As a New Mexico part-year resident, can I claim a credit for taxes paid to another state on income I already allocated to that other state?

Plain-English summary

Thomas and Pamela Mather Hill lived in New Mexico for most of 2021 and in Virginia for the rest of the year, earning income in both states. On their New Mexico part-year resident income tax return they used Schedule PIT-B to allocate their income between New Mexico and Virginia, so New Mexico taxed only the New Mexico share. They then also claimed New Mexico's credit for taxes paid to another state for the Virginia tax on their Virginia income. The Department disallowed that credit, and the Hearing Officer denied the taxpayers' protest.

The reason: those are two separate benefits, and taking both on the same income double-counts. When you allocate income away to another state on PIT-B, that income is no longer allocated to New Mexico, so New Mexico is not taxing it — and New Mexico's credit for taxes paid to another state (NMSA 1978, Section 7-2-13) exists only to prevent double taxation of income that is allocated or apportioned to New Mexico but that another state also taxed. Layering the out-of-state credit on top of the allocation would turn it into a New Mexico subsidy of the taxpayer's Virginia tax bill. The taxpayers also argued it was unfair for their full federal AGI to appear on the New Mexico return, but the Hearing Officer noted the AGI starting point affected only the tax rate, not the amount of income New Mexico taxed, and equitable apportionment was outside the office's authority.

What this means for you

Part-year residents and people who move mid-year

If you split a year between New Mexico and another state and allocate your income between them on PIT-B, don't also claim New Mexico's credit for taxes paid to another state on the income you already allocated away. You generally get one or the other for a given slice of income — the allocation removes the out-of-state income from New Mexico's tax, and the credit is reserved for income that stays taxable in New Mexico but was also taxed elsewhere.

People filing in more than one state

The credit for taxes paid to another state is a double-tax fix, not a general refund of other states' taxes. It applies to income "allocated or apportioned to New Mexico" that another state also taxed. Watch which schedule already removed the income from New Mexico's base before claiming the credit.

Tax professionals

The decision walks through NMSA 1978, Section 7-2-11 (allocation/apportionment) and Section 7-2-13 (credit for taxes paid to another state) and holds the two cannot both reduce tax on the same dollars. It also applies the refund-claim burden of proof: because the taxpayers sought a credit/refund, they bore the burden and the Department's Return Adjustment Notice carried a presumption of correctness (NMSA 1978, Section 7-1-17(C); Corr. Corp. of Am. of Tenn. v. State, 2007-NMCA-148). The full-federal-AGI starting point changed only the rate under Section 7-2-7(B), not the New Mexico tax base.

Common questions

Q: I allocated income to another state and also paid tax there. Can I claim New Mexico's out-of-state credit too?
A: Not on the same income. Once income is allocated to the other state on PIT-B, New Mexico isn't taxing it, so there is nothing for the credit to offset. The credit is only for income that stays allocated or apportioned to New Mexico but was also taxed by another state.

Q: Why did New Mexico show my full federal AGI if it only taxed part of my income?
A: New Mexico starts from federal adjusted gross income and then allocates. The Hearing Officer found the AGI starting point affected only the tax rate, not the amount of income New Mexico actually taxed, so it did not increase the tax on the New Mexico share.

Q: Isn't it unfair for New Mexico to look at income earned in another state?
A: The Hearing Officer acknowledged the fairness argument but said equitably re-apportioning the income was beyond the office's authority; it had to apply the statutes as written.

Q: Can I rely on this decision for my own return?
A: Not directly. A Decision and Order resolves one taxpayer's protest on its specific facts; it is not a general ruling or advisory opinion of the Department, and another taxpayer with different facts should not assume it applies. It does show how the Hearing Officer reads the allocation and credit statutes.

Citations and references

Statutes and rules:

• NMSA 1978, § 7-2-3 (1981) — imposition of income tax on residents and certain non-residents
• NMSA 1978, § 7-2-11 — allocation and apportionment of income
• NMSA 1978, § 7-2-13 — credit for taxes paid to another state
• NMSA 1978, § 7-2-7(B) (2019) — income tax rates
• NMSA 1978, § 7-1-17(C) (2007) — presumption of correctness of Department adjustments
• Regulation 3.3.11.11(A) NMAC — compensation earned while a New Mexico resident is allocated to New Mexico

Cases:

• Corrections Corp. of America of Tennessee v. State, 2007-NMCA-148 (taxpayer's burden of proof; presumption of correctness of the Department's determination)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Thomas B. & Pamela Mather hill
• Decision PDF: D&O 26-03

Original ruling text

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

4 THOMAS B. & PAMELA MATHER HILL
5 Case Number 25.03-005A
6 v. Decision and Order No. 26-03
7 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

8 DECISION AND ORDER

9 On November 5, 2025, Hearing Officer Ignacio V. Gallegos, Esq., conducted a merits

10 administrative hearing in the matter of the tax protest of Thomas B. and Pamela Mather Hill

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

12 Hearings Office Act. At the hearing, Mrs. Pamela Mather Hill appeared representing Taxpayers.

13 Mrs. Mather Hill was Taxpayer’s sole witness. Staff Attorney Christopher Orton appeared,

14 representing the opposing party in the protest, the Taxation and Revenue Department

15 (“Department”). Department protest auditor Sonya Varela appeared as a witness for the

16 Department.

17 Taxpayer offered separate exhibits labeled 1.1, 1.2, 1.3, 1.4, 1.5, 1.6, and 1.7. 1 The

18 Department offered no exhibits. All exhibits received were admitted into the record. The

19 administrative file is considered part of the record.

20 In quick summary, this protest involves taxpayers who were living in New Mexico the

21 majority of 2021, and in Virginia for the remainder of the tax year. Taxpayers earned income in

22 both New Mexico and Virginia, and when filling out New Mexico personal income tax returns

23 separated New Mexico income tax by completing the PIT-B, for income allocation and

24 apportionment, and also attempted to get a refundable credit from New Mexico for taxes paid to

1
Because Taxpayers did not have an electronic a copy of their handwritten 2021 PIT-1 return, the Department
provided an electronic copy of the handwritten return that Taxpayers offered as Exhibit 1.7. Taxpayers did not
follow standard numbering conventions when submitting exhibits.

In the Matter of the Thomas B. and Pamela Mather Hill, page 1 of 18.
1 Virginia. The Department denied the claim for refund for taxes paid another state because

2 Taxpayer’s income had already been allocated and apportioned among the two states before tax was

3 calculated, hence no additional credit was due. Ultimately, after making findings of fact and

4 discussing the issue in more detail throughout this decision, the hearing officer finds that Taxpayer’s

5 protest must be denied. The denial of refund was proper. IT IS DECIDED AND ORDERED AS

6 FOLLOWS:

7 FINDINGS OF FACT

8 Procedural Findings

9 1. On August 4, 2023, under Letter Id. No. L0985326192, the Department issued a

10 Return Adjustment Notice, indicating that Taxpayer’s return had been adjusted by the

11 Department, disallowing a credit for taxes paid to another state, adjusting Line 20 of Taxpayer’s

12 2021 Personal Income Tax return. The letter indicated that Taxpayer owed tax of $3,243.00, was

13 credited $3,243.00 and granted a refund of $1,633 for tax reporting period from January 1, 2021

14 to December 31, 2021. [Administrative File].

15 2. On October 27, 2023, Taxpayer submitted a protest letter electronically,

16 challenging the recomputation of tax, alleging that the New Mexico did not “allow for an

17 equitable allocation [of income].” [Administrative File].

18 3. On September 27, 2024, under Letter Id. No. L1923286384 the Department

19 issued a letter acknowledging receipt of Taxpayer’s protest. [Administrative File].

20 4. On March 25, 2025, the Department, through Attorney Christopher Orton

21 submitted a Request for Hearing and Answer to Protest to the Administrative Hearings Office,

22 requesting a scheduling hearing on Taxpayer’s protest. [Administrative File].

In the Matter of the Thomas B. and Pamela Mather Hill, page 2 of 18.
1 5. On March 26, 2025, the Administrative Hearings Office sent a Notice of

2 Telephonic Scheduling Hearing to the parties, informing them of the date, time and telephone

3 numbers to call to attend a telephonic scheduling conference to take place on May 5, 2025.

4 Parties were notified by U.S. Mail postage prepaid (to Taxpayer’s Virginia address) and by

5 email. [Administrative File].

6 6. On May 5, 2025, the undersigned Administrative Hearing Officer conducted a

7 telephonic scheduling hearing. Taxpayers did not appear. The Department was represented by

8 Attorney Christopher Orton. The Hearing Officer created an electronic recording of the hearing.

9 [Administrative File].

10 7. On May 7, 2025, the Administrative Hearings Office sent a Notice of Second

11 Telephonic Scheduling Hearing to the parties, informing them of the date, time and telephone

12 numbers to call to attend a telephonic scheduling conference to take place on June 23, 2025.

13 Parties were notified by U.S. Mail postage prepaid (to Taxpayer’s Virginia address) and by

14 email. [Administrative File].

15 8. On June 8, 2025, Taxpayers requested a continuance of the Second telephonic

16 scheduling conference. The Department did not oppose the continuance. On June 10, 2025, the

17 Administrative Hearings Office sent an Amended Notice of Second Telephonic Scheduling

18 Hearing to the parties, informing them of the date, time and telephone numbers to call to attend a

19 telephonic scheduling conference to take place on June 18, 2025. Parties were notified by U.S.

20 Mail postage prepaid (to Taxpayer’s Virginia address) and by email. [Administrative File].

21 9. On June 18, 2025, the undersigned Administrative Hearing Officer conducted a

22 second telephonic scheduling hearing. Taxpayers did not appear. The Department was

In the Matter of the Thomas B. and Pamela Mather Hill, page 3 of 18.
1 represented by Attorney Christopher Orton. The Hearing Officer created an electronic recording

2 of the hearing. [Administrative File].

3 10. On June 18, 2025, the Administrative Hearings Office sent a Scheduling Order

4 and Notice of Administrative Hearing, setting forth various deadlines and providing notice of an

5 Administrative Hearing on the Merits of the Taxpayer’s claims, to be held by videoconference

6 on September 22, 2025. Parties were notified by U.S. Mail postage prepaid (to Taxpayer’s

7 Virginia address) and by email. [Administrative File].

8 11. On September 15, 2025, the Taxpayers emailed the Administrative Hearings

9 Office stating that the chosen date was unacceptable. The Administrative Hearings Office staff

10 member replied that the Taxpayer would need to file a motion to continue. The Taxpayers

11 replied by email that they did not know how to do that. The Administrative Hearings Office staff

12 member replied by email with a citation to the rules governing continuance requests. No further

13 request was filed by Taxpayers. [Administrative File].

14 12. On September 22, 2025, the undersigned Administrative Hearing Officer initiated

15 a merits hearing. Taxpayer Pamela Hill appeared on behalf of Taxpayers. The Department was

16 represented by Attorney Christopher Orton, and Protest Auditor Sonya Varela appeared. Because

17 the Taxpayer was unfamiliar with the process and unprepared to proceed, the matter was

18 continued and the parties chose a date on which to hold a merits hearing. Taxpayer updated her

19 address to reflect her New Mexico address. The Hearing Officer created an electronic recording

20 of the hearing. [Administrative File].

21 13. On September 24, 2025, the Administrative Hearings Office sent an Amended

22 Scheduling Order and Notice of Administrative Hearing, setting forth various deadlines and

23 providing notice of an Administrative Hearing on the Merits of the Taxpayer’s claims, to be held

In the Matter of the Thomas B. and Pamela Mather Hill, page 4 of 18.
1 by videoconference on November 5, 2025. Parties were notified by U.S. Mail postage prepaid (to

2 Taxpayer’s New Mexico address) and by email. [Administrative File].

3 14. The undersigned Administrative Hearing Officer Ignacio V. Gallegos conducted

4 the merits hearing on November 5, 2025, with the parties present by Zoom videoconference.

5 Neither the Department nor Taxpayer objected that conducting the earlier scheduling hearings

6 satisfied the 90-day hearing requirements of Section 7-1B-8 (F) (2019). The Administrative

7 Hearings Officer preserved a recording of the hearing (“Hearing Record” or “H.R.”). Taxpayers

8 provided their exhibits, and the Department provided an exhibit on behalf of Taxpayers.

9 [Administrative File].

10 Substantive Findings

11 15. Taxpayers Thomas B. Hill and spouse Pamela Mather Hill are married individuals

12 residing in Albuquerque, New Mexico. [Administrative File; Examination of Pamela Hill].

13 16. Sonya Varela is the tax auditor assigned to the protest. She has extensive

14 experience in New Mexico tax audits, having retired from the Department, and then contracted

15 as a tax protest auditor. [Examination of Sonya Varela].

16 17. Mr. Hill is a law enforcement investigator and instructor. His employment in

17 2021 required some time teaching in Virginia. [Administrative File; Examination of P. Hill].

18 18. The Taxpayers were residents of New Mexico for seven months, and residents of

19 Virginia for five months of 2021. Mr. Hill’s W-2 for 2021 shows both state tax withholdings for

20 New Mexico and Virginia. [Examination of P. Hill; Taxpayer exhibit 1.5].

In the Matter of the Thomas B. and Pamela Mather Hill, page 5 of 18.
1 19. Mrs. Hill submitted 2021 tax returns to the Federal Internal Revenue Service

2 (IRS), the State of New Mexico, and the State of Virginia. [Administrative File; Examination of

3 P. Hill; Taxpayer Exhibits 1.7, 1.2, 1.3. and 1.4].

4 20. On Line 17 of the 2021 PIT return, Taxpayers showed New Mexico taxable

5 income of $166,422. [Examination of P. Hill; Examination of S. Varela; Taxpayer exhibits 1.6

6 and 1.7]

7 21. On Line 18 of the 2021 PIT return, Taxpayers showed New Mexico tax, after

8 applying the credit from using the PIT-B, to be $3,244 or $3,243. The one-dollar difference is

9 attributable solely to rounding conventions and does not affect the outcome of the protest.

10 [Examination of P. Hill; Examination of S. Varela; Taxpayer exhibits 1.6 and 1.7]

11 22. On Line 20 of the 2021 PIT return, Taxpayers requested credit of $2,455 for tax

12 paid another state. [Examination of P. Hill, Examination of S. Varela; Exhibit 1.7].

13 23. The handwritten return submitted by Taxpayers was entered into an electronic

14 form by the Department, which then adjusted the entry for Line 20, disallowing the credit for tax

15 paid to another state, and the return adjustment was sent to Taxpayers. [Examination of S.

16 Varela; Taxpayer exhibits 1.6 and 1.7].

17 24. The Department calculated that tax for the New Mexico percentage of total

18 income (41.87% from line 12 of the PIT-B) would result in total tax of $3,244 (after rounding

19 up). The tax calculation was elsewhere reported at $3,243 (rounding down). The one-dollar

20 difference is attributable solely to rounding conventions and does not affect the outcome of the

21 protest. [Administrative File (Return adjustment notice, Letter Id # L0985326192); Examination

22 of S. Varela; Taxpayer exhibits 1.6 and 1.7].

In the Matter of the Thomas B. and Pamela Mather Hill, page 6 of 18.
1 25. The Department calculated that the Taxpayers were entitled to payment credits for

2 wage withholdings paid to New Mexico of $2,876 (after rounding) and a state tax rebate of $500.

3 After subtracting tax of $3,243 from $3,376, the Department refunded the amount of $133 plus

4 $1,500 (explained as voluntary contributions or 2022 estimated tax payments, or additional state

5 rebates), for a total refund of $1,633. [Administrative File (Return adjustment notice, Letter Id #

6 L0985326192); Examination of S. Varela; Taxpayer exhibits 1.5, 1.6 and 1.7].

7 26. Taxpayer’s handwritten 2021 PIT-1, which included both a reduction by

8 percentage of income using PIT-B, and a claim for credit for taxes paid to another state (Line

9 20), calculated a total New Mexico tax of $788. After applying the withholdings, Taxpayers

10 requested a refund of $2,088. [Administrative File; Examination of S. Varela; Taxpayer exhibits

11 1.5, 1.6 and 1.7].

12 27. At the hearing, Taxpayer advocated for their proposal of using Virginia forms,

13 which Taxpayer reported subtracts income earned from other states off the top, which Taxpayer

14 asserted would have resulted in a tax refund of $248. Taxpayer was unable to work backwards

15 from her requested refund, to explain the process of arriving at the proposed refund request.

16 [Examination of P. Hill].

17 28. The Department disallowed Taxpayer’s claimed credit for tax payments to

18 Virginia because the income was already allocated to Virginia. [Administrative File (Return

19 adjustment notice, Letter Id # L0985326192); Examination of S. Varela; Taxpayer exhibit 1.6,

20 1.7].

21 DISCUSSION

22 Taxpayers’ protest involves a denial of Taxpayer’s 2021 personal income tax refund request.

23 Taxpayer requested a refund after applying a credit Taxpayer believed was applicable for income

In the Matter of the Thomas B. and Pamela Mather Hill, page 7 of 18.
1 taxes paid to the State of Virginia. The Taxpayers’ total federal income was allocated between New

2 Mexico and Virginia using the PIT-B form. The New Mexico percentage of total income was

3 calculated to be 41.87% and the Virginia portion would be the remainder of 58.13%. There are two

4 questions presented by Taxpayers. The first question presented is whether the Taxpayers may

5 receive a credit for taxes paid to another state for income taxes when the income has already been

6 allocated between the two states in which taxes were paid. The second question presented is

7 whether the New Mexico use of total federally reported income as the starting point for a

8 determination of state tax subjects taxpayers earning income in more than one state to higher state

9 taxes, and if so, whether this is inequitable apportionment.

10 Presumption of correctness

11 Although this protest arises from the denial of a refund claim rather than the issuance of a

12 formal assessment, Taxpayers bear the burden of proving entitlement to the claimed credit. See

13 Regulation §3.1.8.10 NMAC (08/30/2001). Accordingly, the Department’s denial of the refund

14 is reviewed with deference, and Taxpayers must demonstrate that the adjustment was in error.

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

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

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

18 2005-NMCA-020, ¶9, 137 N.M. 50, 107 P.3d 4. Under the rationale of Team Specialty Prods,

19 Taxpayers carry the burden of proving that they are entitled to the claimed credit. Although a

20 credit must be narrowly interpreted and construed against a taxpayer, it still should be construed

21 in a reasonable manner consistent with legislative language. See Sec. Escrow Corp. v. State

22 Taxation & Revenue Dep’t, 1988-NMCA-068, ¶9, 107 N.M. 540. Consequently, Taxpayers

23 must show that they are entitled to the credit that is the basis of their claim for refund, and that

In the Matter of the Thomas B. and Pamela Mather Hill, page 8 of 18.
1 the Department acted in error in issuing the return adjustment denying the entire refund and

2 denying the credit at issue.

3 Apportionment or credit.

4 New Mexico personal income tax is governed by the Income Tax Act, NMSA 1978,

5 Sections 7-2-1 through 7-2-39. For the majority of the tax year, Taxpayers were New Mexico

6 residents, and the Income Tax Act applies to their income. See Section 7-2-2 (S) (2014).

7 The first question presented requires an understanding and analysis of both Section 7-2-11

8 (2016) which grants a credit for taxes on the non-New Mexico percentage of income tax and

9 Section 7-2-13 (2013) which grants a credit for tax paid to another state. The regulations and

10 instructions published by the Department are helpful to determine which forms to use and whether

11 they apply in a particular situation.

12 Credit granted by allocation and apportionment of income under Section 7-2-11.

13 New Mexico taxes the net income of every resident individual and certain non-resident

14 individuals. See NMSA 1978, Section 7-2-3 (1981). The term “net income” is defined under NMSA

15 1978, Section 7-2-2 (N), (B), and (A). For taxpayers other than estates and trusts, the starting point

16 is federal adjusted gross income (AGI), as defined by the Internal Revenue Code, Section 62.

17 When a taxpayer has taxable income from sources within New Mexico and outside of New

18 Mexico, Section 7-2-11 allows that taxpayer to allocate and apportion certain categories of income

19 between New Mexico and the other state or states. The application of this credit serves to reduce the

20 tax imposed under Section 7-2-7 by the percentage of net income sourced from out of state (the

21 non-New Mexico percentage), with some exclusions (i.e., wages and retirement income). See

In the Matter of the Thomas B. and Pamela Mather Hill, page 9 of 18.
1 Section 7-2-11 (B). The 2021 Personal Income Tax (PIT-1) instructions2 require taxpayers who

2 claim this credit for non-New Mexico income to file the PIT-B form.

3 The Taxpayers in this case reported wage income, interest and dividends, pension and other

4 income. (Ex 1.7) Federal AGI was reported on line 9 as $198,905. After applying federal

5 deductions, a PIT-ADJ deduction, and medical care expense deductions, the Taxpayer’s New

6 Mexico Taxable income was reported on line 17 as $166,422. (Ex 1.7). The adjusted return did not

7 change these amounts. (Ex. 1.6)

8 Using the PIT-B Allocation and Apportionment schedule, Taxpayers reported in Section 1,

9 Column 1, their wages, salaries, tips, etc. on Line 1 at $165,772. (Ex 1.7) Interest and dividends

10 (line 2), and pensions, annuities and social security distributions (line 3) and the PIT-ADJ all other

11 income (line 7) make the total sum equal to that Federal AGI from Line 9 on the PIT-1 $198,905

12 (line 9). This reporting follows the instructions.

13 The PIT-B instructions for filling in Column 2 provide different instructions to residents,

14 first year residents, part-year residents, and non-residents. On Line 1, Column 2, the New Mexico

15 portion of wages, salaries Taxpayers reported $66,042, which corresponds to the Taxpayer’s W-2

16 wages reported for New Mexico wages (Ex 1.7 and Ex 1.5). Taxpayers, by entering into Column 2

17 only their wages that were earned in New Mexico, during the part of the year they were residents of

18 New Mexico, applied the instructions for “part-year residents.”3 The section that describes the

19 instructions for “residents” (which the Taxpayer could have, and perhaps should have, applied

20 because they spent more than half the year in New Mexico or more than 185 days: January 1, 2021

2
2021 PIT-1 instructions and 2021 PIT-B are published and available on the Department’s forms and publications
website: https://www.tax.newmexico.gov/forms-publications/ (last accessed 01/07/2026).
3
See Table B-1 of the instructions for 2021 PIT-B for the different instructions for residents, first-year residents,
part-year residents and non-residents.

In the Matter of the Thomas B. and Pamela Mather Hill, page 10 of 18.
1 through July 25, 2021 is 205 days.) would have required all wage income and all retirement income

2 to be allocated to New Mexico. It is clear that Taxpayers did not follow the instructions for

3 “residents.” The terms “resident” and “part-year resident” are defined by statute and regulation. See

4 NMSA 1978, Section 7-2-2 (S) (2014); Regulation 3.3.1.9 NMAC (12/15/10).

5 Had Taxpayers used the instruction for residents, they would have had the opportunity to

6 allocate all income to New Mexico and simply apply for the refundable credit for tax paid another

7 state, without going through the trouble of allocating income between the states. However, because

8 the Taxpayers chose to fill in Column 2 using the instructions for “part-year residents”, they

9 reported the New Mexico portion of income against their total income from all states in which they

10 earned income. By doing so, Taxpayers opted to receive the credit allowed by allocation and

11 apportionment of income granted by Section 7-2-11, instead of the credit allowed to “residents”

12 granted by Section 7-2-13.

13 Taxpayers reported Federal adjusted gross income of $198,905 (line 9 of PIT-1; line 9 of

14 PIT-B). New Mexico taxable wage and salary income was reported to be $66,042 column 2 of the

15 PIT-B). Adding in the interest, dividends, pensions, annuities, social security, and distributions, the

16 New Mexico income column 2, line 9, income totals $83,275.

17 The calculation for the New Mexico percentage of income is in essence a division of the

18 New Mexico income (Line 9 column 2) by the total income (Line 9, Column 1). The calculation

19 resulted in a New Mexico percentage of 41.87 percent (rounded up to 2 decimal places). Subtracting

20 the New Mexico percentage from 100 percent, the non-New Mexico percentage therefore was 58.13

21 percent (rounded up to two decimal places). This calculation is intended to separate the New

22 Mexico portion of total income from the income from all sources, as a percentage of total income.

In the Matter of the Thomas B. and Pamela Mather Hill, page 11 of 18.
1 The alternative method of reporting would have allocated all income from all sources to

2 New Mexico, calculated the tax on the entire income, then granted a refundable credit for tax paid

3 on the same income in another state. However, since the Taxpayers reported as part-year residents,

4 the income out of state was credited as a percentage of total income. So the tax of $7,747.00 (line

5 13, PIT-B), which could have been imposed, was then reduced by the New Mexico percentage by

6 multiplying the possible tax $7,747 by the New Mexico percentage, and came to $3,244, granting

7 Taxpayers a credit of $4,503.

8 This comports to NMSA 1978, Section 7-2-11(B) and (C) (2016). After allocation and

9 apportionment, the law allows “[a] taxpayer may claim a credit in an amount equal to the amount of

10 tax determined to be due under Section 7-2-7 or 7-2-7.1 NMSA 1978 multiplied by the non-New

11 Mexico percentage.” In our case, the tax was calculated using the tax table and was multiplied by

12 the New Mexico percentage. The non-New Mexico percentage was not taxed.

13 In sum, Taxpayers apportioned their income between the states of New Mexico and Virginia

14 as part-year residents. Taxpayers received $4,503 of credit against their New Mexico tax liability by

15 doing so. Hence, their New Mexico liability was reduced from $7,747 to only $3,244.

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

17 Taxpayers also attempted to claim a refundable credit for taxes paid another state in the

18 amount of $2,455 (PIT-1, line 20) (Ex. 1.7), based on the fact that they paid income tax to the State

19 of Virginia on the income earned in Virginia. The Department denied the additional credit (Ex. 1.6,

20 line 20). Since the non-New Mexico percentage of income was not taxed originally, Taxpayers’

21 claim for the credit was denied and Taxpayers did not receive credit for the taxes paid to Virginia.

22 The Department described this as an attempt by Taxpayers to “double dip.”

23 The statute NMSA 1978, Section 7-2-13 (2013) which grants the credit reads:

In the Matter of the Thomas B. and Pamela Mather Hill, page 12 of 18.
1 When a resident individual is liable to another state for tax upon income derived
2 from sources outside this state but also included in net income under the Income Tax
3 Act as income allocated or apportioned to New Mexico pursuant to Section 7-2-11
4 NMSA 1978, the individual, upon filing with the secretary satisfactory evidence of
5 the payment of the tax to the other state, shall receive a credit against the tax due this
6 state in the amount of the tax paid the other state with respect to income that is
7 required to be either allocated or apportioned to New Mexico. However, in no case
8 shall the credit exceed the amount of the taxpayer’s New Mexico income tax
9 liability on that portion of income that is required to be either allocated or
10 apportioned to New Mexico on which the tax payable to the other state was
11 determined. The credit provided by this section does not apply to or include income
12 taxes paid to any municipality, county or other political subdivision of a state.
13 (emphasis added).
14 The phrase “income allocated or apportioned to New Mexico” has been emphasized because it

15 limits the credit to those items of income that are either from New Mexico sources, or from sources

16 outside of New Mexico that are required to be allocated and apportioned to New Mexico, as

17 determined by Section 7-2-11. There are some instances in which income earned out-of-state can be

18 allocated to New Mexico, but those were not applied here, since Taxpayers filed as part-year

19 residents rather than as residents. See Regulation 3.3.11.11 (A) NMAC (12/14/00) (“All

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

21 not such compensation is earned from employment in this state.”); see also Regulation 3.3.11.13 (B)

22 (NMAC) (12/14/00) (“Retirement income of a resident is allocable to New Mexico, regardless of

23 the source of the retirement income…”). Because Taxpayer had already allocated the income in

24 between New Mexico and Virgina, any income allocated to Virginia is not allocated to New

25 Mexico, and is not taxed by New Mexico (see above section concerning the credit provided by

26 Section 7-2-11) and any tax paid to Virginia is hence not credited against New Mexico tax

27 liabilities.

28 Tax bracket and use of total federal income as a starting point.

In the Matter of the Thomas B. and Pamela Mather Hill, page 13 of 18.
1 Concerning the second question, at the hearing, the Taxpayer asserted that there was

2 unfairness in the New Mexico methodology of starting from total federal income. The Department

3 objected to what the Department characterized as the late assertion of an additional claim, and

4 suggested that the Hearing Officer not address the late asserted issue and disallow the additional

5 claim. Turning to the original protest, Taxpayer claimed not only that they were due a refund based

6 on the claim for taxes paid to Virginia, but also claimed “NM forms do not allow for an equitable

7 allocation such as Virginia provides. NM is taxing our Virginia income.” The claim of unfairness of

8 the New Mexico tax methodology was not new. See Garcia ex rel. Garcia v. LaFarge, 1995-

9 NMSC-019, 119 N.M. 532, 893 P.2d 428 (“Although [the] plaintiffs’ due process arguments were

10 not a model of clarity, and certainly could have been made with more specificity, they were

11 sufficient to alert the trial court and opposing counsel to the substance of the argument being

12 made”); see also State v. Figueroa, 2010-NMCA-048, 242 P.3d 378, 148 N.M. 811. Under federal

13 law, although not determinative here, yet persuasive, when a litigant is pro se, or representing

14 oneself, the pleadings are to be “liberally construed and a pro se complaint, however inartfully

15 pleaded, must be held to less stringent standards than formal pleadings drafted by lawyers.”

16 Erickson v. Pardus, 551 U.S. 89, 94 (2001) (internal citations and quotation marks omitted). The

17 Hearing Officer will address the claim that New Mexico’s personal income tax calculation did not

18 equitably apportion this Taxpayer’s income, however, the broader question is not within the scope

19 of the limited hearing to address this Taxpayer’s claim for the tax period in question.

20 As noted above, New Mexico taxes the net income of every resident individual and certain

21 non-resident individuals. See NMSA 1978, Section 7-2-3 (1981). The term “net income” is defined

22 under NMSA 1978, Section 7-2-2 (N), (B), and (A). For taxpayers other than estates and trusts, the

23 starting point is federal adjusted gross income (AGI), as defined by the Internal Revenue Code,

In the Matter of the Thomas B. and Pamela Mather Hill, page 14 of 18.
1 Section 62. The tax bracket a taxpayer fits into is based on a taxpayer’s taxable income. See NMSA

2 1978, Section 7-2-7 (2005). The term “taxable income” is defined under NMSA 1978, Section 7-2-2

3 (X) (2013) as net income less any lump-sum amount. There was no evidence of a lump-sum

4 payment in this instance, so the term is equal to the Taxpayers’ net income.

5 In 2021, for married individuals filing jointly, the rate of tax increased at the intervals of

6 $8,000, $24,000, and $315,000. See NMSA 1978, Section 7-2-7 (B) (2019). The evidence presented

7 did not claim less than $24,000 in New Mexico income or that the income from another state took

8 the Taxpayers into the over $315,000 bracket. So, whether the income included the total federal

9 AGI as the starting point, or just the New Mexico allocated income, there was no change in tax

10 bracket. This may not be the case in all instances, but here the argument that the bracket including

11 federal income rather than only New Mexico income, is unfair is unfounded and moot without

12 evidence that there was a quantifiable difference between one and the other proposed scenarios.

13 To the extent Taxpayers challenge the wisdom or fairness of the statutory structure itself, the

14 Hearing Officer’s role is limited to applying the law as written and does not extend to modifying

15 legislative policy choices.

16 Conclusion.

17 The Department offers one of two credits for taxpayers who have income both taxable

18 within the state and without the state. The first is the credit for income allocated to a different state.

19 The second is for tax paid to another state. Because Taxpayers in this case claimed both credits on

20 the same income, the claim for one was denied. When Taxpayers’ tax burden is reduced by

21 application of the credit for income allocated to a different state using PIT-B, taxes paid to that other

22 state for the income allocated to that state are not entitled to receive the benefit of the New Mexico

23 credit for taxes paid to another state, otherwise the doubling of credits would have the effect of a

In the Matter of the Thomas B. and Pamela Mather Hill, page 15 of 18.
1 subsidy of a tax payment to another state. Taxpayer was not entitled to a credit for the taxes paid to

2 Virginia.

3 CONCLUSIONS OF LAW

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

5 Notice letter and jurisdiction lies over the parties and the subject matter of this protest. See NMSA

6 1978, Section 7-1-24 (E) (2017); NMSA 1978, Section 7-1-26 (2021).

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

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

9 C. Because this matter concerns a claimed refund, Taxpayers bear the burden of

10 proving entitlement to the credit and must demonstrate that the Department’s adjustment was in

11 error. The Department’s Return Adjustment Notice is therefore afforded a presumption of

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

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

14 D. Taxpayers failed to meet their burden to show that Taxpayers were entitled to

15 receive an additional credit for taxes paid to another state under NMSA 1978, Section 7-2-13,

16 after income had already been allocated or apportioned between New Mexico and Virginia under

17 NMSA 1978 Section 7-2-11 and only the New Mexico percentage of income tax had been

18 imposed.

19 E. Taxpayers failed to meet their burden to show that the starting point of Federal

20 AGI had any effect on the rate of tax paid, increasing their New Mexico tax as apportioned. See

21 NMSA 1978, Section 7-2-7 (B) (2019).

In the Matter of the Thomas B. and Pamela Mather Hill, page 16 of 18.
1 For the foregoing reasons, Taxpayer’s protest DENIED. IT IS ORDERED that the

2 Department’s denial of credit for tax paid to another state contained within the Return Adjustment

3 Notice for 2021 was correct. Taxpayer has already received a refund so nothing more is due.

4 DATED: March 2, 2026.

5

6
7 Ignacio V. Gallegos
8 Hearing Officer
9 Administrative Hearings Office
10 P.O. Box 6400
11 Santa Fe, NM 87502

12 NOTICE OF RIGHT TO APPEAL

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

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

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

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

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

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

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

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

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

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

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

24 CERTIFICATE OF SERVICE

In the Matter of the Thomas B. and Pamela Mather Hill, page 17 of 18.
1 On March 2, 2026, a copy of the foregoing Decision and Order was submitted to the parties

2 listed below in the following manner:

3 USPS First Class Mail and E-Mail USPS First Class Mail and E-Mail
4
5 INTENTIONALLY BLANK

In the Matter of the Thomas B. and Pamela Mather Hill, page 18 of 18.