Could a New Mexico business recover gross receipts tax overpayments discovered during audits when its refund filings and later challenges missed statutory deadlines?

Plain-English summary

Inner Works could not recover gross receipts tax overpayments because it missed separate statutory deadlines for its 2009 and 2012 refund claims. The Administrative Hearings Office denied the protest even though the Department did not dispute that deductions for qualifying sales of services to out-of-state purchasers would have been proper if timely claimed.

Inner Works had originally filed and paid gross receipts tax without taking the deduction in NMSA 1978, Section 7-9-57. A bookkeeper discovered the reporting errors while the small business was undergoing Department audits. Inner Works then filed amended returns and sought refunds for 2009 and 2012.

The Department ultimately abated all assessed tax, penalty, and interest for both years, so Inner Works owed no tax for 2009 or 2012 at the hearing. The dispute concerned whether the business could receive the additional overpayments shown by its amended filings.

The 2009 application was filed in time under a special extension

Inner Works filed its 2009 refund application on July 1, 2015 and requested $1,531.41. The ordinary three-year deadline had expired at the end of 2013.

However, the Department had assessed 2009 gross receipts tax on February 9, 2015 after auditing a period beyond the ordinary assessment window. Section 7-1-26(D)(5) therefore gave Inner Works one year from that assessment to claim a refund for the same tax and period. The Hearing Officer credited the testimony that the application was delivered on July 1, 2015, despite the Department not stamping it received until March 2018. The application itself was timely under the extended February 8, 2016 deadline.

Inner Works then missed the deadline to challenge Department inaction

The Department neither allowed nor denied the 2009 claim within the applicable 120-day action period, which ended October 29, 2015. The refund statute required Inner Works to respond to that inaction by filing an administrative protest or a civil action within the prescribed period.

The final date to protest the inaction was January 27, 2016. Inner Works did not file the protest at issue until May 2018. The Department's later formal denial did not revive the stale claim, so the 2009 refund remained unavailable even though the initial application had qualified for the special extension.

The 2012 refund application was 27 days late

For 2012, the ordinary refund period ended December 31, 2016. Inner Works submitted its application on January 27, 2017, seeking the $651.15 negative balance shown after the Department's abatements. The claim was therefore 27 days late.

The assessment-based extensions did not help. The evidence showed that the overpayment arose from Inner Works' original reporting error, not from paying an erroneous assessment. The 2012 assessment also occurred within the Department's ordinary three-year assessment period, and the record did not establish an extended-lookback assessment under Section 7-1-18(B), (C), or (D).

Audit delays did not support equitable tolling

Inner Works pointed to delays, changing auditors, and allegedly mishandled documents. But the AHO questioned whether it had statutory authority to grant equitable tolling and found no testimony, writing, or other evidence that a government employee induced the business to believe a refund deadline had been extended.

Result: protest DENIED. The 2009 claim failed because Inner Works did not timely challenge Department inaction, and the 2012 claim was filed after the refund deadline.

What this means for you

Businesses filing New Mexico refund claims

Track more than the date the application is sent. If the Department does not act within the statutory period, a separate deadline begins for protesting the inaction or filing a civil action.

Taxpayers discovering errors during an audit

An audit does not automatically restart the ordinary refund period. The special one-year rule applied to the 2009 claim because the assessment reached an older period under an extended assessment provision; the same rule did not apply to the timely assessed 2012 period.

Businesses claiming out-of-state-service deductions

The Department did not dispute the substantive deductions here. The case was lost on procedure, showing that a valid deduction still must be asserted through a timely refund claim and timely follow-up.

Taxpayers seeking equitable relief

General delay or confusion was insufficient. The record contained no assurance from a government employee that reasonably induced Inner Works to believe its statutory deadlines were extended.

Common questions

Q: Did the AHO decide that Inner Works' out-of-state-service deductions were invalid?
A: No. The Department did not dispute that the deductions would have been proper if timely claimed. The ruling turned on refund and protest deadlines.

Q: Was the 2009 refund application itself late?
A: It was late under the ordinary three-year rule but timely under the special one-year extension in Section 7-1-26(D)(5), measured from the February 9, 2015 assessment.

Q: Why did the 2009 refund still fail?
A: The Department did not act within 120 days, and Inner Works did not timely protest that inaction or file a civil action. Waiting until May 2018 was too late.

Q: Why did the Department's 2018 denial not create a new deadline?
A: The claim had already been denied by inaction for deadline purposes. The ruling held that the later formal denial did not revive the missed opportunity to challenge the inaction.

Q: How late was the 2012 application?
A: It was due by December 31, 2016 and delivered January 27, 2017, making it 27 days late.

Q: Did Inner Works still owe assessed tax for 2009 or 2012?
A: No. The Department had abated all assessed tax, penalty, and interest for those years. Inner Works was seeking additional refunds of claimed overpayments.

Q: Why was equitable tolling rejected?
A: The AHO found no evidence that government conduct induced Inner Works to believe a deadline had been tolled or extended, and it questioned whether the AHO could grant that equitable remedy at all.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-26(B), (C), and (D) (2015) — refund procedure, Department action period, remedies for inaction, and refund limitation periods
• NMSA 1978, § 7-1-24(A)(3) and (D) (2015) — administrative protest of a failure to allow or deny a refund claim and the protest deadline
• NMSA 1978, § 7-1-18(A)-(D) — ordinary and extended assessment periods relevant to Section 7-1-26(D)(5)
• NMSA 1978, § 7-9-57 (2000) — deduction for qualifying services sold outside New Mexico
• NMSA 1978, §§ 7-9-11 and 7-1-13 — gross receipts reporting and payment deadlines
• Regulation 3.1.9.12(C) NMAC — example applying the special one-year refund period
• Regulation 3.1.6.12(A) NMAC — unsupported statements do not overcome Department records

Cases cited:

• Unisys Corp. v. New Mexico Taxation & Revenue Department, 1994-NMCA-059 — Department inaction and the taxpayer's duty to timely pursue a protest or civil action
• Kilmer v. Goodwin, 2004-NMCA-122 — strict refund deadlines protect against stale claims
• MPC Ltd. v. New Mexico Taxation & Revenue Department, 2003-NMCA-021 — unsupported statements do not overcome Department records
• United States v. Brockamp, 519 U.S. 347 (1997) — strict enforcement of tax-refund limitation periods despite individual hardship

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Inner Works
• Decision PDF: D&O 19-09

Original ruling text

1 STATE OF NEW MEXICO
2 ADMINISTRATIVE HEARINGS OFFICE
3 TAX ADMINISTRATION ACT

4 IN THE MATTER OF THE PROTEST OF
5 INNER WORKS
6 TO DENIALS OF REFUNDS ISSUED UNDER
7 LETTERS ID NOs. L1069914928 AND L2143656752
8

9 v. AHO No. 18.08-190R, D&O No. 19-09

10 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

11 DECISION AND ORDER

12 On December 4, 2018, Hearing Officer Ignacio V. Gallegos, Esq. conducted a merits

13 hearing in the matter of the tax protest of Inner Works pursuant to the Tax Administration Act

14 and the Administrative Hearings Office Act. At the hearing, Mrs. Pritpal Kaur Khalsa and Mr.

15 Pritpal Singh Khalsa, owners of Inner Works (“Taxpayer”) appeared, and were represented by

16 their bookkeeper, Ms. Sat Mitar Khalsa1. Staff Attorney Jama Fisk appeared representing the

17 opposing party in the protest, the State of New Mexico Taxation and Revenue Department

18 (“Department”), along with protest auditor Milagros Bernardo, who testified. All three people

19 appearing for Taxpayer testified on Taxpayer’s behalf. Taxpayer’s Exhibits 1 and 2 were

20 admitted into the record without objection. The Department’s Exhibits A through O were

21 admitted without objection, with caution that there are some admitted inaccuracies in the

22 Department’s exhibits. The Hearing Officer took administrative notice of all documents

23 contained in the administrative file. All exhibits are more fully described in the Administrative

24 Exhibit Log.

1
The Hearing Officer notes that the Department objected to the designation of the bookkeeper as a “bona fide
employee” under NMSA 1978, Section 7-1B-8 and Regulation 22.600.3.7 (B). Based on evidence presented, the
Hearing Officer found that the bookkeeper was a bona fide employee not hired simply for the purposes of the tax
protest.

In the Matter of the Protest of Inner Works, page 1 of 22.
1 The main issue presented in this protest is whether Inner Works was timely in its two

2 requests for refund following Department audits of Taxpayer’s gross receipts tax returns of 2009

3 and 2012 tax years. Alternately, if the requests were untimely, at issue is whether a statutory

4 extension or equitable tolling of the time limitation is justified to allow the requested refund.

5 After making findings of fact in this matter and discussing the arguments and the pertinent legal

6 authority in more detail, this tribunal ultimately rules that the Department prevails in this protest

7 because the Taxpayer did not show that it the alleged overpayment it claimed resulted from an

8 assessment by the department, and Taxpayer did not meet other statutory deadlines. IT IS

9 DECIDED AND ORDERED AS FOLLOWS:

10 FINDINGS OF FACT

11 1. On March 13, 2018, the Department issued a Refund Denial letter to Inner Works

12 for their claim of refund for Combined Reporting System (CRS) taxes for the period ending

13 December 31, 2009. [Administrative file, Letter ID# L1069914928].

14 2. On March 13, 2018, the Department issued a Refund Denial letter to Inner Works

15 for their claim of refund for CRS taxes for the period ending December 31, 2012.

16 [Administrative file, Letter ID# L2143656752].

17 3. On May 15, 2018, Inner Works submitted two formal protest letters (stamped

18 received by the Department May 22, 2018), protesting the denial of refunds for tax tears 2009

19 and 2012. [Administrative file].

20 4. Included in the protest letter concerning 2009 taxes, were a statement of the

21 grounds for the 2009 protest, a copy of the Taxpayer’s Application for Refund of 2009 tax, dated

22 July 1, 2015, copies of four Amended CRS returns for the months of December 2009, September

23 2009, June 2009, and March 2009. [Administrative file].

In the Matter of the Protest of Inner Works, page 2 of 22.
1 5. Included in the protest letter concerning 2012 taxes were copies of the

2 Department’s Notice of Abatement of Tax Assessment dated December 12, 2016 [Letter ID#

3 L1691128112] concerning 2012, and a statement of the grounds for the 2012 protest.

4 [Administrative file].

5 6. On June 6, 2018, the Department issued a letter acknowledging the receipt of the

6 Taxpayer’s protest of the CRS refund denial letters. [Administrative file, Letter ID#

7 L0360853296].

8 7. On August 13, 2018, the Department filed a hearing request with the

9 Administrative Hearings Office, alleging the total amount at protest was $2,182.92, and

10 requesting a scheduling hearing. [Administrative File].

11 8. On August 14, 2018, the Administrative Hearings Office issued a Notice of

12 Telephonic Scheduling to the parties, informing the parties that a telephonic hearing would be

13 held on September 4, 2018. [Administrative File].

14 9. On September 4, 2018, a telephonic scheduling hearing occurred before Ignacio

15 V. Gallegos, Hearing Officer, within 90 days of the Department’s receipt of the protest.

16 Taxpayers and their representative Ms. Sat Mitar Khalsa appeared, but a representative from the

17 Department did not appear. [9-4-18 CD 0:45-1:40, 12:40-17:00].

18 10. On September 11, 2018, the Administrative Hearings Office issued a Scheduling

19 Order and Notice of Administrative Hearing, notifying the parties that the merits of the protest

20 would be heard on December 4, 2018 in Santa Fe, New Mexico. [Administrative File].

21 11. Mrs. Pritpal Kaur Khalsa and Mr. Pritpal Singh Khalsa (as spouse) are the owners

22 of Inner Works. [12-4-18 1 CD 1:20-2:00, 1:47:50-1:48:05].

In the Matter of the Protest of Inner Works, page 3 of 22.
1 12. Ms. Sat Mitar Khalsa is the bookkeeper for Inner Works, a small company. She

2 began working for Inner Works when the Department issued a notice of Limited Scope Audit,

3 but has continued working with them and will to continue to manage their books after the

4 conclusion of this protest. [12-4-18 1 CD 2:00-2:20, 19:45-21:00, 22:40-25:00, 35:50-44:11,

5 1:55:50-1:56:20].

6 Gross Receipts Taxes in 2009

7 13. Taxpayers filed CRS-1 reports and paid gross receipts taxes due for four quarters

8 of 2009. The original reports contained accounting mistakes, resulting in an overpayment of tax,

9 unbeknownst to the Taxpayer. [Exhibit N1; 12-4-18 1 CD 1:16:30-1:17:50, 1:32:00-1:33:45,

10 1:51:45-1:52:35, 2:36:50-2:37:15].

11 14. In 2014, the Department began a Limited Scope Audit of this Taxpayer for tax

12 years 2009, 2010, and 2011 triggered by an IRS Schedule C mismatch when compared against

13 New Mexico CRS-1 reports. [Exhibit 1-1; 12-4-18 2 CD 20:00-21:30].

14 15. The audit of 2009, 2010 and 2011 concluded on February 9, 2015 with a Notice

15 of Assessment for periods April 1, 2009 through December 31, 2009, in the amount of $1,336.37

16 for gross receipts taxes due. Taxpayer did not pay the assessment. [Exhibit 2-1; Exhibit H;

17 Exhibit M2; 12-4-18 1 CD 1:04:30-1:08:05, 2:04:45-2:05:15; 12-4-18 2 CD 26:05-26:25].

18 16. On July 1, 2015, Taxpayer amended its CRS-1 reports for the 2009 reporting

19 periods and filed them. The amended reports applied a deduction for out-of-state sales, resulting

20 in an overpayment. [Exhibit 1-1; Exhibit N1 through N5; Exhibit O-1; 12-4-18 1 CD 1:16:20-

21 1:17:50].

22 17. The Taxpayer submitted the amended reports to the Department with an

23 Application for Refund form on July 1, 2015, requesting a refund of $1,531.41, due to an

In the Matter of the Protest of Inner Works, page 4 of 22.
1 overpayment error it discovered in its original CRS reports. [Exhibit N1 through N5; Exhibit 1-

2 1; 12-4-18 1 CD 1:16:20-1:17:50, 1:34:40-1:35:30; Administrative file, protest letter

3 attachments].

4 18. Taxpayer was uncertain whether the 2009 refund application was mailed or

5 delivered in person to the Department. [12-4-18 1 CD 1:54:40-1:56:00].

6 19. The Department did not issue a denial or refund the alleged overpayment,

7 following delivery of the Taxpayer’s refund application, and Taxpayer did not protest the

8 Department’s inaction until this protest. The Department did not stamp the refund application as

9 received until March of 2018, nearly three years after the date on the application. [Exhibits F1,

10 N1 through N5; 12-4-18 1 CD 1:30:00- 1:33:00, 2:06:00-2:10:45].

11 20. On June 24, 2016, the Department issued an abatement of the assessment of taxes

12 due from the 2009 reporting periods, in the amount of $1,336.37. However, the Department

13 neither refunded nor gave Taxpayer credit for the additional amount of the refund requested.

14 [Exhibit J].

15 21. The Department stamped as received the July 1, 2015 Application for Refund

16 request for on March 2, 2018. [Exhibit N1].

17 22. The Department issued a letter denying the Taxpayer’s refund request for being

18 untimely on March 13, 2018. [Administrative File, Letter ID #L1069914928, see also FOF #1].

19 Gross Receipts Taxes in 2012

20 23. Taxpayer filed returns and paid gross receipts tax for the tax reporting periods of

21 2012, on December 18, 2012. [Exhibit O-4, Exhibit B-3].

22 24. At some point thereafter, while the other audit was pending, the Department

23 conducted an audit of the 2012 tax year. [Exhibit I; 12-4-18 1 CD 2:28:25-2:28:50].

In the Matter of the Protest of Inner Works, page 5 of 22.
1 25. Taxpayer submitted amended CRS tax returns for 2012 on July 6, 2015.

2 [Taxpayer Exhibit 1-1].

3 26. On July 30, 2015, the audit of the Taxpayer’s 2012 tax reporting ended with an

4 assessment of taxes and the Department issued a letter informing the Taxpayer that $6,646.68

5 was due for tax reporting periods between April 1, 2012 and December 31, 2012. Taxpayer did

6 not pay the assessment. [Exhibit I; 12-4-18 1 CD 2:05:20-2:05:45].

7 27. On May 2, 2016, the Department issued a Notice of Abatement to Taxpayer for

8 2012 tax reporting, leaving a balance due of $1,843.43. Taxpayer did not pay the balance.

9 [Exhibit K-1; Exhibit N6; 12-4-18 1 CD 2:05:20-2:05:45; 1:36:00-1:37:40, 1:40:00-1:41:00;

10 Administrative file, protest letter; 12-4-18 2 CD 26:25-26:50].

11 28. While communicating with the Department, throughout the audit process, the

12 Taxpayer experienced delays in receiving responses, changes in auditors, and alleged that

13 documents were mishandled by department employees. On the same score, Taxpayer’s records

14 were not well-curated, and presented its evidence in summary form without supporting

15 documents. Taxpayer, when confronted with unpreparedness or lack of documentation, would

16 blame the Department with unsubstantiated allegations of fact. [Exhibit 1-1, 1-2; 12-4-18 1 CD

17 1:34:20-1:37:40, 2:08:00-2:08:50, 2:28:20-2:30:20, 2:36:30- 2:38:20].

18 29. On December 12, 2016, the Department issued a Notice of Abatement to

19 Taxpayer for 2012 tax reporting, leaving a negative balance of -$651.15 [Department Exhibit K-

20 2].

21 30. On January 27, 2017, the Taxpayer submitted an Application for Refund for 2012

22 tax liability, which attached the December 12, 2016 letter from the Department as evidence of

23 overpayment. [Exhibit 1-2; Exhibit N6, N7; 12-4-18 1 CD 2:02:50-2:04:20].

In the Matter of the Protest of Inner Works, page 6 of 22.
1 31. The Department took no action to address the Application for Refund submitted

2 January 27, 2017. The Taxpayer did not protest the Department’s inaction until this protest was

3 filed in May of 2018. [12-4-18 1 CD 2:08:00-2:10:25].

4 32. Taxpayer believed that the Department lost its 2012 audit file by an auditor,

5 however provided no proof that this occurred. [Exhibit 1-1 and 1-2; 12-4-18 1 CD 02:28:10-

6 02:30:00].

7 33. The Department stamped the January 27, 2017 refund request letter as received on

8 March 2, 2018 and March 5, 2018 [Department Exhibit N6, N7; 12-4-18 1 CD 2:10:30-2:10:50].

9 34. The Department issued a letter denying the Taxpayer’s refund request for being

10 untimely on March 13, 2018. [Administrative File, Letter ID # L2143656752, see also FOF #2].

11 DISCUSSION

12 This protest involves the question whether the Taxpayer timely requested a refund of

13 gross receipts taxes (GRT) it discovered it overpaid, after undergoing audits, assessments and

14 abatements for tax years 2009 and 2012. Necessary to answering this question are an analysis of

15 the relevant statutes of limitation, whether the Taxpayer falls into a recognized statutory

16 exception, and whether Taxpayer meets the requirements of equitable tolling, which may revive

17 a valid claim for refund after the expiration of the statute of limitation.

18 Burden of proof.

19 Taxpayer has the burden of establishing it was entitled to the claimed refund at issue.

20 Taxpayer’s claim for refund is premised on an overpayment of tax. “Where an exemption or

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

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

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

In the Matter of the Protest of Inner Works, page 7 of 22.
1 Taxation and Revenue Department, 1991-NMCA-024, ¶16, 111 N.M. 735 (internal citation

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

3 447; See also Corr. Corp. of Am. of Tenn. v. State, 2007-NMCA-148, ¶17 & ¶29, 142 N.M. 779

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

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

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

7 of its claim for refund.

8 2009 Gross Receipts Tax.

9 Does the discovery of overpayment following an audit assessment trigger or extend

10 the statute of limitation?

11 In 2009, Taxpayer filed and paid its gross receipts taxes routinely. During this time and

12 thereafter, until an audit took place in 2014, the Taxpayer included even receipts from sales of

13 services to out-of-state purchasers, which Taxpayer did not know could be deductible under

14 NMSA 1978, Section 7-9-57 (2000). The Department did not dispute that the deductions would

15 have been proper, if taken at the time of original filing. The Department’s only challenge is to

16 the timeliness of the claim for refund.

17 After being informed that they would be audited, Taxpayers began to employ a

18 bookkeeper in order to help them comply with the departmental audit that began in 2014. In

19 sifting through the Taxpayer’s documents, the bookkeeper discovered the Taxpayer’s error in not

20 taking the deduction. Taxpayer informed the Department of the accounting error by filing

21 amended 2009 gross receipts tax returns for the applicable reporting periods, after the audit had

22 concluded with an assessment of taxes. Taxpayer made a claim for refund based on the amended

23 returns. The crux of the dispute is whether the refund claim was timely.

In the Matter of the Protest of Inner Works, page 8 of 22.
1 The refund statute in effect at the time of the amended filing, Section 7-1-26 (D) (2015,

2 amended 2017)2, required that taxpayers file claims for refund within three years of the end of

3 the calendar year in which “the payment was originally due or the overpayment resulted from an

4 assessment by the department … whichever is later.” Section 7-1-26 (D)(1)(a). Under the first

5 provision of the statute, i.e., the end of the calendar year in which the payment was originally

6 due, the payments for 2009 were due in 2009 and in January of 2010. See NMSA 1978, Section

7 7-9-11 (1969). December 31, 2010 is the end of the calendar year when the final payment would

8 have been due. Three years from that date would have passed December 31, 2013.

9 Taxpayer argues that the “overpayment resulted from an assessment by the department,”

10 attempting to extend the three-year statute of limitation beyond its initial three-year period and

11 forward past the conclusion of the audit assessment of 2015. Taxpayer readily admitted that it

12 did not pay the assessment of taxes for its assessed 2009 tax liability, following the audit

13 assessment in 2015. Taxpayers also readily admitted that the overpayment was due to their own

14 error in misunderstanding the gross receipts tax law when filing their own CRS reports, before

15 having a bookkeeper look at their account books. Under the statute, the cause of the

16 overpayment must be payment of an assessment made in error. Although the intricacies of the

17 law of causation are discussed at length in the common law, it can be summed up using the

18 uniform jury instruction:

19 Causation (proximate cause).
20 An [act] [or] [omission] [or] [ (condition) ] is a "cause" of
21 [injury] [harm] [ (other) ] if [, unbroken by an independent
22 intervening cause,] it contributes to bringing about the [injury] [harm]
23 [ (other) ] [, and if injury would not have occurred without it].
24 It need not be the only explanation for the [injury] [harm] [
25 (other) ], nor the reason that is nearest in time or place. It is sufficient
26 if it occurs in combination with some other cause to produce the result. To be
27 a "cause", the [act] [or] [omission] [or] [ (condition) ],
2
The law of this case is the law in effect at the time the subject matter of the protest arose, in 2015.

In the Matter of the Protest of Inner Works, page 9 of 22.
1 nonetheless, must be reasonably connected as a significant link to the
2 [injury] [harm]. UJI 13-305 NMRA.
3
4 Using this as a guide, the act of assessing a tax is a “cause” of the overpayment, if it

5 contributes to bring about the injury of overpayment, and the injury would not have occurred

6 without it. Simply put, stumbling upon a discovery of chronic reporting errors which led to

7 overpayment is not the same as an overpayment that “resulted from” an assessment, although

8 there is a tenuous connection between the audit and the Taxpayer’s hiring of the bookkeeper.

9 Under the facts of this case, the overpayment was caused by an accounting error that occurred

10 well before the assessment took place. The additional three years for requesting a refund from

11 the date of assessment is inapplicable to the facts at hand, under Section 7-1-26 (D)(1). Under

12 New Mexico's self-reporting tax system, “every person is charged with the reasonable duty to

13 ascertain the possible tax consequences” of his or her actions. Tiffany Construction Co. v.

14 Bureau of Revenue, 1976-NMCA-127, ¶5, 90 N.M. 16. It is the duty of Taxpayer to determine

15 what taxes need to be reported and paid.

16 Nevertheless, although neither party suggested this as an alternative, Section 7-1-26

17 (D)(5) also has a provision extending the statute of limitation: “[W]hen a taxpayer has been

18 assessed a tax on or after July 1, 1993, under Subsection B, C or D of Section 7-1-18 NMSA

19 1978 and when the assessment applies to a period ending at least three years prior to the

20 beginning of the year in which the assessment was made, the taxpayer may claim a refund for the

21 same tax for the period of the assessment or for any period following that period within one year

22 of the date of the assessment unless a longer period for claiming a refund is provided in this

23 section.” Since the audit began in 2014 and 2009 taxes were not assessed until 2015, a logical

24 inference would be that the assessment was issued pursuant to either Subsection B, C or D of

In the Matter of the Protest of Inner Works, page 10 of 22.
1 Section 7-1-18, which each grant the Department the ability to look-back beyond the usual three-

2 year limit on assessments.

3 So, despite the fact that the Taxpayer did not overpay as a “result” of an assessment, the

4 periods at issue within the audit and assessment could still justify a refund, under subsection

5 (D)(5). The preconditions for a valid claim under (D)(5) are that the claim for refund is filed

6 within one year, pertains to the same tax program assessed, and is of a period subject to

7 assessment or thereafter. Regulation 3.1.9.12 (C) NMAC provides a pertinent example:

8 Taxpayer, a monthly filer, underreported by more than 25% gross
9 receipts taxes due in the period November 1988 through
10 December 1991. The department audits Taxpayer in 1993. On
11 May 1, 1993, the department assessed Taxpayer with respect to
12 underreported taxes for the entire period. In May 1993, the
13 November 1988 through December 1989 portion of the period is
14 beyond the time described in Subsection 7-1-18A NMSA 1978.
15 The taxpayer may claim a refund at any time until April 30, 1994
16 with respect to gross receipts taxes paid in the period November
17 1988 through December 1989.

18 Here, it was undisputed that the refund request was for the same tax program (GRT) and

19 pertained to the same period covered by the audit and assessment. Because the audit and its

20 subsequent assessment under NMSA 1978, Section 7-1-18 (B) (C) or (D) opened the door to the

21 extended statute of limitations, Taxpayer had one additional year to file a claim for refund of its

22 2009 gross receipts tax overpayment. The extended statute of limitations starting point is the

23 date of the assessment, February 9, 2015, and its ending point was February 8, 2016.

24 The Taxpayer contended that the refund request covering 2009 tax periods was sent,

25 either by mail or hand-delivered on July 1, 2015. If true, this would have been timely filed, since

26 it was filed before February 8, 2016. The Department challenged the Taxpayer’s testimony of

27 when it delivered the refund request, citing as evidence that the refund request covering the 2009

28 tax periods was not stamped as received by the Department until March 2, 2018 (almost two

In the Matter of the Protest of Inner Works, page 11 of 22.
1 years after the extended statute of limitations would have ended). Because a stamp on a

2 document, with no other competent evidence of first receipt on that date, cannot overcome the

3 substantial evidence of sworn in-person testimony subject to cross-examination, the Hearing

4 Officer adopts the Taxpayer’s position of when the claim for refund covering 2009 gross receipts

5 taxes was delivered.

6 The Taxpayer submitted their 2009 application for refund to the Department on July 1,

7 2015. The application for refund was timely, under the extended deadline allowed by Section 7-

8 1-26 (D)(5), because it was delivered before February 8, 2016.

9 Taxpayer’s duty to protest the Department’s failure to take action on its application

10 for refund.

11 Upon receipt of a claim for refund, the law (effective at the time of the claim) anticipates

12 that the Department will act, by issuing a refund or by issuing a denial letter within 120 days. 3

13 Section 7-1-26 (B) states: “[t]he secretary or the secretary's delegate may allow the claim in

14 whole or in part or may deny the claim.” The statute uses the word “may” rather than the word

15 “shall.” New Mexico courts have interpreted this to mean that “the word "may" in the sentence

16 allowing the secretary to grant or deny a claim should be construed as permissive.” Unisys Corp.

17 v. New Mexico Taxation & Revenue Dep't, 1994-NMCA-059, ¶ 8, 117 N.M. 609, 874 P.2d 1273;

18 Thriftway Marketing Corp. v. State, 1992-NMCA-092, 114 N.M. 578, 844 P.2d. 828. Although

19 Subsection B of the statute only allows two options (to allow or to deny), the Unisys court

20 determined that the section “gives the Secretary the choice of whether or not to act upon a refund

21 claim.” Unisys,1994-NMCA-059, ¶16. The statute then anticipates three possibilities: that the

22 Department deny the claimed amount, that the Department refund the claimed amount, or that

3
The 2017 amendment extended this time from 120 to 180 days. See NMSA 1978, § 7-1-26 (D) (2017).

In the Matter of the Protest of Inner Works, page 12 of 22.
1 the Department take no action on the claim. See § 7-1-26 (B)(2). The statute in effect in 2015

2 allowed only one-hundred twenty days from the date of mailing or delivery of the claim for

3 refund for the Department to take action on the claim, which would have made the final date for

4 the Department to take action to October 29, 2015. See § 7-1-26 (B)(2). The evidence showed

5 that the Department did not deny the original claim for refund, and did not pay out the claimed

6 refund amount, therefore this case is one in which the Department did not take any action on the

7 Taxpayer’s 2009 claim for refund.

8 There are specific obligations on Taxpayers whose refund claims are not acted upon

9 within the required time frame. See § 7-1-26 (B) and (C). The Taxpayer must choose one of the

10 two options provided by statute. The Taxpayer may file an administrative protest of the inaction

11 under (C)(1), or may file a civil suit in district court under (C)(2). It is undisputed that the

12 Taxpayer did not file a protest of the Department’s inaction in district court. And the record is

13 clear that the Taxpayer filed this administrative protest of the department’s refund denial on May

14 15, 2018. Under NMSA 1978, Section 7-1-24 (A)(3) (2015, amended 2017) the Taxpayer may

15 protest the “failure to allow or to deny a … claim for refund.” Under the same statute,

16 Subsection (D), the protest must be filed “within ninety days of the date of …the date of denial

17 of a claim pursuant to Section 7-1-26 NMSA 1978 or the last date upon which the department

18 was required to take action on the claim but failed to take action.” Since the Department’s

19 inaction amounted to a denial of the claim by October 29, 2015, the Taxpayer was required to

20 protest the inaction within 210 days of the filing of the claim. The date by which the Taxpayer

21 was required to submit its protest of the denial by inaction was January 27, 2016. The protest of

22 the Department’s denial by inaction of Taxpayer’s refund claim filed July 1, 2015 was not filed

23 until May of 2018, and hence is untimely. See Unisys, 1994-NMCA-059 (Court of Appeals held

In the Matter of the Protest of Inner Works, page 13 of 22.
1 that a claim for refund was time barred when taxpayer did not confront the department inaction

2 by timely filing either a protest or a civil action). The Department’s 2018 denial of a refund for

3 2009 gross receipts tax overpayment was proper. The legislature has established a statute of

4 limitation so that the state will not be held liable for late-asserted claims so the ledger books may

5 be closed after a finite amount of time. The limits set out in Section 7-1-26 were intended “to

6 avoid stale claims, which protects the Department's ability to stabilize and predict, with some

7 degree of certainty, the funds it collects and manages.” Kilmer v. Goodwin, 2004-NMCA-122,

8 ¶16, 136 N.M. 440, 99 P.3d 690.

9 2012 Gross receipts tax.

10 Taxpayer filed a return and paid its gross receipts tax for the period ending December 31,

11 2012, on December 18, 2012. Taxpayer amended its gross receipts tax returns for 2012 and filed

12 the amended return July 6, 2015. At the time the amended return was filed, the Department had

13 concluded an audit of the 2009, 2010, and 2011 years, and had informed the Taxpayers that an

14 audit of 2012 would be taking place. Having discovered that the Taxpayer could deduct for sales

15 of services to out-of-state purchasers, Taxpayer’s 2012 amended return filing utilized the

16 deduction under NMSA 1978, Section 7-9-57. Department did not dispute that the deductions

17 were proper. Again, Department’s main challenge is to the timeliness of the claim for refund.

18 Combined Reporting System returns (CRS -1) include Gross Receipts Tax among other

19 tax programs. Typically, the returns are due the 25th day of the month following the close of the

20 reporting period. See NMSA 1978, Section 7-9-11 (1969). In this instance, Taxpayer was a

21 quarterly filer. The CRS-1 report for the period ending December 31, 2012 would have been

22 due, and the tax due to be paid no later than January 25, 2013. See Section 7-9-11 and Section 7-

23 1-13 (2007, amended 2013).

In the Matter of the Protest of Inner Works, page 14 of 22.
1 Applying the refund statute in effect at the time of the 2012 reporting period CRS-1

2 amended filing, Section 7-1-26 (D)(1)(a), required that taxpayers file claims for refund within

3 three years of the end of the calendar year in which “the payment was originally due or the

4 overpayment resulted from an assessment by the department, … whichever is later.” Under the

5 first provision of the statute, i.e., the end of the calendar year in which the payment was

6 originally due, the payments for 2012 were due in January of 2013. December 31, 2013 is the

7 end of the calendar year when the final payment would have been due. Three years from that

8 date would have passed December 31, 2016. Taxpayer claimed to have filed their 2012 refund

9 request on January 27, 2017, less than a month after the three-year limit had expired. Under the

10 three-year limit, the claim for refund was late.

11 Taxpayer argues that the “overpayment resulted from an assessment by the department,”

12 attempting to extend the three-year statute of limitation beyond its initial three-year period and

13 forward past the conclusion of the audit assessment of July 30, 2015. [Letter ID #L0750665776,

14 Exhibit I]. Taxpayer’s witnesses testimony differed as to whether the Taxpayer paid the

15 assessment. Mrs. Pritpal Kaur Khalsa, testified she did not pay the assessment, yet, Ms. Sat

16 Mitar Khalsa testified that Taxpayer paid the assessment (as indicated on the refund request) on

17 January 4, 2017 for the 2012 tax liability assessment, however, did not show any documentary

18 evidence of so doing. The Department’s evidence showed no payment made on the 2012 tax

19 liability [Exhibit L2], following the audit assessment in 2015. In this instance, the hearing

20 officer adopts the Department’s record-keeping of payments made, and considers that the

21 payment for 2012 tax liability was not following the assessment, but at the initial filing in 2012.

22 Unsubstantiated statements are insufficient to overcome the presumption of correctness. See

23 MPC Ltd. v. N.M. Taxation & Revenue Dep't, 2003-NMCA-021, ¶13, 133 N.M. 217. See also

In the Matter of the Protest of Inner Works, page 15 of 22.
1 Regulation 3.1.6.12 (A) NMAC. As discussed above, the discovery of a reporting error which

2 led to overpayment is not an overpayment that “resulted from” an assessment. Under the statute,

3 the cause of the overpayment must be payment of an assessment made in error. Under the facts

4 of this case, the overpayment was caused by Taxpayer’s accounting error that occurred well

5 before the audit took place and the assessment was issued. The additional three years for

6 requesting a refund from the date of assessment is inapplicable to the facts at hand, under Section

7 7-1-26 (D)(1).

8 Nevertheless, as noted in the discussion above, Section 7-1-26 (D)(5) also has a provision

9 extending the statute of limitation: “[W]hen a taxpayer has been assessed a tax on or after July

10 1, 1993, under Subsection B, C or D of Section 7-1-18 NMSA 1978 and when the assessment

11 applies to a period ending at least three years prior to the beginning of the year in which the

12 assessment was made, the taxpayer may claim a refund for the same tax for the period of the

13 assessment or for any period following that period within one year of the date of the assessment

14 unless a longer period for claiming a refund is provided in this section.” Since the audit began in

15 2014 and 2012 taxes were assessed in 2015, a logical inference would be that the assessment was

16 issued pursuant to subsection A, and not pursuant to B, C or D of Section 7-1-18, which each

17 grant the Department the ability to look-back beyond the usual three-year limit on assessments.

18 Yet there was no evidence presented on this subject, other than the fact that the assessment was

19 issued before the expiration of the three-year limit on assessments under NMSA 1978, Section 7-

20 1-18 (A) (2013), and Taxpayers did not argue for it.

21 Because the Taxpayer did not overpay as a result of an assessment, and the tax periods at

22 issue within the audit and assessment were not extended beyond the original three-year limit of

23 subsection A, the one-year extension for filing claims for refund is not justified under subsection

In the Matter of the Protest of Inner Works, page 16 of 22.
1 (D)(5). The 2012 claim for refund due by December 31, 2016, as required by Section 7-1-26

2 (D)(1) and since it was not delivered to the Department until January 27, 2017, it was late by 27

3 days.

4 Both 2009 and 2012 tax years.

5 To the credit of the protest office staff members working the case, the Department took

6 measures to informally address the issues raised by the Taxpayer in both of the tax years at issue.

7 Ultimately, the Department abated all the assessed taxes, penalties, and interest for the 2009 tax

8 reporting periods on June 24, 2016 [Exhibit J, Letter ID#L0274044464]. The Department abated

9 all the assessed taxes, penalties, and interest for the 2012 tax reporting periods on May 2, 2016

10 [Exhibit K1, Letter ID #L0484017712] and December 12, 2016 [Exhibit K2, Letter ID

11 #L1691128112]. At the time of the hearing, Taxpayer owed no taxes for 2009 and 2012.

12 Equitable tolling

13 The Taxpayer believes that the statute of limitations should be equitably tolled since there

14 were so many delays, changes in auditors, and mishandled documents. It is not clear that the

15 Administrative Hearings Office has authority to exercise the equitable remedy the Taxpayer

16 seeks. See NMSA 1978, Section 7-1B-1 to -9 (2015). See also AA Oilfield Serv. v. N.M. State

17 Corp. Comm’n, 1994-NMSC-085, ¶ 18, 118 N.M. 273 (holding that the quasi-judicial powers of

18 an administrative body did not empower it to grant equitable relief, such as estoppel, because the

19 authority is limited to making factual and legal determinations as authorized by the statute). See

20 Gzaskow v. Pub. Employees Ret. Bd., 2017-NMCA-064, ¶35 (recognizing AA Oilfield Serv. for

21 the proposition that an agency with quasi-judicial powers did not have authority to grant an

22 equitable remedy). Historically, the Administrative Hearings Office addresses all theories of

23 recovery and error presented. Some theories involve equitable considerations, but only as

In the Matter of the Protest of Inner Works, page 17 of 22.
1 determined by statute. See NMSA 1978, Section 7-1-28 (F) (equitable recoupment), Section 7-1-

2 17.1 (relief for an innocent spouse), Section 7-1-60 (estoppel).

3 Here, the relief of equitable tolling is not one which has been statutorily authorized under

4 the Tax Administration Act. See NMSA 1978, Section 7-1-1 to-83 (1965, as amended through

5 2018). Yet, the Hearing Officer’s role is that of the fact-finder. Part of the responsibility of fact-

6 finder is to make findings that support conclusions of law. Therefore, even if the Hearing

7 Officer is statutorily unable to grant the equitable relief requested, the next court of general

8 jurisdiction (Court of Appeals) may grant or deny the relief requested, based on findings made at

9 this initial fact-gathering level. “The Fourteenth Amendment guarantees every citizen the right to

10 procedural due process in state proceedings.” Reid v. New Mexico Board of Examiners in

11 Optometry, 1979–NMSC–005, ¶ 6, 92 N.M. 414, 589 P.2d 198 (internal quotation marks and

12 citation omitted). “Such proceedings must be administered by fair and impartial triers of fact

13 who are at a minimum ... disinterested and free from any form of bias or predisposition regarding

14 the outcome of the case.” Caranangelo v. Albuquerque-Bernalillo County Water Utility

15 Authority, 2014-NMCA-032, ¶ 64 (internal quotation marks omitted). “Triers of fact must

16 likewise be impartial and unconcerned in the result of the adjudication, and the rigidity of this

17 requirement applies more strictly to an administrative adjudication where many of the customary

18 safeguards affiliated with court proceedings have, in the interest of expedition and a supposed

19 administrative efficiency, been relaxed.” Id. (internal quotation marks omitted). “It is the sole

20 responsibility of the trier of fact to weigh the testimony, determine the credibility of the

21 witnesses, reconcile inconsistencies, and determine where the truth lies.” N.M. Taxation &

22 Revenue Dep’t v. Casias Trucking, 2014-NMCA-099, ¶ 23.

In the Matter of the Protest of Inner Works, page 18 of 22.
1 Federal courts have consistently rejected application of equitable tolling to tax refund

2 cases. In United States v. Brockamp, 519 U.S. 347 (1997), the United States Supreme Court

3 upheld strict enforcement of the three-year period for seeking federal tax refunds, even though

4 the taxpayer suffered from a mental disability that prevented him from filing a timely claim.

5 “Congress decided to pay the price of occasional unfairness in individual cases (penalizing a

6 taxpayer whose claim is unavoidably delayed) in order to maintain a more workable tax

7 enforcement system.” Id. at 352-353. Likewise, state courts reject the application of equitable

8 tolling in state tax cases. In DaimlerChrysler Corp. v. Commonwealth, 885 A.2d 117

9 (Pa.Cmwlth. 2005) the Pennsylvania court considered the case of an automobile manufacturer

10 who sought a refund of sales taxes paid on the sale of vehicles the manufacturer was

11 subsequently required to repurchase under the state’s lemon law. Because the repurchase

12 occurred after the three-year statute for obtaining refunds had expired, the manufacturer argued

13 that statute should be equitably tolled until the date the right to the refund first accrued. The court

14 disagreed, noting that statutes of limitation “are by definition arbitrary, and their operation does

15 not discriminate between the just and the unjust claim, or the voidable [sic] and unavoidable

16 delay.” Id. at 121, n.10. See also, Neer v. State ex rel. Oklahoma Tax Commission, 982 P.2d

17 1071 (Okla. 1999) (denying late-filed income tax refund based on credit for taxes paid to another

18 state, even though the right to the refund accrued after expiration of Oklahoma’s deadline for

19 claiming refunds); CIG Exploration, Inc. v. State, Dept. of Revenue, 880 P.2d 601 (Wyo. 1994)

20 (denying late-filed severance tax refund resulting from government’s order requiring taxpayer to

21 retroactively reduce its natural gas prices, even though order was entered after expiration of

22 Wyoming’s deadline for claiming refunds); American Smelting & Refining Co. v. State Tax

23 Commission, 397 P.2d 67 (Utah 1964) (denying late-filed corporate income tax refund resulting

In the Matter of the Protest of Inner Works, page 19 of 22.
1 from IRS adjustment, even though adjustment was made after expiration of Utah’s deadline for

2 claiming tax refund).

3 New Mexico courts have also applied a strict construction to statutes governing tax

4 refunds. In Kilmer, 2004-NMCA-122, ¶ 16, the New Mexico Court of Appeals noted that the

5 purpose of the deadlines set out in § 7-1-26 “is to avoid stale claims, which protects the

6 Department's ability to stabilize and predict, with some degree of certainty, the funds it collects

7 and manages.”

8 Equitable tolling allows a party to a lawsuit to extend the statute of limitations upon

9 showing that “the government did something which reasonably induced them to believe that the

10 statute of limitations was being tolled or had been extended.” Malonek v. United States, 923 F.

11 Supp. 1462, 1468 (1996). The evidence at hand does not contain any testimony, writings, or

12 other evidence that the Taxpayer received assurances from any of the various government

13 employees they worked with pertaining to an extended period of time within which they could

14 file a claim for refund. The doctrine of equitable tolling does not apply here. Despite

15 sympathizing with Taxpayer’s position as a small business navigating the maze of the state tax

16 code alone, controlling precedent dictates the outcome of this protest. For the stated reasons, the

17 Taxpayer’s protest is denied.

18 CONCLUSIONS OF LAW

19 A. Taxpayer filed a timely, written protest to the Department’s March 13, 2017 denials

20 of the claims for refund, and jurisdiction lies over the parties and the subject matter of this protest.

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

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

In the Matter of the Protest of Inner Works, page 20 of 22.
1 C. The application for refund of 2009 gross receipts tax, filed July 1, 2015 was

2 untimely under NMSA 1978, Section 7-1-26 (D)(1) (2015).

3 D. The application for refund of 2009 gross receipts tax, filed July 1, 2015, following

4 the Department’s assessment of taxes, was timely under Section 7-1-26 (D)(5) (2015).

5 E. The Department took no action to refund Taxpayer or deny the 2009 gross receipts

6 tax refund request within 120 days of the refund request, as required by Section 7-1-26 (B) (2015).

7 F. Taxpayer did not protest the inaction of the Department, or file a civil action within

8 210 days of filing the 2009 refund application, as required by Section 7-1-26 (C) (2015). See also

9 Kilmer v. Goodwin, 2004-NMCA-122.

10 G. The application for refund of 2012 gross receipts tax, filed January 27, 2017 was

11 untimely under NMSA 1978, Section 7-1-26 (D)(1) (2015).

12 For the foregoing reasons, the Taxpayer’s protest IS DENIED.

13 DATED: March 18, 2019.

14
15 Ignacio V. Gallegos
16 Hearing Officer
17 Administrative Hearings Office
18 Post Office Box 6400
19 Santa Fe, NM 87502

20 NOTICE OF RIGHT TO APPEAL

21 Pursuant to NMSA 1978, Section 7-1-25 (2015), the parties have the right to appeal this

22 decision by filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the

In the Matter of the Protest of Inner Works, page 21 of 22.
1 date shown above. If an appeal is not timely filed with the Court of Appeals within 30 days, this

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

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

4 Either party filing an appeal shall file a courtesy copy of the appeal with the Administrative

5 Hearings Office contemporaneous with the Court of Appeals filing so that the Administrative

6 Hearings Office may begin preparing the record proper. The parties will each be provided with a

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

8 which occurs within 14 days of the Administrative Hearings Office receipt of the docketing

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

10 CERTIFICATE OF SERVICE

11 On March 18, 2019, a copy of the foregoing Decision and Order was submitted to the

12 parties listed below in the following manner:

13 First Class Mail Interdepartmental Mail

14 INTENTIONALLY OMITTED
15 John Griego
16 Legal Assistant
17 Administrative Hearings Office
18 P.O. Box 6400
19 Santa Fe, NM 87502

In the Matter of the Protest of Inner Works, page 22 of 22.