Does a food-delivery driver in New Mexico owe gross receipts tax on delivery fees and tips, and does the state's delay in scheduling a hearing wipe out the bill?

Plain-English summary

Ronald Duncan worked as an independent contractor delivering restaurant meals for Delivered Dish, Inc. (a company later acquired by Grubhub). In October 2018 the New Mexico Taxation and Revenue Department assessed him $3,114.85 — $2,343.59 in gross receipts tax, $468.72 in penalty, and $302.54 in interest — for 2014 and 2015. The assessment came from a "Schedule C mismatch," meaning the income he reported to the IRS on his federal Schedule C did not line up with what he reported on his New Mexico gross receipts (CRS-1) returns.

The Administrative Hearings Office granted his protest in part and denied it in part. The one thing he won on: tips are gratuities, not gross receipts. New Mexico's own regulation says a tip "is not gross receipts," so the hearing officer excluded the $5,567.17 in cash tips Duncan could document for 2014 (proven by subtracting the $7,354.83 his pay company reported from the $12,922 he reported on his Schedule C).

Everything else was denied. He had no records to compute his 2015 tips, so that year's presumption of taxability stood. His delivery fees were taxable gross receipts — money earned performing services in New Mexico — and he pointed to no deduction, exemption, or exclusion that applied. His fallback arguments (equitable recoupment, i.e. that Delivered Dish or Grubhub might have already paid the tax) failed for lack of evidence.

Duncan's biggest argument was that the Department took too long: it waited 774 days after acknowledging his protest before asking for a hearing, blowing past the 45-day request deadline and the 90-day hearing deadline by almost two years. The hearing officer was sympathetic but held that under settled New Mexico law the tardiness of government officers is not a defense to a tax assessment, and the 2019 amendment that lets a hearing officer halt interest for a late hearing request could not be applied retroactively to a protest already pending when that law took effect. Interest (§7-1-67) and the negligence penalty (§7-1-69) were upheld.

What this means for you

Gig and delivery drivers (independent contractors)

If you drive for a delivery app or courier service in New Mexico as an independent contractor, the fees you earn for performing that service are gross receipts and are presumed taxable — even if a platform collects and remits tax on the food itself. Reporting the income on a federal Schedule C without matching gross receipts returns is exactly the "Schedule C mismatch" that triggered this assessment. Your tips are not taxable, but you have to be able to prove how much of your money was tips; here the driver won on 2014 only because he had documents that let him back out the tip amount, and lost 2015 because he did not.

People whose protest has been sitting for years

A long delay by the Department feels like it should help you, and the 2019 Legislature did add a remedy — a hearing officer can now order that interest stop accruing if the Department fails to request a hearing on time. But two limits bite hard: that remedy only halts interest (it does not cancel the tax or penalty), and it does not reach back to protests that were already pending before June 14, 2019. If your protest predates that date, a late hearing request buys you nothing. And in every case, letting your records lapse because "nothing was happening" only hurts you — the duty to keep records continues until the Department releases you from it in writing.

Accountants and tax professionals

The decision is a clean statement of the burden framework: the assessment (including penalty and interest) is presumed correct under §7-1-17(C), receipts are presumed taxable under §7-9-5, and deductions/exemptions are construed strictly against the taxpayer and must be clearly established (Wing Pawn Shop). The hearing officer will not comb the record to build a deduction the taxpayer did not articulate. Note the tip mechanics under Regulation 3.2.1.18(R)(2): a documented tip is excluded, but the taxpayer must supply the arithmetic. And note the retroactivity analysis on §7-1B-8(E) — prospective-only under §12-2A-8, reinforced by the pending-case protection in Article IV, Section 34 of the New Mexico Constitution.

Common questions

Q: Do food-delivery drivers owe gross receipts tax in New Mexico?
A: Yes on their service fees. Money earned performing delivery services in New Mexico is gross receipts and is presumed taxable unless a specific deduction or exemption applies. Reporting the income on a federal Schedule C but not on New Mexico gross receipts returns is what produced this assessment.

Q: Are tips subject to gross receipts tax?
A: No. New Mexico regulation 3.2.1.18(R)(2) says a tip is a gratuity and "is not gross receipts." But the taxpayer carries the burden to prove how much of the money was tips; the driver here won that exclusion for 2014, where he had records, and lost it for 2015, where he did not.

Q: The state took almost two years to schedule my hearing. Doesn't that cancel my bill?
A: No. New Mexico courts have long held that the tardiness of public officers is not a defense to a tax assessment. A 2019 amendment lets a hearing officer stop interest from accruing when the Department requests a hearing late, but it only halts interest — not the tax or penalty — and it does not apply to protests that were already pending before it took effect.

Q: What records should a contractor keep?
A: Enough to compute your own tax — gross receipts returns, federal returns and schedules, profit-and-loss statements, and documentation separating tips from taxable fees. The duty to keep records continues until the Department tells you in writing that you may stop, even if your protest seems dormant.

Q: Does this decision apply to my situation?
A: Not automatically. A Decision and Order resolves one taxpayer's protest on its specific facts and the law in effect at the time. It shows how the Administrative Hearings Office reasons, but it binds only the parties to that protest, and your facts may differ.

Citations and references

Statutes, rules, and constitution:

• NMSA 1978, § 7-9-4 (2002) — imposition of gross receipts tax
• NMSA 1978, § 7-9-3.5(A)(1) (2007) — definition of gross receipts
• NMSA 1978, § 7-9-5 (2002) — presumption of taxability
• NMSA 1978, § 7-1-17(C) (2007) — assessment presumed correct
• NMSA 1978, § 7-1-10 (2007) — taxpayer recordkeeping duty
• NMSA 1978, § 7-1-67 (2007) — interest on unpaid tax
• NMSA 1978, § 7-1-69 (2007) — civil negligence penalty
• NMSA 1978, § 7-1B-8(A), (E) (2015, amended 2019) — time to request/hold a hearing; halting interest accrual
• NMSA 1978, § 7-1-28(F) (2013) — equitable recoupment
• NMSA 1978, § 12-2A-8 (1997) — statutes operate prospectively
• N.M. Const. art. IV, § 34 — no legislative act affecting a pending case
• Regulation 3.2.1.18(R)(2) NMAC — tips are gratuities, not gross receipts

Cases cited:

• Ranchers-Tufco Limestone Project Joint Venture v. Revenue Div., 1983-NMCA-126 (tardiness of public officers not a defense)
• Kmart Properties, Inc. v. Taxation & Revenue Dep't, 2006-NMCA-026 (tax deadlines not jurisdictional)
• MPC Ltd. v. N.M. Taxation & Revenue Dep't, 2003-NMCA-021 (burden-shifting)
• N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-NMCA-099 (taxpayer's burden)
• Wing Pawn Shop v. Taxation & Revenue Dep't, 1991-NMCA-024 (deductions construed strictly)
• Teco Invs., Inc. v. Taxation & Revenue Dep't, 1998-NMCA-055 (equitable recoupment elements)
• City of Carlsbad v. Grace, 1998-NMCA-144 (purpose of equitable recoupment)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Ronald Duncan
• Decision PDF: D&O 21-17

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 RONALD J. DUNCAN
6 TO ASSESSMENT ISSUED UNDER
7 LETTER ID NO. L1526243504

8 v. Case Number 21.03-015A, D&O # 21-17

9 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

10 DECISION AND ORDER

11 On June 4, 2021, Hearing Officer Chris Romero, Esq., conducted a hearing on the merits

12 in the matter of the protest of Ronald J. Duncan (“Taxpayer”) pursuant to the Tax Administration

13 Act and the Administrative Hearings Office Act. Mr. Manny Talwar, Esq. appeared representing

14 and accompanied by Taxpayer. Mr. Timothy Williams, Esq. appeared on behalf of the opposing

15 party in the protest, the Taxation and Revenue Department (“Department”) accompanied by Mr.

16 Nicholas Pacheco, protest auditor. Mr. Duncan testified on his own behalf. Mr. Pacheco testified

17 for the Department.

18 The hearing occurred by videoconference pursuant to NMSA 1978, Section 7-1B-8 (H)

19 under the circumstances of the ongoing public health emergency presented by COVID-19, as

20 discussed in greater detail in Standing Order 20-02, which is made part of the record of the

21 proceeding.

22 Taxpayer Exhibits 1, 3, 4, 10, and 11 were proffered and admitted without objection.

23 Taxpayer Exhibits 5, 6, 8, 9 and 12 were admitted over the Department’s objections. Taxpayer

24 Exhibit 7 was not admitted as an evidentiary exhibit but was administratively noticed as a prior

In the Matter of the Protest of Ronald J. Duncan
Page 1 of 23
1 Decision and Order of the Administrative Hearings Office. 1 The Department did not proffer

2 any exhibits nor reference any documents that were not already contained in the

3 administrative file for which the Hearing Officer took administrative notice.

4 The primary issues presented for consideration were whether: (1) Taxpayer’s

5 income from performing dining delivery services was taxable as gross receipts under the

6 Gross Receipts and Compensating Tax Act; (2) if so, whether any portion of such income

7 was deductible, exemptible, or excludable from gross receipts; (3) whether Taxpayer’s

8 records were sufficient to prove entitlement to a deduction, exemption, or exclusion from

9 gross receipts; (4) and whether Taxpayer should be afforded relief from the assessment due

10 to the Department’s delay in requesting a hearing.

11 As explained in greater detail in the following discussion, the Hearing Officer

12 determined, with exception for cash gratuities derived in 2014, that Taxpayer failed to

13 establish by a preponderance of evidence that receipts derived from dining delivery services

14 were deductible, exemptible, or excludable from gross receipts. Moreover, the Hearing

15 Officer also determined that Taxpayer was not entitled to further relief due to the

16 Department’s delay in requesting a hearing. IT IS DECIDED AND ORDERED AS

17 FOLLOWS:

18 FINDINGS OF FACT

19 1. On October 12, 2018, the Department issued a Notice of Assessment of

20 Taxes and Demand for Payment under Letter ID No. L1526243504 (“Assessment”) in the

21 total amount of $3,114.85. The total amount due was comprised of $2,343.59 in gross

22 receipts tax, $468.72 in penalty, and $302.54 in interest for the periods from January 1,

1
See In the Matter of the Protest of Luscous Music, Administrative Hearings Office D&O No. 16-27 (6/17/2016)
(non-precedential)

In the Matter of the Protest of Ronald J. Duncan
Page 2 of 23
1 2014, to December 31, 2015. [Administrative File]

2 2. On December 28, 2018, Taxpayer submitted a protest of the Assessment

3 to the Department’s protest office. [Administrative File; Taxpayer Ex. 3; Direct Examination of

4 Mr. Duncan]

5 3. On January 28, 2019, the Department acknowledged the receipt of Taxpayer’s

6 protest under Letter ID No. L0808425648. [Administrative File; Taxpayer Ex. 1; Direct

7 Examination of Mr. Duncan]

8 4. The protest acknowledgment letter under Letter ID No. L0808425648 provided as

9 follows:

10 If the department does not agree with your position or has not
11 received. documentation to substantiate your position, then a
12 formal hearing will be requested within 45 days of this letter with
13 the Administrative Hearings Office.

14 5. Mr. Duncan believed and asserted that the failure to request a hearing of the

15 Administrative Hearings Office within 45 days of the protest acknowledgment letter, under

16 Letter ID No. L0808425648, signified that the Department had conceded in full or in part to

17 Taxpayer’s position. [Taxpayer Ex. 3; Direct Examination of Mr. Duncan]

18 6. Despite the belief that the Department’s failure to request a hearing within the

19 timeframes stated signified some concession, Mr. Duncan acknowledged that even under the

20 most favorable circumstances, some gross receipts tax would still be due and owing. [Cross

21 Examination of Mr. Duncan; Taxpayer Ex. 3]

22 7. Taxpayer acknowledged reading the following notice provided in the protest

23 acknowledgment letter under Letter ID No. L0808425648:

24 Please be advised that interest on any amount of tax determined to
25 be due at the conclusion of your protest will continue to accrue
26 until such tax is paid. Interest accrues daily on the unpaid principal
27 of tax due. The interest rate can change on a quarterly basis. The

In the Matter of the Protest of Ronald J. Duncan
Page 3 of 23
1 effective annual and daily interest rates are posted on the
2 Department’s web page at www.tax.newmexico.gov or can be
3 obtained by contacting the Department. If applicable, penalty will
4 continue to accrue at a rate of 2% per month or· part of a month (to
5 a maximum of 20%) on the principal amount of tax due until such
6 tax is paid. You may make payment of protested tax principal to
7 stop the accrual of penalty and interest.

8 8. Mr. Duncan did not make any additional efforts to follow-up on the status

9 of his protest after March 14, 2019. [Cross Examination of Mr. Duncan]

10 9. The Hearing Officer took administrative notice that 45 calendar days from

11 January 28, 2019, is March 14, 2019.

12 10. On March 12, 2021, the Department submitted a Hearing Request seeking

13 a scheduling hearing on Taxpayer’s protest. A copy of the Hearing Request was copied to

14 Taxpayer and included New Mexico Taxation and Revenue Department’s Answer to

15 Protest. [Administrative File]

16 11. Taxpayer perceived the Hearing Request as an attempt to pursue the

17 alleged tax liability beyond the permissible periods of time, nearly two years after the

18 Department acknowledged the protest under Letter ID No. L0808425648. [Direct

19 Examination of Mr. Duncan]

20 12. On March 15, 2021, the Administrative Hearings Office entered a Notice

21 of Telephonic Scheduling Hearing that set an initial scheduling hearing to occur on April

22 9, 2021. [Administrative File]

23 13. On April 9, 2021, the Administrative Hearings Office conducted an initial

24 scheduling hearing at which time Taxpayer objected that the hearing would satisfy the

25 90-day hearing requirement of NMSA 1978, Section 7-1B-8 (A). A duration of 28 days

26 elapsed from the date on which the Administrative Hearings Office received the

27 Department’s Hearing Request, on March 12, 2021, until the hearing conducted on April

In the Matter of the Protest of Ronald J. Duncan
Page 4 of 23
1 9, 2021. [Administrative File]

2 14. On April 9, 2021, the Administrative Hearings Office entered a Scheduling Order

3 and Notice of Remote Video Administrative Hearing which set a hearing on the merits of

4 Taxpayer’s protest for May 17, 2021. [Administrative File]

5 15. On April 23, 2021, the Department filed New Mexico Taxation and Revenue

6 Department’s Preliminary Witness and Exhibit List. [Administrative File]

7 16. On May 13, 2021, Taxpayer, by and through Mr. Manny S. Talwar, Esq. (Hurley,

8 Toevs, Styles, Hamblin & Panter, P.A.) filed a Joint Motion to Vacate Merits Hearing and

9 Schedule Status Conference. The motion represented Mr. Talwar’s initial entry of appearance in

10 the protest. [Administrative File]

11 17. A remote video hearing was initiated on May 17, 2021. Upon inquiry of the

12 Hearing Officer, Taxpayer expressed his objection that the hearing would satisfy the 90-day

13 hearing requirement of NMSA 1978, Section 7-1B-8 (A). A duration of 66 days elapsed from the

14 date on which the Administrative Hearings Office received the Department’s Hearing Request,

15 on March 12, 2021, until the hearing conducted on May 17, 2021. [Record of Hearing (May 17,

16 2021)].

17 18. On May 17, 2021, the Administrative Hearings Office entered an Order

18 Continuing Hearing, Scheduling Order and Notice of Remote Video Administrative Hearing

19 which continued the hearing on the merits of Taxpayer’s protest to June 4, 2021. [Administrative

20 File]

21 19. A duration of 84 days elapsed from the date on which the Administrative

22 Hearings Office received the Department’s Hearing Request, on March 12, 2021, until the

23 hearing on the merits of Taxpayer’s protest was conducted and concluded on June 4, 2021.

In the Matter of the Protest of Ronald J. Duncan
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1 20. The Assessment central to Taxpayer’s protest derived from a Schedule C

2 Mismatch which occurs when the income reported on a taxpayer’s Schedule C fails to

3 correlate with the receipts reported on the taxpayer’s corresponding New Mexico CRS-1

4 return. [Direct Examination of Mr. Pacheco]

5 21. During the years in protest, Mr. Ronald J. Duncan derived income as an

6 independent contractor performing dining courier services for Delivered Dish Inc. [Direct

7 Examination of Mr. Duncan]

8 22. Receipts in the years in protest derived from a combination of delivery

9 fees and gratuities. [Direct Examination of Mr. Duncan]

10 23. All gratuities were paid in cash in 2014. [Direct Examination of Mr.

11 Duncan]

12 24. In 2015, gratuities were paid in cash or through the credit card transaction

13 which would then be remitted to Taxpayer by Delivered Dish, Inc. through a third-party

14 entity called Delivery Drivers, Inc. [Direct Examination of Mr. Duncan]

15 25. In 2014, Taxpayer reported $12,922.00 in gross income on his 2014 Form

16 1040, Schedule C. The amount of $12,922.00 represented the sum of the total income

17 reported by Delivery Driver, Inc. on Taxpayer’s 2014 Profit & Loss Statement (Taxpayer

18 Ex. 5) and cash tips. [Direct Examination of Mr. Duncan]

19 26. The amount of Taxpayer’s cash gratuities in that year may be derived by

20 computing the difference between his reported income of $12,922.00 and the total

21 income reported by Delivery Drivers, Inc. of $7,354.83. The difference establishes a total

22 sum of cash gratuities of $5,567.17. [Taxpayer Ex. 4; Taxpayer Ex. 5; Direct

23 Examination of Mr. Duncan]

In the Matter of the Protest of Ronald J. Duncan
Page 6 of 23
1 27. Taxpayer did not proffer records sufficient to compute gratuities in 2015, whether

2 derived from cash or other forms of remuneration (in a manner similar to the method employed

3 for computing gratuities in 2014). [Cross Examination of Mr. Duncan; Taxpayer Ex. 5]

4 28. Delivered Dish, Inc. was acquired by Grubhub, Inc. in the latter part of 2015.

5 [Taxpayer Ex. 6; Direct Examination of Mr. Duncan]

6 29. The acquisition of Delivered Dish, Inc. by Grubhub, Inc. has resulted in

7 significant difficulty in obtaining records which could have been helpful to evaluating the issues

8 in dispute, or establishing the amount of taxable and untaxable receipts in the years subject of the

9 Assessment. [Direct Examination of Mr. Duncan]

10 30. Taxpayer attempted to acquire records and other useful information from

11 Grubhub, Inc. in December of 2018, including a non-taxable transaction certificate (NTTC),

12 correspondence from Grubhub, Inc. explaining that it paid taxes on Taxpayer’s transactions, or a

13 TS-22. 2 [Taxpayer Ex. 8; Direct Examination of Mr. Duncan; Cross Examination of Mr.

14 Duncan]

15 31. Taxpayer also contacted a former owner of Delivered Dish, Inc. in December of

16 2018, in which Taxpayer made a similar request for records. The owner informed Taxpayer that

17 he could not assist since he was no longer affiliated with, or employed by Delivered Dish, Inc.,

18 and referred Taxpayer to Grubhub, Inc. [Taxpayer Ex. 11; Direct Examination of Mr. Duncan]

19 32. Grubhub, Inc. did not provide any meaningful response from December of 2018

20 until the time of the hearing. [Taxpayer Ex. 8; Direct Examination of Mr. Duncan; Cross

21 Examination of Mr. Duncan]

22 33. Follow-up efforts to acquire records from Grubhub, Inc. from December of 2018

2
Form TS-22DS, also known as TS-22 is an Agreement to Collect and Pay Over Taxes. It may be used when one
taxpayer applies to the Department to pay gross receipts tax on behalf of another taxpayer.

In the Matter of the Protest of Ronald J. Duncan
Page 7 of 23
1 through the date of the hearing were minimal due, at least in part, to Taxpayer’s

2 perception that the Assessment and the resulting protest had become stale due to the

3 Department’s delay. [Cross Examination of Mr. Duncan]

4 34. In similar fashion to the invoice admitted as Taxpayer Ex. 9, Delivered

5 Dish, Inc. and Grubhub, Inc. typically charged customers for the items purchased, a

6 delivery fee, and gross receipts tax on the total items purchased and the delivery fee.

7 Although a gratuity may be included as well, the gross receipts tax is computed as a

8 percentage of the items sold and the delivery fee only. [Taxpayer Ex. 9; Direct

9 Examination of Mr. Duncan]

10 35. Taxpayer did not proffer or possess at the time of the hearing a copy of

11 any contracts he had with Delivered Dish, Inc. or Grubhub, Inc. [Cross Examination of

12 Mr. Duncan]

13 36. Taxpayer is not privy to any New Mexico state tax liabilities incurred,

14 reported, and paid by Delivered Dish, Inc. or Grubhub, Inc. during any periods of time

15 from 2014 through the date of the hearing. [Cross Examination of Mr. Duncan]

16 37. Mr. Nicholas Pacheco has been employed by the Department for 20 years

17 as of the date of the hearing, six of which have been in his current position as a protest

18 auditor. [Direct Examination of Mr. Pacheco]

19 38. Taxpayer had a responsibility to maintain records sufficient for computing

20 his tax liability. [Direct Examination of Mr. Pacheco]

21 39. Prior to the hearing, Taxpayer did not provide any records that Mr.

22 Pacheco perceived as reliable for computing Taxpayer’s gross receipts tax liability during

23 the years subject of the Assessment. [Direct Examination of Mr. Pacheco]

In the Matter of the Protest of Ronald J. Duncan
Page 8 of 23
1 DISCUSSION

2 The primary issues in dispute are whether the Department erroneously assessed gross

3 receipts tax on receipts, including gratuities, derived from performing dining delivery services on

4 behalf of Delivered Dish, Inc. Taxpayer did not contest the assessment of interest or penalty. The

5 Department, although not necessarily disputing Taxpayer’s construction of the law, asserts that

6 Taxpayer’s records are simply insufficient for more precisely computing Taxpayer’s gross receipts

7 tax liability.

8 As part of the evaluation, the Hearing Officer is also called upon to consider the

9 consequences of the Department’s failure to request a hearing within the time limits in effect when

10 the Department acknowledged Taxpayer’s protest. As a preliminary issue, the Hearing Officer will

11 address Taxpayer’s claim that he should be afforded relief from the Assessment by virtue of the

12 Department’s undisputed failure to make a timely hearing request.

13 Failure to Make a Timely Request for Hearing

14 By the time the Administrative Hearings Office initially acquired awareness of this

15 protest, upon the Department filing its Hearing Request on March 12, 2021, Taxpayer’s protest

16 had been pending more than two years.

17 Mr. Duncan explained that the delay had caused him significant prejudice. He believed

18 that the apparent lack of activity on his protest suggested that the Department had conceded to

19 his position. For that reason, he mostly deserted any and all efforts to gather additional records

20 which could have been useful for computing his gross receipts tax liability for the years relevant

21 to the protest.

22 Yet, despite the Hearing Officer’s genuine empathy, Taxpayer was always obligated to

23 maintain records under NMSA 1978, Section 7-1-10. Apparent inactivity, in the absence of some

In the Matter of the Protest of Ronald J. Duncan
Page 9 of 23
1 explicit declaration from the Department that the issues in dispute had been narrowed or

2 resolved, failed to justify or excuse Taxpayer’s failure to retain or obtain documents that could

3 have been relevant to his protest. See Regulation 3.1.5.15 (I) NMAC (requiring that all records

4 maintained under Section 7-1-10 continue to be preserved unless the Department has provided in

5 writing that the records are no longer required). In fact, the delay, although unwarranted, could

6 have easily been used for Taxpayer’s benefit. He had more than two years to assemble records he

7 did not already possess which could have been helpful to his position, especially when

8 considering that the burden rests on a taxpayer to overcome the presumption of correctness

9 which will be discussed in greater detail in the subsequent section. See NMSA 1978, Section 7-

10 1-17 (C) (2007)

11 Although the Hearing Officer is unpersuaded that the delay was prejudicial, the Hearing

12 Officer will go on to consider whether if even in the absence of prejudice, the Department’s failure

13 to make a timely hearing request still affords Taxpayer relief from the underlying Assessment. The

14 statute in effect at the time required that “[w]ithin forty-five days after receipt of a protest … that

15 has not been resolved, the taxation and revenue department shall request from the administrative

16 hearings office a hearing[.]” See Section 7-1B-8 (A) (2015) (amended 2019). The Administrative

17 Hearings Office then had approximately 45 additional days in which to hold a hearing, or a total of

18 90 days from the date of the protest being filed. See Section 7-1B-8 (A) (2015) (amended 2019).

19 A review of the administrative file illustrates that the Department filed its Hearing Request

20 with the Administrative Hearings Office on March 12, 2021, representing 774 days from the date it

21 initially acknowledged Taxpayer’s protest of the Assessment on January 28, 2019. By this date, not

22 only had the deadline to request a hearing lapsed, but the 90-day deadline to hold the hearing had

23 also passed by approximately 22 months.

In the Matter of the Protest of Ronald J. Duncan
Page 10 of 23
1 For this reason, and in addition to Taxpayer’s claim of prejudice, Taxpayer suggested that

2 the Assessment should be dismissed or his protest granted because of the Department’s untimeliness

3 in requesting a hearing. Taxpayer did not cite any authority for the proposition that his protest could

4 be granted on such grounds.

5 Taxpayer’s position on this issue is not new. Other taxpayers have previously asserted the

6 Department’s purported denial of the statutory right to a prompt hearing should afford relief from

7 the assessment. See Ranchers-Tufco Limestone Project Joint Venture v. Revenue Div., 1983-

8 NMCA-126, ¶ 12, 100 N.M. 632. However, the Court of Appeals in that case concluded that the

9 tardiness of public officers in performing their duties is not a defense to an action by the state.

10 This has represented the general rule of New Mexico for almost four decades and “is applicable

11 in these cases unless [the statute] makes it inapplicable.” See Ranchers-Tufco, 1983-NMCA-

12 126, ¶ 13.

13 In another example, a taxpayer argued that the failure of a hearing officer to render a

14 decision in 30 days, as required by statute, divested the hearing officer of jurisdiction. See

15 Kmart Properties, Inc. v. Taxation and Revenue Dep’t., 2006-NMCA-026, ¶ 53, 139 N.M. 177.

16 The court found that the tax statutory deadline was not jurisdictional because of the general

17 tardiness rule and the heavy statutory presumption of correctness that favors the Department.

18 See Kmart, 2006-NMCA-026, ¶ 54; See also NMSA 1978, Section 7-1-17 (C) (“Any assessment

19 of taxes or demand for payment made by the department is presumed to be correct.”)

20 Although the Department’s failure to file a request for hearing within the prescribed

21 timeframe contradicted the statute, the relief sought by Taxpayer is simply not available under the

22 law. See NMSA 1978, Section 7-1B-8 (2015) and (2019).

In the Matter of the Protest of Ronald J. Duncan
Page 11 of 23
1 The Hearing Officer also considered whether Taxpayer could still be afforded partial

2 relief under the Assessment by virtue of a 2019 amendment to the Administrative Hearings

3 Office Act. Section 7-1B-8 (E) was amended in 2019 to permit a hearing officer to order that no

4 further interest accrue on a protested liability if the hearing officer found that the Department

5 failed to make a timely hearing request. See NMSA 1978, Section 7-1B-8 (E) (2019). No such

6 authority existed prior to the effective date of the 2019 enactment. Taxpayer did not necessarily

7 argue that the 2019 amendment should be retrospectively applied to the facts of Taxpayer’s

8 protest, even for the purpose of halting the accrual of interest, but the Hearing Officer

9 nevertheless contemplated whether it could apply. See Regulation 22.600.3.18 (E) NMAC

10 (providing that the issue of whether accrual of interest should be halted may be considered upon

11 the Hearing Officer’s own initiative).

12 First, the Hearing Officer observed that the amendment permitting for the accrual of

13 interest to be halted was not effective until June 14, 2019 which was after the Assessment,

14 resulting protest, and acknowledgment of protest. Conversely stated, the protest was already

15 pending at the time the amendment was enacted, even if a hearing had not yet been requested of

16 the Administrative Hearings Office. Hence, in order for the 2019 amendment to apply to the

17 facts of this protest, it would need to be applied retrospectively.

18 Second, although Taxpayer does not necessarily make such argument, any argument that

19 the statute should be applied retrospectively would need to overcome the presumption that “[a]

20 statute or rule operates prospectively only unless the statute or rule expressly provides otherwise

21 or its context requires that it operate retrospectively.” See NMSA 1978, Section 12-2A-8 (1997).

22 The 2019 amendment provides no such expression of intent, nor can retrospectivity be fluently

23 derived from its context. See 2019 N.M. Laws 157.

In the Matter of the Protest of Ronald J. Duncan
Page 12 of 23
1 Third, the Hearing Officer is not inclined to favor a construction of the 2019 amendment

2 that could potentially offend Article IV, Section 34 of the New Mexico Constitution which

3 provides that, “[n]o act of the legislature shall affect the right or remedy of either party, or

4 change the rules of evidence or procedure, in any pending case.” Under the circumstances of this

5 protest, the Hearing Officer perceives the retroactive application of Section 7-1B-8 (E) (2019) as

6 affecting the rights or remedies of either party as well as changing the rules of procedure

7 governing the protest at the time it was initiated. For these reasons, the Hearing Officer declines

8 to apply Section 7-1B-8 (E) retrospectively. Therefore, the Hearing Officer is without authority

9 to halt the accrual of interest in this protest as permitted by the 2019 amendment to the

10 Administrative Hearings Office Act.

11 Therefore, the law governing this protest does not permit any relief from the Assessment

12 arising solely from the Department’s failure to make a timely request for hearing. To find

13 otherwise would undermine the statutory presumption of correctness under Section 7-1-17 (C),

14 the presumption of taxability under Section 7-9-5, and contradict the general policy of our courts

15 that cases should be decided on their merits. See e.g. Gengler v. Phelps, 1976-NMCA-114, ¶ 20,

16 89 N.M. 793, 797, 558 P.2d 62, 66 (The general policy of New Mexico courts favors deciding

17 cases on their merits).

18 Presumption of Correctness

19 Pursuant to NMSA 1978, Section 7-1-17 (C) (2007), the Assessment of tax issued in this

20 case is presumed correct and unless otherwise specified, for the purposes of the Tax

21 Administration Act, “tax” includes interest and civil penalty. See NMSA 1978, Section 7-1-3 (X)

22 (2013). Therefore, under Regulation 3.1.6.13 NMAC, the presumption of correctness under

23 Section 7-1-17 (C) also extends to the Department’s assessment of penalty and interest. See

In the Matter of the Protest of Ronald J. Duncan
Page 13 of 23
1 Chevron U.S.A., Inc. v. State ex rel. Dep’t of Taxation & Revenue, 2006-NMCA-050, ¶16, 139

2 N.M. 498, 134 P.3d 785 (agency regulations interpreting a statute are presumed proper and are to be

3 given substantial weight).

4 As a result, the presumption of correctness in favor of the Department requires that

5 Taxpayer carry the burden of presenting countervailing evidence or legal argument to show that

6 he is entitled to abatement of the Assessment. See N.M. Taxation & Revenue Dep’t v. Casias

7 Trucking, 2014-NMCA-099, ¶8, 336 P.3d 436. “Unsubstantiated statements that [an] assessment

8 is incorrect cannot overcome the presumption of correctness.” See MPC Ltd. v. N.M. Taxation &

9 Revenue Dep’t, 2003-NMCA-021, ¶13, 133 N.M. 217, 62 P.3d 308; See also Regulation 3.1.6.12

10 NMAC. If a taxpayer presents sufficient evidence to rebut the presumption, then the burden

11 shifts to the Department to re-establish the correctness of the assessment. See MPC, 2003-

12 NMCA-021, ¶13.

13 In circumstances where a taxpayer’s claim for relief relies on the application of an

14 exemption or deduction, “the statute must be construed strictly in favor of the taxing authority,

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

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

17 Taxation and Revenue Department, 1991-NMCA-024, ¶16, 111 N.M. 735, 809 P.2d 649

18 (internal citation omitted); See also TPL, Inc. v. N.M. Taxation & Revenue Dep’t, 2003-NMSC-

19 007, ¶9, 133 N.M. 447, 64 P.3d 474.

20 Computing Taxable Gross Receipts

21 As a practical matter, one of the initial steps in any audit is to compute or verify the amount

22 of gross receipts. A subsequent step is to subtract from the taxpayer’s total gross receipts those

23 amounts which are deductible or exempt or even excludable from the definition of gross receipts,

In the Matter of the Protest of Ronald J. Duncan
Page 14 of 23
1 assuming excludable receipts were erroneously included in the computation. The difference

2 between total gross receipts and any applicable deductions or exemptions, or less any amounts that

3 should be excluded, is the amount of taxable gross receipts.

4 For the privilege of engaging in business, New Mexico imposes a gross receipts tax on the

5 receipts of any person engaged in business. See NMSA 1978, Section 7-9-4 (2002). Under

6 NMSA 1978, Section 7-9-3.5 (A) (1) (2007), “gross receipts” is defined to mean:

7 the total amount of money or the value of other consideration
8 received from selling property in New Mexico, from leasing or
9 licensing property employed in New Mexico, from granting a right to
10 use a franchise employed in New Mexico, from selling services
11 performed outside New Mexico, the product of which is initially
12 used in New Mexico, or from performing services in New Mexico.

13 Accordingly, under the Gross Receipts and Compensating Tax Act, all gross receipts of a

14 person engaged in business are presumed taxable. See NMSA 1978, Section 7-9-5 (2002).

15 But, as previously stated, a taxpayer’s actual obligation may be affected by any number

16 of applicable deductions or exemptions, or by presenting evidence that its receipts are excludable

17 from taxation under NMSA 1978, Section 7-9-3.5.

18 The evidence in this case established that the sources of Taxpayer’s receipts from

19 performing dining delivery services derived primarily from two sources for each transaction. The

20 first source may be categorized as gratuities consistent with the Department’s definition at

21 Regulation 3.2.1.18 (R) (2) NMAC. The second source may be categorized as delivery fees.

22 Gratuities

23 Regulation 3.2.1.18 (R) (2) NMAC provides that “[a] tip is a gratuity offered to service

24 personnel to acknowledge service given. An amount added to a bill by the customer as a tip is a tip.

25 Because the tip is a gratuity, it is not gross receipts.” (Emphasis Added)

In the Matter of the Protest of Ronald J. Duncan
Page 15 of 23
1 It is undisputed among the parties to this protest that gratuities are not gross receipts and,

2 in this case, Taxpayer received gratuities in each of the years subject of the protest. The primary

3 area of disagreement with respect for gratuities concentrates on how the amount of gratuities can

4 be accurately computed.

5 To establish the amount of cash gratuities in 2014, Taxpayer proffered his 2014 Form

6 1040, Schedule C (Part I) (Taxpayer Ex. 4) indicating that his gross income from providing

7 dining delivery services was $12,922. Taxpayer also proffered his 2014 P&L Statement

8 (Taxpayer Ex. 5) which established that Taxpayer’s total non-cash income from providing dining

9 delivery services was $7,354.83. Taxpayer then credibly testified that the sum of his 2014 cash

10 gratuities was represented by the difference between the gross income as listed on his Schedule

11 C (Part I) and his total income as listed on the 2014 P&L Statement ($12,922 - $7,354.83 =

12 $5,567.17). Finding Taxpayer’s testimony to be credible, and Taxpayer Exhibits 4 and 5 to be

13 reliable and trustworthy, the Hearing Officer agreed that Taxpayer derived $5,567.17 in cash

14 gratuities in 2014 and that the Assessment should be adjusted accordingly, to exclude that

15 amount from his gross receipts in 2014.

16 In reference to 2015, Taxpayer acknowledged that he did not have sufficient documents

17 to establish what portion of his receipts in 2015 constituted gratuities. He attributed the

18 deficiency to a change in methods employed by Delivered Dish, Inc. to pay its contractors.

19 The Hearing Officer agreed that the documents for 2015, unlike 2014, did not enable

20 Taxpayer, the Department, or the Hearing Officer to extract non-taxable receipts from taxable

21 receipts. For example, unlike for 2014, Taxpayer did not proffer his 2015 Form 1040 or Schedule

22 C which precluded the Hearing Officer from employing a computation similar to that relied on

23 for computing the prior year’s gratuities. While Taxpayer’s protest letter did contain a brief

In the Matter of the Protest of Ronald J. Duncan
Page 16 of 23
1 discussion of Taxpayer’s 2015 Form 1040 and its associated Schedule C, the summary provided

2 in the protest letter is far less reliable than the actual forms.

3 Moreover, unlike for 2014, Taxpayer’s testimony lacked the sort of certainty that the

4 Hearing Officer observed when Taxpayer testified about the previous year. Ultimately, the

5 Hearing Officer was unpersuaded that Taxpayer established entitlement to any adjustments for

6 gratuities in 2015. That is not to say that Taxpayer’s gratuities are taxable as gross receipts

7 because they are not. But in this case, Taxpayer had the burden to establish the amount of non-

8 taxable gratuities and was unable to do so on the evidence presented. In the absence of evidence

9 to the contrary, the presumption of correctness stands, as does the presumption of taxability. See

10 Casias, 2014-NMCA-099, ¶8; MPC Ltd., 2003-NMCA-021, ¶13; Section 7-1-17 (C); Section 7-

11 9-5.

12 Delivery Fees

13 The next source of revenue is earned delivery fees in 2014 and 2015. Unfortunately, even

14 when viewing the totality of the evidence in the light most favorable to Taxpayer, it fails to

15 establish whether any of those fees are deductible, exemptible, or excludable under the Gross

16 Receipts and Compensating Tax Act.

17 The delivery fees were derived from engaging in business in New Mexico. For that

18 reason, they are presumed taxable as gross receipts under Section 7-9-5, subject of course, to any

19 applicable deductions or exemptions.

20 First, Taxpayer did not assert entitlement to any specific deduction or exemption, nor did

21 the evidence permit the Hearing Officer to infer which, if any, potentially applicable deductions

22 or exemptions could apply. Second, Taxpayer did not present evidence or argument in support of

In the Matter of the Protest of Ronald J. Duncan
Page 17 of 23
1 a claim that his earned delivery fees should be excluded from gross receipts under NMSA 1978,

2 Section 7-9-3.5.

3 Although Taxpayer did make reference to NMSA 1978, Section 7-9-43 (nontaxable

4 transaction certificates and other evidence required to entitle persons to deductions) in his

5 opening statement and closing argument, those references alone, even when viewing the

6 evidence in the light most favorable to Taxpayer, simply do not permit the Hearing Officer to

7 decipher which specific deduction Taxpayer claims should relieve him from liability, nor

8 actually establish entitlement to such deduction should one be perceptible.

9 Without any intention to offend Taxpayer, the Hearing Officer must note that our courts

10 have recognized that “[i]t is not the responsibility of ... the trial court to search the record for

11 evidence to support a claim or assertion. That responsibility belongs to the attorney.” See State v.

12 Maestas, 2018-NMSC-010, ¶51, 412 P.3d 79. The same observation is pertinent in tax protest

13 hearings as well. A fact finder should not be expected to search the record in an effort to

14 determine whether there exists dormant evidence which might have some bearing on the

15 outcome of a case. Hearing officers, similar to judges, “have a limited and neutral role in the

16 adversarial process, and are wary of becoming advocates who comb the record of previously

17 available evidence and make a party’s case for it.” See Adler v. WalMart Stores, 144 F.3d 664,

18 672 (10th Cir. 1998); See also United States v. Dunkel, 927 F.2d 955, 956 (7th Cir.1991)

19 (“Judges are not like pigs, hunting for truffles buried in briefs”). For these reasons, Taxpayer has

20 not established entitlement to any deductions or exemptions from gross receipts by virtue of the

21 evidence presented or arguments made.

22 Equitable Recoupment

In the Matter of the Protest of Ronald J. Duncan
Page 18 of 23
1 An assessment may also be abated when another person paid the amount of the tax “on

2 behalf of the taxpayer on the same transaction; provided that the requirements of equitable

3 recoupment are met.” See NMSA 1978, Section 7-1-28 (F) (2013). Taxpayer suggested this may

4 have been the case, with tax being paid by Delivered Dish, Inc, or perhaps even its successor,

5 Grubhub, Inc. Yet, Taxpayer could not be certain and the evidence provided no insight into the

6 practices of Delivered Dish, Inc. in the relevant years. In fact, the only hint at how Delivered

7 Dish, Inc. operated in 2014 and 2015 was a single invoice from Grubhub, Inc., not Delivered

8 Dish, Inc., in 2018 which was 3 to 4 years beyond the relevant period of time.

9 Equitable recoupment generally permits a party to assert a claim or defense that would

10 otherwise be barred by a statute of limitations when the claim arises from the same transaction.

11 See City of Carlsbad v. Grace, 1998-NMCA-144, ¶16, 126 N.M. 95, 966 P.2d 1178. The

12 purpose of the doctrine of equitable recoupment is to prevent the unjust enrichment of one party

13 due to another’s mistake and to bypass harsh applications of a procedural bar on limitations

14 periods. See City of Carlsbad, 1998-NMCA-144, ¶¶20-21.

15 In tax transactions, there are three elements that must be met for equitable recoupment to

16 apply. See Teco Invs., Inc. v. Taxation & Revenue Dep't, 1998-NMCA-055, ¶8, 125 N.M. 103,

17 957 P.2d 532. There must be: 1) a single taxable event; 2) taxes assessed on that single event on

18 inconsistent theories; and 3) a strict identity of interest. See Teco Invs., Inc., 1998-NMCA-055,

19 ¶8. Separate parties may still have a strict identity of interest. See Teco Invs., Inc. v. Taxation &

20 Revenue Dep't, 1998-NMCA-055, ¶¶10-11.

21 In this case, there was insufficient evidence to establish any entitlement to relief under

22 NMSA 1978, Section 7-1-28 (F) (2013).

23 Other Arguments

In the Matter of the Protest of Ronald J. Duncan
Page 19 of 23
1 Taxpayer made a number of arguments that might best be characterized as policy based.

2 However, it is not the function of the Administrative Hearings Office nor its hearing officers to

3 engage in the formulation of tax policy. In fact, NMSA 1978, Section 7-1B-7 (A) explicitly

4 prohibits hearing officers from engaging or participating “in any way in the enforcement or

5 formulation of general tax policy other than to conduct hearings.” (Emphasis Added).

6 For this reason, the Hearing Officer declines to comment further on the substance of

7 Taxpayer’s policy arguments, except to simply state that this decision reflects the Hearing

8 Officer’s view of the evidence presented and a faithful interpretation of how the law should

9 apply to that evidence.

10 Taxpayer also made a number of arguments that could be construed as appealing to the

11 sympathy of the Hearing Officer. Although the Hearing Officer did find Taxpayer to be affable

12 and the Hearing Officer could most definitely empathize with his position, those sentiments do

13 not influence the decision reached. Similar to the general rule of law reflected in New Mexico’s

14 Uniform Jury Instructions that “[n]either sympathy nor prejudice should influence [a] verdict[,]”

15 a hearing officer must set aside both sympathy and prejudice and remain faithful to the evidence

16 and rule of law.

17 For the reasons stated, Taxpayer’s protest is DENIED IN PART and GRANTED IN

18 PART.

19 CONCLUSIONS OF LAW

20 A. Taxpayer filed a timely, written protest to the Assessment. Jurisdiction lies over the

21 parties and the subject matter of this protest.

22 B. The Department did not make a timely request for hearing which precluded the

23 Administrative Hearings Office from conducting a hearing within 90 days of Taxpayer’s protest

In the Matter of the Protest of Ronald J. Duncan
Page 20 of 23
1 under NMSA 1978, Section 7-1B-8 (2015) (amended 2019).

2 C. The Administrative Hearings Office conducted three hearings within 90 days of the

3 Department’s hearing request, despite the fact that the hearing request was untimely by almost two

4 years under NMSA 1978, Section 7-1B-8 (2015) (amended 2019).

5 D. Taxpayer is not entitled to relief from the Assessment based on the failure of the

6 Department to make a timely hearing request under the 2015 version of the Administrative Hearings

7 Office Act. See Section 7-1B-8 (2015) (amended 2019)

8 E. Taxpayer is not entitled to a retrospective application of the 2019 amendment to the

9 Administrative Hearings Office Act which permits that the accrual of interest be halted for failure to

10 make a timely hearing request. See NMSA 1978, Section 7-1B-8 (2015) (amended 2019); See

11 NMSA 1978, Section 12-2A-8 (1997), N.M. Const. Article IV, Section 34.

12 F. All of Taxpayer’s receipts were presumed subject to gross receipts tax under

13 NMSA 1978, Section 7-9-5 (2002).

14 G. Taxpayer carries the burden to present countervailing evidence or legal argument

15 to show that he is entitled to an abatement of an assessment. See Casias Trucking, 2014-NMCA-

16 099, ¶8.

17 H. If a taxpayer presents sufficient evidence to rebut the presumption, then the

18 burden shifts to the Department to re-establish the correctness of the assessment. See MPC Ltd.,

19 2003-NMCA-021, ¶13.

20 I. Taxpayer established by a preponderance of evidence that he derived $5,567.17 in

21 cash gratuities in 2014. “Because the tip is a gratuity, it is not gross receipts[,]” and should be

22 excluded from gross receipts. See Regulation 3.2.1.18 (R) (2) NMAC; NMSA 1978, Section 7-9-

23 3.5.

In the Matter of the Protest of Ronald J. Duncan
Page 21 of 23
1 J. Except for establishing the amount of gratuities earned in 2014, Taxpayer did not

2 otherwise overcome the presumption of correctness that attached to the Assessment. See Section 7-

3 1-17(C).

4 K. Under NMSA 1978, Section 7-1-67 (2007), Taxpayer is liable for accrued interest

5 under the assessment, which shall continue to accrue until the tax principal is satisfied.

6 L. Under NMSA 1978, Section 7-1-69 (2007), Taxpayer is liable for civil negligence

7 penalty and there is no basis under the facts of the protest to permit an abatement.

8 For the foregoing reasons, Taxpayer’s protest should be, and hereby is, GRANTED IN

9 PART and DENIED IN PART. Taxpayer is entitled to an adjustment based on the conclusion

10 reached herein that cash gratuities in 2014 in the amount of $5,567.17 should be excluded from

11 Taxpayer’s gross receipts. Any further and additional relief from the Assessment is denied.

12 DATED: June 30, 2021

13
14 Chris Romero
15 Hearing Officer
16 Administrative Hearings Office
17 P.O. Box 6400
18 Santa Fe, NM 87502

19 NOTICE OF RIGHT TO APPEAL

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

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

22 date shown above. If an appeal is not timely filed with the Court of Appeals within 30 days, this

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

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

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

In the Matter of the Protest of Ronald J. Duncan
Page 22 of 23
1 Hearings Office contemporaneous with the Court of Appeals filing so that the Administrative

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

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

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

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

6 CERTIFICATE OF SERVICE

7 On June 30, 2021, a copy of the foregoing Decision and Order was submitted to the parties

8 listed below in the following manner:

9 E-Mail E-Mail
10 INTENTIONALLY BLANK

11
12 John D. Griego
13 Legal Assistant
14 Administrative Hearings Office
15 Post Office Box 6400
16 Santa Fe, NM 87502
17 PH: (505)827-0466
18 FX: (505)827-9732
19 [email protected]

In the Matter of the Protest of Ronald J. Duncan
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