When can a payroll or staffing company exclude the money that flows through it as a 'disclosed agent,' and can reliance on a CPA erase a negligence penalty?

Plain-English summary

Talbridge Corporation lost the big issue but won two smaller ones. Talbridge provided payroll and human-resources services for a group of self-employed engineers (associated with a research organization the decision calls "Area 52") who performed remote-sensing research and development work for Chevron. Chevron paid Talbridge a sum made up of the workers' wages and benefits plus a markup fee; Talbridge, in turn, paid the workers on a biweekly basis. On December 31, 2019 the Department assessed Talbridge $484,974.10 for the periods January 31, 2012 through April 30, 2019 — $347,318.19 in gross receipts tax, $69,347.81 in penalty, and $68,308.10 in interest. Talbridge protested.

Hearing Officer Chris Romero split the decision:

• Disclosed agency — DENIED (the dispositive issue). Section 7-9-3.5(A)(3)(f) excludes "amounts received solely on behalf of another in a disclosed agency capacity." Following the Court of Appeals' MPC decision and Regulation 3.2.1.19(C)(1), the hearing officer applied a two-part test: (1) the purported agent (Talbridge) must have authority to bind the principal (Chevron) to an obligation it creates for the workers, and (2) the workers must be informed by contract that they can proceed against Chevron to enforce that obligation. Talbridge had no authority to bind Chevron to anything, and nothing told the workers they could collect their pay from Chevron. Talbridge simply employed and paid the workers itself. So it was not a disclosed agent, and its receipts were its own taxable gross receipts.
• A backup problem even if it had qualified. The hearing officer added that Talbridge also failed the additional bookkeeping requirements of Regulation 3.2.1.19(C): when Chevron discontinued its "Beeline" timekeeping service, Talbridge lost access to the underlying records, so it could not have documented an agency pass-through anyway.
• Out-of-state services — GRANTED. Under Section 7-9-3.5(A)(1) (2007), receipts from services performed outside New Mexico generally are not gross receipts. The parties stipulated that Talbridge's markup compensated it for services it provided in Houston, Texas, so that portion of the receipts was excluded from tax.
• Penalty — ABATED IN FULL. Under Section 7-1-69 and Regulation 3.1.11.11(D), the negligence penalty is abated where a taxpayer reasonably relied in good faith on a competent tax professional after full disclosure. Talbridge's president reasonably relied on a CPA who had access to the necessary records and certified that the returns were true, correct, and complete. The entire penalty was abated.
• Interest — still accrues. Under Section 7-1-67, interest on the tax that remained due continued to accrue until the principal is paid; it was not abated.

Result: protest GRANTED IN PART and DENIED IN PART.

What this means for you

"Money just passes through us" is not enough to escape gross receipts tax

New Mexico taxes the receipts of a business, and a staffing, payrolling, or management company that collects money and pays it back out is presumed taxable on the whole amount. The narrow disclosed-agency exclusion is the exception, and it is demanding.

The disclosed-agency test has two hard requirements

To exclude money as a disclosed agent, you generally must show both that you can bind your client (the principal) to the obligation you create — for example, to pay the workers — and that the workers are told, by contract, that they can enforce that obligation directly against your client. If the workers can only look to you for payment, you are acting as a principal, not an agent, and the receipts are yours.

Keep the records that prove the pass-through

Even a company that meets the legal test can lose if it cannot satisfy the regulation's bookkeeping requirements. Talbridge's loss of access to the client's timekeeping system was fatal to its documentation. If your exclusion depends on a third party's system, keep your own copies.

Services performed out of state can still be carved out

Even when the main exclusion fails, receipts genuinely tied to services performed outside New Mexico may be removed from the tax base. Here the parties agreed a defined markup was for work done in Houston, and that slice was excluded. (Note the research-and-development wrinkle: services performed out of state can still be taxable if the product of the service is initially used in New Mexico.)

Relying on a CPA can erase the penalty — but not the tax or the interest

Reasonable, good-faith reliance on a competent accountant, after full disclosure, can abate a negligence penalty. It does not eliminate the underlying tax, and interest keeps running until the tax is paid.

Common questions

Q: What did Talbridge actually do?
A: It handled payroll and HR for self-employed engineers who did research work for Chevron. Chevron paid Talbridge the workers' pay plus a markup, and Talbridge paid the workers.

Q: Why wasn't it treated as a pass-through agent?
A: The exclusion requires that the company can bind its client to the pay obligation and that the workers are told by contract they can enforce payment against the client. Talbridge could not bind Chevron, and the workers had no such contractual right — so the receipts were Talbridge's own.

Q: Does it matter that there was nothing in writing about the agency?
A: The disclosure itself does not have to be in writing, but there still has to be a real relationship in which the client is liable to the workers if the agent fails to pay, and that relationship has to be disclosed to the workers. That was missing here.

Q: How did Talbridge win on the out-of-state issue?
A: The parties stipulated that Talbridge's markup paid for services it performed in Houston, Texas. Receipts from services performed outside New Mexico generally are not gross receipts, so that portion was excluded.

Q: Why was the whole penalty removed?
A: The president reasonably relied in good faith on a CPA who had the records and certified the returns as true and correct. That satisfies the penalty-abatement standard in Regulation 3.1.11.11(D).

Q: If the penalty was abated, why does Talbridge still owe interest?
A: Interest under Section 7-1-67 compensates the state for the delayed payment of tax that was actually due. It continues to accrue on the remaining principal regardless of the penalty abatement.

Q: Can another payroll or staffing company rely on this decision?
A: No. This Decision and Order resolved Talbridge's protest on its own facts and the law in effect for 2012–2019. Another taxpayer should analyze its own contracts, records, tax periods, and the current law.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-9-3.5(A)(3)(f) — excludes amounts received solely on behalf of another in a disclosed agency capacity
• NMSA 1978, § 7-9-3.5(A)(1) (2007) — receipts from services performed outside New Mexico are not gross receipts (subject to the research-and-development "initial use in New Mexico" exception)
• NMSA 1978, § 7-9-5 — presumption that all receipts of a person engaging in business are taxable
• NMSA 1978, § 7-9-13.1 — situs of services for gross receipts tax purposes
• NMSA 1978, § 7-1-69 — civil penalty for negligence and its abatement for reasonable reliance on a professional
• NMSA 1978, § 7-1-67 — interest accrues on unpaid tax until the principal is satisfied
• NMSA 1978, §§ 7-1B-6 and 7-1B-8 — Administrative Hearings Office procedure and hearing timing
• NMSA 1978, § 7-1-25 — right to appeal the decision to the New Mexico Court of Appeals
• Regulation 3.2.1.19(C) NMAC — elements of a disclosed agency and the bookkeeping requirements to exclude such receipts
• Regulation 3.1.11.11(D) NMAC — penalty abatement for reliance on the advice of a competent tax professional after full disclosure

Cases:

• MPC Ltd. v. New Mexico Taxation & Revenue Department, 2003-NMCA-021 — set out the two-part disclosed-agency test and the bookkeeping requirements applied here to a payrolling arrangement
• Carlsberg Management Co. v. State, 1993-NMCA-121, 116 N.M. 247 — earlier disclosed-agency analysis in a property-management context
• Westland Corp. v. Commissioner of Revenue, 1971-NMCA-083, 83 N.M. 29 — early recognition of a limited "friendly agent" pass-through
• N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-NMCA-099 — taxpayer's burden to rebut the presumption of correctness of an assessment
• South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018) — noted on the evolving standards for taxing interstate activity, but not controlling here
• KPI, Inc. / Kmart Corp. v. Taxation & Revenue Dep't, 2006-NMCA-026 / 2006-NMSC-006 — delay in issuing a decision does not defeat a hearing officer's jurisdiction
• Ranchers-Tufco Limestone Project v. Revenue Division, 1983-NMCA-126 — delay in enforcement is not a defense to a tax action

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Talbridge Corporation
• Decision PDF: D&O 22-20

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 TALBRIDGE CORPORATION
6 TO ASSESSMENT ISSUED UNDER
7 LETTER ID NO. L0479267504

8 v. Case Number 20.09-113A, AHO D&O No. 22-20

9 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

10 DECISION AND ORDER

11 On July 22, 2021, Hearing Officer Chris Romero, Esq., of the Administrative Hearings

12 Office conducted an administrative hearing on the merits of the tax protest of Talbridge

13 Corporation (hereinafter referred to as its proper name or occasionally as “Taxpayer”) pursuant

14 to the Tax Administration Act and the Administrative Hearings Office Act. The hearing was

15 conducted by videoconference, as permitted under NMSA 1978, Section 7-1B-8 (H) (2019) and

16 Regulation 22.600.3.10 NMAC under the circumstances of the public health emergency

17 presented by COVID-19.

18 Mr. Zachary McCormick, Esq. appeared for Taxpayer and was accompanied by its

19 president, Ms. Teryle Morrow. Mr. Clark Thompson and Mr. Patrick Rodriguez also appeared as

20 witnesses for Taxpayer. Staff Attorney Kenneth Fladager, Esq. appeared, representing the

21 opposing party in the protest, the Taxation and Revenue Department (Department). Department

22 Protest Auditor Danny Pogan appeared as a witness for the Department.

23 Taxpayers Exhibits 1 – 9 and Department Exhibit A were admitted at the onset of the

24 hearing upon stipulation of the parties.

In the Matter of the Protest of Talbridge Corporation
Page 1 of 42
1 The primary issue for consideration was whether the computation of taxable gross receipts

2 erroneously included revenue that should have been excluded as receipts received solely on behalf

3 of another in a disclosed agency capacity under NMSA 1978, Section 7-9-3.5 (A) (3) (f).

4 If not, then Talbridge Corporation presents secondary issues: (1) what amount of gross

5 receipts would nevertheless be excludable as deriving from services performed outside of New

6 Mexico; and (2) whether Talbridge Corporation is entitled to abatement of penalty associated with

7 any potential liability due to its reliance on a certified public accountant.

8 As explained in greater detail in the subsequent discussion, the Hearing Officer

9 determined that Taxpayer failed to establish by a preponderance of evidence that its taxable

10 gross receipts included revenue that should have been excluded as receipts received solely

11 on behalf of another in a disclosed agency capacity under NMSA 1978, Section 7-9-3.5 (A)

12 (3) (f) because Talbridge Corporation was not an agent to a purported principal under the

13 facts relevant to this protest.

14 With regard for the secondary issues, the Hearing Officer agreed that receipts

15 purportedly derived out of state should be excluded from the computation of taxable gross

16 receipts and that Talbridge Corporation was entitled to an abatement of penalty associated

17 with liability due to its reliance on its certified public accountant. Therefore, Taxpayer’s

18 protest should be denied in part and granted in part. IT IS DECIDED AND ORDERED

19 AS FOLLOWS:

20 FINDINGS OF FACT

21 Initiation of the Protest and Procedural History

22 1. On December 31, 2019, the Department issued under Letter ID No. L0479267504

23 a Notice of Assessment of Taxes and Demand for Payment to Taxpayer for $347,318.19 in gross

24 receipts tax, $69,347.81 in penalty, and $68,308.10 in interest for a total assessment of

In the Matter of the Protest of Talbridge Corporation
Page 2 of 42
1 $484,974.10 for the periods from January 31, 2012 to April 30, 2019 (“Assessment”).

2 [Administrative File]

3 2. On February 26, 2020, Taxpayer filed a formal protest of the Department’s

4 assessment. [Administrative File]

5 3. On March 17, 2020, the Department acknowledged receipt of Taxpayer’s protest

6 under Letter ID. No. L0372685488. [Administrative File]

7 4. On September 9, 2020, the Department filed a request for hearing on the protest

8 with the Administrative Hearings Office, along with its answer to the issues raised in Taxpayer’s

9 protest. [Administrative File]

10 5. The Department’s answer summarized the Department’s opposition to Taxpayer’s

11 protest explaining that there was, “no legal or factual basis to find that the receipts are exempted

12 from taxation under the disclosed agent exclusion from gross receipts tax.” [Administrative File,

13 Department’s Answer, Page 2, Para. 2]

14 6. On September 10, 2020, the Administrative Hearings Office filed and served a

15 Notice of Telephonic Scheduling Hearing which set an initial hearing in the matter for October 2,

16 2020. [Administrative File]

17 7. The initial telephonic scheduling hearing occurred on October 2, 2020 at which

18 time neither party objected that the hearing would satisfy the 90-day hearing deadline under

19 NMSA 1978, Section 7-1B-6 (D). The parties also agreed to a second telephonic scheduling

20 hearing on January 8, 2021. [Administrative File]

21 8. On October 2, 2020, the Administrative Hearings Office filed and served a Notice

22 of Second Telephonic Scheduling Hearing which set a hearing for January 8, 2021.

23 [Administrative File]

In the Matter of the Protest of Talbridge Corporation
Page 3 of 42
1 9. On January 8, 2021, the Administrative Hearings Office filed and served a

2 Scheduling Order and Notice of Administrative Hearing. The hearing was to occur on May 10,

3 2021. [Administrative File]

4 10. On March 16, 2021, Taxpayer filed an unopposed Motion to Reschedule Hearing.

5 [Administrative File]

6 11. On March 17, 2021, the Administrative Hearings Office filed and served an Order

7 Granting Unopposed Motion to Continue and Notice of Telephonic Scheduling Hearing. The

8 order vacated the previously set hearing and set a scheduling hearing to occur on April 16, 2021.

9 [Administrative File]

10 12. On March 17, 2021, subsequent to the previous order, the Administrative

11 Hearings Office filed and served an Amended Notice of Telephonic Scheduling Hearing which

12 moved the previous setting from April 16, 2021 to April 12, 2021 as a result of another

13 scheduling conflict which had been overlooked. [Administrative File]

14 13. On April 13, 2021, the Administrative Hearings Office filed and served a

15 Scheduling Order and Notice of Administrative Hearing which set a hearing on the merits of

16 Taxpayer’s protest for May 25, 2021. [Administrative File]

17 14. On May 4, 2021, the parties filed their respective prehearing statements.

18 [Administrative File]

19 15. On May 24, 2021, the Department filed an Unopposed Motion for Continuance.

20 [Administrative File]

21 16. On May 24, 2021, the Administrative Hearings Office filed and served an Order

22 Granting Continuance and Notice of Administrative Hearing which continued the hearing on the

23 merits of Taxpayer’s protest to July 22, 2021. [Administrative File]

In the Matter of the Protest of Talbridge Corporation
Page 4 of 42
1 Testimony of Clark Thompson

2 17. Mr. Thompson resides in Los Alamos, New Mexico. [Testimony of Mr.

3 Thompson]

4 18. Mr. Thompson was an electrical engineer having retired from the Los Alamos

5 National Laboratory (“LANL”) in 2005. He is now a consulting engineer. [Testimony of Mr.

6 Thompson]

7 19. After Mr. Thompson’s retirement from LANL in 2005, he began work with a

8 group that would eventually evolve into an entity known as Area 521. [Testimony of Mr.

9 Thompson]

10 20. The initial mission of the group was to adapt a LANL-patented technology

11 (“remote sensing using electromagnetic energy”) for use in “downhole or remote sensing in the

12 oil industry.” [Testimony of Mr. Thompson]

13 21. Mr. Thompson was well-suited for such work in that electromagnetics represented

14 a substantial portion of his professional expertise. [Testimony of Mr. Thompson]

15 22. Simplistically stated, the technology relied on the structure of an oilwell to

16 transmit data which could be further evaluated. [Testimony of Mr. Thompson]

17 23. Remote sensing for use in the oil industry was the primary objective of the group

18 for the first couple of years of its existence. [Testimony of Mr. Thompson]

19 24. The group expanded by recruiting other professionals having relevant experience,

20 some of whom had also been employed by or retired from LANL. [Testimony of Mr. Thompson]

1
It is unclear from the record whether Area 52 was formally incorporated or organized as a juridical entity. For that
reason, use of the word “entity” or other synonymous term to describe Area 52 shall have no legal significance, but
is intended only to refer to the collection of individuals associating themselves with that name.
In the Matter of the Protest of Talbridge Corporation
Page 5 of 42
1 25. The group would work out of their homes and garages to fashion prototype

2 assemblies for use in the oilwell application. [Testimony of Mr. Thompson]

3 26. In 2006 or 2007, the group acquired space in Santa Fe and had evolved into a

4 structured “engineering organization.” [Testimony of Mr. Thompson]

5 27. The group eventually called itself Area 52 at which time roles among various

6 team members were formalized and the group’s mission was more clearly defined. [Testimony of

7 Mr. Thompson]

8 28. From Mr. Thompson’s perspective, the members of Area 52 were recruited by

9 Mr. Manny Gonzales, a senior manager from Chevron, and Mr. Don Coates, who Mr. Thompson

10 knew from LANL. [Testimony of Mr. Thompson]

11 29. Mr. Gonzales was the party primarily interested in the work that Area 52 was

12 assembled to perform. [Testimony of Mr. Thompson]

13 30. Since individuals affiliated with Area 52 “were considered contract outsiders” or

14 independent contractors, they set their own rates of compensation which Chevron could accept or

15 reject. [Testimony of Mr. Thompson]

16 31. Mr. Gonzales informed Mr. Thompson and others involved, that Chevron

17 required the individuals to be “self-employed” and to associate with an agency which would

18 perform personnel or human resource services. [Testimony of Mr. Thompson]

19 32. Given the choice of two or more agencies with which to associate for human

20 resource services, Mr. Thompson researched his choices and selected Talbridge Corporation

21 from his list of Chevron-approved options. [Testimony of Mr. Thompson]

22 33. Not all individuals associated with Area 52 were required to utilize the same

23 agency. [Testimony of Mr. Thompson]

In the Matter of the Protest of Talbridge Corporation
Page 6 of 42
1 34. Chevron informed Talbridge Corporation of the agreed-upon rates of

2 compensation. [Testimony of Mr. Thompson]

3 35. Talbridge Corporation provided no input in establishing rates of compensation for

4 any member of Area 52. [Testimony of Mr. Thompson]

5 36. Talbridge Corporation was responsible for payroll activities and other

6 personnel/human resources tasks while the individuals affiliated with Area 52 focused on

7 services for Chevron. [Testimony of Mr. Thompson]

8 37. Billable time was compiled and reported using Chevron-approved online

9 applications. [Testimony of Mr. Thompson]

10 38. Chevron had the authority to approve or reject the charges. [Testimony of Mr.

11 Thompson]

12 39. Individuals affiliated with Area 52 were ultimately compensated by Talbridge

13 Corporation, not Chevron. [Testimony of Mr. Thompson]

14 40. Chevron, through Mr. Gonzales, provided input regarding the work Area 52

15 performed for Chevron, but did not provide daily supervision. [Testimony of Mr. Thompson]

16 41. Mr. Thompson devoted minimal thought to Talbridge Corporation unless there

17 were payroll issues which needed attention. Otherwise, his primary focus was on his work with

18 Area 52 for the benefit of Chevron. [Testimony of Mr. Thompson]

19 42. Talbridge Corporation paid employees on a biweekly basis. Had payment not

20 been made, Mr. Thompson may have first inquired of Talbridge Corporation, but always

21 considered Chevron to be the primary source of compensation and financial backing for Area

22 52’s research and development. [Testimony of Mr. Thompson]

In the Matter of the Protest of Talbridge Corporation
Page 7 of 42
1 43. In addition to making payment to members of Area 52, such as Mr. Thompson,

2 Talbridge Corporation also withheld earnings for taxes and benefits, if any. [Cross Examination

3 of Mr. Thompson]

4 44. Not all individuals affiliated with Area 52 required benefits because many had

5 already retired from LANL or elsewhere. [Cross Examination of Mr. Thompson]

6 45. Modifications to Mr. Thompson’s compensation were determined exclusively by

7 Mr. Thompson and by Chevron without any input from Talbridge Corporation. [Direct

8 Examination of Mr. Thompson]

9 46. Area 52 ceased to exist in or after 2019 due to changes in Chevron’s evolving

10 business strategies which included moving away from the research and development that Area

11 52 was pursuing. [Testimony of Mr. Thompson; Testimony of Mr. Rodriguez]

12 Testimony of Mr. Patrick J. Rodriguez

13 47. Mr. Rodriguez resides in Santa Fe, New Mexico. He is a laser optics technician

14 retired from the Los Alamos National Laboratory. [Direct Examination of Mr. Rodriguez]

15 48. In 2010 to 2014, he worked with Area 52. He took a hiatus from approximately

16 2014 to 2016. He resumed his work at Area 52 in 2017 and worked with the group until it

17 dissolved. [Direct Examination of Mr. Rodriguez]

18 49. Mr. Rodriguez was specifically involved with assembly and testing prototype

19 instruments that Area 52 was developing for use by Chevron. [Direct Examination of Mr.

20 Rodriguez]

21 50. Similar to Mr. Thompson, Mr. Rodriquez was recruited to Area 52. [Direct

22 Examination of Mr. Rodriguez]

23 51. Mr. Rodriguez identified as being “hired by Chevron.” [Direct Examination of

24 Mr. Rodriguez]

In the Matter of the Protest of Talbridge Corporation
Page 8 of 42
1 52. Mr. Rodriguez, similar to other individuals recruited to Area 52, was referred to

2 Talbridge Corporation among options for payroll and other human resource or personnel

3 services. [Direct Examination of Mr. Rodriguez]

4 53. Mr. Rodriguez perceived that Talbridge Corporation was “facilitating” his

5 “employment with Chevron.” Direct Examination of Mr. Rodriguez]

6 54. Mr. Rodriguez understood all work at Area 52 to be directed by Chevron, for

7 Chevron’s benefit. [Direct Examination of Mr. Rodriguez]

8 55. Mr. Rodriguez perceived that Chevron, not Talbridge Corporation, was obligated

9 to make payment for his services with Area 52. [Direct Examination of Mr. Rodriguez]

10 56. Modification to Mr. Rodriguez’ rate of compensation was determined by Chevron

11 without input from Talbridge Corporation. [Direct Examination of Mr. Rodriguez]

12 57. Mr. Rodriquez’ personal interactions with Chevron personnel were rare. [Direct

13 Examination of Mr. Rodriguez]

14 Testimony of Ms. Morrow

15 58. Ms. Teryl Morrow is the president, CEO and 100-percent stock owner of

16 Talbridge Corporation. [Direct Examination of Ms. Morrow]

17 59. Ms. Morrow resides in Houston, Texas. [Direct Examination of Ms. Morrow]

18 60. Talbridge Corporation is based in Houston, Texas. [Direct Examination of Ms.

19 Morrow]

20 61. Talbridge Corporation is an employment agency engaging in the business of

21 identifying client needs, recruiting, screening, and hiring individuals to fulfil those client needs.

22 [Direct Examination of Ms. Morrow]

23 62. Providing contract workers for clients represented about 95 percent of Taxpayer’s

24 business in the years relevant to the protest. [Direct Examination of Ms. Morrow]

In the Matter of the Protest of Talbridge Corporation
Page 9 of 42
1 Talbridge Corporation’s Relationship with Chevron

2 63. The relationship between Talbridge Corporation and Chevron, to provide contract

3 workers, was formalized by a Professional Services Agreement in 2011. [Direct Examination of

4 Ms. Morrow]

5 64. Chevron required the agreement in order to comply with various federal

6 contracting requirements not relevant to this protest. [Direct Examination of Ms. Morrow]

7 65. Talbridge Corporation and Chevron executed a new agreement in or about 2015

8 (Taxpayer Ex. 1). [Direct Examination of Ms. Morrow]

9 66. There were no significant differences between the 2011 and 2015 agreements

10 between Chevron and Talbridge Corporation. [Direct Examination of Ms. Morrow; Taxpayer Ex.

11 1]

12 67. Talbridge Corporation’s work for Chevron informally expanded into “payrolling”

13 individuals that Chevron had recruited to perform services with Area 52. [Direct Examination of

14 Ms. Morrow]

15 68. In 2005, Chevron’s Contractor Acquisition Program, then known as “Beeline,”

16 inquired about Talbridge Corporation’s availability to provide payrolling services. Talbridge

17 Corporation responded that it was available. [Direct Examination of Ms. Morrow]

18 69. The term “payrolling” was used to describe the personnel or human resource

19 services that Talbridge Corporation performed for individuals associated with Area 52. [Direct

20 Examination of Ms. Morrow]

21 70. “Payrolling” consisted of placing those individuals recruited by Chevron on

22 Talbridge Corporation’s payroll for the purpose of paying salaries or wages, withholding taxes,

23 and providing benefits. [Direct Examination of Ms. Morrow]

In the Matter of the Protest of Talbridge Corporation
Page 10 of 42
1 The Distinction Between Services
2 Provided Under Professional Services Agreement and Payrolling

3 71. Talbridge Corporation’s Professional Services Agreement with Chevron specified

4 that Talbridge Corporation was an independent contractor and disclaimed any agency

5 relationship between Chevron and Talbridge Corporation in reference to services provided under

6 the agreement. [Direct Examination of Ms. Morrow; Taxpayer Ex. 1 (Para. 11]

7 72. The Professional Services Agreement at 1 (a) provided that services would be

8 formally requested by a “Service Order,” also referred to as a “Requisition.” [Direct Examination

9 of Ms. Morrow]

10 73. A “Service Order” or “Requisition” established the parameters of a job Chevron

11 was looking to fill. [Direct Examination of Ms. Morrow]

12 74. The mechanics of the agreement, involving the use of a “Service Order” or

13 “Requisition” did not apply to Talbridge Corporation’s payrolling activities for Chevron. [Direct

14 Examination of Ms. Morrow]

15 75. “Payrolling” did not require Talbridge Corporation to provide any services until

16 Chevron and the individual had agreed on relevant terms and the individual had selected

17 Talbridge Corporation from among a short list of Chevron-approved payrolling entities. [Direct

18 Examination of Ms. Morrow]

19 76. Upon indicating that it would be able to provide such services, the individuals

20 comprising the group that would eventually become Area 52 “interviewed” Talbridge

21 Corporation to determine if they would engage it for payroll purposes. [Direct Examination of

22 Ms. Morrow]

In the Matter of the Protest of Talbridge Corporation
Page 11 of 42
1 77. For individuals in New Mexico associated with Area 52 who selected Talbridge,

2 it thereafter handled payroll services, including tax withholdings and benefits. [Direct

3 Examination of Ms. Morrow]

4 78. Talbridge Corporation was one of several companies that were available for

5 individuals to engage for payrolling purposes. [Direct Examination of Ms. Morrow]

6 79. Talbridge Corporation never recruited individuals for work at Area 52. [Direct

7 Examination of Ms. Morrow]

8 80. Every employee in New Mexico associated with Area 52 was recruited and hired

9 by Chevron according to terms and conditions established exclusively by Chevron. [Direct

10 Examination of Ms. Morrow]

11 81. Talbridge followed Chevron’s instructions including rates of compensation

12 determined exclusively by Chevron and the employee. [Direct Examination of Ms. Morrow]

13 82. Payrolling services were beyond the scope of the Professional Services

14 Agreement in that payrolling service did not involve recruiting or other activities covered by the

15 contract. [Direct Examination of Ms. Morrow]

16 Billing Chevron for Payrolling Services and Maintenance of Billing Records

17 83. Service Orders or Requisitions were processed, billed, and paid through

18 Chevron’s Contractor Acquisition Program, then known as “Beeline.” [Direct Examination of

19 Ms. Morrow; Taxpayer Ex. 1 (Para. 4 (b) and 4 (c))]

20 84. A similar process as that employed under the Professional Services Agreement

21 was employed for Talbridge Corporation’s payrolling services. [Direct Examination of Ms.

22 Morrow]

23 85. Area 52 employees entered their time into Chevron’s designated system for

24 review and approval. [Direct Examination of Ms. Morrow]

In the Matter of the Protest of Talbridge Corporation
Page 12 of 42
1 86. Upon approval, Talbridge Corporation would then access the data for

2 computation of employee compensation and billing to Chevron. [Direct Examination of Ms.

3 Morrow]

4 87. Invoices to Chevron would include employee compensation plus Talbridge

5 Corporation’s markup. [Direct Examination of Ms. Morrow]

6 88. Talbridge Corporation’s markup for payrolling services for employees associated

7 with Area 52 was significantly reduced since Talbridge Corporation incurred little expense in

8 providing the services. [Direct Examination of Ms. Morrow]

9 89. Chevron paid each invoice 45 to 90 days after submission to Chevron through the

10 Beeline. [Direct Examination of Ms. Morrow]

11 90. Beeline maintained billing and payment details, including salary and wage

12 information per employee, along with any markups paid to Talbridge Corporation. [Direct

13 Examination of Ms. Morrow; Taxpayer Ex. 1 (Para. 4 (b) and 4 (c))]

14 91. Physical invoices were never submitted to Chevron. All billing activities were

15 accomplished electronically through the Contractor Acquisition Program or Beeline. [Cross

16 Examination of Ms. Morrow]

17 92. Chevron knew how much was paid per employee in the form of reimbursement to

18 Talbridge Corporation, plus the extra amount it paid as a markup for Talbridge Corporation’s

19 payrolling services. [Direct Examination of Ms. Morrow]

20 93. When Chevron evolved away from Beeline to another program, Talbridge lost

21 access to the data maintained in the Beeline system. [Direct Examination of Ms. Morrow;

22 Taxpayer Ex. 1 (Para. 4 (b) and 4 (c))]

In the Matter of the Protest of Talbridge Corporation
Page 13 of 42
1 Application for Technology Jobs and Research and Development Tax Credit

2 94. Subsequent to the Assessment, Talbridge Corporation applied for a Technology

3 Jobs and Research and Development Tax Credit presuming that any credit could be applied to an

4 asserted gross receipts tax liability. [Direct Examination of Ms. Morrow]

5 95. In denying the credit (not subject of this protest), the Department correctly

6 observed that “Talbridge is an employment agency. Talbridge is located at 3131 Eastside Street,

7 Suite 333, Houston Texas and does not have business locations in New Mexico.” [Direct

8 Examination of Ms. Morrow; Taxpayer Ex. 2 (Summary of Business Activity/Transactions in

9 NM)]

10 96. In denying the credit, the Department also correctly concluded that, “Chevron

11 Corporation contracted Talbridge to provide employees to complete some of their research and

12 Development projects. Chevron Corporation reimbursed Talbridge for the wages claimed on the

13 Technology Jobs and Research and Development Tax Credit Application.” [Direct Examination

14 of Ms. Morrow; Taxpayer Ex. 2.2]

15 97. The Department’s denial also correctly observed, with concern for reimbursement

16 of payrolled employees that, “the Technology Jobs and Research and Development Tax Credit

17 Applications would be disallowed because the wages claimed were reimbursed by Chevron

18 Corporation and the research and development projects were proprietary to Chevron

19 Corporation, not Talbridge.” [Direct Examination of Ms. Morrow; Taxpayer Ex. 2.2]

20 Chevron’s Authority Over Talbridge Corporation

21 98. In the latter portion of 2014, Chevron elected to consolidate its “pre-identified

22 candidate payrolling” with a single provider. [Direct Examination of Ms. Morrow; Taxpayer

23 Exs. 3 and 4]

In the Matter of the Protest of Talbridge Corporation
Page 14 of 42
1 99. The term “pre-identified candidate payrolling” included individuals on Talbridge

2 Corporation’s payroll who were affiliated with Area 52. [Direct Examination of Ms. Morrow;

3 Taxpayer Ex. 3]

4 100. On January 29, 2015, Chevron notified Talbridge Corporation that a mandatory

5 form letter be distributed to payrolled employees which informed that, “As a part of broad cost-

6 saving measures in motion at Chevron, the company has decided to consolidate all of their

7 payroll service (pre-identified) contract employees that fall under that Contractor Acquisition

8 Program (CAP) under one payroll service provider.” [Direct Examination of Ms. Morrow;

9 Taxpayer Ex. 4.1]

10 101. It went on to explain, “Chevron has selected a different firm from [Talbridge

11 Corporation]” to be “the sole payroll service provider.” The form letter was prepared by

12 Chevron’s Contractor Acquisition Program but was to be distributed by Talbridge Corporation

13 on its own letterhead. [Direct Examination of Ms. Morrow; Taxpayer Ex. 4]

14 102. The memorandum from Mr. Robert Silvas continued with an explanation that,

15 “Independent Professional Management (IPM) has been selected to take over all IT pre-

16 identified candidate payrolling, and a go-live date of March 1, 2015 has been set by Chevron.”

17 [Direct Examination of Ms. Morrow; Taxpayer Ex. 3]

18 103. The form letter also informed payrolled employees that, “This transition is

19 currently set to be completed by March 1st, 2015. As of this date you will become an employee

20 of IPM and cease to be an employee of [Talbridge Corporation]. The transition is being managed

21 by IPM with the assistance of CAP and Chevron. IPM will be in direct contact with you very

22 soon to guide you through the transfer steps over the coming weeks.” [Direct Examination of

23 Ms. Morrow; Taxpayer Ex. 4]

In the Matter of the Protest of Talbridge Corporation
Page 15 of 42
1 104. The course of action reflected in the memorandum was developed and

2 implemented exclusively by Chevron and its Contractor Acquisition Program without input from

3 Talbridge Corporation. [Direct Examination of Ms. Morrow; Taxpayer Ex. 4]

4 105. Chevron prohibited Talbridge Corporation from modifying the letter in any way

5 without its approval. [Direct Examination of Ms. Morrow; Taxpayer Ex. 4]

6 106. However, Mr. Silvas of the Contractor Acquisition Program permitted a

7 modification for Area 52 employees who were predominantly payrolled by Talbridge

8 Corporation. The modification approved for Area 52 added a sentence that read, “Additionally,

9 IPM has a longstanding and successful history providing this service to contract employees

10 working in Area 52 in Santa Fe. We know that you will be in good hands[.]” [Direct

11 Examination of Ms. Morrow; Taxpayer Exs. 4 and 5]

12 107. Talbridge Corporation had approximately 60 payrolled employees nationwide,

13 including employees affiliated with Area 52. [Direct Examination of Ms. Morrow]

14 108. The impending transition to IPM caused affected Talbridge Corporation

15 employees to express various concerns with the costs of benefits. [Direct Examination of Ms.

16 Morrow]

17 109. Such concerns were passed on from Talbridge Corporation to Chevron’s

18 Contractor Acquisition Program which had decision making authority for Chevron. [Direct

19 Examination of Ms. Morrow]

20 110. In the case of one payrolled employee who expressed concerns regarding the

21 higher cost of insurance with IPM, Chevron’s Contractor Acquisition Program permitted her to

22 remain employed by Talbridge Corporation as her payrolling entity so long as Talbridge reduced

23 its rate to match that charged by IPM. [Direct Examination of Ms. Morrow; Taxpayer Ex. 6]

In the Matter of the Protest of Talbridge Corporation
Page 16 of 42
1 111. In another example of a payrolled employee expressing the desire to remain

2 employed by Talbridge Corporation, the employee was informed directly by Chevron that

3 retaining Talbridge Corporation as his payroller was not an option. Chevron communicated

4 directly with other payrolled employees as well.

5 112. All concerns among payrolled employees and Chevron were addressed directly

6 between Chevron and the employee with any decision being communicated to Talbridge

7 Corporation by Chevron. [Direct Examination of Ms. Morrow]

8 113. Accordingly, Chevron was the entity that decided who could remain employed by

9 Talbridge Corporation. [Direct Examination of Ms. Morrow; Taxpayer Ex. 6]

10 114. Talbridge Corporation lacked any authority to act on behalf of Chevron with

11 respect to any employee concerns. [Direct Examination of Ms. Morrow]

12 115. Mr. Silvas at one time reprimanded Ms. Morrow of Talbridge Corporation

13 because she had direct communication with an individual affiliated with Area 52, which

14 Talbridge was payrolling. The individual’s job title was “Chevron Manager” but was on

15 Talbridge Corporation’s payroll. Nevertheless, Talbridge Corporation received an infraction for

16 the communication with an individual who the Contractor Acquisition Program perceived as a

17 Chevron employee despite Talbridge Corporation’s function as the employee’s payroller. [Direct

18 Examination of Ms. Morrow]

19 Gross Receipts Deriving from Services Performed in Texas

20 116. From 2013 through 2019, gross receipts paid for payroll was $7,124,258.14. The

21 total payroll costs in the same period of time was $6,014,915.55. The difference of

22 $1,109,343.19 reflected the amount Talbridge Corporation received in excess of the output.

23 [Direct Examination of Ms. Morrow; Taxpayer Ex. 8]

In the Matter of the Protest of Talbridge Corporation
Page 17 of 42
1 117. Receipts identified as Talbridge Corporation’s “markup” were performed in

2 Houston, Texas. [Cross Examination of Mr. Pogan; Department’s Pre-Hearing Statement filed

3 May 4, 2021 (Page 3, Stipulation No. 10); Taxpayer Talbridge Corporation’s Prehearing

4 Statement filed May 4, 2021 (Page 3, Stipulation No. 10)]

5 Reliance on Tax Professionals

6 118. Since 2005, all Certified Public Accountants with whom Talbridge Corporation

7 has consulted have consistently held the opinion that Talbridge Corporation’s gross receipts tax

8 reports should reflect no tax due. [Direct Examination of Ms. Morrow]

9 119. All relevant CRS-1 Reports were filed with the assistance of Certified Public

10 Accountants, none of whom ever identified any errors or other concerns which would have

11 alerted Ms. Morrow to any issues. [Direct Examination of Ms. Morrow]

12 Testimony of Mr. Danny Pogan

13 120. Mr. Danny Pogan is a protest auditor with the Department’s protest office.

14 Although he was employed by the Department for many years prior to the protest, he is now an

15 independent contractor. [Direct Examination of Mr. Pogan]

16 121. Mr. Pogan has more than 25 years of experience with New Mexico’s gross

17 receipts tax. [Direct Examination of Mr. Pogan]

18 122. Mr. Pogan reviewed all documents relevant to the protest, including submissions

19 by Talbridge Corporation. [Direct Examination of Mr. Pogan]

20 123. Mr. Pogan observed that all gross receipts reported in the years relevant to the

21 protest were deducted, which resulted in no gross receipts tax liability in any of the reporting

22 periods. [Direct Examination of Mr. Pogan; Department Ex. A]

23 124. Mr. Pogan did not observe any records to demonstrate that amounts billed to

24 Chevron for reimbursement of payrolling expenses paid by Talbridge Corporation were

In the Matter of the Protest of Talbridge Corporation
Page 18 of 42
1 separately stated as required by Regulation 3.2.1.19 (2) NMAC. [Direct Examination of Mr.

2 Pogan]

3 125. Mr. Pogan did not observe any facts that would indicate that Talbridge

4 Corporation received reimbursement of expenditures incurred as a disclosed agent of Chevron.

5 [Direct Examination of Mr. Pogan]

6 126. Talbridge Corporation was identified as employer for IRS Form W-2 for all

7 employees that it payrolled in the relevant years. [Direct Examination of Mr. Pogan]

8 127. Talbridge Corporation filed quarterly Wage and Contribution Reports to the New

9 Mexico Department of Workforce Solution with respect to all employees it payrolled, and paid

10 workers compensation fees and unemployment taxes on behalf of those employees. [Direct

11 Examination of Mr. Pogan]

12 128. Mr. Pogan was not aware of any prohibition against an agent filing a W-2. [Direct

13 Examination of Mr. Pogan]

14 129. Mr. Pogan did not observe any documents that would establish reasonable

15 reliance on a competent tax professional. [Direct Examination of Mr. Pogan]

16 130. Mr. Pogan did not observe any documents which to Mr. Pogan, would be

17 sufficient to establish entitlement to a deduction, exemption, or exclusion from gross receipts

18 taxation. [Direct Examination of Mr. Pogan]

19 131. Reimbursed expenses are gross receipts except as provided by Regulation

20 3.2.1.19 C (2) NMAC. [Direct Examination of Mr. Pogan]

21 132. The Department, although looking to the contract to understand the relationship

22 between parties to that contract, will also consider other circumstances in determining whether a

23 taxpayer is an agent or not for the purpose of evaluating whether a tax liability is incurred. [Re-

24 Direct Examination of Mr. Pogan]

In the Matter of the Protest of Talbridge Corporation
Page 19 of 42
1 DISCUSSION

2 The central issue in dispute is whether the Department erroneously assessed gross receipts

3 tax on revenue allegedly received solely on behalf of another in a disclosed agency capacity under

4 Section 7-9-3.5 (A) (3) (f). The protest also presents two secondary issues, which if not rendered

5 moot by the decision on the primary issue, must then be determined: (1) what, if any, non-taxable

6 receipts derived from services performed outside of New Mexico, in Houston, Texas; and (2)

7 whether Taxpayer is entitled to an abatement of penalty.

8 The Department asserts that its assessment is correct because: (1) there was no evidence to

9 establish the essential elements of an agency relationship as contemplated by Section 7-9-3.5 (A) (3)

10 (f) and Regulation 3.2.1.19 (C) NMAC; and that (2) there is no basis for the abatement of penalty

11 due to an absence of documentary evidence establishing reliance on the advice of a competent tax

12 professional after full disclosure.

13 The Department does not explicitly dispute that services performed outside of New Mexico

14 are excludable from gross receipts, and observing the Department’s lack of disagreement, the

15 Hearing Officer finds that a reasonable application of the law to the facts unique to this protest

16 allows for the abatement of tax associated with services the parties agreed were performed out of

17 state.

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

24 Chevron U.S.A., Inc. v. State ex rel. Dep’t of Taxation & Revenue, 2006-NMCA-050, ¶16, 139

In the Matter of the Protest of Talbridge Corporation
Page 20 of 42
1 N.M. 498, 134 P.3d 785 (agency regulations interpreting a statute are presumed proper and are to be

2 given substantial weight).

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

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

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

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

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

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

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

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

11 NMCA-021, ¶13.

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

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

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

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

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

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

18 007, ¶9, 133 N.M. 447, 64 P.3d 474.

19 Computing Taxable Gross Receipts

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

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

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

23 assuming excludable receipts were erroneously included in the computation. The difference

24 between total gross receipts and any applicable deductions or exemptions is the amount of taxable

In the Matter of the Protest of Talbridge Corporation
Page 21 of 42
1 gross receipts.

2 Under NMSA 1978, Section 7-9-3.5 (A) (1) (2007), “gross receipts” means:

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

9 New Mexico imposes the gross receipts tax on the receipts of any person engaged in

10 business in New Mexico for the privilege of engaging in business. See NMSA 1978, Section 7-9-

11 4 (2002). Consequently, all gross receipts of a person engaged in business in New Mexico are

12 presumed taxable. See NMSA 1978, Section 7-9-5 (2002).

13 Statutory Exclusions from Gross Receipts pursuant to Section 7-9-3.5 (A) (3) (f)

14 NMSA 1978, Section 7-9-3.5(A) (3) (f) explicitly states that the term “gross receipts”

15 excludes “amounts received solely on behalf of another in a disclosed agency capacity.” The fact

16 that a sum of money is received as a reimbursement of expenditures incurred in connection with the

17 performance of a service does not mean it is mechanically excluded from the computation, “unless

18 that person incurs such expense as agent on behalf of a principal while acting in a disclosed agency

19 capacity.” See Regulation 3.2.1.19 (C) (1) NMAC (Emphasis Added). It goes on to explain that

20 “[a]n agency relationship exists if a person has the power to bind a principal in a contract with a

21 third party so that the third party can enforce the contractual obligation against the principal.” Id.

22 The exclusion for amounts received solely on behalf of another in a disclosed agency

23 capacity has a long history in New Mexico. As early as 1971, the Court of Appeals in Westland

24 Corporation v. Commission of Revenue, 1971-NMCA-083, ¶38, 83 N.M. 29, observed that there

25 was no justification under the facts of that case to impose gross receipts tax on the receipts of a

26 person who served as a “friendly agent” for the limited purpose of “receiving and paying out sums

In the Matter of the Protest of Talbridge Corporation
Page 22 of 42
1 for debts or obligations owing” from another company.

2 More than 20 years later, the Court of Appeals in Carlsberg Mgmt. Co. v. State, 1993-

3 NMCA-121, 116 N.M. 247 revisited the topic. Carlsberg concerned a property management group

4 that operated an apartment complex on behalf of the property owner. The rent at the apartment

5 complex was subsidized by a federal agency. The taxpayer claimed that the federal agency

6 mandated the form of the agreement in place between that taxpayer and the owner. The agreement

7 in Carlsberg referred to that taxpayer as “agent.” Under an agency theory, the Carlsberg taxpayer

8 argued that money it received from the owner for the reimbursement of taxpayer’s employee wages

9 was not subject to gross receipts tax.

10 Carlsberg observed “that a principal’s control over the agent is the key characteristic of an

11 agency relationship.” See Carlsberg, 1993-NMCA-121, ¶12. It went on to explain that whether an

12 agency relationship existed was a factual determination. See Carlsberg, 1993-NMCA-121, ¶16. It

13 began its evaluation by reviewing the terms of the relevant agreement. In doing so, it emphasized

14 the long-standing rule that when the contract is clear, the language of the contract determines the

15 intent of the parties without further interpretation. It concluded that the relevant contract created an

16 unambiguous agent-principal relationship, rejected the Department’s requirement that an agent be

17 disclosed, and adopted the rule that “if a party only receives money… of [] another’s employment-

18 related obligations, then an agency relationship exists sufficient to avoid taxation of those funds as

19 gross receipts.” See Carlsberg, 1993-NMCA-121, ¶15. The Court went on to observe that the level

20 of control the owner of the apartment complex wielded over that taxpayer regarding that taxpayer’s

21 employees left that taxpayer with no control over the payment of the employees, and thus that

22 taxpayer never possessed any interest in the funds in question used to pay the employees. See

23 Carlsberg, 1993-NMCA-121, ¶19. The Carlsberg decision also noted that an indemnification

24 clause requiring the owner to pay that taxpayer for employment related expenses supported its

In the Matter of the Protest of Talbridge Corporation
Page 23 of 42
1 holding. See id.

2 The Court of Appeals again had an opportunity to revisit the issue in 1995 when it

3 considered Brim Healthcare, Inc. vs. State, 1995-NMCA-055, 119 N.M. 818. The question

4 presented by Brim was whether an agency relationship excluded taxpayer’s reimbursements from

5 the gross receipts tax. In ultimately disagreeing with the taxpayer’s position, the Court of Appeals

6 identified several areas of distinction from the facts underlying Carlsberg. The most significant

7 factor distinguishing Brim from Carlsberg was the absence of an indemnification clause in the

8 agreement at issue in Brim. See id. But another distinction observed in Brim was that the contracts at

9 issue expressly noted that the taxpayer was “not an agent… but rather [was] an independent

10 contractor.” Ultimately, the Court of Appeals agreed that the receipts central to the dispute were not

11 received as “reimbursement of expenses as an agent.” See Brim, 1995-NMCA-055, ¶18.

12 Although Carlsberg expressly rejected the Department’s previous policy and regulation

13 allowing for exemption of gross receipts only when there is a disclosed agency relationship, a

14 subsequent legislative enactment limited the Carlsberg holding. See MPC, 2003-NMCA-021, ¶14.

15 At the time the Court of Appeals issued its decision in Carlsberg, the gross receipts tax definition

16 contained no provision excluding from gross receipts tax receipts received solely on behalf of

17 another in a disclosed agency capacity. Subsequent to Carlsberg, the Legislature enacted an explicit

18 and specific exclusion for receipts received in a disclosed agency capacity limiting the holding in

19 Carlsberg, which upon first impression would seem to favor Talbridge Corporation in this situation

20 but for the subsequent modification reflected by Section 7-9-3.5 (A) (3) (f).

21 In 2003, the Court of Appeals in MPC revisited the consequences of an agency relationship

22 in the context of gross receipts tax for the first time under the subsequently enacted “disclosed

23 agency” exception to the definition of “gross receipts.” The Court cautioned that Carlsberg and

24 Brim were both decided before the enactment of the explicit exclusion for receipts derived in the

In the Matter of the Protest of Talbridge Corporation
Page 24 of 42
1 capacity of a disclosed agent pursuant to Section 7-9-3.5(A) (3) (f), and for that reason, those cases

2 had limited instructive value. See MPC, 2003-NMCA-021, ¶34.

3 MPC concerned a taxpayer that provided temporary staffing services to clients in New

4 Mexico. MPC mostly relied on unwritten agreements with its clients, but did have some written

5 agreements in place that established the terms and conditions of its services. For example, and

6 similar to the facts underlying the present protest, MPC’s clients supervised the activities of the

7 assigned employees, but the client did not pay the employees. Instead, the taxpayer in that case paid

8 its employees which in turn was paid by its clients. The taxpayer in MPC then went on to claim the

9 totality of its receipts should be excluded from gross receipts because it “received the amounts

10 purely as a conduit between its clients and its employees.” See MPC, 2003-NMCA-021, ¶8.

11 The taxpayer’s argument in MPC required the Court to consider both a regulation

12 addressing joint employers and the statutory and regulatory elements for establishing a disclosed

13 agency relationship. Similar to the matter at hand, the Court was called upon to consider the

14 application of Regulation 3.2.1.19 (C) (1) NMAC interpreting and implementing Section 7-9-3.5

15 (A) (3) (f). In doing so, MPC observed Regulation 3.2.1.19 (C) (1) NMAC to mean that:

16 (1) the agent [taxpayer] has the authority to bind the principal (the
17 client)… to an obligation (to the employee) created by the agent
18 [taxpayer], and (2) the beneficiary of that obligation (the employee)
19 is informed by contract that he or she has a right to proceed against
20 the principal (the client) to enforce the obligation.

21 In other words, with specific reference to the case at hand: (1) Talbridge Corporation must

22 possess the authority to bind Chevron to obligations Talbridge Corporation creates to the employee;

23 and (2) the employee beneficiary of that obligation is informed by contract that he or she has a right

24 to proceed against Chevron to enforce the obligation created by Talbridge Corporation.

25 The Court in MPC went on to further explain disclosure as follows, which consistent with

26 Talbridge Corporation’s interpretation, does not require the disclosure to be in writing:

In the Matter of the Protest of Talbridge Corporation
Page 25 of 42
1 Section 7-9-3(F)(2)(f) requires a disclosure to the employee of an
2 agency relationship. This breaks down into the requirements that
3 there be a relationship by which the principal is liable (and knows he
4 is liable) to the employee for payroll if the agent fails to pay, and that
5 the agent disclose this relationship and obligation to the employee.

6 Restated for the facts now at hand, Section 7-9-3(F)(2)(f) requires: (1) that there be a

7 relationship by which Chevron has actual knowledge of its liability to the employees of Talbridge

8 Corporation for payroll if Talbridge Corporation fails to pay; and (2) that Talbridge Corporation

9 disclose this relationship and obligation to the Talbridge Corporation employees.

10 Additionally, MPC further noted that Regulation 3.2.1.19 (C) required additional

11 bookkeeping requirements that must be met in order to exclude receipts received as part of a

12 disclosed agency capacity from gross receipts. See MPC, 2003-NMCA-021, ¶36.

13 Turning to the facts now under consideration, the Hearing Officer notes several similarities

14 between the facts presented by Talbridge Corporation and MPC. Chevron like the taxpayer’s clients

15 in MPC supervises the day-to-day activities of the employees who are not directly compensated by

16 Chevron, but technically employed and compensated by Talbridge Corporation. As with the

17 taxpayer’s clients in MPC, Chevron pays Talbridge Corporation a sum of money comprised of the

18 employee’s salary or wages, benefits, plus a fee (a “markup”) for the services Talbridge Corporation

19 provides.

20 The first item to evaluate is the relationship between Chevron and Talbridge Corporation.

21 Although the record contains a Professional Services Agreement between Talbridge Corporation

22 and Chevron, Talbridge Corporation emphasizes the agreement does not accurately represent the

23 entirety of its business relationship with Chevron, but only represents the agreement with respect to

24 the specific scope of work subject in that agreement. Ms. Morrow credibly explained that its

25 payrolling services extended beyond the scope of work in the agreement, suggesting that the

26 Hearing Officer look not to the Professional Services Agreement to understand the full range of

In the Matter of the Protest of Talbridge Corporation
Page 26 of 42
1 their relationship, but to their conduct. The Hearing Officer will observe, however, that the

2 Professional Services Agreement explicitly disclaims an agency relationship, clarifying that the

3 relationship of Talbridge Corporation to Chevron is one of independent contractor.

4 Paragraph 11 of the Professional Services Agreement clearly states, “Contractor is

5 performing the Services as an independent contractor and not as an employee of Company and none

6 of Contractor’s personnel shall be entitled to receive any compensation, benefits or other incidents

7 of employment from Company.” (Emphasis Added) This language notifies Talbridge Corporation

8 that it has no authority to create any legally enforceable obligations that any Talbridge Corporation

9 employee could then enforce directly against Chevron.

10 Talbridge Corporation emphasizes that “the majority rule is that the manner in which the

11 parties designate a relationship is not controlling, and if an act done by one person on behalf of

12 another is in its essential nature one of agency, the one is the agent of the other, notwithstanding he

13 is not so called.” See Chevron Oil Co. v. Sutton, 1973-NMSC-111, ¶ 4, 85 N.M. 679, 681, 515 P.2d

14 1283, 1285.

15 The Hearing Officer agrees that this is an appropriate place to begin, observing that

16 Chevron sought services of Talbridge Corporation which did not precisely fit within the four

17 corners of the Professional Services Agreement. For example, Ms. Morrow explained that the

18 purpose of the Professional Services Agreement was to provide services consistent with

19 Talbridge Corporation’s business model, which as an employment agency, was to identify the

20 needs of its clients, recruit, screen, and hire employees. However, with regard to Chevron’s

21 activities in New Mexico and employees affiliated with Area 52, it did none of those things.

22 Instead, Chevron was the entity that identified its needs, recruited, screened, and selected

23 individuals to be hired who were then referred to a list of third parties, including Talbridge

24 Corporation, for payrolling purposes, a service not entirely within the scope of services to be

In the Matter of the Protest of Talbridge Corporation
Page 27 of 42
1 provided under the Professional Services Agreement.

2 If the employee ultimately selected Talbridge Corporation for payrolling, because the

3 employees had a choice of payrollers, then it placed the individual on its payroll and charged

4 Chevron for its payroll costs plus a markup. The markup, according to Ms. Morrow, was reduced

5 because Talbridge Corporation was not providing its full range of services (i.e. payrolling under

6 these circumstances did not require identifying client needs, recruiting, or screening). Although

7 employees affiliated with Area 52 may have thought of themselves as Chevron employees, the

8 fact that they were technically employed by Talbridge Corporation was not in dispute.

9 Thus far, the Hearing Officer agrees that the Professional Services Agreement did not

10 fully address the sorts of services Talbridge Corporation provided with regard to payrolling. For

11 that reason, it is appropriate to look to the conduct of the parties to determine if the acts

12 performed by Talbridge Corporation on behalf of Chevron were “by their essential nature one[s] of

13 agency[.]”

14 The Hearing Officer is unpersuaded that the relationship, by its essential nature, was one of

15 agency. The record established that Chevron had very strict rules of engagement with Talbridge

16 Corporation, which seemingly had no authority whatsoever in its dealings with Chevron. With

17 regard for employees affiliated with Area 52, Chevron recruited the employees and established

18 their rates of compensation. Chevron directed those employees to a list of entities who could

19 “payroll” them. As Ms. Morrow explained, the employee then “interviewed” Talbridge

20 Corporation, and if the employee ultimately selected Talbridge Corporation, it put the employee

21 on its payroll as a Talbridge Corporation employee. It would then compensate the employee at a

22 rate established exclusively by Chevron, withhold taxes, and provide employment benefits when

23 so desired.

24 Talbridge would then invoice Chevron, through Chevron’s required Contractor

In the Matter of the Protest of Talbridge Corporation
Page 28 of 42
1 Acquisition Program, for the actual costs of payrolling the employee plus a markup which

2 Chevron would subsequently pay weeks to months later, according to Ms. Morrow.

3 In the meantime, according to Ms. Morrow, Chevron and its Contractor Acquisition

4 Program seemingly had strict rules about Ms. Morrow and Talbridge Corporation even

5 communicating with employees, whether employed by Chevron or not, in that on at least one

6 occasion, Ms. Morrow described receiving an “infraction” for communicating with her own

7 employee.

8 Chevron’s control was apparent in other areas, too. For example, Chevron initially

9 directed employees to a selection of payrollers, including Talbridge Corporation, but when it

10 decided to explore and implement cost saving measures, it unilaterally eliminated all payrollers

11 with the exception of one provider that offered it the lowest rate for services. It then required that

12 all employees of Talbridge Corporation transfer to the new provider, with little to no input from

13 any third parties, including Talbridge Corporation and the employees who were to be transferred.

14 When employees expressed concerns for a required transfer to another payrolling service,

15 Talbridge Corporation, although sympathetic to the employee, ultimately referred the employee

16 to Chevron. Chevron, not Talbridge Corporation, evaluated those employee concerns, and on at

17 least one occasion addressed on the record, allowed the employee to remain with Talbridge

18 Corporation so long as Talbridge Corporation reduced its “markup” to match the rate charged by

19 Chevron’s preferred payroller. Had Talbridge Corporation had any actual authority to act on

20 Chevron’s behalf, it may have resolved the employee concern on its own accord, but even it

21 acknowledged that it was without any authority at all to act on behalf of Chevron, even with

22 respect for its own employees.

23 These observations, individually and collectively, demonstrate that Talbridge Corporation

24 had no discernable authority to act on behalf of Chevron, in any manner, whatsoever. These

In the Matter of the Protest of Talbridge Corporation
Page 29 of 42
1 examples demonstrate the lack of an agency relationship between Chevron and Talbridge

2 Corporation, not its existence. At no time, at least from what was observed in the evidence, did

3 Talbridge Corporation ever project itself as an agent of Chevron having authority to act on its

4 behalf and bind it to any contractually enforceable obligations, presumably because it knew it did

5 not have that authority to begin with. This represents the sort of relationship contemplated by the

6 Professional Services Agreement which was one of an independent contractor in which

7 “[n]either [Talbridge Corporation] nor [Chevron] shall be or become liable or bound by any

8 representation, act or omission whatsoever of the other.” See Taxpayer Ex. 1, Para. 11. Thus,

9 even though “payrolling” services may have extended beyond the four corners of the

10 Professional Services Agreement, the conduct of the parties remained consistent with the terms

11 formally established therein, especially with respect to the restraint on Talbridge Corporation’s

12 authority to do anything in the name of Chevron, which might resemble an agency relationship.

13 The next question is whether Chevron had actual knowledge of any purported liability to

14 any Talbridge Corporation employee that was created by Talbridge Corporation, assuming for

15 the moment that Talbridge Corporation enjoyed such authority in the first place.

16 The evidence suggested that Chevron, at least from a practical perspective, sometimes

17 perceived no distinction between its own employees and employees affiliated with Area 52 but

18 who were “payrolled” by Talbridge Corporation. Yet, there was an obvious and predominant

19 distinction fully intended by Chevron in that it chose not to place Area 52 employees on its own

20 payroll in the first place, but chose to rely on Talbridge Corporation for payrolling instead.

21 In doing so, Chevron discharged itself from the responsibilities usually incurred by

22 employers for the benefit of their employees, as well as a host of potential liabilities. Finding that

23 Chevron knew of, or ever intended that Talbridge Corporation have authority to create liabilities

24 on its behalf, despite all indication to the contrary, is inconsistent with the evidence from the

In the Matter of the Protest of Talbridge Corporation
Page 30 of 42
1 inception of Area 52 through its dissolution. Chevron never recognized nor acquiesced to the

2 assertion that any Talbridge Corporation employee had the right to proceed directly against it to

3 enforce any obligation if Talbridge Corporation first reneged on its obligations to the employee.

4 Although the evidence revealed how some employees affiliated with Area 52 may have

5 believed they could pursue claims directly against Chevron, the Hearing Officer perceived a lack

6 of foundation for those beliefs. For that reason, the Hearing Officer found their testimony on this

7 point to be unpersuasive despite their amiability.

8 Last, but not least, there is simply no evidence on which to find that Talbridge

9 Corporation communicated the nature of any purported agency relationship and accompanying

10 obligations to Talbridge Corporation employees. This is most likely because Talbridge

11 Corporation really had no reason to believe it was acting as Chevron’s agent, given the fact that

12 Chevron frequently controlled everything that Talbridge Corporation did with respect to its

13 payrolling activities and never suggested that Talbridge Corporation had the authority to act

14 independently on Chevron’s behalf on any matter, whatsoever.

15 For these reasons, the Hearing Officer finds that receipts Talbridge Corporation derived

16 from Chevron were not reimbursement of expenses incurred as agent on behalf of a principal while

17 acting in a disclosed agency capacity. Consequently, those receipts fall within the definition of gross

18 receipts and are therefore taxable under the New Mexico Gross Receipts and Compensating Tax

19 Act unless otherwise excludable, deductible, or exempt.

20 As a final observation on this issue, the Hearing Officer noted the undisputed fact that

21 Talbridge Corporation relied heavily on Chevron’s Beeline service. When Beeline was discontinued

22 in favor of another service, Talbridge Corporation’s access to records was similarly discontinued.

23 Thus, even if the Hearing Officer was persuaded that Talbridge Corporation satisfied the elements

24 of a disclosed agency relationship, Taxpayer would have still fallen short, based on the evidence

In the Matter of the Protest of Talbridge Corporation
Page 31 of 42
1 presented, of establishing that it satisfied the additional bookkeeping requirements mandated by

2 Regulation 3.2.1.19 (C). See MPC, 2003-NMCA-021, ¶36.

3 Out of State Services

4 Talbridge Corporation proposed that if its receipts from Chevron were taxable as gross

5 receipts, as discussed in the preceding section, then at least a portion of the receipts from Chevron

6 should still be excludable because they derived from services performed outside of New Mexico.

7 The parties stipulated that “Chevron reimbursed Talbridge for the wages and benefits paid to the

8 employees, plus a percentage of that amount to compensate Talbridge for services provided by

9 Talbridge in Houston.” Even though there does not appear to be much dispute among the parties

10 with respect to the facts governing this issue, in that the parties seemingly concur that the markup

11 was for services provided in Texas, the Hearing Officer will nevertheless evaluate whether the law

12 permits the outcome Talbridge Corporation desires.

13 Talbridge Corporation’s perspective is premised on the definition of gross receipts in

14 Section 7-9-3.5 (A) (1) (2007) which provides that receipts derived from services performed outside

15 of New Mexico are not taxable unless the product of the service was initially used in New Mexico,

16 an exception employed primarily for use in the area of research and development during the relevant

17 periods of time. See e.g. Regulation 3.2.1.18 E (1) (“Receipts from performing services, except

18 research and development services, outside New Mexico are not subject to the gross receipts tax

19 under the provision of Section 7-9-13.1 NMSA 1978.”) (2012, Amended 2021); FYI-105,

20 REV.11/2021, Pages 4 - 5.

21 Although the standards governing the taxation of services performed outside of New

22 Mexico have been evolving since S. Dakota v. Wayfair, Inc., 138 S.Ct. 2080, 201 L.Ed. 2d 403

23 (2018) (holding that out-of-state seller’s physical presence in taxing state was not necessary for

24 state to impose tax), those changes do not dictate the outcome of this protest.

In the Matter of the Protest of Talbridge Corporation
Page 32 of 42
1 Ms. Morrow testified that receipts representing Talbridge Corporation’s “markup”

2 derived from providing services outside New Mexico, in Texas. Those services would have

3 consisted of various administrative functions necessary for payrolling, such as disbursing

4 employment compensation, tax withholdings, potential benefit withholdings, reporting functions,

5 and other necessary tasks associated with payrolling services.

6 On the other hand, the services associated with the “markup” were for the benefit of

7 Talbridge Corporation’s employees in New Mexico, who at all relevant times were performing

8 services in New Mexico, for Chevron.

9 The Administrative Hearings Office has encountered this issue before and has previously

10 observed the location of the taxpayer’s employees to be persuasive. See Matter of Protest of ATC

11 Healthcare Services, Inc. Decision and Order No. 16-55 (affirmed in Matter of Protest of ATC

12 Healthcare Services, Inc., A-1-CA-36081, 2019 WL 2092230 (N.M. Ct. App. May 7, 2019) (non-

13 precedential); see also Decision and Order in the Matter of the Protest of Adecco USA, Inc., No. 14-

14 16 (non-precedential). These cases concluded that administrative services performed outside of New

15 Mexico were nevertheless taxable in New Mexico because the taxpayers’ employees were

16 providing services in the state.

17 In this protest, those employees affiliated with Area 52, similar to ATC and Adecco were

18 employed by Talbridge Corporation to perform services in New Mexico. For that reason, it would

19 be consistent with previous decisions to simply observe that all of Talbridge Corporation’s receipts,

20 both those which can be characterized as reimbursements and “markup,” derived from Talbridge

21 Corporation’s activities in New Mexico and should therefore be taxable in New Mexico.

22 Dissimilar to the facts at issue in ATC and Adecco, Talbridge Corporation had no physical

23 presence in New Mexico. Its primary business location, as well as the location where it performed

24 all of its payrolling activities, was Houston, Texas. There are other differences as well. Talbridge

In the Matter of the Protest of Talbridge Corporation
Page 33 of 42
1 Corporation, with respect to the activities of Chevron in New Mexico, did not identify, recruit, or

2 screen employees for Chevron’s New Mexico-based activities. Instead, Chevron initiated those

3 discussions, Chevron established terms and conditions of compensation, and upon reaching an

4 agreement with an individual, Chevron referred the person to Talbridge Corporation. It was then

5 that individual who upon Chevron’s instructions initiated the communication to Talbridge

6 Corporation for payrolling. Conversely stated, Talbridge Corporation with respect to the

7 administrative tasks necessary for payrolling, engaged in no New Mexico activity other than to be

8 responsive to individuals who Chevron selected for payrolling.

9 These observations from the evidentiary record, as well as the apparent lack of dispute that

10 some services were performed in Houston, Texas, require additional consideration of Regulation

11 3.2.1.18 B NMAC which provides that “[r]eceipts from services […] performed both within and

12 without New Mexico are subject to the gross receipts tax on the portion of the services performed

13 within New Mexico.” (Emphasis Added)

14 Regulation 3.2.1.18 C (1) NMAC (2012, Amended 2021) goes on to specify the manner by

15 which a taxpayer can establish the location of services performed when they extend to locations

16 outside of New Mexico. The first method is through the use of cost accounting records which are

17 not utilized in this protest. The second method is to prorate based on the percentage of service

18 performed in New Mexico in comparison to all other locations. In this protest, that would require

19 that services performed in New Mexico be divided by the percentage of services performed in New

20 Mexico and Texas.

21 The result of that computation is precisely what Talbridge Corporation presented in the form

22 of Taxpayer Ex. 8 and Ms. Morrow’s credible testimony, which the Department did not dispute

23 with contrary evidence or argument, and to which it also stipulated: “Chevron reimbursed

24 Talbridge for the wages and benefits paid to the employees, plus a percentage of that amount to

In the Matter of the Protest of Talbridge Corporation
Page 34 of 42
1 compensate Talbridge for services provided by Talbridge in Houston.”

2 It was clear to the Hearing Officer that the service Talbridge Corporation provided to

3 Chevron was not in the form of research and development conducted by anyone at Area 52, but

4 payrolling services for which the “markup” represented the performance of services exclusively in

5 Texas. Talbridge Corporation did not recruit employees to Area 52 nor engage in any other

6 payrolling activities in New Mexico. In fact, it was not even permitted by Chevron to communicate

7 with employees in New Mexico, recalling the events in which Ms. Morrow testified that she was

8 reprimanded by Chevron for communicating with an Area 52 employee.

9 For these reasons, the allocation presented by Talbridge Corporation is consistent with

10 Regulation 3.2.1.18 C (1) NMAC (2012, Amended 2021), NMSA 1978, Section 7-9-3.5, and the

11 stipulation of the parties that receipts representing Talbridge Corporation’s markup were derived in

12 Houston, Texas. The parties and other readers should nevertheless be aware that the rules governing

13 the taxation of services performed outside of New Mexico continue to evolve. For example, the

14 regulation referenced herein, as well as many others, saw significant revisions in 2021 that were

15 intended to reflect developments in state taxation as recognized by Wayfair.

16 However, under the unique facts presented by this protest, the Hearing Officer agrees that

17 that Talbridge Corporation is entitled to exclude its markup from its taxable gross receipts as

18 permitted by Regulation 3.2.1.18 C (1) NMAC (2012, Amended 2021). Conversely stated, the relief

19 Talbridge Corporation seeks with respect to this specific issue is not contrary to law under the facts

20 presented.

21 Penalty

22 When a taxpayer fails to pay taxes due to the State because of negligence or disregard of

23 rules and regulations, but without intent to evade or defeat a tax, NMSA 1978 Section 7-1-69

24 (2007) requires that:

In the Matter of the Protest of Talbridge Corporation
Page 35 of 42
1 there shall be added to the amount assessed a penalty in an amount
2 equal to the greater of: (1) two percent per month or any fraction of
3 a month from the date the tax was due multiplied by the amount of
4 tax due but not paid, not to exceed twenty percent of the tax due
5 but not paid.

6 [Emphasis Added]

7 The statute’s use of the word “shall” makes the imposition of penalty mandatory in all

8 instances where a taxpayer’s actions or inactions meet the legal definition of “negligence.” See

9 Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, ¶22, 146 N.M. 24, 32

10 (use of the word “shall” in a statute indicates that a provision is mandatory absent clear indication to

11 the contrary).

12 Regulation 3.1.11.10 NMAC defines negligence in three separate ways: (A) “failure to

13 exercise that degree of ordinary business care and prudence which reasonable taxpayers would

14 exercise under like circumstances;” (B) “inaction by taxpayer where action is required”; or (C)

15 “inadvertence, indifference, thoughtlessness, carelessness, erroneous belief or inattention.”

16 In instances where a taxpayer might fall under the definition of civil negligence subject to

17 penalty, Section 7-1-69 (B) provides an exception in that “[n]o penalty shall be assessed against

18 a taxpayer if the failure to pay an amount of tax when due results from a mistake of law made in

19 good faith and on reasonable grounds.”

20 In this case, Taxpayer is negligent for failure to exercise that degree of ordinary business

21 care and prudence which reasonable taxpayers would exercise under like circumstances or

22 inadvertence, erroneous belief, or inattention.

23 However, Talbridge Corporation claims that it may still be eligible for relief from penalty

24 under Regulation 3.1.11.11 NMAC which establishes eight indicators of non-negligence where

25 penalty may be abated. Based on the evidence presented, Regulation 3.1.11.11 D NMAC is

26 potentially applicable to this proceeding. It states:

In the Matter of the Protest of Talbridge Corporation
Page 36 of 42
1 The following situations may indicate that a taxpayer has not been
2 negligent or in disregard of rules and regulations and the secretary
3 will consider these circumstances in deciding whether to assess
4 civil penalty as provided by Section 7-1-69 NMSA 1978, or
5 whether to abate assessed civil penalty as provided by Section 7-1-
6 28 NMSA 1978:

7 …

8 D. the taxpayer proves that the failure to pay tax or to file a return
9 was caused by reasonable reliance on the advice of competent tax
10 counsel or accountant as to the taxpayer's liability after full
11 disclosure of all relevant facts; failure to make a timely filing of a
12 tax return, however, is not excused by the taxpayer's reliance on an
13 agent;

14 Ms. Morrow credibly testified that she employed the services of several certified public

15 accountants over the years to assist with its tax reporting and payment obligations, including its

16 gross receipts tax reporting. According to Mr. Pogan’s testimony, that reporting typically

17 consisted of a report of gross receipts in the relevant reporting period and a corresponding

18 deduction equal to gross receipts resulting in no tax due. In the meantime, at no time did any tax

19 professional entrusted by Talbridge Corporation with the duty to report and pay its New Mexico

20 gross receipts taxes suggest to Ms. Morrow that there were any concerns or questions with the

21 accuracy of its reporting. Administrative notice of the standard CRS-1 long form contains an

22 acknowledgment in which a taxpayer or taxpayer’s agent “declare that I have examined this

23 return including any accompanying schedules and statements, and to the best of my knowledge

24 and belief, it is true, correct and complete.” A similar acknowledgment is required prior to

25 electronically filing through the Department’s Taxpayer Access Point (TAP) as well, although

26 the user will not acknowledge the statement with a signature, but instead with a checkbox prior

27 to submitting the return.

28 Under these circumstances, it was reasonable for Ms. Morrow to believe in good faith

29 that Talbridge Corporation’s gross receipts were being correctly reported and that its tax liability

In the Matter of the Protest of Talbridge Corporation
Page 37 of 42
1 was being correctly calculated. Knowing that the CPA would have access to all necessary and

2 relevant information and be situated to identify any errors, coupled with an acknowledgment that

3 the return and accompanying schedules and statements had been examined and were, to the best

4 of the CPA’s knowledge and belief, true, correct and complete, satisfies the elements of

5 Regulation 3.1.11.11 D NMAC. Talbridge Corporation is therefore entitled to an abatement of

6 penalty.

7 CONCLUSION

8 The parties presented thorough and compelling arguments in support of their positions.

9 The dispositive issue with respect for Taxpayer’s claim, however, is the fact that Talbridge

10 Corporation clearly lacked authority as an agent to act for, or on behalf of Chevron, in any and

11 all matters. For this reason, the Hearing Officer was ultimately unpersuaded that Talbridge

12 Corporation was a disclosed agent of Chevron, for any purpose. Therefore, Talbridge

13 Corporation did not establish entitlement to an abatement of gross receipts tax arising from

14 amounts it asserted it “received solely on behalf of another in a disclosed agency capacity.”

15 On the other hand, Talbridge Corporation established entitlement to a full abatement of

16 penalty due to its reliance on tax professionals, as well as a portion of tax principal

17 corresponding with the sum of non-taxable receipts that derived from providing out of state

18 services.

19 Accordingly, the protest should be GRANTED IN PART and DENIED IN PART.

20 CONCLUSIONS OF LAW

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

22 parties and the subject matter of this protest.

23 B. A hearing was timely set and held within 90 days of Taxpayer’s protest as required

24 by NMSA 1978, Section 7-1B-8.

In the Matter of the Protest of Talbridge Corporation
Page 38 of 42
1 C. All of Taxpayer’s receipts were presumed subject to gross receipts tax under

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

3 D. Taxpayer carries the burden to present countervailing evidence or legal argument

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

5 099, ¶8.

6 E. If a taxpayer presents sufficient evidence to rebut the presumption, then the

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

8 2003-NMCA-021, ¶13.

9 F. The Professional Services Agreement and other conduct of the parties failed to

10 establish the existence of a disclosed agency relationship in which Taxpayer had the authority to

11 bind the principal to an obligation created by the agent. See NMSA 1978, Section 7-9-3.5 (A) (3)

12 (f) and Regulation 3.2.1.19 (C) (1) NMAC. See MPC, ¶36.

13 G. There was insufficient evidence to establish the beneficiary of any purported

14 obligation was informed by contract that he or she had a right to proceed against the purported

15 principal to enforce any asserted liability created by the purported agent. See NMSA 1978, Section

16 7-9-3.5 (A) (3) (f) and Regulation 3.2.1.19 (C) (1) NMAC. See MPC, ¶36.

17 H. Taxpayer was not a disclosed agent under NMSA 1978, Section 7-9-3.5 (A) (3)

18 (f) and Regulation 3.2.1.19 (C) (1) NMAC. See MPC, ¶36.

19 I. Since Taxpayer was not a disclosed agent under NMSA 1978, Section 7-9-3.5 (A)

20 (3) (f) and Regulation 3.2.1.19 (C) (1) NMAC, Taxpayer’s receipts from providing payrolling

21 services were taxable gross receipts.

22 J. Receipts derived from services provided outside of New Mexico are not gross

23 receipts. See NMSA 1978, Section 7-9-3.5 (A) (1) (2007).

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

In the Matter of the Protest of Talbridge Corporation
Page 39 of 42
1 under the assessment, which shall continue to accrue until the tax principal is satisfied.

2 L. Under NMSA 1978, Section 7-1-69 (2007) and Regulation 3.1.11.11 NMAC,

3 Taxpayer established entitlement to an abatement of penalty by reasonable reliance on the advice

4 of competent tax counsel or accountant as to the taxpayer's liability after full disclosure of all

5 relevant facts. See Regulation 3.1.11.11 D NMAC.

6 M. Delay in issuing a decision does not invalidate the jurisdiction of a hearing officer

7 to make a ruling in a tax matter. See KPI, 2006-NMCA-026, ¶55, 139 N.M. 177, 192, rev’d on

8 other grounds and certiorari as to corporate income tax issues quashed, Kmart Corp. v.

9 Taxation & Revenue Dep’t., 2006-NMSC-006, 139 N.M. 172; see also Ranchers-Tufco

10 Limestone v. Revenue, 1983-NMCA-126, ¶13 (delay in action is not a defense to enforcement in

11 a tax action).

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

13 PART and DENIED IN PART.

14 DATED: September 19, 2022

15
16 Chris Romero
17 Hearing Officer
18 Administrative Hearings Office
19 P.O. Box 6400
20 Santa Fe, NM 87502
21

In the Matter of the Protest of Talbridge Corporation
Page 40 of 42
1 NOTICE OF RIGHT TO APPEAL

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

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

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

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

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

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

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

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

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

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

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

13

In the Matter of the Protest of Talbridge Corporation
Page 41 of 42
1 CERTIFICATE OF SERVICE

2 On September 19, 2022, a copy of the foregoing Decision and Order was submitted to the

3 parties listed below in the following manner:

4 First Class Mail & E-Mail First Class Mail & E-Mail

5
6 INTENTIONALLY BLANK

In the Matter of the Protest of Talbridge Corporation
Page 42 of 42