Ms. Griego, and the Department had an opportunity to conduct a re-direct
examination. At the conclusion of Ms. Griego’s testimony, the Department rested its case, and
with further discussion regarding the submission of written closing arguments, the hearing
concluded.
This recitation of facts is pertinent because it illustrates that at no time during Ms.
Griego’s testimony did Taxpayer raise the expert-testimony objection now subject of Taxpayer’s
Motion to Strike Witness Testimony.
Although the Rules of Evidence do not apply in cases before the Administrative Hearings
Office, the Hearing Officer may refer to them for guidance. In particular, Rule 11-103 (A) (1)
NMRA 2017 requires that objections and motions to strike be timely. Accordingly, “evidentiary
objections must be made at the time the evidence is offered.” See State v. Neswood, 2002-
NMCA-081, ¶18, 132 N.M. 505, 51 P.3d 1159; See Macsenti v. Becker, 237 F.3d 1223, 1230-31
(10th Cir. 2001) (deeming objection as untimely when party “did not object to the testimony
when it was admitted during trial” but, rather, raised the objection “after the close of all of the
evidence by a motion”).
Taxpayer’s Motion to Strike Witness Testimony was filed more than two weeks after the
conclusion of Ms. Griego’s testimony and the close of evidence. The motion was evidently
In the Matter of the Protest of
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untimely, and for that reason, should be denied.
However, even if Taxpayer’s objection could be perceived as timely, the Hearing Officer
remains unpersuaded that Ms. Griego’s testimony should be stricken. Although Ms. Griego may
have expressed her opinion in reference to the function or implementation of the Department’s
regulations, or the statutes that it administers, the Department did not offer her as an expert in
any field relevant to the protest. Instead, her testimony was limited to the work she performed as
a protest auditor for the Department, her activities in reference to the protest at hand, her
comprehension of relevant authority, and her conclusions as a protest auditor. As an employee of
the Department, these areas were well within her personal knowledge and areas of experience.
Even if any portion of Ms. Griego’s testimony could be regarded as expressing an expert
opinion, the Hearing Officer remains unpersuaded that such testimony would be improper in
light of the deference the Department is afforded in the interpretation of statutes and regulations
implicating its expertise. See Rio Grande Chapter of the Sierra Club v. N.M. Mining Comm’n,
2003-NMSC-005, ¶17, 133 N.M. 97, 61 P.3d 806 (“in resolving ambiguities in the statute or
regulations which an agency is charged with administering, the Court generally will defer to the
agency’s interpretation if it implicates agency expertise.”).
For the preceding reasons, Taxpayer’s Motion to Strike Witness Testimony should be,
and hereby is, denied.
Motion for Sanctions.
Contained within the Department’s response to Taxpayer’s Motion to Strike Witness
Testimony was a single-paragraph motion for sanctions, to which Taxpayer responded in
Taxpayer’s Reply to Department’s Response to Motion to Strike Witness Testimony. The
Department argued that the sanction imposed should be the denial of Taxpayer’s protest.
In the Matter of the Protest of
Active Solutions Incorporated
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The record of the hearing in this matter will reflect that the relationship between counsel
had become somewhat acrimonious by the time they appeared for the hearing. At one point, the
Hearing Officer stopped the hearing due to flaring tempers and ordered both counsel to step out
of the hearing room for a break. They were subsequently admonished on the record to maintain
their composure. Although this would represent the first and only time their manner interrupted
the hearing process, it did not represent the first or only time the Hearing Officer perceived
behavior unbecoming of professionals in a professional setting.
A review of the motion for sanctions and the response thereto indicates that the
relationship of counsel remains contentious. Rather than delve into the realm of who-did-what-
to-whom, the Hearing Officer finds that the interests of the parties are best served by declining
the invitation to oversee further squabbling between the parties’ representatives, and instead
address the merits of the protest. This is not to say that the Hearing Officer’s preference for
addressing the merits of a case will always prevail over imposing consequences for objectionable
behavior. The Hearing Officer is merely unpersuaded that denial of the protest as such
consequence is appropriate under the facts of this protest. The Department’s request should be,
and hereby is, denied.
Statute of Limitations.
Although the Assessment at issue in this protest refers to periods between January 31,
2010 to February 29, 2016, Ms. Griego testified that the amounts assessed were limited to the
periods between January 1, 2013 through February 29, 2016. Taxpayer does not dispute Ms.
Griego’s testimony, but argues that the statute of limitations has lapsed for any taxes that would
have been due in 2013 by virtue of the limitation contained in NMSA 1978, Section 7-1-18 (A)
which provides that “no assessment of tax may be made by the department after three years from
In the Matter of the Protest of
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the end of the calendar year in which payment of the tax was due[.]”
For example, the deadline for assessing gross receipts tax that would have been due
during any period of time within 2013 would be three years from the end of the calendar year in
which the tax was due, or three years from December 31, 2013. In this protest, that date would be
December 31, 2016. The Assessment in this protest was issued on March 21, 2017.
Therefore, if Section 7-1-18 (A) were to apply, then the assessment of any tax that would
have been due in 2013 would be barred by the statute of limitations. However, Mr. Johnson
testified that Taxpayer stopped paying gross receipts tax on receipts from Family Living Services
in 2013, with the understanding that receipts from those services were excludable. Accordingly,
this would suggest one of two potential exceptions to the rule. “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[.]” See NMSA 1978, Section 7-1-18 (B). However, Taxpayer did
complete and file returns in 2013 in reference to other receipts. It just stopped reporting receipts
from Family Living Services.
This suggests potential application of the next exception to the rule. “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 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.” See NMSA 1978, Section 7-1-18 (C).
Taxpayer argues that the Department failed to demonstrate that it understated its gross
receipts by more than twenty-five percent, thereby entitling it to six years to assess taxes. The
Department argues that the presumption of correctness places the burden on Taxpayer to prove
In the Matter of the Protest of
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that the Department’s Assessment of taxes in those years was barred. Although these arguments
present interesting legal questions, the Hearing Officer needs only refer to the evidence on the
record because Taxpayer Exhibit 12 provides sufficient information to establish that an
understatement of more than twenty-five percent occurred unless Taxpayer can also establish
that the gross receipts that it did not report were excludable or exempt. The sum of Taxpayer’s
gross receipts in 2013 was $6,095,606.90 from which it excluded $3,006,354.38 deriving from
Family Living Services. This would signify an understatement exceeding twenty-five percent
over the course of the year, and a month-by-month review of 2013 reveals equivalent results by
individual month.
Consequently, the Department was not barred from assessing taxes due in 2013 in
accordance with NMSA 1978, Section 7-1-18 (C).
Presumption of Correctness.
Under NMSA 1978, Section 7-1-17 (C) (2007), the Assessment from which this protest
arises is presumed correct and the burden is on Taxpayer to overcome the presumption. See
Archuleta v. O’Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428, 504 P.2d 638. Unless otherwise
specified, for the purposes of the Tax Administration Act, “tax” is defined to include interest and
civil penalty. See NMSA 1978, Section 7-1-3 (X) (2013). Under Regulation 3.1.6.13 NMAC, the
presumption of correctness under Section 7-1-17 (C) encompasses the Department’s assessment
of penalty and interest. See Chevron U.S.A., Inc. v. State ex rel. Dep’t of Taxation & Revenue,
2006-NMCA-50, ¶16, 139 N.M. 498, 503, 134 P.3d 785, 791 (agency regulations interpreting a
statute are presumed proper and are to be given substantial weight).
For that reason, Taxpayer carries the burden to present countervailing evidence or legal
argument to show that it is entitled to an abatement of an assessment. See N.M. Taxation &
In the Matter of the Protest of
Active Solutions Incorporated
Page 15 of 29
Revenue Dep’t v. Casias Trucking, 2014-NMCA-099, ¶8, 336 P.3d 436. “Unsubstantiated
statements that the assessment is incorrect cannot overcome the presumption of correctness.” See
MPC Ltd. v. N.M. Taxation & Revenue Dep’t, 2003-NMCA-021, ¶13, 133 N.M. 217, 62 P.3d
308; See also Regulation 3.1.6.12 NMAC. If a taxpayer presents sufficient evidence to rebut the
presumption, then the burden shifts to the Department to re-establish the correctness of the
assessment. See MPC, 2003-NMCA-021, ¶13.
“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 v. Taxation and Revenue Department, 1991-NMCA-024, ¶16,
111 N.M. 735, 809 P.2d 649 (internal citation omitted); See also TPL, Inc. v. N.M. Taxation &
Revenue Dep’t, 2003-NMSC-007, ¶9, 133 N.M. 447, 64 P.3d 474.
Gross Receipts Tax and the Exception for a Disclosed Agency Relationship.
For the privilege of engaging in business, New Mexico imposes a gross receipts tax on the
receipts of any person engaged in business. See NMSA 1978, Section 7-9-4 (2017). The Gross
Receipts and Compensating Tax Act established the presumption that all receipts of a person
engaged in business are taxable. See NMSA 1978, Section 7-9-5 (2002). “Engaging in business” is
defined as “carrying on or causing to be carried on any activity with the purpose of direct or
indirect benefit.” See NMSA 1978, Section 7-9-3.3 (2003). The term “gross receipts” is defined at
NMSA 1978, Section 7-9-3.5 (A) (1) (2007) to mean:
the total amount of money or the value of other consideration
received from selling property in New Mexico, from leasing or
licensing property employed in New Mexico, from granting a right to
use a franchise employed in New Mexico, from selling services
performed outside New Mexico, the product of which is initially
used in New Mexico, or from performing services in New Mexico.
In the Matter of the Protest of
Active Solutions Incorporated
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Taxpayer claims that the receipts it received from the state for providing Family Living
Services are not taxable because Taxpayer received payments “solely on behalf of another in a
disclosed agency capacity.” Regulation 3.2.1.19 (C) (1) NMAC provides:
The receipts of any person received as a reimbursement of
expenditures incurred in connection with the performance of a
service or the sale or lease of property are gross receipts as defined
by Section 7-9-3.5 NMSA 1978, unless that person incurs such
expense as agent on behalf of a principal while acting in a
disclosed agency capacity. An agency relationship exists if a
person has the power to bind a principal in a contract with a third
party so that the third party can enforce the contractual obligation
against the principal.
The crux of Taxpayer’s argument is that it was “reimbursed” for approved expenditures
incurred on the state’s behalf in further of specific state programs. See Taxpayer’s Closing
Argument, Page 11. The problem with this generalization is that Taxpayer’s evidence clearly
established that it would not satisfy its own obligations to its direct service providers until it had
received payment from the state. Therefore, there was no reimbursement of an actual expenditure
because it was the understanding of Taxpayer as well as its direct service providers that
Taxpayer would not pay for a service unless and until it was first paid. In other words, there was
no reimbursement of an expenditure because it was Taxpayer’s procedure to postpone actual
expenditures until it was paid.
Nevertheless, even if Taxpayer’s obligations to its service providers were expenditures,
Taxpayer failed to establish that it incurred those expenditures in a disclosed agency capacity.
“The majority rule is that the manner in which the parties designate a relationship is not
controlling, and if an act done by one person on behalf of another is in its essential nature one of
agency, the one is the agent of the other, notwithstanding he is not so called.” See Chevron Oil
Co. v. Sutton, 1973-NMSC-111, ¶4, 85 N.M. 679, 515 P.2d 1283; See also Robertson v. Carmel
In the Matter of the Protest of
Active Solutions Incorporated
Page 17 of 29
Builders Real Estate, 2004-NMCA-056, 135 N.M. 641, 92 P.3d 653.
The New Mexico Supreme Court has acknowledged that “[t]he common law emphasizes
the fiduciary nature of the agency relationship, which does not arise until ‘one person (a
“principal”) manifests assent to another person (an “agent”) that the agent shall act on the
principal’s behalf and subject to the principal’s control, and the agent manifests assent or
otherwise consents so to act.’” See Maes v. Audubon Indem. Ins. Grp., 2007-NMSC-046, ¶17,
142 N.M. 235, 164 P.3d 934 quoting Restatement (Third) of Agency §1.01 (2006); See also
Hydro Res. Corp. v. Gray, 2007-NMSC-061, ¶40, 143 N.M. 142, 173 P.3d 749; Santa Fe Techs.,
Inc. v. Argus Networks, Inc., 2002-NMCA-030, ¶26, 131 N.M. 772, 42 P.3d 1221.
Our courts have, on several occasions, considered the existence and consequence of the
agency relationship on receipts generated amidst that relationship. MPC considered Section 7-9-
3.5(A) (3) (f) and Regulation 3.2.1.19 (C) (1) NMAC and determined that reimbursement of
expenses may be excluded from taxable gross receipts if those receipts stem from an agency
relationship in which:
(1) the agent [taxpayer] has the authority to bind the principal… to an
obligation… created by the agent [taxpayer], and (2) the beneficiary of
that obligation… is informed by contract that he or she has a right to
proceed against the principal… to enforce the obligation.
In this protest, the evidence failed to establish any authority for Taxpayer to bind the state
to an obligation created by an agent. However, assuming for the sake of argument, that the
regulatory structure could be construed as creating such authority, it does not however satisfy the
second element of MPC which requires that the beneficiary of the obligation also be informed of
the right to proceed against the principal to enforce the obligation.
At no place in Taxpayer’s Provider Agreement with the state, or within any cited statute
or regulation does the state express any grant of authority consistent with the creation of a
In the Matter of the Protest of
Active Solutions Incorporated
Page 18 of 29
disclosed agency relationship. A review of the Provider Agreement, however, does express a
clear intention to renounce potential liability asserted by third parties, stating “[n]othing in this
Provider Agreement shall be construed as creating any right of a recipient of service, or other
third party, to enforce any provision of this Provider Agreement or to assert any claim against the
[department], the HSD, or the [provider].” See Taxpayer Exhibit 2, Article 33 (a). Consequently,
this language demonstrates the intention of the parties to prohibit conduct that could create an
appearance of any right to proceed against the state to enforce the obligations created by
Taxpayer.
Even if disclosure could be implied from the regulatory framework of the DD Waiver
program, an apparent authority, or a constructive disclosure, is insufficient because of the clear
statutory and regulatory language requiring that the relationship be disclosed. The Court of
Appeals recently recognized, while applying MPC that “[a]n actual, affirmative statement
disclosing the agency relationship is necessary.” See Bogle Management Co., Inc. v. N.M.
Taxation & Revenue Dep’t, No. A-1-CA-35641, dec. at 18 - 19 (N.M. Ct. App. Dec. 5, 2017)
(non-precedential); See Santa Fe Tow and Emergency Lock & Key, No. 15-21 (June 30, 2015)
(non-precedential).
The Hearing Officer also notes, at least with respect to the state, that an implied grant of
authority is not likely enforceable under NMSA 1978, 37-1-23 (A), which provides that
“[g]overnmental entities are granted immunity from actions based on contract, except actions
based on a valid written contract.” (Emphasis Added).
The result is the same in the event Taxpayer were to assert that it was a disclosed agent
for its direct services providers. Taxpayer and its direct services providers similarly renounce
third party liability arising from their own agreements stating “[t]he parties intend that this
In the Matter of the Protest of
Active Solutions Incorporated
Page 19 of 29
Agreement is solely for the benefit of the parties hereto and there shall be no third party
beneficiaries to this Contract.” See Taxpayer Exhibit 10, Section V, Para. 4.
The totality of the evidence established that payments to Taxpayer were not “amounts
received solely on behalf of another in a disclosed agency capacity[,]” and are therefore not
excludable from Taxpayer’s taxable gross receipts. See NMSA 1978, Section 7-9-3.5 (A) (3) (f);
Regulation 3.2.1.19(C) (1) NMAC. Instead, the evidence established that the receipts at issue in
this protest consisted of “payments received for one’s own account and then expended to meet
one’s own responsibilities.” See MPC, ¶14.
The Regulatory Exclusions at Regulation 3.2.1.12 (E), (F), and (G) NMAC.
In addition to the foregoing, Taxpayer also claims that the Department erred by not
recognizing the potential application of Regulation 3.2.1.12 (E), (F) and (G) to its gross receipts
from providing Family Living Services under the DD Waiver. That regulation excludes receipts
from specific activities by excluding them from the definition of “engaging in business.” It
provides:
3.2.1.12 ENGAGING IN BUSINESS
…
E. Persons not engaging in business - foster parents:
Individuals who enter into an agreement with the state of New
Mexico to provide foster family care for children placed with them
by the state are not thereby engaging in business. Receipts of the
individuals from providing foster care pursuant to such an
agreement are not receipts from engaging in business.
F. Persons not engaging in business - certain caretakers:
Individuals who enter into an agreement with the state of New
Mexico to provide non-medical personal care and housekeeping
assistance to low income disabled adults pursuant to the critical in
home care program are not thereby engaging in business. Receipts
of the individuals from such caretaking activities are not receipts
from engaging in business.
In the Matter of the Protest of
Active Solutions Incorporated
Page 20 of 29
G. Persons not engaging in business - home care for
developmentally disabled family members: Any individual who
enters into an agreement with the state of New Mexico to provide
home based support services for developmentally disabled
individuals in the home of the developmentally disabled
individuals or the home of the support provider and receives
payments which under 26 USCA 131 are “qualified foster care
payments” is not thereby engaging in business. Receipts of the
individuals which are “qualified foster care payments” from
providing such home based support services pursuant to such an
agreement are not receipts from engaging in business.
Taxpayer asserts that the cited regulation demonstrates the state’s intention to relieve
itself from the obligation of paying gross receipts tax, arguing that “[s]ince the funds are
provided by the [s]tate, it makes no sense to boost the [s]tate reimbursement costs by gross
receipts tax.” Taxpayer’s argument is unpersuasive. The Legislature does not necessarily
perceive the state purse as immune from gross receipts taxation. In fact, it has recognized that
some of its activities are taxable. See NMSA 1978, Section 7-9-4.3 (imposing governmental
gross receipts tax).
Moreover, Taxpayer’s argument fails to consider that the obligation to report and pay
gross receipts tax is not upon the state, but upon the entity engaged in business with the state.
Although it is common for a business to pass the tax on to the consumer, which in this protest
would be the state, it is not the consumer who bears the obligation of paying the tax. Rather, the
obligation rests solely with the entity engaged in business. Regulation 3.2.4.8 NMAC states
“[t]he gross receipts tax is imposed on persons engaging in business in New Mexico. Such
persons are solely liable for payment of the tax; they are not ‘collectors’ on behalf of the state.”
Whether or not a consumer is willing to incur the additional expense of a gross receipts
tax is strictly between the business and its consumer. In this instance, Taxpayer acknowledged
that the payment of gross receipts tax liability incurred under the Provider Agreement would rest
In the Matter of the Protest of
Active Solutions Incorporated
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solely with Taxpayer. See Taxpayer Exhibit 2, Article 35 (“Any payment of gross receipts tax
shall be the obligation of the [provider] as appropriate.” Thus, contrary to Taxpayer’s argument,
the state is not offended by the concept of paying gross receipts taxes, but in this scenario, it
clearly stated its intention that any liability for gross receipts taxes should rest solely with
Taxpayer.
Interestingly, among the three regulations it cites, Taxpayer also fails to assert which of
the three should apply to its business, if one should apply at all. The Hearing Officer observes
that Regulation 3.2.1.12 E NMAC is pertinent only to foster parents, an activity not relevant to
Taxpayer’s protest. Regulation 3.2.1.12 F is also limited “to low income disabled adults pursuant
to the critical in home care program.[,]” also not at issue in this protest.
The most-likely exclusion is Regulation 3.2.1.12 G which excludes from gross receipts
those receipts deriving from “home care for developmentally disabled family members[.]”
Regardless of which part of the regulation should apply, E, F or G, Taxpayer asserts that “[t]he
Department’s sole argument for denying the exclusion provided in the regulation is the argument
that the cited exclusion only applies to natural persons, not juridical persons such as a
corporation.” It goes on to highlight that “person” is a term defined to include, among various
entities, corporations. It further argues nothing in the law specifically defines “individual” as a
living, human being, thereby restricting the application of the cited exclusions to natural people.
The Department pointed out that the definition of “person” includes “individual” as a
subset of “person,” along with other subsets including corporations and other legal entities. See
NMSA 1978, Section 7-9-3 (I). It also cites to the definition of “individual” contained in the
Income Tax Act, which “means a natural person, an estate, a trust or a fiduciary acting for a
natural person, trust or estate[.]” See NMSA 1978, Section 7-2-2 (J); But See Albuquerque Nat'l
In the Matter of the Protest of
Active Solutions Incorporated
Page 22 of 29
Bank v. Comm'r of Revenue, 1970-NMCA-123, ¶ 14, 82 N.M. 232, 478 P.2d 560 (declining to
infer that the legislature intended for “individual,” as defined in the Income Tax Act, to have the
same meaning as the same, yet undefined term, in a separate tax statute).
Despite the foregoing, the Hearing Officer is persuaded that the decisive element in
resolving the disagreement is in plain view.
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 among statutory provisions.
See Regents of the Univ. of N.M. v. N.M. Fed’n of Teachers, 1998-NMSC-020, ¶28, 125 N.M.
401, 962 P.2d 1236. “These canons of statutory construction apply to regulatory and rule
interpretation as well.” See Johnson v. N.M. Oil Conservation Comm’n, 1999-NMSC-021, ¶27,
127 N.M. 120, 978 P.2d 327. In Wood v. State Educ. Ret. Bd., 2011-NMCA-020, ¶12, 149 N.M.
455, 250 P.3d 881 (internal quotations and citations omitted), the New Mexico Court of Appeals
stated:
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.
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, 1999-NMSC-021, ¶27; see also Amoco Prod. Co. v. N.M.
Taxation & Revenue Dep’t, 1994-NMCA-086, ¶8 & ¶14, 118 N.M. 72, 878 P.2d 1021. 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, 212 P.3d 361. See
also NMSA 1978, Section 12-2A-2 (“[u]nless a word or phrase is defined in the statute or rule
In the Matter of the Protest of
Active Solutions Incorporated
Page 23 of 29
being construed, its meaning is determined by its context, the rules of grammar and common
usage. A word or phrase that has acquired a technical or particular meaning in a particular
context has that meaning if it is used in that context.”)
In this instance, the cited sections refer to “persons” and “individuals.” The latter is not
defined in the Gross Receipts an Compensating Tax Act or in the regulation in which it is used.
However, upon careful review of the regulations, the Hearing Officer finds that it is not
necessary to venture beyond the plain language of the cited regulations to determine that the
Department, when it employed the term, “individual,” was referring to living, natural people.
With regard for the most likely exclusion, Regulation 3.2.1.12 G NMAC, the
Department’s use of the term “individual” precedes its use of the word “who,” which refers
generally to living beings as opposed to objects. See https://www.merriam-
webster.com/dictionary/who (“used as a function word to introduce a relative clause —used
especially in reference to persons”). However, there is more. The exclusion subject of Regulation
3.2.1.12 G NMAC contains additional words that Taxpayer may have overlooked. For example,
its heading states, “[p]ersons not engaging in business – home care for developmentally disabled
family members[.]” (Emphasis Added). Corporations, unlike natural persons, do not have “family
members.” Similarly, Regulations 3.2.1.12 E NMAC makes reference to foster parents. Once
again, corporations, unlike natural persons, cannot be “foster parents.”
However, the clearest example of why the “individual” is intended to refer to natural
persons stems from the use of the term in 3.2.1.12 G which goes on to make additional
references to “developmentally disabled individuals[.]” Taxpayer’s logic, provided that term
“individual” is consistently applied, would result in absurdity because just as corporations cannot
have family members or be foster parents, they also cannot be developmentally disabled.
In the Matter of the Protest of
Active Solutions Incorporated
Page 24 of 29
It is clear that the Department’s reference to “individuals” throughout Regulation 3.2.1.12
E, F, and G refers to natural persons, not corporations or other legal entities. Any other
interpretation would produce absurd results. Taxpayer has failed to establish that it is entitled to
any exclusions provided by Regulation 3.2.1.12 E, F, or G NMAC.
Penalty and Interest.
When a taxpayer fails to make timely payment of taxes due to the state, “interest shall be
paid to the state on that amount from the first day following the day on which the tax becomes
due...until it is paid.” See NMSA 1978, Section 7-1-67 (2007) (italics for emphasis). Under the
statute, regardless of the reason for non-payment of the tax, the Department has no discretion in
the imposition of interest, as the statutory use of the word “shall” makes the imposition of
interest mandatory. See Marbob Energy Corp. v. N.M. Oil Conservation Comm’n, 2009-NMSC-
013, ¶22, 146 N.M. 24, 206 P.3d 135 (statutory use of the word shall indicates mandatory
requirement). The language of Section 7-1-67 also makes it clear that interest begins to run from the
original due date of the tax until the tax principal is paid in full. The Department has no discretion
under Section 7-1-67 and must assess interest against Taxpayer.
Under NMSA 1978, Section 7-1-69 (2007), when a taxpayer fails to pay taxes due to the
state because of negligence or disregard of rules and regulations, but without intent to evade or
defeat a tax, by its use of the word “shall,” civil penalty must be added to the assessment. As
discussed above, the statute’s use of the word “shall” makes the imposition of penalty mandatory
in all instances where a taxpayer’s actions or inactions meet the legal definition of “negligence.”
Regulation 3.1.11.10 NMAC defines negligence in three separate ways: (A) “failure to
exercise that degree of ordinary business care and prudence which reasonable taxpayers would
exercise under like circumstances;” (B) “inaction by taxpayer where action is required”; or (C)
In the Matter of the Protest of
Active Solutions Incorporated
Page 25 of 29
“inadvertence, indifference, thoughtlessness, carelessness, erroneous belief or inattention.” In this
case, Taxpayer’s failure to pay gross receipts tax meets the legal definition of negligence as defined
under Regulation 3.1.11.10 NMAC and Taxpayer presented no evidence or argument to rebut that
finding. Since the Department’s assessment of penalty and interest is presumed correct, and the
Taxpayer did not officer evidence or argument to rebut that presumption, the Department’s
assessment of penalty and interest was appropriate.
In conclusion, the Department’s assessment of tax, penalty and interest in the above-
captioned protest was correct. Having failed to rebut the presumption of correctness that attached to
the assessment, Taxpayer’s protest should be denied.
CONCLUSIONS OF LAW
A. Taxpayer filed a timely, written protest to the Assessment. Jurisdiction lies over the
parties and the subject matter of this protest.
B. A hearing was timely set and held within 90 days of Taxpayer’s protest as required
by NMSA 1978, Section 7-1B-8 (A) (2015).
C. All of Taxpayer’s receipts from providing Family Living Services under the DD
Waiver were presumed subject to gross receipts tax under NMSA 1978, Section 7-9-5 (2002).
D. The statutes, rules, policies, procedures, and contracts governing the relationship
between the state and Taxpayer failed to establish a disclosed agency relationship in which
Taxpayer had actual authority to bind the state to obligations with third parties, and Taxpayer
was therefore not a disclosed agent under NMSA 1978, Section 7-9-3.5 (A) (3) (f) and
Regulation 3.2.1.19 (C) (1) NMAC. See MPC, ¶36.
E. Since Taxpayer was not a disclosed agent under NMSA 1978, Section 7-9-3.5 (A)
(3) (f) and Regulation 3.2.1.19 (C) (1) NMAC, Taxpayer’s receipts derived from providing
In the Matter of the Protest of
Active Solutions Incorporated
Page 26 of 29
Family Living Services under the DD Waiver were taxable gross receipts.
F. Under NMSA 1978, Section 7-1-67 (2007), Taxpayer is liable for accrued interest
under the Assessment, which shall continue to accrue until the tax principal is satisfied.
G. Under NMSA 1978, Section 7-1-69 (2007), Taxpayer is liable for civil negligence
penalty under the negligence definition found under Regulation 3.1.11.10 (C) NMAC.
Based on the foregoing, Taxpayer’s protest is DENIED. Taxpayer is hereby ordered to pay
$550,469.50 in gross receipts tax, $154,130.86 in penalty, and $91,278.21 in interest for a total
outstanding liability of $795,878.57, plus any interest accruing since May 30, 2018.
DATED: August 29, 2018
Chris Romero
Hearing Officer
Administrative Hearings Office
P.O. Box 6400
Santa Fe, NM 87502
In the Matter of the Protest of
Active Solutions Incorporated
Page 27 of 29
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,
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 Protest of
Active Solutions Incorporated
Page 28 of 29
CERTIFICATE OF SERVICE
On August 29, 2018, a copy of the foregoing Decision and Order was submitted to the
parties listed below in the following manner:
First Class Mail Interoffice Mail
INTENTIONALLY BLANK
In the Matter of the Protest of
Active Solutions Incorporated
Page 29 of 29
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