If the state's own employees repeatedly told me I didn't owe gross receipts tax, can it later come back and make me pay it plus interest?

Plain-English summary

Arthur Pino is a rural contract mail carrier for the U.S. Postal Service near Magdalena, New Mexico, with a route entirely inside the state. He took over the contract after his father, the prior carrier, died. Pino had run a New Mexico business before and figured his mail-carrier receipts were probably subject to gross receipts tax, so he contacted the Department to register and pay.

He was told the opposite. A Department representative said she didn't think he was liable; he questioned the answer and asked her to check further, but she never called back. He called several more times, and each time was told his mail-carrier receipts were not subject to gross receipts tax. He concluded the law must have changed and relied on that oral advice. He did not request a written ruling and did not review the statutes or regulations himself.

On June 22, 1996, the Department assessed $3,633.55 in gross receipts tax for January 1993 through December 1995, plus penalty and interest. Pino protested. Recognizing the special circumstances, the Department abated the penalty and abated all interest that accrued before the assessment. What remained was the tax itself plus interest from July 1996 onward.

Hearing Officer Ellen Pinnes denied the protest:

• Contract mail carriers owe gross receipts tax. The tax is on receipts from engaging in business in New Mexico (§ 7-9-4; § 7-9-3(F)), and a Department regulation specifically makes contract mail carriers' receipts taxable (GR 3(F):34). Pino was a contractor, not a Postal Service employee, so the assessment was proper.
• Oral advice does not create statutory estoppel. Section 7-1-60 estops the Department only when a taxpayer acted in accordance with a regulation or a written ruling addressed to him. Pino had neither — only phone conversations — so § 7-1-60 didn't apply.
• Equitable estoppel failed too — no real harm. Even outside the statute, estoppel requires showing harm from reliance (Bien Mur; Gonzales). Pino's only "harm" was having to pay tax he legally owed all along, which isn't enough (Heckler v. Community Health Services). The Hearing Officer was openly sympathetic — he'd tried to tell the Department the very thing it was now telling him — but sympathy isn't estoppel.
• Post-assessment interest is mandatory. Interest under § 7-1-67 is 15% per year and "shall" be paid (State v. Lujan; § 12-2-2(I)). It compensates the state for the time-value of money and isn't a penalty, so once the assessment put Pino on notice in 1996, interest from that point couldn't be waived.

What this means for you

Oral advice from the tax department is not something you can rely on

The most important lesson here is also the hardest to accept: even repeated, in-good-faith statements from Department employees that you don't owe a tax will not protect you if they're wrong. To bind the Department, you generally need a written ruling addressed to you or reliance on an actual regulation (§ 7-1-60). Get it in writing, and if the answer seems off, check the statute yourself.

Good faith can save the penalty and early interest — but not the tax

Pino did almost everything right, and it mattered: the Department abated the penalty and every dollar of interest that built up before the assessment because he'd been effectively prevented from paying. That's meaningful relief. But the underlying tax was always legally due, and good faith doesn't erase it — it only softens the add-ons.

"Estoppel" against the state is very hard to win

New Mexico courts will estop the tax department only in rare circumstances, and one required element is genuine harm from relying on the bad advice. Being made to pay a tax you always owed isn't that harm. Practically, don't build your tax position on the expectation that the state will be estopped later.

Contract mail carriers (and similar independent contractors) owe gross receipts tax

If you serve the Postal Service — or any customer — as an independent contractor rather than an employee, your receipts are generally taxable, and there's a regulation squarely on point for mail carriers. Employee wages are different; contractor receipts are not.

Common questions

Q: The state told me — more than once — that I didn't owe this tax. Why do I still have to pay?
A: Because oral advice from Department staff doesn't bind the Department, even when you relied on it in good faith. Only a written ruling addressed to you or an actual regulation gives you that protection. The tax you legally owe remains due.

Q: Doesn't it estop the Department from collecting when its own employees caused the problem?
A: No. Statutory estoppel (§ 7-1-60) needs a regulation or a written ruling, which weren't present. Equitable estoppel needs real harm from reliance, and paying tax you always owed doesn't count.

Q: If I acted in good faith, can I at least avoid penalty and interest?
A: Sometimes, partly. Here the Department abated the penalty and the interest that accrued before the assessment because the taxpayer had tried to comply and was told not to pay. But interest after the assessment is mandatory and can't be waived.

Q: Are contract mail carriers really subject to gross receipts tax?
A: Yes. A contract mail carrier is in business selling services in New Mexico, and a Department regulation (GR 3(F):34) confirms those receipts are taxable. Being paid by the Postal Service doesn't change that for an independent contractor.

Citations and references

Statutes and regulations:

• § 7-9-4 NMSA 1978 — gross receipts tax imposed on persons engaging in business in New Mexico
• § 7-9-3(F) NMSA 1978 — definition of "gross receipts" (selling services in New Mexico); TRD Regulation GR 3(F):34 — contract mail carriers' receipts are subject to gross receipts tax
• § 7-1-60 NMSA 1978 — the Department is estopped only for action taken in accordance with a regulation or a written ruling addressed to the party
• § 7-1-69(A) NMSA 1978 — negligence penalty (abated by the Department because the taxpayer was not negligent)
• § 7-1-67 NMSA 1978 — mandatory interest at 15% per year; § 12-2-2(I) NMSA 1978 — "shall" and "must" are mandatory

Cases cited:

• Taxation & Revenue Department v. Bien Mur Indian Market Center, 108 N.M. 228, 770 P.2d 873 (1989) — the Department may be equitably estopped only where right and justice demand
• Gonzales v. Public Employees Retirement Board, 114 N.M. 420, 839 P.2d 630 (Ct. App. 1992), cert. denied — a party claiming estoppel must show harm from reliance on the erroneous advice
• Heckler v. Community Health Services of Crawford County, Inc., 467 U.S. 51 (1984) — the "detriment" of having to give up money that was improperly withheld in the first place is insufficient to establish estoppel
• State v. Lujan, 90 N.M. 103, 560 P.2d 167 (1977) — "shall" is mandatory unless a contrary legislative intent is clearly shown

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Arthur Pino
• Decision PDF: D&O 97-20

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
ARTHUR PINO No. 97-20
ID NO. 02-310267-00 5,
PROTEST TO ASSESSMENT NO. 2041086

DECISION AND ORDER

This matter came on for hearing on May 5, 1997, before Ellen Pinnes, Hearing Officer.

Arthur Pino ("the Taxpayer") appeared on his own behalf. The Taxation and Revenue Department

("the Department") was represented by Gail MacQuesten, Special Assistant Attorney General.

Based upon the evidence and arguments presented, IT IS HEREBY DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. Pursuant to a contract with the United States Postal Service ("the Postal Service"), the

Taxpayer works as a rural mail carrier in the area around Magdalena, New Mexico. The

Taxpayer's entire route for mail delivery is within New Mexico.

2. Prior to the Taxpayer beginning this work for the Postal Service, his father contracted

with the Postal Service to serve as the mail carrier for the area. The Taxpayer took over the

contract upon his father's death.

3. The Taxpayer does not know how his father treated receipts under the Postal Service

contract for tax purposes. However, the Taxpayer had previously been in business in New Mexico

and had some familiarity with the state's gross receipts tax system. Based on that knowledge, he

felt that his receipts under the Postal Service contract were probably subject to gross receipts tax.

4. When the Taxpayer began working as a contract mail carrier, he contacted the
   Department to ask about registration for gross receipts tax purposes. The Department's

representative told the Taxpayer that she did not think he was liable for gross receipts taxes on his

work as a mail carrier. The Taxpayer questioned this advice and asked the representative to check

further. She did not call him back.

5. The Taxpayer made several additional calls to the Department to verify the advice given

to him on his first inquiry. Each time, he was told that his receipts as a mail carrier were not

subject to gross receipts tax. Based on this information, the Taxpayer decided that the law must

have changed since his earlier knowledge of it and that he was not subject to gross receipts taxes on
receipts under his contract with the Postal Service.

6. The Taxpayer relied on the oral representations of the Department's representatives. He

did not request a written ruling from the Department on the issue of whether he was liable for gross

receipts taxes, nor did he review the applicable statutes or regulations.

7. On June 22, 1996, the Department issued assessment number 2041086 for gross receipts

taxes in the amount of $3,633.55 for the period from January 1993 through December 1995, plus

penalty and interest.

8. The Taxpayer filed a timely protest of the assessment.

9. The Department has abated the penalty imposed in the original assessment.

10. The Department has also abated interest prior to the time the assessment was issued.

11. The assessment at issue in these proceedings is for gross receipts taxes of $3,633.55

for 1993-95 and interest on that amount from July 1996. (See Department's Exhibit 1.)

DISCUSSION

Liability for Tax

When he became a contract mail carrier, the Taxpayer made repeated attempts to obtain a

2
tax identification number from the Department and to pay gross receipts taxes as required by law.

Each time, he was told by representatives of the Department that he was not subject to gross

receipts taxes. Some years later, the Taxpayer received an assessment from the Department for the

taxes he had earlier been told he did not have to pay, plus penalty and interest.

The New Mexico Tax Administration Act imposes a penalty where a taxpayer fails to file a

tax return or pay taxes due when such failure is due to the taxpayer's negligence or disregard of

rules and regulations. §7-1-69(A) NMSA, 1978. Here, the Department determined that the

Taxpayer was not negligent, as he contacted the Department several times to obtain a tax
identification number and was told each time that he was not liable for gross receipts taxes.

On the same grounds, the Department has abated interest prior to the time the assessment

was issued in 1996. Before that time, the Taxpayer had effectively been prevented from paying

any taxes due, because he was unable to obtain a tax identification number from the Department.

The remaining amount of the assessment is for taxes due for 1993 through 1995 and interest

from July 1996, after the assessment was issued. The Taxpayer challenges this assessment, feeling

that he should not have to pay tax when the Department told him he was not liable for it.

The New Mexico Gross Receipts and Compensating Tax Act imposes a tax, known as the

gross receipts tax, on the gross receipts of those who engage in business in this state. §7-9-4

NMSA, 1978. "Gross receipts" is defined as the amount of money or other consideration received
from, among other things, selling services in New Mexico. §7-9-3(F) NMSA, 1978. The receipts

of contract mail carriers are subject to gross receipts tax. See TRD Regulation GR 3(F):34.
The Taxpayer acknowledges that he was a contract carrier and not an employee of the

Postal Service. Pursuant to §7-9-3(F) of the Gross Receipts and Compensating Tax Act and the
Department's regulations pursuant to that statute, the Taxpayer's receipts were subject to gross

receipts tax, and the Department's assessment for such taxes was proper.

Estoppel

3
The Taxpayer argues that, because his failure to pay the tax was based on representations by

the Department that he was not required to pay, it is unfair to now make him pay the tax. In the

Taxpayer's characterization, this would be requiring him to pay for the mistakes of others. This

presents the issue of whether the Department should be estopped to collect the tax.

The Tax Administration Act, §7-1-60 NMSA, 1978, provides for estoppel against the

Department if a taxpayer shows that his action or inaction was in accordance with either a

regulation of the Department or a written ruling addressed to the party. Here, no written ruling was
issued to the Taxpayer. He did not review the Department's regulations, and does not contend that

his failure to pay tax was in accordance with any regulation. The Department is not estopped to

collect the tax by virtue of §7-1-60.

Although the Taxpayer has not established grounds for statutory estoppel under §7-1-60, the

Department may still be estopped to assess the tax if right and justice demand such action.

Taxation & Revenue Department v. Bien Mur Indian Market Center, 108 N.M. 228, 770 P.2d 873

(1989). One of the elements the Taxpayer must show in order to establish an equitable estoppel is

that he suffered harm as a result of reliance on the erroneous advice given to him by the

Department's representatives. Gonzales v. Public Employees Retirement Board, 114 N.M. 420,

427, 839 P.2d 630 (Ct.App. 1992), cert. den. 8/14/92. There is no such showing here. The only

harm suffered by the Taxpayer is to pay tax he was legally obligated to pay in the first place. Cf.

Heckler v. Community Health Services of Crawford County, Inc., 467 U.S. 51, 61 (1984)

(detriment in not being able to keep money that was improperly paid in the first place is insufficient

to establish estoppel).

The hearing officer is sympathetic to the Taxpayer's frustration upon receiving an

assessment telling him he owes money to the Department, after he attempted several years ago to

tell the Department the same thing and they repeatedly insisted that he was wrong. This is one of

the rare circumstances in which the Taxpayer is not likely to be gratified at having the Department

4
now recognize that he was right. However, the situation presented here does not rise to the level of

an estoppel. The Department, recognizing the special circumstances here, has abated penalty as

well as interest prior to issuance of the assessment. It is not barred from collecting the tax itself.

Interest

Because the assessment of tax was correct, interest was properly assessed. The Department

has abated interest that accrued before the assessment was issued, on the grounds that the Taxpayer
was unaware of his liability for this tax as a result of the advice given to him by representatives of

the Department. However, once the assessment was issued in 1996, the Taxpayer was made aware

that the advice he had received was erroneous and that the tax was due. Interest is mandatory in

these circumstances.

The Tax Administration Act provides for the imposition of interest on tax deficiencies:
A. If any tax imposed is not paid on or before the day on which it becomes due, interest
shall be paid to the state on such amount from the first day following the day on
which the tax becomes due ... until it is paid ... .

B. Interest due to the state under Subsection A ... shall be at the rate of fifteen percent a
year ... .

§7-1-67 NMSA 1978 (emphasis added).

It is a well settled rule of statutory construction that the word "shall" is mandatory rather

than discretionary, unless a contrary legislative intent is clearly demonstrated. State v. Lujan, 90
N.M. 103, 560 P.2d 167 (1977). The New Mexico Legislature has expressly reiterated this general

rule in §12-2-2(I) NMSA 1978 (in construing statutory provisions, the words "shall" and "must" are

to be construed as mandatory unless this would be inconsistent with manifest legislative intent or

repugnant to the context of the statute).

Section 7-1-67 requires that interest, at the rate of fifteen per cent per year, be imposed on

the amount of any unpaid taxes. No exceptions to this rule are provided for. Interest is intended

5
to compensate the state for the time-value of money which was not paid when it was due. It may

be unpleasant to pay interest on monies owed, particularly where the taxpayer is for some time

unaware of the existence of the debt, as was the case here. However, interest is not a penalty for

late payment. It is, rather, a means of making a creditor whole by reimbursing it for not having had

the use of the money during the time it remained unpaid. While the interest rate imposed here may

seem high, that rate has been set by the Legislature in the statute, and both the Department and the

hearing officer lack the authority to reduce it.

6
The Taxpayer here acted in good faith and attempted to comply with the requirements of the

Gross Receipts and Compensating Tax Act. His reliance on the erroneous advice given to him has

unfortunately left him with an unexpected tax bill. Under the circumstances, the Department has

properly agreed to abate the penalty and part of the interest originally assessed against the Taxpayer.

However, the remaining interest assessed is mandated by statute and cannot be abated.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely protest of Assessment No. 2041086. Jurisdiction thus lies

over the parties and the subject matter of the protest.

2. The Department has abated the penalty assessed against the Taxpayer. The validity of

the penalty therefore is not before the hearing officer for decision.

3. The Department has abated interest assessed prior to issuance of the assessment. The

validity of such interest therefore is not before the hearing officer for decision.

4. The Taxpayer was subject to gross receipts taxes on receipts from work performed as a

mail carrier under his contract with the Postal Service, and the assessment for such tax is proper.

5. Because such taxes were not paid at the time they were due, interest was properly

imposed on the deficiency following issuance of the assessment.

6. The Department is not estopped to assess the tax plus interest from the time of the

assessment.

7
For the foregoing reasons, the Taxpayer's protest IS HEREBY DENIED.

DONE, this 19th day of May, 1997.

8