If I consign my artwork to a gallery and the gallery makes the sale, who owes New Mexico gross receipts tax — me or the gallery?

Plain-English summary

A painter had to pay gross receipts tax on art a gallery sold for him. Dennis Champlin, a Santa Fe artist, consigned paintings to the Long Coat Fine Art Gallery in Ruidoso, New Mexico — with no written contract. The gallery sold the work in 2018 and paid Champlin the agreed 50% of the proceeds. He reported that money on his federal Schedule C but did not report it as gross receipts or pay New Mexico gross receipts tax, believing the gallery was responsible for the tax.

On June 30, 2021, the Department assessed $313.42 in gross receipts tax, $62.68 in penalty, and $37.08 in interest ($413.18 total) for the 2018 reporting period. Champlin protested, saying the gallery should have handled the tax. Hearing Officer Ignacio V. Gallegos denied the protest:

• Both sides of a consignment owe gross receipts tax. Gross receipts include "receipts from sales of tangible personal property handled on consignment" (Section 7-9-3.5(A)(2)(a)), and Regulation 3.2.1.15(B) NMAC says the receipts of both a consignor and a consignee from a consignment sale are subject to the tax. Champlin was the consignor and the gallery the consignee; each is independently liable on what it received.
• No proof shifted the duty to the gallery. Champlin produced no contract or other evidence that the gallery had agreed to collect, report, and pay the tax for him. Without that proof, the tax on the seller-consignor's proceeds was proper.
• The occasional-sale exemption did not apply. Section 7-9-28 exempts an isolated or occasional sale only when the seller is not in the business of selling that kind of property. Champlin holds himself out as an artist who sells his work — including through galleries in other states — so the 2018 sale was not an isolated event.
• CPA reliance did not excuse the penalty. Relying on his accountant did not relieve him of the duty to report and pay gross receipts tax, so the negligence penalty stood.
• A seized federal refund reduced the balance. During the protest the Department seized Champlin's federal income tax refund and applied a $146 credit. The recalculated balance was $287.84 (tax $313.42, penalty $72.68, interest $47.74, less the $146 credit), with interest continuing to accrue.

Result: protest DENIED.

What this means for you

Consignment does not move the gross receipts tax to the store

When you consign goods — art, crafts, resale items — to a gallery or shop, New Mexico treats both you (the consignor) and the seller (the consignee) as having taxable receipts. The gallery paying its own tax on its cut does not erase your tax on the share you receive.

If you want the seller to handle the tax, get it in writing

The artist here lost largely because he had no contract and no proof the gallery agreed to collect and remit the tax on his behalf. A verbal understanding is not enough. If a selling arrangement is meant to shift tax-collection responsibility, document it — and confirm the tax is actually being reported.

Selling regularly defeats the "occasional sale" exemption

The occasional-sale exemption is for people who are not in the business of selling the item. An artist who routinely places work in galleries is in that business, so individual sales are not "occasional." Holding yourself out to the public as a seller is exactly what disqualifies the exemption.

Reporting income on your federal Schedule C is not the same as paying gross receipts tax

Champlin reported the money to the IRS but never reported it as New Mexico gross receipts. The two systems are separate; federal income reporting does not satisfy the state gross receipts tax return-and-payment duty.

The state can offset your federal refund

The Department captured Champlin's federal income tax refund and applied it to the balance. A disputed state tax bill can be collected through a refund offset even while the protest is pending.

Common questions

Q: The gallery made the sale — why do I owe the tax?
A: In a consignment, both the consignor (you) and the consignee (the gallery) have taxable gross receipts. You owe tax on the proceeds you receive unless you can prove the gallery agreed to and did handle the tax for you.

Q: What proof would have helped Champlin?
A: A written consignment contract showing the gallery was responsible for collecting, reporting, and paying the gross receipts tax — and evidence that it actually did so. He had neither.

Q: Wasn't this just an occasional sale?
A: No. The exemption in Section 7-9-28 requires that the seller not be in the business of selling that property. Champlin markets and sells his art, including in out-of-state galleries, so his sales are not occasional.

Q: I reported the income on my federal return — isn't that enough?
A: No. Federal Schedule C reporting is separate from the New Mexico gross receipts tax, which requires its own return and payment. Reporting to the IRS does not satisfy the state tax.

Q: My accountant handled it — why the penalty?
A: Relying on a CPA did not excuse the failure to report and pay gross receipts tax, so the negligence penalty was upheld.

Q: Why was the final balance lower than the assessment?
A: The Department seized Champlin's federal income tax refund and applied it as a $146 credit, reducing the balance to $287.84, though interest keeps accruing until it is paid.

Q: Can another consignor or gallery rely on this decision?
A: No. It resolved Champlin's protest on his own facts and the law in effect for 2018. Another taxpayer should analyze its own contracts, records, tax periods, and current law.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-9-3.5(A)(2)(a) — gross receipts include receipts from sales of tangible personal property handled on consignment
• NMSA 1978, § 7-9-4 — imposition of the gross receipts tax on persons engaging in business
• NMSA 1978, § 7-9-28 — exemption for isolated or occasional sales, available only to sellers not in the business of selling the property
• NMSA 1978, § 7-1-17 — an assessment, including penalty and interest, is presumed correct; the taxpayer bears the burden to overcome it
• NMSA 1978, §§ 55-9-102(a)(21) and 55-8-102(a)(19) — Uniform Commercial Code definitions of "consignor" and "consignee"
• NMSA 1978, §§ 7-1B-6 and 7-1B-8 — Administrative Hearings Office procedure and 90-day hearing timing
• NMSA 1978, § 7-1-25 — right to appeal the decision to the New Mexico Court of Appeals
• Regulation 3.2.1.15(B) NMAC — receipts of both a consignor and a consignee from a consignment sale are subject to gross receipts tax
• Regulations 3.2.116.8 and 3.2.116.9 NMAC — criteria for the occasional-sale exemption
• Regulations 3.1.11.10 and 3.1.11.11 NMAC — definition of negligence and the factors indicating non-negligence for penalty purposes

Cases:

• Kewanee Industries, Inc. v. Reese, 1993-NMSC-006, 845 P.2d 1238 — the occasional-sale exemption requires both an isolated/occasional transaction and a seller not engaged in the business of selling similar property

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Dennis Champlin
• Decision PDF: D&O 22-22

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 DENNIS CHAMPLIN
6 TO ASSESSMENT ISSUED UNDER
7 LETTER ID NO. L1081918896

8 v. AHO Case Number 22.08-041A, D&O No. 22-22

9 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

10 DECISION AND ORDER

11 On September 28, 2022, Hearing Officer Ignacio V. Gallegos, Esq., conducted an

12 administrative hearing on the merits of the matter of the tax protest of Dennis Champlin

13 (Taxpayer) pursuant to the Tax Administration Act and the Administrative Hearings Office Act.

14 At the video conference hearing, Mr. Dennis Champlin appeared representing himself, and

15 accompanied by his wife, Karla Champlin. Staff Attorney Tim Williams appeared, representing

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

17 Department protest auditor Lizette Rivera appeared as a witness for the Department. Taxpayer

18 offered no exhibits at the hearing. Department submitted exhibits A, B, C, E, and F, at the

19 hearing, which were admitted without objection. Following the hearing, Department submitted

20 an updated liabilities spreadsheet (marked by the Hearing Officer as Exhibit G), which is

21 admitted without objection. Department’s Exhibits A, B, C, E, and F are duplicates of documents

22 provided in the administrative file. The administrative file is considered part of the record.

23 In quick summary, this protest involves Taxpayer’s claim that as an artist he consigned

24 certain artwork to a gallery, which he believed was responsible for collecting and paying gross

25 receipts taxes for the sales it completed at an agreed-upon price. Taxpayer was unable to show any

26 contract, bill of sale, or other proof that this had in fact occurred. Consignors and consignees are

In the Matter of the Protest of Dennis Champlin, page 1 of 15.
1 both individually subject to New Mexico’s Gross Receipts and Compensating Tax reporting and

2 payment. Ultimately, after making findings of fact and discussing the issue in more detail

3 throughout this decision, the hearing officer finds that Taxpayer’s claim is not supported by facts in

4 the record, yet the balance is reduced because the Department seized Taxpayer’s federal tax refund,

5 providing credit against state taxes owed, therefore the balance of the protest is denied. IT IS

6 DECIDED AND ORDERED AS FOLLOWS:

7 FINDINGS OF FACT

8 Procedural Findings

9 1. On June 30, 2021, under Letter Id. No. L1081918896, the Department issued a

10 Notice of Assessment of Taxes and Demand for Payment to Taxpayer. Under the Assessment

11 letter, Taxpayer owed Project Gross Receipts Tax of $313.42, penalty of $62.68, and interest of

12 $37.08 for a total assessment of tax due of $413.18 for tax reporting periods from January 1,

13 2018, to December 31, 2018. [Administrative File; Ex. C-1, Ex. F-1].

14 2. On July 6, 2021, Taxpayer mailed a protest letter, which he dated July 5, 2021,

15 alleging that the Department was incorrect in its assessment of tax because the income was from

16 consignment sales of artwork, where the gallery was responsible for collection, reporting, and

17 payment of the tax. The protest letter was stamped as received by the Department ACD Office

18 on July 16, 2021. [Administrative File; Ex. B].

19 3. On December 17, 2021, David C. Zlotnik, Certified Public Accountant, submitted

20 a letter on Taxpayer’s behalf explaining the items contained in the Taxpayer’s 2018 Schedule C,

21 and the reason for the missing 1099 from the Long Coat Fine Art gallery. [Administrative File;

22 Ex. E1, E2].

In the Matter of the Protest of Dennis Champlin, page 2 of 15.
1 4. On January 25, 2022, the Department issued an Acknowledgment of protest letter,

2 under Letter Id. No. L1961118640, acknowledging receipt of the Taxpayer’s protest.

3 [Administrative File; Ex. A].

4 5. On August 24, 2022, the Department submitted a Request for Hearing to the

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

6 The Request for Hearing stated that the total at issue was $413.18. [Administrative File].

7 6. On August 24, 2022, the Department submitted its Answer to Protest to the

8 Administrative Hearings Office, claiming that the Taxpayer reported income on a federal form

9 Schedule C without reporting the income as gross receipts, or paying the gross receipts tax. The

10 Answer further states that the Taxpayer failed to provide an NTTC or sufficient alternative

11 evidence of reporting or payment by another for the gross receipts tax at issue. [Administrative

12 File].

13 7. On August 31, 2022, the Administrative Hearings Office mailed a Notice of

14 Administrative Hearing to the parties, by first class mail and email, setting the matter for an

15 administrative hearing on the merits of the protest on September 28, 2022. [Administrative File].

16 8. On September 16, 2022, the Department submitted the Department’s Witness and

17 Exhibit list. The Department sent the submission to Taxpayer’s representative, Richard

18 Sandoval, CPA, via email. [Administrative File].

19 9. On September 16, 2022, Richard Sandoval, CPA, submitted an email indicating

20 that the Taxpayer declined his representation. [Administrative File].

21 10. On September 19, 2022, because the Taxpayer representative was no longer

22 involved, the Administrative Hearings Office provided email notice to Taxpayer. [Administrative

23 File].

In the Matter of the Protest of Dennis Champlin, page 3 of 15.
1 11. The undersigned Administrative Hearing Officer Ignacio V. Gallegos conducted

2 the merits hearing on September 28, 2022, with the parties and witnesses present in-person in

3 Santa Fe, at the Administrative Hearings Office in the Wendell Chino Building. The

4 Administrative Hearing Officer preserved a recording of the hearing (“Hearing Record” or

5 “H.R.”). [Administrative File].

6 12. At the hearing, the parties did not object that conducting the merits hearing

7 satisfied the 90-day hearing requirements of Section 7-1B-8 (F) (2019). [Administrative File].

8 13. Mr. Dennis Champlin (Taxpayer) appeared on his own behalf, accompanied by

9 his wife, Karla Champlin. Mr. Champlin testified as his sole witness. The Department was

10 represented by Attorney Tim Williams. Protest manager, Lizette Rivera was the Department’s

11 sole witness. [Administrative File; Hearing Record].

12 Substantive Findings

13 14. Taxpayer Dennis Champlin is a painter residing in Santa Fe, New Mexico.

14 [Administrative File; Examination of D. Champlin, H.R. 27:15-30:05].

15 15. Taxpayer consigned certain artworks (paintings) to the Long Coat Fine Art

16 Gallery, an art gallery in Ruidoso, New Mexico, without a written contract with the gallery. The

17 gallery sold the painting(s) in 2018 and sent the previously agreed-upon fifty percent (50%) of

18 the proceeds from the sale to the Taxpayer. [Administrative File; Examination of D. Champlin,

19 H.R. 27:30-32:20, 37:00-39:30].

20 16. Taxpayer claimed the income from the sales of artwork on his Federal Form 1040,

21 Schedule C, as business income. [Administrative File; Examination of D. Champlin, H.R. 28:20-

22 29:00].

In the Matter of the Protest of Dennis Champlin, page 4 of 15.
1 17. Taxpayer did not file New Mexico form CRS-1 returns to report and pay gross

2 receipts tax during the timeframe at issue. [Administrative File; Examination of L. Rivera, H.R.

3 1:05:05-1:07:05, 1:11:10-1:11:50].

4 18. The Department detected a discrepancy or mismatch between the Taxpayer’s

5 federal Schedule C federal tax filings and the Taxpayer’s gross receipts tax filings on CRS-1

6 returns between January 1, 2018, and December 31, 2018, because the Taxpayer reported

7 business income on a Schedule C, but did not report or pay gross receipts tax, leading to the

8 assessment of gross receipts tax. Based on the discrepancy detected, the Department issued a

9 Notice of Assessment to Taxpayer, including tax, penalty and interest. [Administrative File;

10 Examination of L. Rivera, H.R. 44:30-52:15; Ex. F1, C1, E1 and E2].

11 19. Taxpayer provided no documentation of the sale of artwork, an invoice, a bill of

12 sale, contracts with the gallery, a non-taxable transaction certificate (NTTC), or other

13 documentary proof of an agreement that the gallery collect, report and pay gross receipts taxes

14 on Taxpayer’s behalf. [Administrative File; Examination of D. Champlin, H.R. 30:00-32:00;

15 37:40-40:15].

16 20. Taxpayer has been selling his artwork over three years, although sales are rare, by

17 his estimation. Taxpayer spoke with his CPA about his tax liabilities, and his CPA did not inform

18 him of a need to file CRS-1 returns to report and pay gross receipts taxes. He considered the sale

19 of his artwork as an occasional supplement to his retirement income, rather than a business.

20 [Administrative File; Examination of D. Champlin, H.R. 32:30-35:10, 35:50-36:30, 37:00-

21 37:45].

22 21. Taxpayer has in the past been subject to similar inquiries by the Department for

23 mismatched Schedule Cs. Taxpayer has had consignment arrangements, and only one contract he

In the Matter of the Protest of Dennis Champlin, page 5 of 15.
1 could recall, with other art galleries, not only in New Mexico. [Administrative File; Examination

2 of D. Champlin, H.R. 37:00-37:45; Examination of L. Rivera, H.R. 1:05:05-1:07:05].

3 22. During the pendency of the protest, the Department seized Taxpayer’s federal

4 income tax refund and applied it to the Taxpayer’s outstanding balance. [Administrative File;

5 Examination of D. Champlin, H.R. 37:00-37:45; Examination of L. Rivera, H.R. 1:04:20-

6 1:05:05].

7 23. The Department provided an itemization of Taxpayer’s outstanding balances,

8 showing tax principal in the amount of $313.42, penalty of $72.68, interest of $47.74, credits of

9 ($146.00), for a total balance of $287.84. [Administrative File; Exhibit G].

10 DISCUSSION

11 For tax year 2018, Dennis Champlin filed Schedule C forms as part of his federal

12 personal income tax returns. The Schedule C reported business income. The Taxpayer did not

13 file gross receipts tax returns on the combined reporting system (CRS-1) forms to the State of

14 New Mexico during the same year. Taxpayer claimed he believed he was not required to file

15 gross receipts, first, because the gallery was required to collect taxes at the point of sale, report

16 those taxes and pay them and, second, because it was an occasional sale, and finally, because his

17 CPA had not advised him to do so.

18 Presumption of correctness

19 Under NMSA 1978, Section 7-1-17 (C) (2007), the assessment issued in this case is

20 presumed correct. Consequently, Taxpayer has the burden to overcome the assessment. See

21 Archuleta v. O'Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428. Unless otherwise specified, for the

22 purposes of the Tax Administration Act, “tax” is defined to include interest and civil penalty. See

23 NMSA 1978, Section 7-1-3 (Z) (2019); see also Regulation 3.1.1.16 (12/29/2000). Under

In the Matter of the Protest of Dennis Champlin, page 6 of 15.
1 Regulation 3.1.6.13 NMAC, the presumption of correctness under Section 7-1-17 (C) extends to

2 the Department’s assessment of penalty and interest. See Chevron U.S.A., Inc. v. State ex rel. Dep't

3 of Taxation & Revenue, 2006-NMCA-50, ¶16, 139 N.M. 498, 503 (agency regulations interpreting

4 a statute are presumed proper and are to be given substantial weight). Accordingly, it is a

5 taxpayer’s burden to present some countervailing evidence or legal argument to show that they

6 are entitled to an abatement, in full or in part, of the assessment issued in the protest. See N.M.

7 Taxation & Revenue Dep't v. Casias Trucking, 2014-NMCA-099, ¶8. When a taxpayer presents

8 sufficient evidence to rebut the presumption, the burden shifts to the Department to show that the

9 assessment is correct. See MPC Ltd. v. N.M. Taxation & Revenue Dep't, 2003-NMCA-21, ¶13, 133

10 N.M. 217.

11 The burden is also on taxpayers to prove that they are entitled to an exemption or

12 deduction, if one should potentially apply. See Pub. Serv. Co. v. N.M. Taxation & Revenue Dep't,

13 2007-NMCA-050, ¶141 N.M. 520, 157 P.3d 85; See also Till v. Jones, 1972-NMCA-046, 83

14 N.M. 743, 497 P.2d 745. “Where an exemption or deduction from tax is claimed, the statute must

15 be construed strictly in favor of the taxing authority, the right to the exemption or deduction must

16 be clearly and unambiguously expressed in the statute, and the right must be clearly established

17 by the taxpayer.” See Sec. Escrow Corp. v. State Taxation & Revenue Dep't, 1988-NMCA-068,

18 ¶8, 107 N.M. 540, 760 P.2d 1306. See also Wing Pawn Shop v. Taxation & Revenue Dep't, 1991-

19 NMCA-024, ¶16, 111 N.M. 735, 809 P.2d 649. See also Chavez v. Comm'r of Revenue, 1970-

20 NMCA-116, ¶7, 82 N.M. 97, 476 P.2d 67.

21 Receipts under the Gross Receipts and Compensating Tax Act.

22 The assessment in this protest arises from an application of the Gross Receipts and

23 Compensating Tax Act, NMSA 1978, Sections 7-9-1 through 7-9-117, which imposes a tax for the

In the Matter of the Protest of Dennis Champlin, page 7 of 15.
1 privilege of engaging in business, on the receipts of any person engaged in business in New Mexico.

2 See NMSA 1978, Section 7-9-4 (2010). There is a statutory presumption that all receipts of a

3 person engaged in business activities are taxable. See NMSA 1978, Section 7-9-5(A) (2019). The

4 activity of providing artwork for sale was engaging in business which triggers the statutory

5 presumption that all receipts of a person engaging in business are taxable. See Section 7-9-3(P)

6 (2019), Section 7-9-3.3 (2019), and Section 7-9-5(A) (2019). Yet, despite the general presumption

7 of taxability, a taxpayer may qualify for the benefits of various deductions and exemptions.

8 There is no dispute that Taxpayer’s Schedule C income was derived from the sale of

9 artwork he produced and consigned to a gallery in New Mexico. The statutory definition of “gross

10 receipts” under Section 7-9-3.5 (2019) states, in pertinent part: “‘gross receipts’ means the total

11 amount of money or the value of other consideration received from selling property in New

12 Mexico.” It is undisputed that a physical piece of artwork is tangible personal property. See NMSA

13 1978, Section 7-9-3 (P) (2). Since the Department is entitled to the presumption that all receipts of a

14 person engaging in business are taxable, it is Taxpayer’s burden to present some evidence or legal

15 argument to show that the Taxpayer is entitled to an abatement, in full or in part, of the

16 assessment issued in the protest. See Section 7-9-3.3(2019) and Section 7-9-5(A) (2019); see also

17 N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-NMCA-099, ¶8. Taxpayer’s evidence

18 suggested two theories to excuse his non-filing and non-payment of gross receipts tax returns, first,

19 that the gallery was responsible for collection and payment of the tax, and second, that the sales

20 were occasional sales, not part of a business enterprise.

21 Point of sale tax collection.

22 Mr. Champlin’s artwork was sold by an art gallery. Taxpayer believed that the gallery was

23 responsible to collect, report and pay the tax on the sale, by passing on the tax to the buyer. This

In the Matter of the Protest of Dennis Champlin, page 8 of 15.
1 understanding takes into consideration the everyday experience people have as buyers of goods,

2 where the seller collects both the sales price and a tax, which the buyer pays. However, the gross

3 receipts tax is conceptualized as a tax on the seller, not the buyer. See NMSA 1978, Section 7-9-4

4 (A) (“For the privilege of engaging in business, an excise tax… is imposed on any person engaging

5 in business in New Mexico.”). Therefore, the seller is responsible for reporting and payment of the

6 gross receipts tax, not simply remission of taxes paid by buyers. The seller is under no obligation to

7 pass the tax on to the buyer, but the seller is under the obligation to report gross receipts and pay the

8 proper tax. If no tax is collected from the buyer at the point of sale, there is a method of backing out

9 the tax from the sale price. See Regulation 3.2.6.8 NMAC.

10 The gallery accepted Mr. Champlin’s artwork for sale on consignment. In this case, the

11 consignor was Mr. Champlin. See NMSA 1978, Section 55-9-102 (a)(21) (“consignor means a

12 person that delivers goods to a consignee in a consignment”). The consignee was the gallery. See

13 Section 55-8-102 (a)(19) (“consignee means a merchant to which goods are delivered in a

14 consignment.”). The parties to the consignment agreed upon the sale price for the artwork but did

15 not enter into a written contract.

16 Upon sale of the artwork, the gallery sent Mr. Champlin payment for his previously agreed-

17 upon share of the sale proceeds. It is unclear if the gallery collected, reported or paid any tax on the

18 sale. However, as a seller on consignment agreement, both the consignor and the consignee are

19 responsible for payment of their portion of the proceeds of the sale. See Regulation 3.2.1.15 (B)

20 NMAC (10/13/2021)1 (“Receipts of both a consignor and a consignee from the sale of tangible

21 personal property handled on consignment are subject to the gross receipts tax.”). Gross receipts

22 includes “any receipts from sales of tangible personal property handled on consignment.” NMSA

1
The newest version of the regulation does not change the language of the previously enacted Section B, effective
10/31/2000, and applicable to the case at hand.

In the Matter of the Protest of Dennis Champlin, page 9 of 15.
1 1978, Section 7-9-3.5 (A) (2) (a). It is undisputed that the consignor and the consignee are both

2 sellers in this scenario. It is upon sellers that the gross receipts tax is levied. See Ranchers-Tufco

3 Limestone Project Joint Venture v. New Mexico Taxation and Revenue Department, 1983-NMCA-

4 126, ¶83, 674 P.2d 522 (“[T]he incidence of the gross receipts tax is on the seller”). There was no

5 evidence that the consignment contract provided any other method of tax collection, reporting, or

6 payment. Therefore, the gross receipts tax levied on the seller-consignor is appropriate.

7 Occasional sales

8 Mr. Champlin’s assertion that the sporadic sale of his paintings was not really a business is

9 cognizable as a claim under the occasional sales exemption to the gross receipts tax. The Gross

10 Receipts and Compensating Tax Act provides an exemption for occasional sales or leases of

11 property. See NMSA 1978, Section 7-9-28. The exemption “contemplates two requirements: 1) that

12 the transaction be isolated or occasional, and 2) that the seller-lessor is not engaged or holding

13 himself out as engaged in the business of selling or leasing the same or similar property.” Kewanee

14 Industries, Inc. v. Reese, Taxation and Revenue Department, 1993-NMSC-006, ¶ 31, 845 P.2d

15 1238.

16 The Department’s regulations also itemize the criteria it uses to determine whether a

17 particular taxpayer or sale qualifies for the exemption. See Regulation 3.2.116.8 and 3.2.116.9

18 NMAC. Mr. Champlin suggested that the artwork sold sporadically. The Department presented

19 testimony that it had worked with the Taxpayer’s accountant on other Schedule C mismatches over

20 the years. Also, Mr. Champlin testified that he has art in galleries in other states. Here, it was clear

21 that this sale of artwork in 2018 was not an isolated incident, and the Taxpayer was holding himself

22 out to the public as an artist who sells his art. “Receipts from an isolated or occasional sale are

23 exempt… only when the seller of the property is not engaged in the business of selling or leasing

In the Matter of the Protest of Dennis Champlin, page 10 of 15.
1 the same or similar property.” Regulation 3.2.116.11 (A) (5/15/2001). Because the Taxpayer was

2 also selling similar property in the form of works of art, Taxpayer does not qualify for the

3 exemption as an occasional seller.

4 Penalty

5 Mr. Champlin did not believe he was required to file and pay gross receipts tax returns, but

6 had no intention to evade a tax, he simply did not receive information of a need to file from his

7 accountant. Under NMSA 1978, Section 7-1-69 (2007), when a taxpayer fails to pay taxes due to

8 the State because of negligence or disregard of rules and regulations, but without intent to evade or

9 defeat a tax, the Department must impose a civil negligence penalty on that taxpayer. “There shall

10 be added to the amount assessed a penalty” under the statute. Id.

11 The use of the word “shall” makes the imposition of penalty mandatory in all instances

12 where a taxpayer’s actions or inactions meets the legal definition of “negligence.” See Marbob

13 Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, ¶22, 146 N.M. 24 (use of the

14 word “shall” in a statute indicates provision is mandatory absent clear indication to the contrary).

15 Negligence can be found in several ways. Regulation 3.1.11.10 NMAC (1/15/01) defines

16 “negligence” as “failure to exercise that degree of ordinary business care and prudence which

17 reasonable taxpayers would exercise under like circumstances; inaction by taxpayers where action is

18 required; inadvertence, indifference, thoughtlessness, carelessness, erroneous belief or inattention.”

19 Not filing gross receipts tax returns or paying the taxes on time is certainly negligence under this

20 definition.

21 Taxpayer’s statement of reliance on his accountant for proper advice is cognizable as a

22 claim of nonnegligence. Regulation 3.1.11.11 NMAC (1/15/01) defines “nonnegligence” by

23 describing several situations which may indicate an absence of negligence, allowing the Department

In the Matter of the Protest of Dennis Champlin, page 11 of 15.
1 to issue an abatement. The list provided in regulation includes: “D. the taxpayer proves that the

2 failure to pay tax or to file a return was caused by reasonable reliance on the advice of competent

3 tax counsel or accountant as to the taxpayer's liability after full disclosure of all relevant facts;

4 failure to make a timely filing of a tax return, however, is not excused by the taxpayer's reliance on

5 an agent.” Regulation 3.1.11.11 NMAC.

6 Taxpayer’s testimony was credible that he relied on his accountant when filing personal

7 income taxes, which included the Schedule C for business income. There was no evidence of

8 whether the subject of gross receipts was broached between accountant and Taxpayer. Yet, even if it

9 had been, under the plain language of the regulation, the reliance on the CPA does not excuse the

10 failure to timely file a gross receipts tax return for the business income reported on the Schedule C.

11 See El Centro Villa Nursing Center v. Taxation and Revenue Department, 1989-NMCA-070, ¶10,

12 108 N.M. 795 (inadvertent error meets the definition of civil negligence). No abatement of penalty

13 under Regulation 3.1.11.11 NMAC (01/15/01) is allowed.

14 Conclusion.

15 Mr. Champlin provided no evidence to support his beliefs that the gallery collected, reported

16 or paid the gross receipts tax on the consignment sales of his artwork. Taxpayer was engaged in

17 business, holding himself out in various galleries and collecting payments from the sale of his art.

18 The seller-consignor is liable for the tax on the proceeds received from the sales of his paintings.

19 Taxpayer’s reliance on a CPA to inform him to pay gross receipts taxes was misplaced. A reduction

20 of penalty for the reliance on competent advice is not proper in this case as no gross receipts tax

21 returns were filed. See Regulation 3.1.11.11 (D) NMAC.

22 The protest is denied.

In the Matter of the Protest of Dennis Champlin, page 12 of 15.
1 CONCLUSIONS OF LAW

2 A. The Taxpayer filed a timely written protest to the Notice of Assessment of Tax and

3 Demand for Payment issued under Letter ID number L1081918896, and jurisdiction lies over the

4 parties and the subject matter of this protest. See NMSA 1978, Section 7-1-24 (D) (2017).

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

6 for hearing on the protest. Parties did not object that the hearing satisfied the 90-day hearing

7 requirement of Section 7-1B-8. See NMSA 1978, Section 7-1B-8 (F) (2019).

8 C. Any assessment of tax made by the Department is presumed to be correct.

9 Therefore, it is the taxpayer’s burden to come forward with evidence and legal argument to establish

10 that the Department’s assessment should be abated, in full or in part. See NMSA 1978, Section 7-1-

11 17 (C) (2007).

12 D. “Tax” is defined to include not only the tax program’s principal, but also interest and

13 penalty. See NMSA 1978, Section 7-1-3 (Z) (2019); see also Regulation 3.1.1.16 (12/29/2000).

14 Assessments of penalties and interest therefore also receive the benefit of a presumption of

15 correctness. See Regulation 3.1.6.13 NMAC (1/15/01).

16 E. Taxpayer failed to meet his burden to show that he was not required to pay gross

17 receipts tax for artwork sold on consignment by a gallery. See NMSA 1978, Section 7-9-3.5 (A)

18 (2) (a); see also Regulation 3.2.1.15 (B) NMAC; see also NMSA 1978, Section 7-9-4 (A).

19 F. Taxpayer failed to meet his burden of establishing that he was entitled to receive

20 the benefit of any deductions or exemptions to taxable business income. See NMSA 1978,

21 Section 7-1-17 (C) (2007); see also NMSA 1978, Section 7-9-28; see also Regulation 3.2.116.8 and

22 3.2.116.9 NMAC.

In the Matter of the Protest of Dennis Champlin, page 13 of 15.
1 G. Taxpayer failed to establish nonnegligence in purported reliance on advice from a

2 CPA, as the reliance does not excuse failing to report and pay gross receipts tax. See Regulation

3 3.1.11.11 NMAC (01/15/01); see also Regulation 3.1.11.10 NMAC (1/15/01).

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

5 Taxpayer pay gross receipts tax, penalty and interest as itemized in the recalculated balance sheet,

6 reduced by credit for payments made, for a total balance of $287.84. Interest accrues until fully

7 paid.

8 DATED: November 28, 2022.

9

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

16 NOTICE OF RIGHT TO APPEAL

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

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

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

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

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

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

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

In the Matter of the Protest of Dennis Champlin, page 14 of 15.
1 Hearings Office may begin preparing the record proper. The parties will each be provided with a

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

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

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

5 CERTIFICATE OF SERVICE

6 On November 28, 2022, a copy of the foregoing Decision and Order was submitted to the

7 parties listed below in the following manner:

8 First Class Mail and Email First Class Mail and Email
9
10 INTENTIONALLY BLANK

In the Matter of the Protest of Dennis Champlin, page 15 of 15.