Was High Desert Recovery liable as West Rock's successor when it continued the repossession business and retained the predecessor's assets?

Plain-English summary

High Desert Recovery was West Rock, Inc.'s successor in business and remained liable for the predecessor's full $127,764.92 tax debt. It acquired or retained West Rock's assets and continued essentially the same repossession operation under the same manager, from the same location, with overlapping employees, clients, and goodwill.

The Department originally assessed High Desert as successor for:

• $127,764.92 tax; and
• $143,594.85 interest.

Before the merits hearing, the Department abated all interest. The dispute continued over successor liability for the tax and High Desert's request for $43,879.53 of administrative costs and attorney fees.

The repossession business effectively continued

Daniel Brown had been West Rock's president, director, and daily operations manager. In May 2013—one month after West Rock lost a prior tax protest—he formed High Desert Recovery and became its sole owner and daily manager.

High Desert performed the same automobile-repossession services. It eventually operated from West Rock's Franciscan property, employed several of the same workers, served several of the same clients, and relied on goodwill tied to Brown's personal customer reputation.

High Desert bought a West Rock vehicle for $700, although its value for excise-tax purposes was determined to be $14,720. When West Rock ceased business, its other tangible equipment remained at the location. High Desert took possession, stored it, controlled it, and offered to let the Department take it.

The AHO treated that retained property as a transfer even without a formal sale. The successor regulation defined transfer broadly to include direct or indirect, voluntary or involuntary parting with business property.

Multiple successor factors were present

The regulation listed eight factors and created a successor presumption if even one was present. Five favored successor status:

• transfer of a major part of equipment or assets;
• transfer outside West Rock's ordinary course of business;
• transfer of a substantial part of the equipment;
• continuation of a substantial part of the same business; and
• transfer of goodwill through common location, employees, services, customers, and management.

Three factors weighed the other way: High Desert did not assume West Rock's contracts or obligations, did not pay its unpaid debts, and had no noncompetition agreement. The five positive factors—and the rule that one could be enough—established successor status.

The transferred value exceeded the tax

Section 7-1-63 allowed a successor to discharge an assessment by paying the full value of transferred tangible and intangible property. High Desert argued that the transferred value was only the vehicle's $700 purchase price plus a few thousand dollars of stored equipment.

West Rock's final return reported $347,279 of depreciable assets, $204,000 of intangible assets, and $32,463 of other assets. The AHO distinguished asset value from equity and found that the transferred tangible property alone exceeded $300,000.

That value exceeded the $127,764.92 tax liability. High Desert therefore owed the full tax even if liability were limited to transferred-property value. The decision also found evidence of a tax-avoidance transfer and mere continuation under common control, but treated those alternative grounds as unnecessary to the result.

Interest relief did not produce a fee award

Because the Department abated more than half the original assessment amount, High Desert substantially prevailed on amount and met the initial statutory prevailing-party definition.

But the costs statute denied an award when the Department's position was a reasonable application of law to the facts. The Department had argued that a 2017 amendment clarified successor liability for interest and that High Desert was a mere continuation of West Rock. Although the Department ultimately conceded the interest, the AHO found its position reasonable.

Result: protest DENIED as to the remaining tax. High Desert owed $127,764.92 but no longer owed the abated interest. Its request for $43,879.53 of administrative costs and fees was denied.

What this means for you

Buyers or continuers of distressed businesses

Successor liability can arise from taking any business property, not just purchasing the whole company. Obtain a Department tax certificate and address holdback requirements before accepting assets.

Owners starting a replacement entity

Using the same manager, premises, workers, customers, services, equipment, and goodwill can establish continuation even when contracts and formal ownership differ.

Businesses holding predecessor property

Stored or unused property can still count as transferred when the successor possesses and controls it. Lack of a bill of sale does not necessarily prevent a transfer.

Taxpayers seeking administrative costs

Winning a substantial dollar reduction is only the first step. Fees may still be denied if the agency's original position was legally and factually reasonable.

Common questions

Q: Did High Desert buy West Rock's entire business?
A: Not through one formal transaction. But it bought one vehicle, retained West Rock's remaining equipment, and continued the same repossession operation with extensive overlap.

Q: Was one transferred vehicle enough?
A: A transfer of any business property could support successor status, and the record showed much more than one vehicle.

Q: Did unused equipment count?
A: Yes. High Desert possessed and controlled the stored assets after West Rock ceased operating.

Q: Why was the full tax due instead of only $700?
A: The $700 vehicle was valued at $14,720, and West Rock's final return valued transferred tangible property above $300,000—more than the tax debt.

Q: What happened to the $143,594.85 interest?
A: The Department abated it before the merits hearing.

Q: Was High Desert considered a prevailing party?
A: It substantially prevailed on the amount because the interest was abated, but the reasonable-position exception prevented an award of costs and fees.

Q: How much tax remained?
A: $127,764.92.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-1-61 through 7-1-63 — successor duties, tax certificate, assessment, and transferred-property value
• NMSA 1978, § 7-1-29.1(B) and (C) — prevailing party and administrative costs
• NMSA 1978, § 7-1-17 — assessment presumption
• NMSA 1978, § 7-14-4 and Regulation 3.11.4.14 NMAC — reasonable vehicle value
• Regulation 3.1.10.16(A), (B), and (F) NMAC — successor factors and definitions

Cases cited:

• Sterling Title Co. of Taos v. Commissioner of Revenue, 1973-NMCA-086 — broad meaning of business changing hands and successor factors
• Garcia v. Coe Manufacturing Co., 1997-NMSC-013 — continuity of management and ownership as evidence of mere continuation
• Hi-Country Buick GMC, Inc. v. Taxation and Revenue Department, 2016-NMCA-027 — predecessor version of successor statute did not include penalty or interest
• El Centro Villa Nursing Center v. Taxation and Revenue Department, 1989-NMCA-070 — assessment presumption extends to tax components

Source

• Listing: New Mexico Decisions & Orders
• Decision post: High Desert Recovery, LLC
• Decision PDF: D&O 18-41

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
HIGH DESERT RECOVERY, LLC D&O No. 18-41
AS A SUCCESSOR IN BUSINESS TO WEST ROCK, INC.
TO THE ASSESSMENT ISSUED UNDER
LETTER ID NO. L0883777840

v.

NEW MEXICO TAXATION AND REVENUE DEPARTMENT

DECISION AND ORDER

On September 20, 2018, Hearing Officer Dee Dee Hoxie, Esq. conducted a hearing on

the merits of the protest to the assessment. The Taxation and Revenue Department (Department)

was represented by Ms. Cordelia Friedman, Staff Attorney. Mr. Nicholas Pacheco, Auditor, also

appeared on behalf of the Department. High Desert Recovery, LLC (Taxpayer) was represented

by its attorney, Mr. Benjamin Roybal and his assistant, Ms. Laura Spitz. Mr. Daniel Brown,

owner of the Taxpayer, also appeared for the hearing. Mr. Brown and Mr. Pacheco testified.

The Hearing Officer took notice of all documents in the administrative file. The Taxpayer’s

exhibits #1, #2, #3, #4, #7, #8, #9, #10, #11, #12, #13, #14, #17, #21, and #22 were admitted.

The Department’s exhibits A, B, C, E, F, G, H, I, J, K, L, O, P, S, and T were admitted. Another

Department exhibit, Exhibit N, was admitted during the hearing, but was withdrawn by the

Department in its post-hearing pleadings. A more detailed description of exhibits submitted at

the hearing is included on the Administrative Exhibit Coversheet. The parties requested to

provide written closing arguments. The request was granted, and October 22, 2018 was given as

the deadline for submission of written closing arguments. The Taxpayer was also given until
October 1, 2018 to provide documentation on the amount of administrative costs and fees that

the Taxpayer was requesting. The Department was also given until October 1, 2018 to provide

additional documentation on its Exhibit N.

The main issue to be decided is whether the Taxpayer is a successor in business, and, if

so, to what extent the Taxpayer is liable. A secondary issue is whether the Taxpayer is the

prevailing party and entitled to administrative costs and fees based on the Department’s pre-

hearing abatement of interest. The Hearing Officer considered all of the evidence and arguments

presented by both parties. The Hearing Officer finds in favor of the Department on both issues.

IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On November 28, 2016, the Department assessed the Taxpayer as a successor in

business to West Rock, Inc. (WRI). The assessment was for $127,764.92 tax, and $143,594.85

interest.

2. On December 8, 2016, the Taxpayer filed a formal protest letter.

3. On February 8, 2017, the Department filed a Request for Hearing asking that the

Taxpayer’s protest be scheduled for a formal administrative hearing.

4. The telephonic scheduling hearing was conducted on February 23, 2017. The

hearing was held within ninety days of the protest.

5. A second telephonic scheduling hearing was conducted on May 15, 2017.

6. A third telephonic scheduling hearing was conducted on June 26, 2017.

7. On June 29, 2017, a scheduling order and notice of hearing was issued.

8. On October 12, 2017, the Taxpayer filed a motion for partial summary judgment.

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Letter ID No. L0883777840
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9. On October 22, 2017, the Taxpayer filed a motion requesting that its motion for

partial summary judgment be granted because the Department failed to file a response.

10. On October 27, 2017, the Department filed its timely response to the motion for

partial summary judgment.

11. On January 10, 2018, the order denying the motion for partial summary judgment

was issued. The order indicated that the arguments presented by both sides on this issue would

be considered as part of their closing arguments.

12. On September 5, 2018, the parties filed the joint prehearing statement. The

Taxpayer attached a written objection to some of the Department’s proposed exhibits.

13. Prior to the hearing, the Department abated the assessment of the interest.

14. Mr. Brown owns the Taxpayer, which is a business that performs services doing

automobile recovery (repossessions). Mr. Brown is the sole member of the Taxpayer’s LLC and

manages its daily operations. [Testimony of Mr. Brown and Exhibit E]

15. Prior to creating the Taxpayer, Mr. Brown was the President of WRI. Mr. Brown

was a member of WRI’s board of directors and managed its daily operations. WRI was also a

business that performed repossessions. Mr. Brown was not a shareholder of WRI. [Testimony

of Mr. Brown, Exhibit A, and Exhibit 10]

16. Mr. Brown’s responsibilities in managing the daily operations of the Taxpayer are

essentially identical to his responsibilities in managing the daily operations of WRI. Some of

those responsibilities include overseeing employees, customer service, payroll, and taxes.

[Testimony of Mr. Brown]

17. The Taxpayer requires employees, some office equipment, storage space, and

vehicles to perform repossessions. The same was true of WRI. [Testimony of Mr. Brown]

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Letter ID No. L0883777840
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18. WRI was formed in March 1995. [Exhibit A and Testimony of Mr. Brown]

19. Mr. Brown was a member of the board of directors of WRI since its inception.

[Testimony of Mr. Brown and Exhibit A]

20. WRI sometimes did business as Mile High Recovery. [Testimony of Mr. Brown

and Exhibit B]

21. In 2006, WRI was audited by the Department. [Testimony of Mr. Brown]

22. The Department assessed WRI in 2008. [Exhibit C]

23. WRI protested the assessment, and an order denying the protest was issued on

April 30, 2013. See In the Matter of the Protest of West Rock, Inc. d/b/a Mile High Recovery,

Decision and Order 13-10 (N.M. Taxation and Revenue Hearing Office 1) (non-precedential).

24. On May 31, 2013, Mr. Brown created the Taxpayer. [Exhibit E]

25. On October 16 and 17, 2013, the Taxpayer bought two new vehicles. [Exhibits K

and L]

26. On October 25, 2013, the Taxpayer filed a warrant application that would allow it

to perform repossessions. [Exhibit F]

27. In the warrant application, the Taxpayer listed a physical address on Cherry Hills

Road. [Exhibit F]

28. In the warrant application, the Taxpayer listed ownership of a single vehicle.

[Exhibit F]

29. In the warrant application, the Taxpayer indicated two employees, Mr. Brown,

and a driver. [Exhibit F]

1
The Administrative Hearings Office became an agency independent of the Department in 2015. See NMSA 1978,
§ 7-1B-1, et seq.
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Letter ID No. L0883777840
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30. The driver was actually employed with WRI at the time of the warrant

application. [Testimony of Mr. Brown and Exhibit G]

31. On November 20, 2013, the Taxpayer bought a vehicle for $700.00 from WRI.

[Testimony of Mr. Brown and Exhibit J]

32. The fair market value of the vehicle bought from WRI was determined to be

$14,720.00 for excise tax purposes. [Exhibit J]

33. Sometime after the Taxpayer purchased the vehicle from WRI, the Department

filed a lien against WRI. [Testimony of Mr. Brown]

34. Mr. Brown owns the property on Franciscan where WRI was located. [Testimony

of Mr. Brown]

35. On March 1, 2014, Mr. Brown issued a Notice to Quit, which terminated WRI’s

lease because WRI was unable to pay its rent on the property. [Testimony of Mr. Brown and

Exhibit 12]

36. On or about March 31, 2014, WRI made a resolution to dissolve. [Testimony of

Mr. Brown and Exhibit 13]

37. On May 5, 2014, the Taxpayer filed a change of address with the Transportation

Division, indicating that it would be operating out of the property on Franciscan. [Exhibit P]

38. Two months later, on July 14, 2014, the Taxpayer leased the property on

Franciscan from Mr. Brown. [Testimony of Mr. Brown and Exhibit 11]

39. WRI continued operating out of the property on Franciscan until the end of

September 2014. [Testimony of Mr. Brown]

40. The Taxpayer began operating toward the end of 2014, but its official start date

was January 1, 2015. [Testimony of Mr. Brown]

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Letter ID No. L0883777840
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41. The Taxpayer continues to employ several of the same employees that WRI

employed. [Testimony of Mr. Brown and Exhibit G]

42. The Taxpayer continues to operate the same business performing repossessions

out of the same location that WRI did. [Testimony of Mr. Brown, Exhibit 11, and Exhibit F]

43. The Taxpayer continues to perform repossessions for several of the same clients

that WRI did, although WRI’s contracts were not transferrable. [Testimony of Mr. Brown,

Exhibit T, Exhibit 9, and Exhibit 17]

44. On its final tax return, for tax year 2014, WRI noted depreciable assets worth

$347,279.00, intangible assets worth $204,000.00, and other assets worth $32,463.00. It also

listed its total liabilities as $71,446.00. [Exhibit 14]

45. The Taxpayer remains in possession of all of WRI’s tangible assets. [Testimony

of Mr. Brown]

46. The Taxpayer has not been using WRI’s tangible assets, but has kept them in

storage. [Testimony of Mr. Brown and Exhibit 8]

47. The Taxpayer offered to let the Department take possession of WRI’s tangible

assets, but the Department has not done so. [Testimony of Mr. Brown and Exhibit 4]

48. Both WRI and the Taxpayer’s reputations with their customers were inextricably

tied to Mr. Brown’s personal reputation with those customers. [Testimony of Mr. Brown]

DISCUSSION

Burden of Proof.

Assessments by the Department are presumed to be correct. See NMSA 1978, § 7-1-17.

Tax includes, by definition, the amount of tax principal imposed and, unless the context

otherwise requires, “the amount of any interest or civil penalty relating thereto.” NMSA 1978, §

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Letter ID No. L0883777840
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7-1-3. See also El Centro Villa Nursing Ctr. v. Taxation and Revenue Department, 1989-NMCA-

070, 108 N.M. 795. Therefore, the assessment issued to the Taxpayer is presumed to be correct,

and it is the Taxpayer’s burden to present evidence and legal argument to show that it is entitled

to an abatement.

Successor in Business Liability.

A successor in business is required to pay the tax for which the acquired business was

liable. See NMSA 1978, § 7-1-61 (C) (1997). See also NMSA 1978, § 7-1-63 (1997).

Moreover, “tangible and intangible property used in any business remains subject to liability for

payment of the tax due” even when the business is transferred to a new owner. NMSA 1978, §

7-1-61 (B). A successor in business is charged with certain responsibilities in discerning what

tax is owed when the business or its assets are acquired. See NMSA 1978, § 7-1-61 (requiring

the successor to set aside an amount in trust for payment of tax) and § 7-1-62 (1997) (allowing

the successor to apply for a certificate from the Department).

Determination of a successor.

A successor in business is “any transferee of a business or property of a business, except

to the extent it would be materially inconsistent with the rights of secured creditors”. 3.1.10.16

(F) (2) NMAC (2001) (emphasis added). There are also several factors to be used in determining

a successor in business. See 3.1.10.16 (A) NMAC. If a single one of these factors are present,

there is a presumption that there is a successor in business. See 3.1.10.16 (B) NMAC.

Purchasing tangible assets, assuming a lease, keeping one part-time employee, and assuming a

note are sufficient to establish one as a successor in business, even when the prior business was

defunct. See Sterling Title Co. of Taos v. Comm’r of Revenue, 1973-NMCA-086, ¶ 9-11, 85

N.M. 279.

High Desert Recovery, LLC
Letter ID No. L0883777840
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The first factor in determining whether there is a successor in business is whether there

was “a sale and purchase of a major part of the materials, supplies, equipment, merchandise or

inventory…in a single or limited number of transactions”. 3.1.10.16 (A) (1) NMAC. One sale

of a vehicle occurred from WRI to the Taxpayer. A lien was then filed against WRI’s assets.

However, the Taxpayer has retained the equipment that belonged to WRI. The equipment

remains in the Taxpayer’s possession in storage at its business location. Therefore, all of WRI’s

equipment was transferred to the Taxpayer.

The Taxpayer argues that there was no transfer of the business or the property except for

the one vehicle that the Taxpayer bought before the lien was issued. The Taxpayer argues that a

transfer “requires an affirmative act” that did not occur between WRI and the Taxpayer

regarding WRI’s remaining tangible assets. See Taxpayer’s closing argument. WRI’s

dissolution plan required that all of its assets be liquidated, and assets with no value would be

donated or abandoned. See Exhibit 13. The list of assets were not attached to Exhibit 13,

although the document claimed to have such an attachment. See Exhibit 13. Mr. Brown, as

President of WRI and as the one in control of all of its practical operations, allowed the Taxpayer

to take possession of WRI’s tangible property when WRI ceased doing business in 2014. WRI

apparently abandoned its property rather than liquidating or donating it, and the Taxpayer took

possession of it. The Taxpayer acknowledged its control of WRI’s tangible property and even

asked for instructions from the Department on what it should do with those items. See Exhibit 4.

WRI was dissolved, its assets to be liquidated, donated, or abandoned, and it was noticed to quit

the premises on Franciscan. WRI’s tangible assets remained on site on Franciscan, and the

Taxpayer took control of those assets, kept them in storage, and offered them to the Department.

Although there was not a formal sale and purchase, there was clearly a transfer of tangible

High Desert Recovery, LLC
Letter ID No. L0883777840
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property when the property was retained at the Taxpayer’s business and put at the Taxpayer’s

disposal. See Black’s Law Dictionary, page 1636 (9th ed. 2009) (defining a transfer as any

method, direct or indirect, of disposing of or parting with property or parting with an interest in

property). See also 3.1.10.16 (F) (3) (defining transfer as every method, direct or indirect,

conditional or absolute, and voluntary or involuntary of disposing of or parting with the property

of a business). This factor weighs in favor of finding that the Taxpayer is a successor in

business.

The second factor is whether the transfer was not in the ordinary course of the

transferor’s business. See 3.1.10.16 (A) (2) NMAC. WRI was not in the business of transferring

its equipment, so the transfer was not done in the ordinary course of its business. This factor

weighs in favor of finding that the Taxpayer is a successor in business.

The third factor is whether “a substantial part of both equipment and inventories” was

transferred. 3.1.10.16 (A) (3) NMAC. All of WRI’s remaining tangible assets were transferred

to the Taxpayer. This factor weighs in favor of finding that the Taxpayer is a successor in

business.

The fourth factor is whether a substantial portion of the business conducted by the

transferor continued to be conducted by the transferee. See 3.1.10.16 (A) (4) NMAC. WRI was

in the business of performing repossessions. The Taxpayer is also in the business of performing

repossessions. This factor weighs in favor of finding that the Taxpayer is a successor in

business.

The fifth factor is whether “the transferor’s goodwill follow[ed] the transfer of the

business properties”. 3.1.10.16 (A) (5) NMAC. The Taxpayer continues to employ the same

employees as WRI, operates from the same location, and performs the same services for many of

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Letter ID No. L0883777840
page 9 of 18
the same customers. Consequently, WRI’s goodwill was also transferred to the Taxpayer. This

factor weighs in favor of finding that the Taxpayer is a successor in business.

The sixth factor is whether the business obligations of the transferor were honored by the

transferee. See 3.1.10.16 (A) (6) NMAC. The Taxpayer did not assume any business obligations

of WRI. The contracts for service that WRI possessed were not exclusive or transferrable. This

factor weighs in favor of finding that the Taxpayer is not a successor.

The seventh factor is whether unpaid debts of the transferor were paid by the transferee.

See 3.1.10.16 (A) (7) NMAC. The Taxpayer did not assume or pay any unpaid debts of WRI.

This factor weighs in favor of finding that the Taxpayer is not a successor.

The final factor is whether there was an agreement precluding competition. See 3.1.10.16

(A) (8) NMAC. There was no such agreement between the Taxpayer and WRI. This factor

weighs in favor of finding that the Taxpayer is not a successor.

The first five factors weigh in favor of finding that the Taxpayer is a successor to WRI.

The remaining three factors weigh in favor of finding that the Taxpayer was not a successor in

business. However, if a single one of these factors are present, there is a presumption that there

is a successor in business. See 3.1.10.16 (B) NMAC. Therefore, the Taxpayer is a successor in

business to WRI.

The Taxpayer argued that it should not be successor since it did not purchase the business

of WRI. The Taxpayer argued that a purchase of one vehicle is not a transfer of a business. A

purchase or transfer of any property of a business makes one a successor. See 3.1.10.16 (F) (2)

NMAC. The statute indicates that when a business changes hands its tangible and intangible

property remain subject to liability for the payment of tax, and the successor may be assessed

and liable for the tax of a business that it takes over. See NMSA 1978, § 7-1-61. See also

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Letter ID No. L0883777840
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Sterling Title, 1973-NMCA-086, ¶ 23. The term “business changes hands” is meant to be a

broad, all-inclusive expression and is used in the statute for the purpose of maintaining the

personalty as security for the payment of tax. See Sterling Title, 1973-NMCA-086, ¶ 25. A

transfer of any property used in the business, tangible or intangible, is sufficient to show that the

business changed hands for purposes of the successor statute. See NMSA 1978, § 7-1-61. See

also 3.1.10.16 NMAC. See also Sterling Title, 1973-NMCA-086, ¶ 25. If a single factor is

present, there is a presumption that there is a successor in business. See 3.1.10.16 (B) NMAC.

In this case, numerous factors were present. The Taxpayer acquired all of WRI’s tangible

property and continued providing essentially the same services to several of the same customers

with the same employees at the same location. The Taxpayer failed to overcome the

presumption of correctness and failed to overcome the presumption that it was a successor in

business to WRI.

Extent of liability.

“A successor may discharge an assessment made pursuant to this section by paying to the

department the full value of the transferred tangible and intangible property.” NMSA 1978, § 7-

1-63 (C). The successor may be liable for the full amount of the assessment if the transfer was

done to avoid tax, if the transfer amounted “to a de facto merger, consolidation, or mere

continuation of the transferor’s business”, or if the successor agreed to assume the liability. Id.

A successor in business might be a “mere continuation” of the previous business if they share the

same directors, officers, or shareholders. See Garcia v. Coe Mfg.Co., 1997-NMSC-013, ¶ 12-14,

123 N.M. 34 (indicating that a common identity of directors and shareholders as well as a

substantial continuity in the business done before and after the assets were acquired is a

continuation of the original business). See also Pankey v. Hot Springs Nat’l Bank, 1941-NMSC-

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Letter ID No. L0883777840
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060, ¶ 13, 46 N.M. 10. A continuity of management and ownership is a strong indicator that a

successor is a “mere continuation” of the previous business. See Garcia, 1997-NMSC-013, ¶ 12-

14.

The Taxpayer argued that “there is no common identity of the directors, officers and

shareholders”, so there is not a mere continuation. See Taxpayer’s closing argument. The

Taxpayer argued that it was not a mere continuation of WRI because WRI had shareholders and

two officers who are not involved with the Taxpayer’s business. The Taxpayer argued that Mr.

Brown created the business after WRI’s business dropped off significantly in 2014.

Mr. Brown was in charge of the daily operations of WRI and remains in charge of the

daily operations of the Taxpayer. Mr. Brown was an officer, director, and manager of WRI. Mr.

Brown is the officer, director, and manager of the Taxpayer. WRI and the Taxpayer share

several common customers, they share the same employees, they share the same operating

location, and they both engage in repossessions. The Department correctly pointed out that WRI

was notified to quit the premises in March 2014, the Taxpayer changed its business address to

WRI’s location in May 2014, and the Taxpayer executed its lease on the premises in July 2014.

However, WRI continued to conduct its business on the premises until at least the end of

September 2014. These facts tend to show that WRI and the Taxpayer were operating

simultaneously and conjointly from the same location for at least the months from May to

September 2014.

Although the Taxpayer has only one director in common with WRI, that person was the

one who was responsible for all of the daily operations of both. Mr. Brown controlled the

payroll, overseeing employees, customer service, taxes, and all other practical functions of both

the Taxpayer and WRI. Mr. Brown indicated that WRI intended to remain open after the protest

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Letter ID No. L0883777840
page 12 of 18
was denied, intended to pay its taxes, and was trying to reach a satisfactory payment plan for

several months thereafter. Mr. Brown described his decision to create the Taxpayer as a

response to WRI’s difficulty meeting its tax repayments, its reduced sales, and its seemingly

imminent failure after the lien was filed, which occurred sometime after the vehicle transfer in

November 2013. However, he actually began the process the month after WRI’s protest was

denied in April 2013. Mr. Brown filed the certificate of organization for the Taxpayer in May

2013. Mr. Brown also began acquiring equipment for the Taxpayer prior to WRI’s decision to

dissolve, including the purchase of one vehicle from WRI before the lien was filed. The sale was

reported at $700.00, but the value of the vehicle was found to be $14,720.00. See NMSA 1978,

§ 7-14-4 (1988) (applying the excise tax to the purchase price or to the reasonable value if the

purchase price does not represent the reasonable value). See also 3.11.4.14 NMAC (requiring

the Department to presume the reasonable value of a vehicle based on average reported dealer

guides for comparable vehicles). After the lien was filed and WRI decided to dissolve, there is

no evidence that Mr. Brown attempted to liquidate WRI’s tangible property. Instead, the

Taxpayer took possession of the tangible property, and remains in possession of it, although Mr.

Brown reported that it is in storage and has not been used. Based upon the totality of the

evidence, there is sufficient evidence to conclude by preponderance that WRI’s assets were

transferred to the Taxpayer in an effort avoid paying the taxes. Moreover, if the hallmark of

“mere continuation” is control by the same person or persons, then the Taxpayer is also a mere

continuation of WRI since both are effectively under the control of Mr. Brown. However, this

issue is ultimately moot.

The Taxpayer argued that the total value of WRI’s property that was transferred to the

Taxpayer is $700.00, which was the purchase price of the vehicle. The Taxpayer also argued

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Letter ID No. L0883777840
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that the total value of WRI’s other property in the Taxpayer’s possession is only a few thousand

dollars. The value of the vehicle was previously determined to be $14,720.00. See Exhibit J.

Moreover, WRI valued its tangible and intangible property at the time that it ceased doing

business in its final tax return in excess of $500,000.00. See Exhibit 14.5. Just the tangible

property in the form of buildings and depreciable assets was valued at more than $300,000.00.

See id. The Taxpayer acknowledged that WRI’s property was so valuated on its final return, but

argued that the return did not take into consideration WRI’s tax debts. The Taxpayer argued that

WRI would have negative equity if the tax debt was factored into the return at that time. Equity

is not the same thing as value. Equity is the amount of an item’s value that exceeds the amount

of secured claims or liens against that item. See Black’s Law Dictionary, page 619 (9th ed.

2009). Value is the worth or price of an item, and fair market value is the price that an item can

garner in an open market in an arm’s-length transaction. See id. at pages 1690-1691. “Full

value” is not defined in the statute. See NMSA 1978, § 7-1-63. When WRI ceased doing

business and its property was transferred to the Taxpayer, WRI valued its tangible depreciable

property in excess of $300,000.00 in its final tax return. See Exhibit 14.5. Therefore, the

tangible property transferred to the Taxpayer had a value of more than $300,000.00. The

Taxpayer’s current assertion that the total value is only a few thousand dollars is not sufficient

evidence to overcome the previous assertion made on a tax return. Even if the Taxpayer is

entitled to limit its successor liability to the value of the transferred tangible and intangible

property, the value of the tangible property exceeds the tax liability. So, the Taxpayer is still

liable for the full amount of tax assessed.

Administrative costs and fees.

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The Taxpayer argued that it became the prevailing party under the statute when the

Department abated the interest prior to the hearing on the merits because the interest consisted of

more than half of the total amount assessed. The Taxpayer moved for an award of administrative

costs and fees as the prevailing party. The Taxpayer provided an affidavit to show that it

incurred $43,879.53 in costs and fees related to its pursuit of the protest.

The Department argued that the Taxpayer is not the prevailing party because the interest

was abated by the Department rather than by order of the Administrative Hearings Office. The

statute does not require that a decision on the merits be issued by the hearing officer before a

taxpayer is considered to be a prevailing party. See NMSA 1978, § 7-1-29.1 (2015). The

determination of whether a taxpayer is a prevailing party and the amount of reasonable costs and fees

can be made by agreement of the parties. NMSA 1978, § 7-1-29.1 (C) (4). If the parties do not

agree, then the hearing officer shall make the determination “in the case where the final

determination with respect to the tax, interest or penalty is made in an administrative proceeding”.

Id. Administrative proceedings include “any procedure or other action before the department or the

administrative hearings office”. NMSA 1978, § 7-1-29.1 (B). The protest is clearly an

administrative proceeding, and it is within the purview of the Hearing Officer to make a

determination. See id.

The statute provides that “the taxpayer is the prevailing party if the taxpayer has: (a)

substantially prevailed with respect to the amount in controversy; or (b) substantially prevailed with

respect to most of the issues involved in the case or the most significant issue or set of issues

involved in the case”. NMSA 1978, § 7-1-29.1 (C) (1). The Taxpayer became the prevailing party

when the Department conceded the issue and abated the interest, which accounted for more than half

of the assessment amount.

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However, a taxpayer who has substantially prevailed with respect to the amount or issues

may still be denied an award of administrative costs. See NMSA 1978, § 7-1-29.1 (C) (2). Abating

all or part of an assessment does not create a presumption that the Department’s position at the time

the assessment was made was unreasonable. See NMSA 1978, § 7-1-17 (presuming assessments are

correct). Rather, “the taxpayer shall not be treated as the prevailing party if…the department

establishes or…the hearing officer finds that the position of the department in the proceeding was

based upon a reasonable application of law to the facts of the case.” Id. Most arguments on this

issue were contained in the Taxpayer’s motion for summary judgment and the Department’s response

to the motion.

The Taxpayer argued that the Department’s assessment of interest was unreasonable in light

of the holding in the Hi-Country case. See Hi-Country Buick GMC, Inc. v. Taxation and Revenue

Dep’t, 2016-NMCA-027, ¶ 20, cert. denied, No. 35,647 (NMSC, March 15, 2016) (holding that

the definition of tax in the successor statute did not include penalty or interest). The Department

argued that the statute has been amended to include penalty and interest since the Hi-Country

case was decided. See NMSA 1978, § 7-1-61 (2017). The Department argued that the new

statute should be given retroactive effect. The Department argued that the amendment was made

by the legislature in order to clarify a previous ambiguity. The Department also argued that the

Taxpayer was a “mere continuation” of WRI, and, in effect, the same taxpayer. Although

ultimately incorrect and eventually conceded, the Department’s position was not unreasonable.

Therefore, the Taxpayer will not be treated as the prevailing party. See NMSA 1978, § 7-1-29.1.

As such, the Taxpayer’s request for administrative costs and fees is denied.

CONCLUSIONS OF LAW

A. The Taxpayer filed a timely written protest to assessment issued under Letter ID

number L0883777840, and jurisdiction lies over the parties and the subject matter of this protest.
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B. The Taxpayer is a successor in business to WRI. See NMSA 1978, § 7-1-61. See

also 3.1.10.16 NMAC. See also Sterling Title, 1973-NMCA-086, ¶ 25.

C. The value of the property transferred to the Taxpayer exceeds the tax liability, so the

Taxpayer is liable for the full amount of the tax assessed, which was $127,764.92. See NMSA

1978, § 7-1-63.

D. The Taxpayer failed to overcome the presumption that the assessment of tax was

correct. See NMSA 1978, § 7-1-17.

E. The Taxpayer is the prevailing party as a substantial amount of the assessment was

abated. See NMSA 1978, § 7-1-29.1.

F. The Taxpayer will not be treated as the prevailing party and is not entitled to an

award of administrative costs and fees because the Department’s position was not an unreasonable

application of the law to the facts. See id.

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

DATED: November 30, 2018.

Dee Dee Hoxie
DEE DEE HOXIE
Hearing Officer
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502

NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, § 7-1-25, the parties have the right to appeal this decision by

filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the date

shown above. See Rule 12-601 NMRA. If an appeal is not filed within 30 days, this Decision
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and Order will become final. A copy of the Notice of Appeal should be mailed to John Griego,

P. O. Box 6400, Santa Fe, New Mexico 87502. Mr. Griego may be contacted at 505-827-0466.

CERTIFICATE OF SERVICE

I hereby certify that I mailed the foregoing Order to the parties listed below this 4th day of
December, 2018 in the following manner:

First Class Mail Interoffice Mail

INTENTIONALLY BLANK

John D. Griego
Legal Assistant
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502
PH: (505)827-0466
FX: (505)827-9732

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