The employee who handled my New Mexico taxes underreported and took my records — how much of the gross receipts tax assessment can I actually beat?

Plain-English summary

Lobo Tech, LLC is a New Mexico plumbing subcontractor owned by Pauline Carrillo that often provides plumbing services later resold by a general contractor. During the tax years at issue, an employee handled Lobo Tech's gross receipts tax (GRT) filings — and, it turned out, underreported the tax. The employee worked from home during the pandemic, took most of the company's records home, then left, moved out of state, and never returned them.

In November 2022 the Department assessed Lobo Tech for 2015-2018: $46,489.02 tax, $9,288.62 penalty, and $9,271.36 interest — $64,973.13 total. Hearing Officer Dee Dee Hoxie granted the protest in part and denied it in part. Here's how each piece came out:

• Statute of limitations (partial win). New Mexico normally has three years to assess, but six years when a taxpayer underreports by more than 25% (Section 7-1-18(D)) — which Lobo Tech conceded. The June 2015 period was still too late: its six-year clock ran out December 31, 2021, and the assessment came November 2, 2022, so that period's $5,279.03 was abated. The December 2015 period (clock to December 31, 2022) and the 2017-2018 periods were all assessed in time.
• Deductions (partial win, limited by lost records). A plumbing subcontractor whose services are resold can deduct those receipts with a nontaxable transaction certificate (NTTC) or alternative evidence (Section 7-9-43). The Department allowed the deductions Lobo Tech could actually document with one NTTC, invoices, and research into building permits. One NTTC was rejected because it covered tangible property sold to a government agency (not resale of services) — but that tied to September 2015, a period never assessed, so it didn't matter. Without its records, Lobo Tech couldn't prove any further deductions, and the burden was on it.
• Penalty (loss). The late/underreported tax drew a mandatory penalty (Section 7-1-69(A)). Relying on an employee to handle the taxes is not an excuse, and the mistakes made the taxpayer negligent; there was no good-faith mistake of law. The penalty stood.
• Interest (partial win). Interest is mandatory on unpaid tax, but the Department botched the protest timeline — it took 157 days to acknowledge the protest (not "prompt") and requested a hearing 332 days out, past the 180-day deadline. Under Section 7-1B-8(E), the Hearing Officer halted further interest as of July 23, 2023.

Final liability: $36,447.28 tax, $7,345.32 penalty, and $8,820.06 interest (through July 23, 2023) — $52,612.66.

What this means for you

Contractors and subcontractors

Resale/subcontract deductions are real, but they live or die on documentation. The Department allowed every deduction Lobo Tech could tie to an NTTC or invoice and disallowed the rest — not out of hostility, but because the taxpayer carries the burden of proof. Keep NTTCs, invoices, and job records; alternative evidence (contracts, permits) can help when an NTTC is missing.

Any business that delegates tax filing to an employee or bookkeeper

Handing the taxes to a staffer doesn't move the risk. Underreporting by your employee is still your negligence, and it can also trigger the six-year assessment window (instead of three) once underreporting tops 25%. Supervise the filings and keep your own copies of the records.

Anyone whose records are lost or held by a departed employee

Lost records are a double blow: you can't substantiate deductions (so you pay tax you might have avoided), and losing them can be treated as negligence (so the penalty sticks). Back up tax records independently and retrieve originals when staff leave.

Taxpayers whose protest is languishing at the Department

There's a remedy worth invoking. If the Department fails to promptly acknowledge your protest or misses the 180-day deadline to request a hearing, the Hearing Officer can stop interest from accruing under Section 7-1B-8(E) — here, as of July 23, 2023. It won't erase tax or penalty, but it caps the interest.

Tax professionals

A multi-issue GRT protest: Section 7-1-18(D)'s six-year window for >25% underreporting (per-period math), Section 7-9-43(A)/(B) NTTC-vs-alternative-evidence deductions bounded by proof, the McKinley Ambulance limit (an NTTC is conclusive only for the transaction it fits), Section 7-1-69 negligence (agent/employee reliance no excuse; no Section 7-1-69(B) mistake of law), and a Section 7-1B-8(E) interest stay for the Department's non-prompt acknowledgment and late hearing request.

Common questions

Q: How far back can New Mexico assess my gross receipts tax?
A: Generally three years from the end of the year the tax was due, but six years if you underreported by more than 25%. Lobo Tech conceded the six-year window applied; even so, the June 2015 period was abated because the assessment came after that six-year deadline.

Q: My employee handled the taxes and got it wrong — does that excuse the penalty?
A: No. Relying on an employee or agent to file is not an excuse, and the resulting errors made the taxpayer negligent. The late-filing/underreporting penalty is mandatory absent a good-faith mistake of law.

Q: I lost my records, so I can't prove my deductions. What happens?
A: You generally lose those deductions. The taxpayer bears the burden of proving entitlement, so receipts you can't document with an NTTC, invoices, or alternative evidence remain taxable.

Q: Why did the interest stop growing?
A: Because the Department missed its own protest deadlines — 157 days to acknowledge and past the 180-day hearing-request window. Section 7-1B-8(E) let the Hearing Officer halt interest as of July 23, 2023.

Q: Can I rely on this decision for my own situation?
A: Not directly. A Decision and Order resolves one taxpayer's protest on its specific facts and is not a general ruling or advisory opinion of the Department. It does illustrate the limitations period, deduction proof, penalty, and interest-stay rules working together.

Citations and references

Statutes and rules:

• NMSA 1978, § 7-1-18(A), (D) (2021) — three-year assessment limit; six years if tax underreported by more than 25%
• NMSA 1978, § 7-9-43(A), (B) (2018) — deduction proven by an NTTC or by alternative evidence
• NMSA 1978, § 7-9-4, § 7-9-5(A), § 7-9-3.5(A) — gross receipts tax imposed; receipts presumed taxable
• NMSA 1978, § 7-1-69(A), (B) (2021) — mandatory late penalty; excused only for a good-faith mistake of law
• NMSA 1978, § 7-1-67 (2013) — mandatory interest on unpaid tax
• NMSA 1978, § 7-1B-8(A), (B), (E) (2019) — prompt acknowledgment and 180-day hearing deadline; interest may be halted for Department delay
• NMSA 1978, § 7-1-17 (2007) — assessment (and its penalty and interest) is presumed correct
• Regulation 3.2.201.8(D), 3.1.11.10, 3.1.11.11, 22.600.3.18(E) NMAC — NTTC scope; negligence; interest stay

Cases:

• Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, 146 N.M. 24 ("shall" makes penalty and interest mandatory)
• McKinley Ambulance Serv. v. Bureau of Revenue, 1979-NMCA-026, 92 N.M. 599 (an NTTC is conclusive only for the transaction it fits)
• Leaco Rural Tel. Coop. v. Bureau of Revenue, 1974-NMCA-076, 86 N.M. 269; Continental Inn v. N.M. Taxation & Revenue Dep't, 1992-NMCA-030, 113 N.M. 588; Gas Co. v. O'Cheskey, 1980-NMCA-085, 94 N.M. 630 (effect of a good-faith NTTC)
• State v. Hubble, 2009-NMSC-014, 146 N.M. 70 (a mistake of law is about the legal effect of a known fact)
• N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-NMCA-099; El Centro Villa Nursing Ctr. v. Taxation & Revenue Dep't, 1989-NMCA-070; Gemini Las Colinas, LLC v. N.M. Taxation & Revenue Dep't, 2023-NMCA-039 (presumption of correctness; taxpayer's burden)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Lobo Tech LLC
• Decision PDF: D&O 24-11

Original ruling text

1 STATE OF NEW MEXICO
2 ADMINISTRATIVE HEARINGS OFFICE
3 TAX ADMINISTRATION ACT

4 LOBO TECH, LLC
5 v. AHO No. 23.12-068A
6 TAXATION AND REVENUE DEPARTMENT D&O No. 24-11

7 DECISION AND ORDER
8 On March 1, 2024, Hearing Officer Dee Dee Hoxie, Esq. conducted a videoconference

9 hearing on the merits of the protest to the assessment. The Taxation and Revenue Department

10 (Department) was represented by Peter Breen, Staff Attorney. Mitchell Bartholomew, Auditor,

11 also appeared on behalf of the Department. Lobo Tech, LLC (Taxpayer) was represented by its

12 owner, Pauline Carrillo. Ms. Carrillo and Mr. Bartholomew testified. The parties agreed to

13 recess the hearing and to recommence at a later date. On July 31, 2024, the hearing was

14 recommenced. Ms. Carrillo was present for the Taxpayer. The Department was represented by

15 Christopher Orton, Staff Attorney, and Nicholas Pacheco, Auditor. Ms. Carrillo and Mr.

16 Pacheco testified. The Hearing Officer took notice of all documents in the administrative file.

17 The Department’s exhibits A (acknowledgment letter), B (assessment), C (protest), D

18 (Taxpayer’s documents), E (updated amounts), and F (2015 liabilities) were admitted1.

19 The main issues to be decided are whether any part of the assessment is beyond the

20 statute of limitations and whether the Taxpayer is entitled to any relief from penalties and

21 interest. The Hearing Officer considered all of the evidence and arguments presented by both

22 parties. Because part of the assessment is beyond the statute of limitations and because the

1
The Department pre-filed Exhibits A, B, C, and D, which were admitted at the hearing on July 31, 2024. The
Department requested additional time to submit Exhibit E as the updated amounts had just been approved. The
request was granted with a deadline of August 2, 2024, and directions to provide additional calculations on the
interest due as of July 23, 2023. Exhibit E was timely submitted. The order for clarification required Exhibit F to be
filed by August 30, 2024 if the Taxpayer was a monthly filer. Exhibit F was timely submitted.
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1 Department failed to promptly acknowledge the protest and request a hearing, the Hearing

2 Officer finds partially in favor of the Taxpayer. Because the Taxpayer failed to prove that it was

3 entitled to more deductions and failed to prove that it was not negligent, the Hearing Officer

4 finds partially in favor of the Department. IT IS DECIDED AND ORDERED AS FOLLOWS:

5 FINDINGS OF FACT

6 Procedural findings.

7 1. On November 2, 2022, the Department issued an assessment to the Taxpayer for

8 gross receipts tax for the tax periods from January 1, 2015 to December 31, 2018. The

9 assessment was for tax principal of $46,489.02, penalty of $9,288.62, and interest of $9,271.36,

10 for a total liability of $64,973.13. [Exhibit B].

11 2. On January 23, 2023, the Taxpayer filed a timely written protest to the

12 assessment. [Exhibit C].

13 3. On June 29, 2023, slightly more than five months after the protest was filed, the

14 Department acknowledged its receipt of the protest. [Exhibit A].

15 4. The Department offered no explanation or justification for the five-month delay in

16 acknowledgement.

17 5. On December 21, 2023, the Department filed a request for hearing with the

18 Administrative Hearings Office. [Admin. file request].

19 6. The request for hearing was filed 332 days after the protest was filed. [Admin.

20 file].

21 7. On January 29, 2024, a telephonic scheduling hearing was conducted, which was

22 within 90 days of the date that the request for hearing was filed, as required by statute. [Admin.

23 file].

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1 8. The Taxpayer objected to the telephonic scheduling hearing and argued that the

2 protest had already been improperly delayed. [Admin. file].

3 9. The hearing on the merits commenced on March 1, 2024, which the parties agreed

4 was within 90 days of the request for hearing, as required by statute. [Admin. file].

5 10. The parties agreed to recess the hearing so that the Taxpayer could gather more

6 evidence, and the parties agreed to recommence the hearing on the merits later. [Admin. file].

7 11. The Taxpayer requested a continuance of the initial recommencement setting, and

8 the Department requested a continuance of the second recommencement setting. Both requests

9 were granted. [Admin. file].

10 12. On August 19, 2024, an order for clarification was issued. [Admin. file].

11 13. On August 22, 2024, the Department filed a clarification and Exhibit F. [Admin.

12 file; Exhibit F].

13 Substantive findings.

14 14. The Taxpayer is a plumbing contractor. [Testimony of Ms. Carrillo; Testimony

15 of Mr. Pacheco].

16 15. The Taxpayer frequently provides plumbing services that are resold by a general

17 contractor. [Testimony of Ms. Carrillo; Testimony of Mr. Pacheco; Exhibit D].

18 16. During the tax periods at issue, the Taxpayer entrusted its tax filing and payments

19 to an employee. [Testimony of Ms. Carrillo].

20 17. During the pandemic2, the Taxpayer’s employee was working from home and

21 took most of the Taxpayer’s records to her home. [Testimony of Ms. Carrillo].

2
Generally, the years 2020 and 2021.
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1 18. The Taxpayer’s employee left the Taxpayer’s employ and moved out of state, but

2 the employee did not return the Taxpayer’s records. [Testimony of Ms. Carrillo].

3 19. The Taxpayer’s attempts to retrieve its records have not been successful, and the

4 former employee has canceled her old phone number and has not provided updated contact

5 information to the Taxpayer. [Testimony of Ms. Carrillo].

6 20. After the assessment, Ms. Carrillo tried to piece together what had happened with

7 the Taxpayer’s gross receipts tax filings, and she was able to provide copies of some documents

8 to the Department. [Testimony of Ms. Carrillo; Exhibit D].

9 21. Ms. Carrillo learned that the employee who handled the gross receipts tax

10 reporting had not been reporting the gross receipts and deductions properly. [Testimony of Ms.

11 Carrillo].

12 22. Ms. Carrillo admits that the Taxpayer underreported the gross receipts tax for the

13 tax periods in question and concedes that the six-year statute of limitations should apply.

14 [Testimony of Ms. Carrillo].

15 23. The Department did not dispute that the six-year statute of limitations should

16 apply.

17 24. Exhibit E details the tax, penalty, and interest by six-month intervals for the 2015

18 tax periods, the 2017 tax periods, and the 2018 tax periods.

19 25. Exhibit F details the tax, penalty, and interest by month for the 2015 tax periods.

20 26. The Department determined that the Taxpayer was entitled to take some

21 deductions as a subcontractor for the resale of its services based on one nontaxable transaction

22 certificate (NTTC), some invoices, and alternative evidence based on its research of building

23 projects and permits. [Testimony of Mr. Pacheco; Exhibit D; Exhibit E].

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1 27. The Department determined that the Taxpayer was not entitled to take deductions

2 based on another NTTC because it was for the sale of tangible items to a government agency,

3 which does not cover the sale of the Taxpayer’s services. [Testimony of Mr. Pacheco; Exhibit

4 D.1].

5 28. Mr. Pacheco reviewed the Taxpayer’s submissions, and he determined that the

6 Taxpayer had proven that it was entitled to an adjustment3 of the assessment. [Testimony of Mr.

7 Pacheco; Exhibit D; Exhibit E].

8 29. The Taxpayer established that $11,389.00 of gross receipts from September 2015

9 were attributable to the NTTC that the Department disallowed. [Exhibit D.1; Exhibit D.7;

10 Exhibit D.10].

11 30. Because the Taxpayer’s former employee took its records, the Taxpayer is not

12 able to provide more evidence of its gross receipts, which gross receipts apply to which

13 customers, or of its possible deductions for the tax periods at issue. [Testimony of Ms. Carrillo].

14 31. The Department determined that the Taxpayer was liable for the tax period ending

15 June 30, 20154 in the amount of $3,416.38 tax, $683.28 penalty, and $1,179.37 interest5, for a

16 total liability for that tax period of $5,279.03. [Exhibit E; Exhibit F].

17 32. The tax period ending June 30, 2015 had a tax due date of July 25, 2015. See

18 NMSA 1978, § 7-9-11 (1969). See also 3.2.2.13 NMAC (2001).

19 33. Six years after the end of the calendar year of the tax due date of July 25, 2015

20 was December 31, 2021.

3
The evidence did not specify how much was adjusted in each tax period; however, since the adjustments were
based on the deductions allowed and the amounts proven by the invoices, it seems that the adjustments were made to
the 2017 and 2018 tax periods.
4
The breakdown of the monthly tax liability for 2015 shows that only tax periods that were part of the assessment
were the June 2015 and the December 2015 tax periods. [Exhibit F].
5
For reasons discussed infra, the interest amounts used are those only through July 23, 2023.
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1 34. The Department determined that the Taxpayer was liable for the tax period ending

2 December 31, 2015 in the amount of $3,407.28 tax, $737.32 penalty, and $1,129.17 interest, for

3 a total tax liability for that tax period of $5,273.77. [Testimony of Mr. Pacheco; Exhibit E;

4 Exhibit F].

5 35. The tax period ending December 31, 2015 had a tax due date of January 25, 2016.

6 See NMSA 1978, § 7-9-11. See also 3.2.2.13 NMAC.

7 36. Six years after the end of the calendar year of the tax due date of January 25, 2016

8 was December 31, 2022.

9 37. The remaining tax periods at issue are for June and December 2017, which had

10 tax due dates in 2017 and 2018, and for June and December 2018, which had tax due dates in

11 2018 and 20196. [Exhibit E]. See NMSA 1978, § 7-9-11. See also 3.2.2.13 NMAC.

12 38. Six years after the end of the calendar year of the tax due dates in 2017 was

13 December 31, 2023. Six years after the end of the calendar year of the tax due dates in 2018 will

14 be December 31, 2024. Six years after the end of the calendar year of the tax due date in 2019

15 will be December 31, 2025.

16 DISCUSSION

17 Burden of proof.

18 “The taxpayer shall have the burden of proof, except as otherwise provided by law.”

19 22.600.3.24 (B) NMAC (2020). Assessments by the Department are presumed to be correct. See

20 NMSA 1978, § 7-1-17 (2007). See El Centro Villa Nursing Ctr. v. Taxation and Revenue

21 Department, 1989-NMCA-070, 108 N.M. 795. See also Archuleta v. O'Cheskey, 1972-NMCA-

22 165, ¶11, 84 N.M. 428. See also N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-

6
The tax period ending December 31, 2018 is due January 25, 2019.
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1 NMCA-099, ¶8. The presumption extends to the assessment of penalty and interest. See 3.1.6.13

2 NMAC (2001). “The effect of the presumption of correctness is that the taxpayer has the burden of

3 coming forward with some countervailing evidence tending to dispute the factual correctness of the

4 assessment”. 3.1.6.12 (A) NMAC (2001). See Gemini Las Colinas, LLC v. N.M. Taxation &

5 Revenue Dep’t, 2023-NMCA-039. See also 22.600.1.18 and 22.600.3.24 NMAC.

6 Gross receipts tax and deductions.

7 Anyone engaging in business in New Mexico is subject to the gross receipts tax. See

8 NMSA 1978, § 7-9-4 (2010). To engage in business in New Mexico means “carrying on or causing

9 to be carried on any activity with the purpose of direct or indirect benefit.” NMSA 1978, § 7-9-3.3

10 (2019). Gross receipts include the total amount received “from performing services in New

11 Mexico.” NMSA 1978, § 7-9-3.5 (A) (1) (2019). There is a statutory presumption that “all receipts

12 of a person engaging in business are subject to the gross receipts tax.” NMSA 1978, § 7-9-5 (A)

13 (2019). The Taxpayer provided plumbing services in New Mexico. [Testimony of Ms. Carrillo].

14 Presumptively, the Taxpayer’s receipts for providing those services are subject to the gross receipts

15 tax. See NMSA 1978, § 7-9-4, §7-9-5.

16 The burden is on the Taxpayer to prove that it is entitled to an exemption or deduction.

17 See Public Services Co. v. N.M. Taxation and Revenue Dep’t., 2007-NMCA-050, ¶ 32, 141 N.M.

18 520. See also Till v. Jones, 1972-NMCA-046, 83 N.M. 743. “Where an exemption or deduction

19 from tax is claimed, the statute must be construed strictly in favor of the taxing authority, the

20 right to the exemption or deduction must be clearly and unambiguously expressed in the statute,

21 and the right must be clearly established by the taxpayer.” Sec. Escrow Corp. v. State Taxation

22 and Revenue Dep’t., 1988-NMCA-068, ¶ 8, 107 N.M. 540. See also Wing Pawn Shop v.

23 Taxation and Revenue Dep’t., 1991-NMCA-024, ¶ 16, 111 N.M. 735. See also Chavez v.

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1 Commissioner of Revenue, 1970-NMCA-116, ¶ 7, 82 N.M. 97. See also Pittsburgh and Midway

2 Coal Mining Co. v. Revenue Division, 1983-NMCA-019, 99 N.M. 545.

3 A taxpayer may establish that it is entitled to take a deduction from their gross receipts “by

4 obtaining a properly executed nontaxable transaction certificate from the purchaser.” NMSA 1978,

5 § 7-9-43 (A) (2018). The Department conceded that the Taxpayer had obtained a properly executed

6 NTTC and adjusted the assessment based on it. [Testimony of Mr. Pacheco; Exhibit D; Exhibit E].

7 Because of the Taxpayer’s lack of records, the Department’s adjustments were limited to the gross

8 receipts that the Taxpayer was able to prove through its invoices came from that purchaser.

9 [Testimony of Mr. Pacheco; Exhibit D; Exhibit E].

10 A taxpayer may also establish that it is entitled to take a deduction “by presenting alternative

11 evidence that demonstrates the facts necessary to support entitlement to the deduction”. NMSA

12 1978, § 7-9-43 (B). The Department conceded that the Taxpayer had provided sufficient alternative

13 evidence on the gross receipts from another general contractor to support a deduction. [Testimony

14 of Mr. Pacheco; Exhibit D]. The Department adjusted the assessment based on the alternative

15 evidence, but the adjustments were again limited to the gross receipts that the Taxpayer was able to

16 prove through its invoices came from that general contractor. [Testimony of Mr. Pacheco; Exhibit

17 D; Exhibit E].

18 The Department rejected one NTTC that the Taxpayer provided because it was for sale of

19 tangible property to a government agency, not for the resale of services. [Testimony of Mr.

20 Pacheco; Exhibit D.1]. See 3.2.201.8 (D) NMAC (2001). See also McKinley Ambulance Serv. v.

21 Bureau of Revenue, 1979-NMCA-026, 92 N.M. 599 (noting that a NTTC is conclusive evidence only

22 if the NTTC applies to the transaction at issue).

23 A properly executed NTTC “shall be conclusive evidence, and the only material evidence,

24 that the proceeds from the transaction are deductible[.]” NMSA 1978, § 7-9-43 (A) (emphasis
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1 added). Several cases indicate that a NTTC is conclusive evidence that the seller is entitled to take

2 the deduction even when the buyer improperly issued the NTTC. See Leaco Rural Tel. Coop. v.

3 Bureau of Revenue, 1974-NMCA-076, ¶ 22, 86 N.M. 269 (holding that the taxpayer was not entitled

4 to deduct the sale of phone services as they were not tangible personal property, but also holding that

5 the taxpayer was not liable for the tax because the NTTC that it accepted in good faith protected it

6 from liability). See also Continental Inn v. N.M. Taxation and Revenue Dep’t., 1992-NMCA-030, ¶

7 12-13, 113 N.M. 588 (holding that a NTTC represents to the seller that it is entitled to take a

8 deduction and that the NTTC does not transform the taxable transaction into a nontaxable transaction

9 but allows the Department to pursue the buyer for compensating tax). See also Gas Co. v.

10 O’Cheskey, 1980-NMCA-085, ¶ 12, 94 N.M. 630 (holding that a NTTC does not transform a taxable

11 transaction into a nontaxable transaction and recognizing that a NTTC does serve to shift the burden

12 of the tax to the buyer when the seller accepts a NTTC in good faith even though the buyer wrongly

13 issued it). The Taxpayer established that $11,389.00 of its gross receipts in September 2015 were

14 attributable to the government agency. [Exhibit D.1; Exhibit F]. The only tax periods with tax

15 liabilities in 2015 were June and December. [Exhibit F]. Therefore, the Department’s disallowance

16 of the NTTC is moot as a deduction of the proceeds from the transaction in September 2015 would

17 not affect the assessment because there was no assessment for the September 2015 tax period.

18 Statute of limitations.

19 The Taxpayer argued that the assessment of several tax periods was made beyond the statute

20 of limitations. In general, the Department has three years from the end of the calendar year in which

21 the tax was due to make an assessment. See NMSA 1978, § 7-1-18 (A) (2021). However, the

22 Department has six years from the end of the calendar year in which the tax was due to make an

23 assessment when a taxpayer underreports their tax liability by more than twenty-five percent. See

24 NMSA 1978, § 7-1-18 (D). The Taxpayer conceded that the six-year statute of limitations applied

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1 because the Taxpayer was underreporting its tax liability by more than twenty-five percent.

2 [Testimony of Ms. Carrillo]. After the order of clarification, Exhibit F established that the only tax

3 periods assessed for 2015 were June 2015 and December 2015.

4 The tax period ending in June 2015 had a tax due date of July 25, 2015. Six years from the

5 end of the calendar year in which the tax was due was December 31, 2021. See NMSA 1978, § 7-1-

6 18. Therefore, the final date for the Department to assess the June 2015 tax period was December

7 31, 2021. See id. The assessment was made on November 2, 2022. [Exhibit B]. Therefore, the

8 assessment for the June 2015 tax period was made beyond the statute of limitations. See NMSA

9 1978, § 7-1-18. Consequently, the assessment for the June 2015 tax period, a total of $5,279.037, is

10 HEREBY ABATED.

11 The tax period ending December 31, 2015 had a tax due date of January 25, 2016. Six years

12 from the end of the calendar year in which the tax was due was December 31, 2022. Therefore, the

13 final date for the Department to assess the December 2015 tax period was December 31, 2022. See

14 id. The assessment was made on November 2, 2022. Therefore, the assessment for the tax period

15 ending on December 31, 2015 was made within the statute of limitations. The remaining tax

16 periods occurred in 2017 and 2018. [Exhibit B; Exhibit E]. Therefore, their tax due dates were in

17 2017, 2018, and 2019, respectively. See NMSA 1978, § 7-1-18. Six years from the end of 2017

18 was December 31, 2023, from the end of 2018 will be December 31, 2024, and from the end of

19 2019 will be December 31, 2025. See id. Therefore, the assessment was made within the statute of

20 limitations for the tax periods in 2017 and for the tax periods in 2018. See id.

7
From Exhibit E, including the tax, penalty, and interest thru July 23, 2023.
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1 Assessment of penalty.

2 The Taxpayer requested relief from the penalty assessed. When a tax is not paid by the due

3 date, “there shall be added to the amount assessed a penalty”. NMSA 1978, § 7-1-69 (A) (2021)

4 (emphasis added). The word “shall” indicates that the assessment of penalty is mandatory, not

5 discretionary. See Marbob Energy Corp. v. N.M. Oil Conservation Comm’n., 2009-NMSC-013, ¶

6 22, 146 N.M. 24. If a taxpayer is not negligent, a penalty may be excused. See 3.1.11.11 NMAC

7 (2001) (listing several factors that indicate non-negligence). Negligence includes “inadvertence,

8 indifference, thoughtlessness, carelessness, erroneous belief or inattention.” 3.1.11.10 NMAC

9 (2001). It also includes failure to act where action is required and the failure to exercise the degree

10 of ordinary business care and prudence that reasonable taxpayers would exercise in similar

11 circumstances. See id. Generally, a taxpayer’s reliance on an agent to perform acts, such as filing

12 returns, is not an excuse for penalty. See 3.1.11.11 NMAC. The Taxpayer explained that the

13 employee who was handling the taxes made some mistakes. [Testimony of Ms. Carrillo].

14 Therefore, the Taxpayer was negligent.

15 However, no penalty is owed when the failure to pay the tax “results from a mistake of law

16 made in good faith and on reasonable grounds.” NMSA 1978, § 7-1-69 (B). A mistake of law is a

17 mistake about the legal effect of a known fact. See State v. Hubble, 2009-NMSC-014, ¶ 22, 146

18 N.M. 70 (quoting from dictionary). The Taxpayer presented evidence that it could have relied on

19 the NTTC from the government agency. However, the only tax period that the Taxpayer

20 established it might have relied on the NTTC from the government agency was the September 2015

21 tax period. [Exhibit D.7]. Since no assessment occurred with respect to the September 2015 tax

22 period, no penalty was applied to that tax period. With respect to the tax periods that were assessed,

23 the Taxpayer failed to present evidence to establish that its failure to pay the tax when it was due

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1 was based on a mistake of law made in good faith and on reasonable grounds. See NMSA 1978, §

2 7-1-69. Therefore, the Taxpayer failed to overcome the presumption of correctness on the penalty

3 assessment. See NMSA 1978, § 7-1-17. See also Gemini Las Colinas, LLC, 2023-NMCA-039.

4 Untimely request for hearing and halting interest.

5 The Taxpayer argued that the hearing was not timely because the protest was filed in

6 January 2023, but the Department did not request a hearing until December 2023. The evidence

7 shows that the protest was made on January 23, 2023. [Exhibit C]. “Within one hundred eighty

8 days, but no earlier than sixty days after the date of the protest, the taxation and revenue department

9 shall request a hearing”. NMSA 1978, § 7-1B-8 (B) (2019). One hundred eighty days from

10 January 23, 2023 was July 22, 2023. Therefore, the Department’s request for hearing did not

11 comply with the statutory time frame for requesting a hearing. See id.

12 The regulation permits the 180 days to run from the date that the protest was acknowledged.

13 See 22.600.3.8 NMAC (2020). However, this provision is meant to provide a very limited latitude

14 because the statute requires the Department to “promptly acknowledge the protest by letter”.

15 NMSA 1978, § 7-1B-8 (A) (emphasis added). If the Department is not going to acknowledge a

16 protest because it has determined that the protest is deficient, it must notify a taxpayer of the

17 deficiency within 21 days and provide an opportunity to correct the deficiency. See id. The

18 Department acknowledged the Taxpayer’s protest on June 29, 2023, which was 157 days after the

19 protest was made on January 23, 2023. [Exhibit A; Exhibit C]. Acknowledging the protest 157

20 days after it was made is not a prompt acknowledgement. The Department provided no explanation

21 or justification for the delay. As the Department did not comply with the statute by providing a

22 prompt acknowledgement, the regulation does not extend the time for the Department to request a

23 hearing. See NMSA 1978, § 7-1B-8. See also 22.600.3.8 NMAC.

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1 The Taxpayer requested relief from interest. Interest “shall be paid” on taxes that were not

2 paid on or before the date on which they were due. NMSA 1978, § 7-1-67 (A) (2013). Again,

3 the word “shall” indicates that the assessment of interest is mandatory. See Marbob Energy

4 Corp., 2009-NMSC-013. The assessment of interest is not designed to punish taxpayers, but to

5 compensate the state for the time value of unpaid revenue. See also 3.1.10.18 NMAC (2001)

6 (indicating the interest rate per year and how daily interest is calculated). Because the tax was

7 not paid when it was due, interest was properly assessed.

8 When the Department fails to comply with the statutory deadlines for promptly

9 acknowledging a protest or for requesting a hearing, “the hearing officer may order that no

10 further interest may accrue on the protested liability.” NMSA 1978, § 7-1B-8 (E). The accrual

11 of interest may be suspended from the date on which the Department should have acted or from

12 another date considering the unique circumstances of a protest. See 22.600.3.18 (E) NMAC

13 (2020). The Department should have requested a hearing no later than July 22, 2023. See

14 NMSA 1978, § 7-1B-8 (B). Allowing a day for the Department to process the protest, the

15 Hearing Officer orders that no further interest may accrue on the protested liability as of July 23,

16 2023.

17 CONCLUSIONS OF LAW

18 A. The Taxpayer filed a timely written protest of the Department’s assessment, and

19 jurisdiction lies over the parties and the subject matter of this protest. See NMSA 1978, § 7-1B-8

20 (2019).

21 B. The first hearing was timely set and held within 90 days of the request for hearing.

22 See id. See also 22.600.3.8 NMAC (2020).

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1 C. The Taxpayer admitted that it was underreporting, so the six-year statute of

2 limitations applies. See NMSA 1978, § 7-1-18.

3 D. The assessment for the June 2015 tax period was made beyond the statute of

4 limitations; therefore, the total liability of $5,279.03 for the June 2015 tax period is HEREBY

5 ABATED. See id.

6 E. The Taxpayer was negligent; therefore, penalty was properly assessed. See NMSA

7 1978, § 7-1-69. See 3.1.11.10 and 3.1.11.11 NMAC.

8 F. The tax was not paid when it was due; therefore, interest was properly assessed. See

9 NMSA 1978, § 7-1-67.

10 G. The Department failed to promptly acknowledge the protest and failed to request a

11 hearing within 180 days of the protest; therefore, no further interest will accrue on this assessment

12 as of July 23, 2023. See NMSA 1978, § 7-1B-8. See 22.600.3.18 (E) NMAC.

13 For the foregoing reasons, the Taxpayer’s protest IS GRANTED IN PART AND

14 DENIED IN PART. IT IS ORDERED that Taxpayer is liable for $36,447.28 in gross receipts

15 taxes, $7,345.32 in penalty, and $8,820.06 in interest through July 23, 2023, for a total

16 outstanding liability of $52,612.66.

17 DATED: August 28, 2024.

18 Dee Dee Hoxie
19 Dee Dee Hoxie
20 Hearing Officer
21 Administrative Hearings Office
22 P.O. Box 6400
23 Santa Fe, NM 87502

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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 August 28, 2024, a copy of the foregoing Decision and Order was submitted to the
15 parties listed below in the following manner:
16 First Class Mail & Email First Class Mail & Email
17
18
19 INTENTIONALLY BLANK

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