New Mexico wrongly told me my out-of-state services were taxable, I overpaid gross receipts tax for years, and my refund claim started as amended returns and a letter — did I file it in time?

Plain-English summary

William Watson won part of his refund protest. Watson runs a sole proprietorship in Albuquerque providing forensic-science and consulting services to out-of-state customers. In 2018 the Department told his bookkeeper (his wife) that business receipts are generally taxable as gross receipts, so from 2016 through 2020 he filed CRS-1 returns and paid the tax. In October 2020, after checking with colleagues, he got a corrected answer: receipts from services sold and delivered out of state are not taxable New Mexico gross receipts.

He immediately moved to recover the overpaid tax. The problem was timing. New Mexico's refund statute allows a claim "only within three years after the end of the calendar year in which" the payment was due (Section 7-1-26(F)). So a refund claim treated as filed in 2020 could still reach the 2017 payments, but a claim treated as filed in 2021 could not.

Watson's claim came in stages:

• October 28, 2020 — he filed amended CRS-1 returns zeroing out the tax back to 2016.
• November 23, 2020 — he sent a letter with his name, ID number, the periods, and the reason for the amendments, asking the Department to "expedite processing."
• February 26, 2021 — he submitted the Department's formal Application for Refund.

The Department granted refunds for 2018–2020 but denied 2016 and 2017 as untimely, treating the claim as complete only in February 2021. Watson conceded 2016 was too old, and conceded two 2017 months where he did have taxable New Mexico receipts. That left the 2017 refund in dispute. Hearing Officer Ignacio Gallegos ruled for Watson on 2017:

• Amended CRS-1 returns alone were not a complete claim. The refund statute (Section 7-1-26(A)) requires specific elements — including the amount claimed and a basis for the refund — and the regulation that lets a bare amended return count as a refund request covers income and certain other returns, not gross-receipts CRS-1 returns.
• But an incomplete claim can be supplemented without losing its date. The version of Section 7-1-26(C) in effect at the time said a claim "shall not be considered incomplete" if the taxpayer submits enough information for the Department to make a determination — a deliberate change from older language. Because the Department was on notice of Watson's refund claim by the end of November 2020, his later February 2021 supplement did not make the claim untimely for 2017.
• Statute beats regulation. The Department's "fully completed by February 2021" theory rested on a 2010 regulation; where a regulation conflicts with the statute, the statute controls.

Result: protest GRANTED IN PART (2017) and DENIED IN PART (2016). The Department must refund $2,884.69 in overpaid 2017 gross receipts tax. (Watson's estoppel argument was not reached because the timeliness ruling resolved the case.)

What this means for you

Services sold and delivered out of state can fall outside New Mexico gross receipts tax

Watson overpaid for years because he was first told, incorrectly, that his consulting receipts were taxable. Receipts from services whose buyer is out of state and whose delivery is out of state may not be New Mexico gross receipts. If you sell services across state lines, confirm where the sale and delivery actually occur before assuming the tax applies.

The refund clock is three years from the end of the year the tax was due

Under Section 7-1-26(F), you generally have only three years after the close of the calendar year a payment was due to claim it back. Overpayments older than that window are gone — which is why 2016 was unrecoverable here no matter how the claim was framed.

For gross receipts tax, amended returns alone do not start the refund clock

Filing amended CRS-1 returns is not, by itself, a complete refund claim. A valid written claim must include the statutory elements — your identity, the tax type, the amount claimed, the periods, and the basis for the refund. (A bare amended return can suffice for some other taxes, like income tax, but not for gross receipts.)

An incomplete claim can still be timely if you get the Department on notice in time

The key win here: under the statute in effect, a refund claim is not treated as "incomplete" if you gave the Department enough to make a determination, and you can supplement it later without losing your filing date. Watson's imperfect late-2020 submissions preserved 2017 even though he did not finish the formal paperwork until 2021. Get a substantive claim in front of the Department before the three-year line, then complete it.

When a regulation and the statute disagree, the statute wins

The Department leaned on a 2010 regulation's "fully completed" language to deny 2017. The hearing officer held that regulation could not be read to bar a claim the statute preserved. Agency regulations are presumed valid, but they cannot enlarge or modify the statute.

Common questions

Q: Did Watson get everything he asked for?
A: No. He recovered the disputed 2017 gross receipts tax ($2,884.69) but not 2016 (too old under the three-year limit) or two 2017 months where he admitted he had taxable New Mexico receipts.

Q: Why did 2016 fail but 2017 succeed?
A: The three-year refund window. A claim the Department was on notice of by late 2020 could still reach 2017 payments, but 2016 was already outside the three-year limit — a point Watson conceded.

Q: The Department first told him the tax was owed. Didn't that matter?
A: The hearing officer resolved the case purely on timeliness and expressly did not rule on Watson's estoppel argument (that the Department's bad advice should count against it), since the timeliness holding already gave him the 2017 refund.

Q: What made his messy, staged claim "timely" when the formal form came in 2021?
A: The statute in effect said a claim is not "incomplete" if the taxpayer gives the Department enough to make a determination, and it allows later supplementation. Because the Department had notice of the refund claim by the end of November 2020, completing the paperwork in February 2021 did not push the claim date past the deadline for 2017.

Q: Do amended returns ever count as a refund claim by themselves?
A: For some taxes (such as income tax), a fully completed amended return can serve as the refund request. But for gross receipts tax, amended CRS-1 returns alone do not contain all the required elements, so more is needed.

Q: Can another taxpayer rely on this decision?
A: No. It resolved this taxpayer's protest on his specific facts and the law in effect at the time (including a since-amended refund statute). Another taxpayer should analyze its own facts and current law.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-26 (2019) — claims for refund: subsection (A) lists the required elements (identity, tax type, amount, period, and basis); subsection (C) provides that a claim is not "incomplete" if the taxpayer submits sufficient information for the Department to make a determination; subsection (F) sets the three-year time limit
• NMSA 1978, § 7-1-26 (2021) — the refund statute as later amended while this protest was pending
• NMSA 1978, § 7-1-17 (C) (2007) — presumption of correctness; a refund denial is reviewed under a presumption of correctness even though it is not an assessment
• NMSA 1978, § 7-1-24 (A) and (B) (2019) — requirements for a valid protest
• NMSA 1978, § 7-1B-8 (F) (2019) — 90-day hearing timing
• NMSA 1978, § 7-1-25 (2015) — right to appeal the decision to the New Mexico Court of Appeals
• NMSA 1978, § 9-11-6.2 (G) — Department regulations, rulings, and instructions are presumed a proper implementation of the law
• Regulation 3.1.9.8 NMAC (2010) — identifies which return amendments (income, corporate income and franchise, estate, special fuel excise) by themselves qualify as a refund request, and addresses timeliness of written claims; CRS-1 gross-receipts returns are not on that list
• Regulation 3.1.8.10 NMAC (2001) — the taxpayer bears the burden to establish entitlement to a refund
• Regulation 22.600.3.8 NMAC — Administrative Hearings Office hearing timing

Cases:

• Corr. Corp. of Am. of Tenn. v. State, 2007-NMCA-148, 142 N.M. 779 — a refund denial is viewed under a presumption of correctness, with the burden on the taxpayer
• CIBL, Inc. & Subsidiaries v. N.M. Taxation & Revenue Dep't, No. A-1-CA-37122 (N.M. Ct. App. 2020) (non-precedential) — a refund request that meets the statute's requirements is timely even if it does not satisfy an interpreting regulation
• Schneider National, Inc. v. N.M. Taxation & Revenue Dep't, 2006-NMCA-128, 140 N.M. 561 — mailing evidence can establish when a submission was made
• Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, 146 N.M. 24 — the word "shall" makes a statutory provision mandatory
• Rainbo Baking Co. of El Paso v. Comm'r of Revenue, 1972-NMCA-139, 84 N.M. 303 — an agency may not adopt rules that abridge, enlarge, extend, or modify the statute creating a right or duty
• N.M. AG v. N.M. Pub. Regulation Comm'n, 2013-NMSC-042 — an agency's statutory construction is given deference but disregarded if unreasonable or unlawful
• Picket Ranch, LLC v. Curry, 2006-NMCA-082, 140 N.M. 49 — where a statute and regulation are inconsistent, the statute prevails
• Jones v. Employment Servs. Div., 1980-NMSC-120, 95 N.M. 97 — a regulation cannot overrule a statute

Source

• Listing: New Mexico Decisions & Orders
• Decision post: William J Watson
• Decision PDF: D&O 22-21

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 WILLIAM J. WATSON
6 TO PARTIAL DENIAL OF REFUND ISSUED UNDER
7 LETTER ID NO. L0879008176

8 v. AHO Case Number 22.01-007R, D&O No. 22-21

9 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

10 DECISION AND ORDER

11 On May 5, 2022, Hearing Officer Ignacio V. Gallegos, Esq., conducted an administrative

12 hearing on the merits of the matter of the tax protest of William J. Watson (Taxpayer) pursuant

13 to the Tax Administration Act and the Administrative Hearings Office Act. At the video

14 conference hearing, Mr. William J. Watson appeared, accompanied by his spouse and business

15 bookkeeper Melany Watson, who both testified as Taxpayer’s witnesses. Staff Attorney Peter

16 Breen appeared, representing the opposing party in the protest, the Taxation and Revenue

17 Department (Department). Department protest auditor Elvis Dingha appeared as a witness for the

18 Department. Taxpayer offered Exhibit #1-001 through #1-293 at the hearing and was allowed to

19 submit additional documentation following the hearing. Within the time allowed, Taxpayer

20 offered Exhibit #2-01 through #2-25 (reprints of original CRS returns) and Exhibit #3-01

21 through #3-25 (reprints of amended CRS returns, as available on the Department’s TAP web

22 access portal). Without objection, Taxpayer’s exhibits were admitted. Department offered no

23 exhibits. Exhibits are more fully described in the Exhibit Log. The administrative file is

24 considered part of the record.

25 In quick summary, this protest involves Taxpayer’s claim that he was owed a refund for

26 gross receipts taxes paid over the course of several years after receiving information of the taxability

In the Matter of the Protest of William J. Watson, page 1 of 17.
1 of his business from the Department. After someone from the Department thereafter affirmed that

2 the business receipts for services performed out of state were not taxable, Taxpayer requested a

3 refund. The first submission in 2020 of amended CRS-1 returns zeroing out the tax was incomplete,

4 and the Taxpayer thereafter sent a letter providing the Department notice of the refund claim, still

5 within 2020. The Department requested additional information in 2021, then, once a complete

6 refund request was provided, the Department partially granted and partially denied the refund

7 request. The Department’s partial denial was for timeliness of the refund request. Taxpayer protests

8 the partial denial, as he believed the request for refund was timely. Ultimately, after making findings

9 of fact and discussing the issue in more detail throughout this decision, the hearing officer finds

10 Taxpayer’s refund claim for 2016 to be untimely and the denial of that year to be proper;

11 Taxpayer’s refund claim for 2017 was timely and the denial of that year to be improper. Therefore

12 the protest is denied in part and granted in part. IT IS DECIDED AND ORDERED AS

13 FOLLOWS:

14 FINDINGS OF FACT

15 Procedural Findings

16 1. On April 27, 2021, under Letter Id. No. L0879008176, the Department issued a

17 partial denial of refund letter to Taxpayer. Under the title “Refund Denied in Part” the

18 Department allowed a refund of $5,423.11 for Gross Receipts Tax reporting periods December

19 2017 through June of 2020. The Department denied a credit of $4,563.38 for tax reporting

20 periods from September 2016 through November of 2017. [Administrative File].

21 2. On July 23, 2021, Taxpayer submitted a Formal Protest letter, alleging that the

22 Department was incorrect in its denial of refund of taxes paid because the tax was paid during

In the Matter of the Protest of William J. Watson, page 2 of 17.
1 the timeframes at protest solely due to Taxpayer’s receipt of inaccurate information from the

2 Department about the taxability of the business activity. Taxpayer noted further that the language

3 of the statute NMSA 1978, Section 7-1-26 (F)(1) allows refunds “only within three years after

4 the end of the calendar year in which the applicable event occurs”, thus, Taxpayer claimed

5 entitlement to the entire 2017 year of refunds.1 [Administrative File].

6 3. On July 31, 2021, under Letter Id. No. L0629026224 the Department issued a

7 letter informing the Taxpayer that the Department acknowledged receipt of Taxpayer’s protest of

8 Gross Receipts Tax Refund Denial for tax periods beginning September 1, 2016 through June 30,

9 2020 in the amount of $4,563.38. [Administrative File].

10 4. On January 27, 2022, the Department submitted a Request for Hearing to the

11 Administrative Hearings Office, requesting a scheduling hearing to address Taxpayer’s protest.

12 The Request for Hearing stated that the total at issue was $4,563.38. [Administrative File].

13 5. On January 27, 2022, the Department submitted its Answer to Protest to the

14 Administrative Hearings Office, claiming that the Taxpayer’s request for refund was untimely,

15 pursuant to NMSA 1978, Section 7-1-26 (F)(1). [Administrative File].

16 6. On January 31, 2022, the Administrative Hearings Office issued a Notice of

17 Administrative Hearing in Albuquerque. The Notice provided parties information concerning an

18 in-person hearing scheduled to occur on April 5, 2022 at the Administrative Hearings Office’s

19 Albuquerque location. The notice was delivered to parties by email only. [Administrative File].

20 7. At the in-person hearing of April 5, 2022, the Department appeared. Neither

21 Taxpayer William J. Watson nor any authorized representative appeared on Taxpayer’s behalf.

22 Attorney Peter Breen appeared on behalf of the Department, accompanied by Protest Auditor

1
The quotation comes from the 2021 version of the statute, which took effect June 18, 2021.

In the Matter of the Protest of William J. Watson, page 3 of 17.
1 Elvis Dingha. The parties present did not object that conducting the scheduling hearing satisfied

2 the 90-day hearing requirements of Section 7-1B-8 (F) (2019). See also Regulation 22.600.3.8

3 (I) NMAC (08/25/2020). The Hearing Officer preserved a recording of the hearing. The

4 Department did not object to resetting as a videoconference hearing rather than in-person with

5 notice by email and regular mail. [Administrative File].

6 8. On April 6, 2022, the Administrative Hearings Office issued a Second Notice of

7 Administrative Hearing to the parties, scheduling the matter for a hearing on the merits of

8 Taxpayer’s protest on May 5, 2022, by video conference. The Second Notice was sent by USPS

9 mail and email. [Administrative File].

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

11 the merits hearing on May 5, 2022, with the parties and witnesses present by video conference.

12 The Administrative Hearings Officer preserved a recording of the hearing (“Hearing Record” or

13 “H.R.”). [Administrative File].

14 10. Taxpayer submitted additional exhibits, within the timeframes allowed, by email

15 on May 17, 2022. [Administrative File].

16 Substantive Findings

17 11. Taxpayer William J. Watson operates a sole proprietorship under his name in

18 Albuquerque, New Mexico. [Administrative File; Testimony of W. Watson].

19 12. Melany N. Watson is Taxpayer’s spouse and bookkeeper for the sole

20 proprietorship. [Administrative File; Testimony of M. Watson H.R. 29:00-30:00].

21 13. The business provides forensic science and consulting services to out-of-state

22 customers. [Administrative File; Exhibit 1-047 through 1-267].

In the Matter of the Protest of William J. Watson, page 4 of 17.
1 14. When Mrs. Watson sought information about the taxability of a minor household

2 member’s business receipts in 2018, she contacted the Department. [Administrative File; Exhibit

3 1-005 (email correspondence of December 18, 2018)].

4 15. The Department informed Mrs. Watson that generally, business receipts were

5 taxable as gross receipts. [Administrative File; Exhibit 1-004 (email correspondence of

6 December 21, 2018)].

7 16. Mr. Watson filed CRS-1 forms and paid gross receipts taxes at first quarterly,

8 then monthly from 2016 until 2020. [Administrative File; Exhibits 2-01 through 2-25 (Original

9 electronically filed returns)].

10 17. In 2020, Mr. Watson spoke with colleagues and relatives using an “identical”

11 business model about their tax status. Based on the information Taxpayer obtained from

12 colleagues, Mrs. Watson again contacted the Department. [Administrative File; Exhibit 1-006

13 (Emails October 2020); Testimony of W. Watson, H.R. 17:00-18:30].

14 18. On October 15, 2020, the Department informed Mr. Watson that his business

15 receipts from sales of services to out of state buyers where delivery was made out of state were

16 not taxable as gross receipts, contradicting its earlier generalized determination. [Administrative

17 File; Exhibit 1-006 through 1-007 (email from M. Coca), Taxpayer Ex. 1-019 through 1-020;

18 Testimony of W. Watson, H.R. 18:00-19:20].

19 19. After receiving this information, on October 28, 2020, using the Department’s

20 TAP filing system, Mr. Watson submitted amended CRS-1 returns for each of the quarterly and

21 monthly gross receipts tax filing periods from 2020 dating back to September 30, 2016. He could

22 not produce copies of the amended returns he submitted for the timeframes denied by the

23 Department at or after the hearing, but provided what the TAP website maintained.

In the Matter of the Protest of William J. Watson, page 5 of 17.
1 [Administrative File; Testimony; Taxpayer Exhibit 1-038 (refund request letter), 1-042, 1-011

2 (undated letter concerning amended returns); Exhibits 2-01 through 2-25; Testimony of M.

3 Watson, H.R. 18:30-19:30; 35:15-39:25].

4 20. The Department did not consider the submission of amended CRS-1 returns as a

5 fully completed request for refund. However, the Department’s receipt of amended returns and

6 the subsequent activity prior to November 10, 2020 was considered an incomplete request for

7 refund. [Administrative File; Testimony of E. Dingha, H.R. 51:50-52:30].

8 21. On November 10, 2020, the Department issued a letter to Taxpayer titled

9 “Improperly Filed Claim for Refund.” [Administrative File; Taxpayer Exhibit 1-045 (Letter ID

10 No. L1659748016); Testimony of E. Dingha, H.R. 48:30-49:40; 1:00:00-1:03:30].

11 22. On November 23, 2020, Taxpayer sent an email and fax to the Department with

12 attachment describing Gross Receipts tax amendments. Taxpayer, recognizing that the document

13 did not have all the required elements of a request for refund under the regulation, considered

14 this substantially similar to the request for refund form. The document contained his name,

15 taxpayer identification number, referred to amended returns filed, the rationale for filing

16 amendments, the time frame the amendments covered, and a request that the Department

17 “expedite processing the amended returns.” [Administrative File; Taxpayer Exhibit 1-011, 1-036,

18 1-038; Testimony of W. Watson, H.R.19:30-20:30, 43:45-44:30; Testimony of M. Watson, H.R.

19 34:00-36:30, 1:08:30-1:09:00; Testimony of E. Dingha, H.R. 55:45-1:00:00].

20 23. On November 25, 2020, the Department acknowledged receipt of the request and

21 indicated that the request was sent for processing. [Administrative File; Taxpayer Exhibit 1-036

22 (email from Registration Team), Testimony of W. Watson, H.R. 43:45-45:00].

In the Matter of the Protest of William J. Watson, page 6 of 17.
1 24. On February 19, 2021, the Taxpayer followed up with an email to the

2 Department, to determine the status of the refund request. [Administrative File; Taxpayer Exhibit

3 1-042].

4 25. On February 19, 2021, the Department replied by email to Taxpayer indicating

5 that a formal refund application was required. [Administrative File; Taxpayer Exhibit 1-042

6 through 1-043, Testimony of W. Watson, H.R. 19:30-20:50].

7 26. On February 26, 2021, the Taxpayer submitted a formal Application for Refund.

8 The Department misunderstood the date to be 01/16/2021. This completed the Taxpayer’s

9 request for refund. The application form indicates that “you are required to complete this form or

10 submit a letter with substantially the same information to apply for a tax refund.”

11 [Administrative File; Taxpayer Exhibit 1-010 (application for refund), Testimony of W. Watson,

12 H.R. 20:00-21:00; Testimony of E. Dingha, 48:30-49:40; 51:50-58:40; 1:03:30-1:05:40].

13 27. On March 29, 2021, the Department issued a Request for Additional Information

14 letter to Taxpayer [Administrative File; Taxpayer Exhibit 1-268 (Letter ID #L1361979824)].

15 28. On April 27, 2021, the Department issued the partial denial of refund letter that is

16 the subject of this protest. The refund was partially granted and a refund issued by the

17 Department in the amount of $5,423.11. The refund was partially denied in the amount of

18 $4,563.38. [Administrative File; Letter ID # L0879008176; Taxpayer Exhibit 1-009].

19 29. Taxpayer conceded that the year 2016 was outside the scope of the limits on

20 refunds, and does not contest the denial of refund of gross receipts tax for the last two quarters of

21 2016 ($191.95 and $468.00). [Administrative File; Taxpayer Exhibit 1-278; Taxpayer Exhibit 2-

22 01, 2-02; Exhibit 3-01, 3-02].

In the Matter of the Protest of William J. Watson, page 7 of 17.
1 30. Taxpayer also conceded two monthly periods in which he acknowledged taxable

2 New Mexico receipts, i.e., the period ending March 31, 2017, and the period ending September

3 30, 2017. The gross receipts taxes for those periods are $706.21 and $296.40, respectively.

4 [Taxpayer exhibit 1-011, 1-038, 2-04, 2-08].

5 31. Because Taxpayer conceded the aforementioned [FOF #29, FOF #30] periods, the

6 timeframes are therefore limited to the months of January ($0), February ($511.88), April ($0),

7 May ($0), June ($621.56), July ($712.50), August ($326.25), October ($112.50), November ($0)

8 and December ($0) of 2017, which original tax payments total $2,884.69. [Exhibits 1-01 through

9 1-25].

10 DISCUSSION

11 William J. Watson filed Combined Reporting System (CRS-1) forms as part of his

12 understood obligation to report and pay Gross Receipts Taxes from 2016 until 2020. He began

13 paying gross receipts taxes based on communications with the Department in which he was

14 informed that his consulting work was taxable as gross receipts. In 2020, Mr. Watson, after some

15 effort, received information that the Department considered the work he performed non-taxable

16 as gross receipts, due to the fact that the buyer of his services was out of state and delivery of the

17 service was out of state. Mr. Watson thereafter amended his CRS-1 returns at the end of October

18 2020 and requested refunds of the gross receipts taxes paid for the entire period he paid those

19 taxes, from 2016 through 2020.

20 After four months of back-and-forth with the Department, Taxpayer submitted a Refund

21 Request Form in February of 2021. The Department allowed the refund request in part, and

22 denied the refund in part. The Department allowed the refund of overpaid gross receipts taxes for

23 the years 2018, 2019, and 2020. The Department denied the refund of 2016 and 2017 due to the

In the Matter of the Protest of William J. Watson, page 8 of 17.
1 fact that the refund request, although it had begun in 2020, was not complete until February of

2 2021. Taxpayer conceded that the 2016 tax year was outside the scope of the refund statute, and

3 conceded two months of periods within 2017, where Taxpayer acknowledged liability for gross

4 receipts in New Mexico, therefore the timeframes are limited to the months of January, February,

5 April, May, June, July, August, October, November and December of 2017, for a total claim of

6 $2,284.69.

7 The primary issue is whether amended CRS returns and a letter satisfy the Taxpayer’s

8 obligations set out in NMSA 1978, Section 7-1-26 and Regulation § 3.1.9.8 NMAC. The issue

9 requires some statutory and regulatory interpretation to aid in resolution.

10 Presumption of correctness and burden of proof.

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

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

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

14 the claims for refund pursuant to Regulation §3.1.8.10 (A) NMAC (08/30/2001). The

15 Department’s denial of Taxpayers’ claim for refund is viewed under the lens of a presumption of

16 correctness. See Corr. Corp. of Am. of Tenn. v. State, 2007-NMCA-148, ¶17 & ¶29, 142 N.M.

17 779.

18 Did Taxpayer satisfy the requirements of Section 7-1-26 by filing amended CRS-1 returns

19 and submitting a letter?

20 The statute in effect in 2020, when the Taxpayer first attempted to claim a refund by

21 submitting amended CRS-1 returns through the Department’s TAP website in October of 2020,

22 provided a window of three years to file a written claim for refund for overpaid taxes. See

In the Matter of the Protest of William J. Watson, page 9 of 17.
1 NMSA 1978, Section 7-1-26 (F) (2019)2. So, a refund request filed in 2021 can cover 2020,

2 2019, and 2018. A refund request filed in 2020 could also cover 2017.

3 Likewise, statutory law determines what is required information for a taxpayer to provide

4 in a request for refund. NMSA 1978, Section 7-1-26 (A) requires that a written claim for refund

5 must include:

6 (1) the taxpayer’s name, address and identification number;
7 (2) the type of tax for which a refund is being claimed, the credit or rebate denied
8 or the property levied upon;
9 (3) the sum of money or other property being claimed;
10 (4) with respect to a refund, the period for which overpayment was made;
11 (5) a brief statement of the facts and the law on which the claim is based, which
12 may be referred to as the “basis for the refund”, which may include
13 documentation that substantiates the written claim and supports the taxpayer’s
14 basis for the refund; and
15 (6) if applicable, a copy of an amended return for each tax period for which the
16 refund is claimed.

17 Taxpayer argues that the initial refund request was submitted in the form of amending his

18 CRS-1 returns, which took place October 28, 2020. The amended returns contain Taxpayer’s

19 name, address and identification number, the type of tax for which a refund is being claimed, and

20 the period for which overpayment was made, satisfying parts (1), (2), (4), and (6). The amended

21 return did not include the sum of money being claimed, or a brief statement of the basis for the

22 refund, so parts (3) and (5) are left unsatisfied.

2
NMSA 1978, Section 7-1-26 (F) (2019) reads: “F. Except as otherwise provided in Subsection G of this section, a
credit or refund of any amount may be allowed or made to a person:
(1) only within three years after the end of the calendar year in which:
(a) the payment was originally due…”
The statute was amended as the protest was pending in 2021. See NMSA 1978, Section 7-1-26 (2021).

In the Matter of the Protest of William J. Watson, page 10 of 17.
1 The regulations governing the principles of refund requests provide that under special

2 itemized circumstances, simply the filing of a return or amended return qualifies as submission

3 of a request for refund. See Regulation 3.1.9.8 (A) NMAC (12/15/2010). These circumstances

4 include “[t]he filing of a fully completed income, corporate income and franchise, estate or

5 special fuel excise tax return” and amendments to those returns. Id. The regulation does not

6 include CRS-1 returns or amended CRS-1 returns for gross receipts tax reporting. So, filing of

7 amended CRS-1 returns, without all the necessary information contained in the statute, does not

8 meet the requirements of Section 7-1-26 (A). See also CIBL, Inc. & Subsidiaries v. New Mexico

9 Taxation and Rev. Department, Unpub. Mem. Op. #A-1CA-37122 (10/26/2020), 2020 WL

10 6278228 (non-precedential) (when a taxpayer’s refund request meets requirements of statute, but

11 not of regulations interpreting the statute, the refund request is timely). Because the CRS-1 return

12 is not listed among those returns whose amendment automatically provides the necessary

13 elements for a request for refund, under Reg. 3.1.9.8 NMAC, and for failure of the amended

14 returns to provide necessary information under the statute, there must be more.

15 Thereafter, the Department notified the Taxpayer of the deficiency. And the Taxpayer,

16 still before the end of 2020, submitted a letter to “ATTN: Account Resolution” at the

17 Albuquerque office by email. Credible testimony, coupled with exhibits of emails, validated that

18 the undated letter was sent on November 23, 2020. See Schneider National, Inc. v. State of N.M.

19 Taxation and Revenue Dep't, 2006-NMCA-128, 140 N.M. 561 (holding that affidavits from

20 Department's employees about their normal mailing practices combined with evidence that the

21 mail was delivered was sufficient prima facie evidence to establish when the mailing occurred).

22 The letter explained the reason for amending Taxpayer’s gross receipts tax, cited the email from

23 Marcy Coca, and asked for help to “expedite processing the amended returns.” This identifies the

In the Matter of the Protest of William J. Watson, page 11 of 17.
1 taxpayer, the tax account number, the periods for which amendments were made, and very

2 importantly the basis or rationale for the request. Nowhere in the letter does it mention the word

3 “refund” or the amount of refund requested, so part (3) is left unsatisfied. The submission of

4 amended returns zeroing out the tax due, compared to the tax paid during the same periods, may

5 provide the Department adequate information as to the amount of the claim and the fact that the

6 Taxpayer asks to “expedite processing” the amended returns, may provide the Department

7 adequate information that a refund is being sought. But in this case, no Department action on the

8 refund request was taken, other than to provide Taxpayer a notice that the request was received.

9 Again, does the emailed letter with the refund claim met the statutory requirements of

10 Section 7-1-26 (A). Perfunctory, incomplete requests have been barred from action when they do

11 not meet the requirements of the statute. See Protest of Mosaic Potash Carlsbad, Inc., Decision

12 and Order # 17-15, March 29, 2017 (non-precedential) 2017 WL 1324604. Likewise, inaction or

13 repeated calls for unnecessary documentation by the Department when sufficient information

14 exists has been subject of critique. See Id.; see also Protest of Michael Corwin, Decision and

15 Order #19-14, May 24, 2019 (non-precedential) 2019-WL 2334385.

16 As noted by another Hearing Officer in a recent decision of this tribunal, previous

17 versions of the statute have indicated that the “claim for refund will not be considered complete

18 until the taxpayer provides the requested documentation.” NMSA 1978, Section 7-1-26 (C)

19 (2017) (previous statute) (emphasis added). However, the statute in effect at the time of this

20 submission said the opposite: “a claim for refund shall not be considered incomplete provided

21 the taxpayer submits sufficient information for the department to make a determination.” NMSA

22 1978, Section 7-1-26 (C) (2019) (statute in effect at the time of this refund request) (emphasis

23 added). See Protest of Copper Canyon Investments, LLC, Decision & Order No 21-09, issued

In the Matter of the Protest of William J. Watson, page 12 of 17.
1 April 15, 2021 (non-precedential) 2021 WL 1931823. The language of the statute clearly

2 provides the Taxpayer opportunity to supplement an incomplete claim for refund. Although the

3 final supplement didn’t occur until February of 2021, the Department was on notice of the

4 Taxpayer’s refund claim in November of 2020.

5 Application of regulations.

6 The Department’s application of regulations explains its denial of the 2017 tax year. The

7 Department claimed that a “fully completed” request for refund was necessary to establish the

8 timeline to begin the look-back process. See Regulation 3.1.9.8 NMAC (12/15/2010). Because

9 the Taxpayer’s claim was not “fully completed” until February of 2021, the Department justified

10 its denial of the 2017 year as beyond the three-year period.

11 In New Mexico, the instructions and regulations issued by the Secretary of the Taxation and

12 Revenue Department are presumed to be an accurate implementation of the law. NMSA 1978,

13 Section 9-11-6.2 (G) indicates: “[a]ny regulation, ruling, instruction or order issued by the secretary

14 or delegate of the secretary is presumed to be a proper implementation of the provisions of the laws

15 that are charged to the department, the secretary, any division of the department or any director of

16 any division of the department.” In New Mexico, “[t]he legislature may not delegate authority to a

17 board or commission to adopt rules or regulations which abridge, enlarge, extend or modify the

18 statute creating the right or imposing the duty.” Rainbo Banking Co. of El Paso, Tex. v. Comm’r

19 of Revenue, 1972 NMCA-139, 84 N.M. 303, 502 P.2d 406. When an agency is charged with the

20 application of a statute, its construction is given some deference, but its construction will be

21 disregarded if its interpretation of the statute is found to be unreasonable or unlawful. See N.M.

22 AG v. N.M. Pub. Regulation Comm’n, 2013-NMSC-042, ¶ 12. When statutes and regulations are

23 inconsistent, the statute prevails. See Picket Ranch, LLC v. Curry, 2006-NMCA-082, ¶ 10, 140

In the Matter of the Protest of William J. Watson, page 13 of 17.
1 N.M. 49. A regulation cannot overrule a statute. See Jones v. Employment Servs. Div., 1980-

2 NMSC-120, 95 N.M. 97.

3 It is clear that the intent of the legislature in changing statutory language from “a claim

4 for refund will not be considered complete until the taxpayer provides the requested

5 documentation” to “a claim for refund shall not be considered incomplete provided the taxpayer

6 submits sufficient information for the department to make a determination” reflects the intention

7 to allow taxpayers greater leeway in their (sometimes incomplete) initial submissions requesting

8 refund. Use of the word “shall” indicates that the provision is mandatory, not

9 discretionary. See Marbob Energy Corp. v. N.M. Oil Conservation Comm'., 2009-NMSC-013,

10 ¶22, 146 N.M. 24. Regulation 3.1.9.8 NMAC (12/15/2010), even though it was issued before the

11 change to the statute, provides: “C. A written claim for refund is timely if it meets the

12 requirements for validity of 3.1.9.8 NMAC and is transmitted, delivered or mailed to the

13 department prior to the expiration of the statutory time limits in Section 7-1-26 NMSA 1978.”

14 The statutory language shift does not change the fact that a complete submission is necessary, the

15 shift in language means that supplemental information can be received later after the Department

16 has reviewed the refund claim without penalizing the taxpayer by barring the claim as untimely

17 under the statute of limitation, if in fact the incomplete submission is supplemented thereafter.

18 The regulation’s timeliness reference requires “fully completed” refund claims only in reference

19 to the returns that are self-sufficient as a refund request (i.e., income tax returns, etc., discussed

20 above). The “fully completed” language does not apply to claims for refunds of overpaid Gross

21 Receipts taxes. The regulations the Department issued may be outdated – published in 2010 – but

22 they remain useful to a degree. It is just the Department’s interpretation as it relates to this

23 protest is incorrect. While there is no new regulation that reflects the legislature’s intent in

In the Matter of the Protest of William J. Watson, page 14 of 17.
1 enacting the revised statute, the Taxpayer’s interpretation is more in line with the statute, and the

2 Department cannot bar the refund for timeliness simply because the refund request was initially

3 lacking in some respect then later supplemented by additional documentation. The Department

4 was on notice of the refund request by the end of November of 2020, and the later supplement to

5 make the refund request complete does not affect its timeliness. The claim for refund of the 2017

6 Gross Receipts taxes was improperly barred, and a refund is due to the Taxpayer in this instance.

7 Because this issue is dispositive, Taxpayer’s otherwise cognizable estoppel argument

8 need not be ruled upon.

9 Conclusion.

10 Taxpayer provided evidence to support that he had submitted a request for refund before the

11 end of 2020. The request for refund covered 2016, outside the scope of the limitation, which he

12 conceded. The request for refund covered 2017, which the Department denied because the request

13 did not contain certain aspects of a “fully completed” request. After providing supplemental

14 information in February of 2021, the Department granted a partial refund and denied the request as

15 to the 2016 and 2017 years. The denial of 2016 was proper. The denial of 2017 was improper,

16 excluding the two months Taxpayer acknowledged receipts in New Mexico, because the refund

17 request was sent by Taxpayer and received by the Department before the expiration of the 2020

18 calendar year.

19 The protest is granted in part and denied in part.

20 CONCLUSIONS OF LAW

21 A. Taxpayer filed a timely, written protest of the Department’s Partial Denial of claim

22 for refund letter L0879008176 and jurisdiction lies over the parties and the subject matter of this

In the Matter of the Protest of William J. Watson, page 15 of 17.
1 protest. See NMSA 1978, Section 7-1-24 (A) & (B) (2019); see also NMSA 1978, Section 7-1-26

2 (A) (2019)

3 B. A hearing was timely set and held within 90-days of protest under NMSA 1978,

4 Section 7-1B-8 (F) (2019). Parties did not object that the hearing satisfied the 90-day hearing

5 requirement of Section 7-1B-8. See also Regulation 22.600.3.8 NMAC (08/25/2020).

6 C. Taxpayer bears the burden of establishing entitlement to the claimed refund at

7 issue. The Taxpayer has satisfactorily met the burden of establishing the entitlement to the claimed

8 refund at issue as to 2017 overpaid gross receipts taxes. The Department’s refund denial is viewed

9 under a lens of a presumption of correctness, therefore it is the Taxpayers burden to establish that

10 they were entitled to their claim for refund. See Regulation §3.1.8.10 NMAC (08/30/2001); see also

11 Corr. Corp. of Am. of Tenn. v. State, 2007-NMCA-148, ¶17 & ¶29, 142 N.M. 779. See NMSA

12 1978, Section 7-1-17 (C) (2007).

13 D. Taxpayer’s request for refund for tax year 2016 was untimely pursuant to NMSA

14 1978, Section 7-1-26.

15 For the foregoing reasons, the Taxpayer’s protest IS DENIED in part and GRANTED in

16 part. IT IS ORDERED that the Department provide the Taxpayer a refund of overpaid gross

17 receipts taxes in the amount of $2,884.69.

18 DATED: October 25, 2022.

19
20 Ignacio V. Gallegos
21 Hearing Officer
22 Administrative Hearings Office
23 P.O. Box 6400
24 Santa Fe, NM 87502

In the Matter of the Protest of William J. Watson, page 16 of 17.
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 CERTIFICATE OF SERVICE

14 On October 25, 2022, a copy of the foregoing Decision and Order was submitted to the

15 parties listed below in the following manner:

16 First Class Mail and Email First Class Mail and Email
17
18 INTENTIONALLY BLANK

In the Matter of the Protest of William J. Watson, page 17 of 17.