Can a New Mexico resident claim a 2019 credit for Pennsylvania wage taxes paid years earlier when withdrawing money from a traditional IRA?

Plain-English summary

Harvie and Mary Beavers could not use Pennsylvania wage taxes paid many years earlier as a 2019 New Mexico credit against tax on a traditional IRA distribution. The Department properly disallowed the claimed $902 credit, which left $717 due after other payments and credits.

Harvie Beavers lived and worked in Pennsylvania before returning to New Mexico in 2015. He had contributed to employer retirement plans that were ultimately consolidated into a traditional IRA. He took distributions while a New Mexico resident, including a taxable distribution in 2019.

The other-state credit statute requires satisfactory evidence that the resident was liable to another state for tax on income also allocated or apportioned to New Mexico, plus proof of the tax paid to that state. Beavers paid no Pennsylvania tax in 2019 and produced no Pennsylvania return showing a $902 tax payment on the IRA distribution.

His credit worksheet did not solve the problem. It allocated 100% of income to New Mexico, contained figures unsupported by documents, and could not be explained at the hearing. The earlier Pennsylvania returns showed wage taxes from prior years, not tax imposed by Pennsylvania on the 2019 retirement distribution.

The decision also rejected the theory that previously taxed wages established a nontaxable basis in the IRA. Beavers confirmed that the account was a traditional IRA rather than a Roth IRA, could not identify his original contributions or investment gain, and supplied no account statements, Forms W-2 or 1099, or other records proving basis. The returns in evidence showed no claimed federal retirement-contribution deduction, but that did not turn an unclaimed prior deduction into a later other-state credit.

New Mexico taxed the distribution because Beavers was its resident when he received it. The decision found no dormant Commerce Clause violation and held that federal protection for retirement income of nonresidents did not apply to a New Mexico resident.

This case arose from a Return Adjustment Notice (Proposed Assessment) rather than a formal assessment. The order upheld the Department's denial of the 2019 credit.

Result: protest DENIED.

What this means for you

An other-state credit must match the income and tax year at issue

Paying another state's tax on wages in earlier years is not proof that the other state taxed a later retirement distribution included in New Mexico income.

Keep direct evidence of the other-state liability and payment

The statute calls for satisfactory evidence. A return, payment record, and computation tying the other-state tax to the same income are materially stronger than an unexplained worksheet.

Traditional IRA basis must be documented

If a taxpayer claims some distribution represents after-tax contributions, account records and tax filings must establish the contribution basis and the taxable portion.

An unused deduction does not become a later credit

The hearing officer found that failing to claim available contribution deductions in prior years did not authorize a “backdoor” other-state credit upon withdrawal.

Common questions

Q: Why was the $902 credit denied?
A: The Beaverses showed no Pennsylvania tax paid in 2019 on the IRA distribution and could not substantiate the worksheet amount.

Q: Did Pennsylvania's earlier tax on wages count?
A: No. Those payments concerned prior-year wage income, not the 2019 retirement income for which the New Mexico credit was claimed.

Q: Was the IRA treated as a Roth IRA?
A: No. Beavers testified it was a traditional IRA, whose distributions generally enter federal gross income.

Q: Could Beavers exclude an after-tax contribution basis?
A: Not on this record. He could not establish the amount of contributions, gain, or basis with retirement-account documents.

Q: Did federal law bar New Mexico from taxing the distribution?
A: No. Beavers was a New Mexico resident when he received it; the federal rule cited protects retirement income from taxation by a state where the recipient is not resident or domiciled.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-2-13 — credit for income tax paid to another state
• NMSA 1978, §§ 7-2-3 and 7-2-11(A) — tax and allocation of resident income
• NMSA 1978, § 7-2-2(A), (B), and (N) — base income and net income
• NMSA 1978, § 7-1-10(A) — taxpayer recordkeeping
• NMSA 1978, §§ 7-1-17(C), 7-1-24, and 7-1-26 — presumption and protest jurisdiction
• 4 U.S.C. § 114 — state taxation of retirement income of nonresidents
• 26 U.S.C. §§ 62, 219, and 408(d) — adjusted gross income and traditional IRA contributions and distributions
• Regulations 3.1.8.10(A), 3.3.11.11(A), and 3.3.11.13(B) NMAC — credit burden and resident retirement-income allocation

Cases:

• Comptroller of the Treasury of Maryland v. Wynne, 575 U.S. 543 (2015) — dormant Commerce Clause and multiple taxation
• Team Specialty Products v. New Mexico Taxation & Revenue Department, 2005-NMCA-020 — tax credits narrowly construed
• Correctional Corporation of America of Tennessee v. State, 2007-NMCA-148 — denial of a claimed credit viewed through a presumption of correctness
• Shaffer v. Carter, 252 U.S. 37 (1919) — a state may tax its residents' income

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Harvie and Mary Beavers
• Decision PDF: D&O 21-27

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 HARVIE D. & MARY C. BEAVERS
6 TO RETURN ADJUSTMENT NOTICE ISSUED UNDER
7 LETTER ID NO. L0868309680
8 v. Case Number 20.10-130R
9 Decision and Order No. 21-27
10 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

11 DECISION AND ORDER

12 On February 22, 2021, Hearing Officer Ignacio V. Gallegos, Esq., conducted a merits

13 administrative hearing in the matter of the tax protest of Harvie D. and Mary C. Beavers

14 (“Taxpayer” or “Taxpayers”) pursuant to the Tax Administration Act and the Administrative

15 Hearings Office Act. At the hearing, Mr. Harvie D. Beavers appeared representing himself. Mr.

16 Beavers was the Taxpayer’s sole witness. Staff Attorney Richard Pener appeared, representing

17 the opposing party in the protest, the Taxation and Revenue Department (“Department”).

18 Department protest auditor Alma Tapia appeared as a witness for the Department. Mr. Beavers’

19 testimony was credible, and despite having few or no documents to corroborate statements, many

20 statements under oath form the basis for findings of fact. Taxpayer offered Exhibit 1. The

21 Department offered Exhibits A through EE which were primarily documents submitted by

22 Taxpayer. All exhibits were admitted into the record without objection and are fully described in

23 the exhibit log. The administrative file is considered part of the record.

24 In quick summary, this protest involves a Taxpayer’s assertion that the Department

25 improperly denied a claim for credits for income taxes paid to another state, for New Mexico

26 personal income taxes on retirement income that Taxpayer asserted he had already been taxed by

27 the Commonwealth of Pennsylvania throughout the years he contributed to his retirement accounts.

In the Matter of the Harvie D. and Mary C. Beavers, page 1 of 18.
1 Ultimately, after making findings of fact and discussing the issue in more detail throughout this

2 decision, the hearing officer finds that the Taxpayer’s protest must be denied. The denial of credits

3 was proper because the evidence presented does not support the claim under the statute. IT IS

4 DECIDED AND ORDERED AS FOLLOWS:

5 FINDINGS OF FACT

6 Procedural Findings

7 1. On March 3, 2020, under Letter Id. No. L0868309680, the Department, issued a

8 Return Adjustment Notice (Proposed Assessment) letter to Taxpayer, indicating that Taxpayer’s

9 claimed credit of $902.00 for tax paid to another state (PIT-1, line 20) for the 2019 tax period

10 was denied, and after the adjustment, and credits for payments, taxes were due in the amount of

11 $717.00. [Administrative File].

12 2. On March 6, 2020, Taxpayer submitted a protest letter, challenging the denials of

13 his claimed credit alleging that the income had been taxed when earned over the years 1990

14 through 2006, while Taxpayer was living and working in Pennsylvania. The protest was stamped

15 as received by the Department Protest Office on March 9, 2020. [Administrative File].

16 3. On April 30, 2020, under Letter Id. No. L0578397872 the Department issued a

17 letter acknowledging receipt of Taxpayer’s protest. [Administrative File].

18 4. On October 27, 2020, the Department, through Attorney Richard Pener, submitted

19 a Request for Hearing to the Administrative Hearings Office, alleging the amount at issue was

20 $902.00, and requesting a scheduling hearing on Taxpayer’s protest. [Administrative File].

In the Matter of the Harvie D. and Mary C. Beavers, page 2 of 18.
1 5. On October 27, 2020, the Department, through Attorney Richard Pener, timely

2 submitted the Department’s Answer to Protest to the Administrative Hearings Office.

3 [Administrative File].

4 6. On October 27, 2020, the Administrative Hearings Office sent a Notice of

5 Telephonic Scheduling Hearing to the parties, informing them of the scheduling hearing to take

6 place on November 20, 2020, by telephone. [Administrative File].

7 7. Hearing Officer Ignacio V. Gallegos conducted the scheduling hearing on

8 November 20, 2020 with the parties present. Mr. Beavers represented himself. Attorney

9 Richard Pener represented the Department. The parties did not object that the scheduling hearing

10 satisfied the 90-day hearing requirement of Section 7-1B-8 (F) 2019. The Hearing Officer

11 preserved an audio recording of the hearing. [Administrative File].

12 8. On November 20, 2020, the Administrative Hearings Office sent a Scheduling

13 Order and Notice of Administrative Hearing to the parties, informing them of various deadlines

14 and providing notice that a hearing on the merits of the case would be held on February 22, 2021,

15 using the Zoom videoconference application, using an unique URL provided. The hearing was

16 scheduled pursuant to NMSA 1978 Section 7-1B-8 (2019) and Regulation § 22.600.3.10 NMAC.

17 [Administrative File].

18 9. The undersigned Administrative Hearing Officer Ignacio V. Gallegos conducted

19 the merits hearing on February 22, 2021, with the parties and witnesses present by

20 videoconference. Mr. Beavers represented himself. Attorney Richard Pener represented the

21 Department. The Hearing Officer preserved an audio recording of the hearing (“Hearing

22 Record” or “H.R.”). [Administrative File].

In the Matter of the Harvie D. and Mary C. Beavers, page 3 of 18.
1 Substantive Findings

2 10. Taxpayer Harvie Beavers is an individual domiciled in New Mexico.

3 [Administrative File; Direct examination of H. Beavers, H.R. 29:40-30:00; Exhibits # F, I, J, K,

4 U, V, W, X, Y, Z, AA, BB, CC, DD].

5 11. Mr. Beavers lived in Pennsylvania from 1984 until 2015, when he moved back to

6 New Mexico. [Administrative File; Examination of H. Beavers; Exhibit # J, K].

7 12. Mr. Beavers retired from military service in the U.S. Navy in 1987 but then began

8 work in the private sector until he retired again and moved back to New Mexico. The Navy

9 retirement benefits are not at issue here. [Administrative File; Examination of H. Beavers, H.R.

10 26:30-29:45; Exhibits # J, K].

11 13. During the years 1987 through 1992, Mr. Beavers was employed by Trico

12 Industries. He contributed to a retirement plan administered by that company. [Administrative

13 File; Cross examination of H. Beavers, H.R. 39:40-45:10, 46:40-48:00; Exhibits #J, K].

14 14. From 1992 through his second retirement in 2015, Mr. Beavers was employed by

15 Tampella Services, which, during his time there, was purchased by American Consumer

16 Industries. The money he contributed to the Trico Industries retirement plan was transferred to

17 Tampella’s retirement plan, which was later administered by Fidelity. He contributed to the plan

18 when he was able. [Administrative File; Cross examination of H. Beavers, H.R. 39:40-45:10,

19 46:40-52:45; Exhibits #J, K].

20 15. For the years 1996 through 2005, Mr. Beavers was unable to prove any specific

21 amount of contributions he made to his retirement plans. [Administrative File; Cross

22 examination of H. Beavers, H.R. 52:00-52:45].

In the Matter of the Harvie D. and Mary C. Beavers, page 4 of 18.
1 16. During the years 2006 to 2009, Mr. Beavers believed he contributed

2 approximately $23,000 to his retirement account, but, apart from rollovers, the amount was not

3 confirmed by available federal or state income tax reporting forms provided as evidence. The

4 rollover contributions are not at issue. [Cross examination of H. Beavers, H.R. 51:50-53:20;

5 1:06:30-1:17:10; Department Exhibit #J, K, C-32, C-37, C-78].

6 17. Since 2015, Mr. Beavers has filed New Mexico Personal Income Tax (PIT-1)

7 returns jointly with his wife, Mary C. Beavers. [Administrative File; Exhibits # F, G, H, I, J, K,

8 U, V, W, X, Y, Z, AA, BB, CC, DD].

9 18. Mr. Beavers took lump sum distributions from his Individual Retirement Account

10 (IRA), in the years 2015, 2016, 2017, and 2019 while a resident of New Mexico. [Administrative

11 File; Cross examination of H. Beavers H.R. 1:00:40-1:37:10; Exhibits # J, K (Note), U-02 (line

12 15) (2015), F-02 (line 11) (2016), G-02 (line 11) (2017), and CC-02 (line 4) (2019)].

13 19. From the amount of the distributions taken while a New Mexico resident, Mr.

14 Beavers could not identify how much was the original amount he had paid into the account

15 (“basis”), what the increase of principal value amounted to (“gain”), or the discrepancy between

16 the return and the worksheet. [Cross examination of H. Beavers, H.R. 54:20-57:40; 1:01:00-

17 1:02:20; 1:20:15-1:39:15; Exhibits # R-3, Exhibit # CC-2 (line 4b) and #CC -14 (worksheet)].

18 20. Mr. Beavers paid no tax to Pennsylvania in 2019, while a resident of New

19 Mexico. [Administrative File; Cross examination of H. Beavers, H.R. 1:37:30-1:39:10; Exhibit #

20 CC-2 (line 4b) and #CC-14 (worksheet)].

21 21. Mr. Beaver’s IRA was a traditional IRA, not a Roth-IRA, and in 2019 he was

22 over the age of 59 ½ but under the age of 70 ½ years old. [Administrative File, AHO

23 Examination of H. Beavers, H.R. 35:45-36:15; Exhibit # J, K, CC].

In the Matter of the Harvie D. and Mary C. Beavers, page 5 of 18.
1 22. On Federal tax returns provided, Mr. Beavers claimed no Federal retirement savings

2 contributions deductions from his taxable income and does not attach a Form 8880. [Administrative

3 File; Exhibit # I, CC, DD (2019 Schedule 3, Part I, Line 4); Exhibit # H, BB (2018, Form 1040,

4 Line 51); Exhibit # G, Z, AA (2017, Form 1040, Line 17 and Line 34); Exhibit # F, X, Y (2016,

5 Form 1040, Line 17 and Line 34); Exhibit #U, V (2015, Form 1040, Line 32; 2014, Form 1040,

6 Line 32); Exhibit # R (2013, Form 1040, Line 32); Exhibit # E, Q (2012, Form 1040, Line 32);

7 Exhibit # D, P (2011, Form 1040, Line 32); Exhibit # C, O (2007, Form 1040, Line 32); Exhibit #

8 B, N (2006, Form 1040, Line 32.).

9 23. Taxpayers’ 2019 Federal return 1040-SR shows a taxable IRA distribution of

10 $22,435 and claims no contribution credits. [Administrative File; Exhibit # I, CC, DD].

11 24. There was no formal assessment issued in this case. Imposition and penalty and

12 accrual of interest has been stayed during the COVID-19 pandemic until April 15, 2021.

13 [Administrative File; Examination of A. Tapia, H.R. 1:43:00-1:44:20].

14 DISCUSSION

15 The Department denied a claim for credit for taxes paid to another state, resulting in

16 Taxpayers owing a proposed assessment, actions which Taxpayers protest. The complication arises

17 from Taxpayers’ claim that income taxes on retirement income were paid to another state over the

18 course of prior years in which the income was earned – more than twenty years. Taxpayer contends

19 that during his time working and living in the Commonwealth of Pennsylvania, his income was

20 taxed by that state, and his taxable income in Pennsylvania included the amounts he contributed to

21 his retirement accounts. Taxpayer contends that Pennsylvania tax laws did not allow a deduction

22 from adjusted gross income (AGI) in contrast to Federal tax law for income that was placed in a

23 retirement account. Because the Commonwealth of Pennsylvania was alleged to have added back

In the Matter of the Harvie D. and Mary C. Beavers, page 6 of 18.
1 the income and imposed a tax on the resulting sum, Taxpayer claimed the state had taxed his

2 retirement income when earned as wages. When the Taxpayer then withdrew funds from the

3 retirement account, while a resident of the State of New Mexico, Taxpayer claims the state taxed the

4 income a second time, both principal and the gain. Taxpayer provided Federal and state personal

5 income tax returns from 2006 through 2019 (with the exception of 2008 and 2009), but provided no

6 IRA account statements, no bank statements, no rollover statements, or other proof of the amounts

7 he placed into the account (basis) or the gains (increase in value) accumulated by the account’s

8 investments.

9 New Mexico’s personal income tax is governed by the Income Tax Act, NMSA 1978,

10 Sections 7-2-1 through 7-2-39. Facts concerning the amount of the claim were disputed. Record

11 keeping and reporting requirements play a role in the decision, as follows, and interpretation of the

12 statute granting a credit for taxes paid to another state and application of federal jurisprudence are

13 addressed herein.

14 Presumption of correctness and burden of proof.

15 The presumption of correctness under NMSA 1978, Section 7-1-17 (C) (2007) does not

16 strictly attach in this matter because the protest does not stem from the issuance of an assessment

17 under Section 7-1-17. Taxpayer nevertheless has the burden to establish that he was entitled to

18 the claims for credits pursuant to Regulation §3.1.8.10 (A) NMAC (08/30/2001) and must

19 establish entitlement to the claimed credits. The Department’s denial of Taxpayers’ claim for

20 credits is viewed under the lens of a presumption of correctness. See Corr. Corp. of Am. of Tenn.

21 v. State, 2007-NMCA-148, ¶17 & ¶29, 142 N.M. 779.

22 Tax credits are legislative grants of grace to a taxpayer that must be narrowly interpreted

23 and construed against a taxpayer. See Team Specialty Prods. v. N.M. Taxation & Revenue Dep’t,

In the Matter of the Harvie D. and Mary C. Beavers, page 7 of 18.
1 2005-NMCA-020, ¶9, 137 N.M. 50, 107 P.3d 4. Under the rationale of Team Specialty Prods,

2 Taxpayer carries the burden of proving that he is entitled to the claimed credit. Although a credit

3 must be narrowly interpreted and construed against a taxpayer, it still should be construed in a

4 reasonable manner consistent with legislative language. See Sec. Escrow Corp. v. State Taxation

5 & Revenue Dep’t, 1988-NMCA-068, ¶9, 107 N.M. 540.

6 Credit for tax paid to another state under Section 7-2-13.

7 Taxpayers claimed a credit for taxes paid to another state under the theory that because

8 the income which funded the retirement account had been taxed when earned over the course of

9 more than twenty years, it had already been taxed when earned. The statute, NMSA 1978,

10 Section 7-2-13 (2013), which grants the credit reads:

11 When a resident individual is liable to another state for tax upon income derived
12 from sources outside this state but also included in net income under the Income
13 Tax Act as income allocated or apportioned to New Mexico pursuant to Section
14 7-2-11 NMSA 1978, the individual, upon filing with the secretary satisfactory
15 evidence of the payment of the tax to the other state, shall receive a credit against
16 the tax due this state in the amount of the tax paid the other state with respect to
17 income that is required to be either allocated or apportioned to New Mexico.
18 However, in no case shall the credit exceed the amount of the taxpayer’s New
19 Mexico income tax liability on that portion of income that is required to be either
20 allocated or apportioned to New Mexico on which the tax payable to the other
21 state was determined. The credit provided by this section does not apply to or
22 include income taxes paid to any municipality, county or other political
23 subdivision of a state.
24 Mr. Beavers took the withdrawal from the IRA in 2019, while a resident domiciled in New

25 Mexico. There is no dispute that Mr. Beavers did not pay taxes to Pennsylvania in 2019, when

26 the New Mexico income tax credit was claimed. There was no Pennsylvania income tax return

27 showing payment of $902.00, which was the amount of the New Mexico income tax credit

28 claimed on line 20 of the Taxpayers’ New Mexico PIT-1. Taxpayer did file a PIT-B, but within

29 that form, 100% of his income was allocated to New Mexico. The worksheet (Worksheet for

In the Matter of the Harvie D. and Mary C. Beavers, page 8 of 18.
1 Computation of Allowable Credit for Taxes Paid to Other States by New Mexico Residents) that

2 accompanied the claim for credit for taxes paid to another state, contains numbers completely

3 unsupported by any documentation. Mr. Beavers could not explain how he arrived at the

4 numbers contained on the worksheet. The numbers contained thereon appear arbitrary or

5 reached using some vague calculation of the averages of years of taxes paid in Pennsylvania.

6 Record Keeping and Reporting.

7 New Mexico law requires that taxpayers retain records used for the taxpayers’ tax reporting

8 so that those records may be used to accurately compute state taxes. NMSA 1978, Section 7-1-10

9 (A) (2007). New Mexico tax law does not set a specific amount of time for records to be

10 maintained by taxpayers, but the law disallows assessments greater than ten years from the date a

11 tax was required to be paid. See Regulation § 3.1.5.8 (A) (12/29/2000); see also NMSA 1978,

12 Section 7-1-18 (2013).

13 Taxpayers’ income tax returns provide some corroboration to his statements under oath.

14 However, the records leave much un-corroborated and subject to speculation. No federal form W-

15 2s or 1099s were presented to the Hearing Officer. Likewise, no bank statements or retirement

16 account statements were presented to the Hearing Officer. And on the tax returns provided, Mr.

17 Beavers claims no Federal retirement savings contributions deductions from his taxable income and

18 does not attach a Form 8880. (2019, IRS Schedule 3, Part I, Line 4; 2018, Form 1040, Line 51;

19 2017, Form 1040, Line 17 and Line 34; 2016, Form 1040, Line 17 and Line 34; 2015, Form 1040,

20 Line 32; 2014, Form 1040, Line 32; 2013, Form 1040, Line 32; 2012, Form 1040, Line 32; 2011,

21 Form 1040, Line 32; 2007, Form 1040, Line 32; 2006, Form 1040, Line 32.). 1

1
See IRS website https://www.irs.gov/taxtopics/tc610 for tax Topic No. 610 and Instructions for Form 8880.

In the Matter of the Harvie D. and Mary C. Beavers, page 9 of 18.
1 Mr. Beavers argued that the cost basis (cost of investment) was paid from his wage earnings

2 in Pennsylvania. Pennsylvania taxed his wages, therefore, he expressed, the cost basis of the

3 investment in his IRA should be excluded from the taxable amount. This argument is one which one

4 could apply to some capital gains taxes, but not in the context of taxation of disbursements from a

5 traditional IRA. See 26 U.S.C. §408 (a) and (d); see also 26 U.S.C. §219 (a).

6 In a simple capital gain scenario, a person invests money (cost basis) that person has already

7 earned (wages, for example) in a capital asset (stock, for example) and the asset gains or loses value

8 over time. If the share’s cost basis is higher than the final value when exchanged for money, it

9 qualifies as a loss. If the share’s cost basis is lower than the final value when the share is exchanged

10 for money, the gain is a capital gain. In such a scenario, the gain gets taxed, not the return of the

11 initial cost basis of the investment. 2 Even if this were the inquiry, the amount Taxpayer wishes to be

12 excluded (basis) must be proven and the amount of the gain (or loss) must be proven for the

13 argument to have any foundation. The evidence provided does not provide the starting point of a

14 cost basis or the ending point of final distribution price per share to determine a gain (if any) on

15 investment.

16 Mr. Beavers also argued that because the wages he used to put into the retirement account

17 were taxed when initially earned he should not be taxed at all upon withdrawal. Had this been a

18 Roth-IRA account, the statement would be true. The money placed into a Roth-IRA is taxed when

19 earned, as no deduction is granted for the investment from taxable income. See Taxpayer Relief Act

20 of 1997, PL 105-34, 111Stat. 788, Sec. 302 (August 5, 1997) (“No deduction shall be allowed under

21 Section 219 for a contribution to a Roth IRA”). Once the Roth-IRA investor reaches a specific age,

2
See IRS website https://www.irs.gov/pub/irs-prior/i8949--2019.pdf for instructions for Form 8949 (Sales and other
dispositions of capital assets). Page 9, instructions for Column (h) describes the manner of calculating and reporting
capital gains and losses upon sale of a capital asset.

In the Matter of the Harvie D. and Mary C. Beavers, page 10 of 18.
1 or upon other specific events, the investor may withdraw from the account tax-free. Id. (“Any

2 qualified distribution from a Roth IRA shall not be includible in gross income.”). But, without

3 records of it being anything other than a traditional IRA, and upon belief and affirmation of the

4 principal witness that it was a traditional IRA, this was not a Roth IRA, so it is treated as traditional

5 IRAs are treated for Federal tax purposes. 3

6 Because Taxpayer records concerning the retirement account itself were not provided, the

7 Hearing Officer must rely on the statements of Mr. Beavers affirmed to be true in this

8 determination. Ordinarily, unsubstantiated statements are insufficient to overcome the presumption

9 of correctness that attaches to an assessment issued by the Department. See MPC Ltd. v. N.M.

10 Taxation & Revenue Dep’t, 2003-NMCA-021, ¶13, 133 N.M. 217, 62 P.3d 308; see also Regulation

11 § 3.1.6.12 (A) NMAC (1/15/01). However, because no presumption was created in the return

12 adjustment and no documentation of the IRA account at issue was provided, the determination here

13 relies on credible testimony. It should be noted that the records, though voluminous, were not

14 sufficient to prove the case presented by the Taxpayer in this respect.

15 The records provided do not provide enough information to validate Taxpayers’

16 computation of state income taxes as reported on their 2019 form PIT-1. See Section 7-1-10 (A); see

17 also Regulation § 3.1.5.8 (A).

18 Retirement income.

19 States have the right to tax the income of their residents, including income attributable to

20 work in other states. See Shaffer v. Carter, 252 U.S. 37 (1919) (“In our system of government,

21 the states have general dominion, and, saving as restricted by particular provisions of the federal

3
See IRS website https://www.irs.gov/pub/irs-pdf/p590a.pdf and https://www.irs.gov/pub/irs-pdf/p590b.pdf for
information concerning the tax treatment of contributions to and distributions from both traditional and Roth IRAs.
In addition, it should be noted that the Taxpayer also referred to his retirement account (before the various accounts
were consolidated) as a 401(k), which can be traditional or Roth.

In the Matter of the Harvie D. and Mary C. Beavers, page 11 of 18.
1 Constitution, complete dominion over all persons, property, and business transaction[s] within

2 their borders; they assume and perform the duty of preserving and protecting all such persons,

3 property, and business, and, in consequence, have the power normally pertaining to governments

4 to resort to all reasonable forms of taxation in order to defray the governmental expense.”). See

5 also Lawrence v. State Tax Commission of Mississippi, 286 U.S. 276 (1932). “A tax is imposed

6 … on the net income of every resident individual.” NMSA 1978, Section 7-2-3 (1981). Net

7 income includes income whose source is a retirement account. See NMSA 1978, Section 7-2-2

8 (N) (2014); Section 7-2-2 (B)(2); Section 7-2-2 (A); 26 U.S.C. § 62; 26 C.F.R. § 1.62-1; 26

9 C.F.R. § 1.62-1T. Contributions to traditional individual retirement accounts are allowed

10 deductions from adjusted gross income (AGI). 26 U.S.C. § 62; 26 C.F.R. § 1.62-1; 26 C.F.R. §

11 1.62-1T. However, with few exceptions not applicable here, distributions from traditional IRA

12 accounts are included in Federal gross income and are taxable in the year the owner receives

13 them. See 26 U.S.C. § 408 (d) (“any amount paid or distributed out of an individual retirement

14 plan shall be included in gross income by the payee or distributee”). 4

15 New Mexico imposes a personal income tax “upon the net income of every resident

16 individual.” NMSA 1978, Section 7-2-3. The net income that is taxed in New Mexico begins

17 with Federal AGI (“Net income” includes “base income”, less federal exemptions and standard

18 deductions. Section 7-2-2 (N). “Base income” begins with Federal AGI, as defined by 26 U.S.C.

19 § 62. Section 7-2-2 (B).). Federal AGI is Federal gross income, less deductions which are not

20 applicable here. See 26 U.S.C. § 62. Income for a New Mexico resident who does not earn

21 income in the tax year from out of state sources is allocated to New Mexico. See NMSA 1978,

4
See also FN3, IRS Publication 590-B, Chapter 1, Page 12, for information concerning the tax treatment of
distributions from both traditional and Roth IRAs (“In general, distributions from a traditional IRA are taxable in the
year you receive them.”).

In the Matter of the Harvie D. and Mary C. Beavers, page 12 of 18.
1 Section 7-2-11 (A). Specifically, retirement income, even derived from income earned out-of-

2 state is allocated to New Mexico. See Regulation § 3.3.11.11 (A) NMAC (12/14/00) (“All

3 compensation received while a resident of New Mexico shall be allocated to this state whether or

4 not such compensation is earned from employment in this state.”); see also Regulation §

5 3.3.11.13 (B) (NMAC) (12/14/00) (“Retirement income of a resident is allocable to New

6 Mexico, regardless of the source of the retirement income…”); see also The protest of Joy

7 Odom, Decision and Order # 11-04 (Taxation and Revenue Department Hearings Bureau,

8 February 10, 2011, non-precedential).

9 Taxpayer’s documents do not show that he ever reported the deductible amount of his

10 retirement account contributions, excluding rollovers, and therefore was taxed on his entire

11 reported income. It was not through fault of the Commonwealth of Pennsylvania, nor the fault of

12 the State of New Mexico that he received no deductions for the account contributions made over

13 the years. Mr. Beavers was able to deduct retirement contributions from his AGI over the years,

14 but he apparently did not (according to the documents contained in the record). Because the

15 claim was for taxes paid in a different year, and records do not provide a foundation for the

16 amount of the claim, and New Mexico law specifically addresses retirement income received

17 while a resident of New Mexico yet earned from employment out of state, any taxes paid on the

18 earnings when earned do not provide a rationale for application of the credit against New Mexico

19 resident’s income taxes.

20 Dormant Commerce Clause.

21 Taxpayer argued that the case of Comptroller of Treasury of Maryland v. Wynne, 575 U.S.

22 543, 135 S.Ct. 1787 (2015) controlled the outcome of this case, as he first paid an income tax when

23 working in the Commonwealth of Pennsylvania, and New Mexico taxed the retirement withdrawal,

In the Matter of the Harvie D. and Mary C. Beavers, page 13 of 18.
1 which included initial capital inputs (basis) and gains (or losses). The facts here do not justify

2 finding this to have occurred as a result of New Mexico’s taxation scheme.

3 The Commerce Clause of the United States Constitution is separated between the positive

4 grant of the power of Congress to regulate interstate commerce, and its implicit negative command,

5 known as the Dormant Commerce Clause, prohibiting States from taxation schemes which place

6 higher tax burdens on out-of-state taxpayers. See U.S.C.A. Const. Art. 1 Section 8, cl. 3 (“The

7 Congress shall have Power… To regulate Commerce with foreign Nations, and among the several

8 States, and with the Indian Tribes”); see also Oklahoma Tax Comm’n v. Jefferson Lines, Inc., 514

9 U.S. 175, 179-180, 115 S.Ct. 1331 (1995). The dormant commerce clause disallows any State’s tax

10 scheme “which discriminates against interstate commerce either by providing a direct commercial

11 advantage to local business, or by subjecting interstate commerce to the burden of multiple

12 taxation.” Wynne, at 549-550 (internal quotation marks and citations omitted). The Wynne case

13 addressed a tax scheme that discriminated against out-of-state taxpayers with income from activity

14 within the state.

15 Here, Taxpayer showed that he had accumulated several retirement savings plans, which

16 ultimately were consolidated into the traditional IRA from which he took a distribution in 2019. He

17 provided Pennsylvania personal income tax returns for several years in which he was working and

18 contributing to his retirement.

19 Taxpayers relocated to New Mexico in 2015. In 2019, it was the purchase of property and

20 improvements thereon, using retirement funds extracted for that purpose, that increased Taxpayers’

21 reported income. The Federal 2019 form 1040-SR shows line 4b as reporting a taxable IRA

22 distribution of $22,534. On Schedule 3, Part I, Line 4, Mr. Beavers claims no retirement savings

23 contributions credits and does not attach a Form 8880.

In the Matter of the Harvie D. and Mary C. Beavers, page 14 of 18.
1 The New Mexico 2019 PIT-1, line 20 shows Taxpayer’s claim for $902.00 in taxes paid to

2 another state. There was no evidence presented either when filing the New Mexico PIT-1 return,

3 nor provided thereafter, showing where this claim originated or documentation to show its accuracy

4 as to the dollar amount. After a thorough perusal, nothing in the years of tax returns provided any

5 support for the claim that Taxpayer paid $902.00 in taxes on the retirement income to a different

6 state.

7 Granting the credit claimed for taxes paid to another state depends on evidence of each

8 element, including that element of payment of a tax to a different state presented to the Department,

9 or this tribunal. See NMSA1978, Section 7-2-13 (2013). The credit is limited to other state’s taxes

10 which may be corroborated (“upon filing with the secretary satisfactory evidence of the payment of

11 the tax to the other state”). Id. The credit for taxes paid other states by resident individuals which

12 Taxpayers claimed, in light of the evidence submitted, none of which corroborates the amount

13 claimed, does not apply. Had Mr. Beavers lived and worked in New Mexico during his second

14 career, and if he had reported his income the same way to New Mexico as he did to Pennsylvania,

15 he would be in the same position. A deduction must be reported to be allowed. And applying for the

16 credit in later years does not allow a backdoor to receiving a deduction not allowed over many

17 years. Disallowing the credit does not offend the Dormant Commerce Clause, nor does it violate

18 the prohibition of 4 U.S.C. 114, as it does not impose a higher burden on persons engaged in

19 interstate commerce and Mr. Beavers was a resident of New Mexico when he received his

20 retirement account distribution.

21 Conclusion.

22 The evidence presented did not provide justification for the application of a credit against

23 New Mexico income tax for taxes paid to another state. All the Taxpayer’s retirement income was

In the Matter of the Harvie D. and Mary C. Beavers, page 15 of 18.
1 allocated to New Mexico. Federal law preventing states from taxing retirement income of retirees

2 residing in other states does not apply here.

3 CONCLUSIONS OF LAW

4 A. Taxpayers filed a timely, written protest of the Department’s Return Adjustment

5 Notice (Proposed Assessment) letter L0868309680 and jurisdiction lies over the parties and the

6 subject matter of this protest. See NMSA 1978, Section 7-1-24 (A) & (B) (2019); see also NMSA

7 1978, Section 7-1-26 (A) (2019).

8 B. The hearing was timely set and held within 90-days of the Department’s request for

9 hearing pursuant to NMSA 1978, Section 7-1B-8 (2019).

10 C. Taxpayers bear the burden of establishing entitlement to the claimed credit at

11 issue. The Taxpayers have not satisfactorily met the burden of establishing the entitlement to the

12 claimed credit at issue. The Department’s denial of credit is viewed under a lens of a presumption of

13 correctness, therefore it is the Taxpayers’ burden to establish that they were entitled to their claim

14 for credit. See Regulation §3.1.8.10 NMAC (08/30/2001); see also Corr. Corp. of Am. of Tenn. v.

15 State, 2007-NMCA-148, ¶17 & ¶29, 142 N.M. 779. See NMSA 1978, Section 7-1-17 (C) (2007).

16 D. Taxpayers’ request for application of a credit for taxes paid to another state by

17 resident individuals for tax year 2019 was unsupported by facts to support a payment of taxes to

18 another state in accordance with NMSA 1978, Section 7-2-13 (2013).

19 E. Retirement income of a New Mexico resident, even derived from income earned

20 out-of-state, is allocated to New Mexico. See Regulation § 3.3.11.11 (A) NMAC (12/14/00); see

21 also Regulation § 3.3.11.13 (B) (NMAC) (12/14/00).

22 F. Federal law prohibiting states from imposing an income tax on the retirement

23 income of out-of-state residents does not apply to the properly taxed income of New Mexico

In the Matter of the Harvie D. and Mary C. Beavers, page 16 of 18.
1 resident retirement income when another state was alleged to tax the basis when earned. See 4

2 U.S.C. 114; Comptroller of Treasury of Maryland v. Wynne, 575 U.S. 543, 135 S.Ct. 1787 (2015).

3 For the foregoing reasons, the Taxpayer’s protest is DENIED. IT IS ORDERED that the

4 Department’s denial of credit for tax year 2019 was correct.

5 DATED: December 22, 2021.

8 Ignacio V. Gallegos
9 Hearing Officer
10 Administrative Hearings Office
11 P.O. Box 6400
12 Santa Fe, NM 87502

13 NOTICE OF RIGHT TO APPEAL

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

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

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

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

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

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

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

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

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

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

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

In the Matter of the Harvie D. and Mary C. Beavers, page 17 of 18.
1 CERTIFICATE OF SERVICE

2 INTENTIONALLY BLANK

In the Matter of the Harvie D. and Mary C. Beavers, page 18 of 18.