Can a contractor escape gross receipts tax by claiming he was an employee, or because a state employee supposedly told him his income was exempt?

Plain-English summary

Thomas Hassler, the sole proprietor of Dependable Maintenance Service, provided cleaning, degreasing, window-washing, and minor repair services — almost entirely under a long-running contract with Burger King. Burger King paid him a base fee plus hourly charges, withheld nothing, and issued him a Form 1099 each year; he filed a federal Schedule C and paid self-employment tax. His New Mexico gross receipts tax (CRS) registration had been retired in 1988, and he stopped filing. When the IRS shared his 1993–1994 Schedule C income, the Department issued two assessments (about $4,560 in gross receipts tax plus penalty and interest). He protested, arguing he was really Burger King's employee (and so exempt) and that a Department employee had told him his income was exempt.

The Hearing Officer denied the protest on both points:

• He was an independent contractor, not an employee. Under the right-to-control test (Harger; Restatement (Second) of Agency § 220) and the Department's employee-indicia regulation, Burger King didn't control how he did his work. Maintenance is a distinct business (he had a city business license, his own supplies, transportation, business name, and location), it wasn't part of Burger King's business, and neither party treated him as an employee for federal tax. New Mexico also requires consistent treatment: having reported himself as self-employed federally (Schedule C, self-employment tax), he couldn't turn around and claim to be an employee to escape gross receipts tax (Stohr; Co-Con). So the § 7-9-17 wage exemption didn't apply.
• Equitable estoppel didn't save him. Courts rarely estop the state, especially on taxes; § 7-1-60 allows it only when a taxpayer relied on a ruling addressed to him or a regulation — neither applied. His claim that a Department employee told him he was exempt and retired his account was not credible: he tied the meeting to a state "tax amnesty" program, but the only CRS amnesty ran in fiscal year 1985–86, his account wasn't retired until 1988, and he himself filed a registration-change request in 1987 — so the timeline was impossible. And even if the conversation happened, relying on unrecorded oral advice that contradicted what the city, other Department staff, and the written filing instructions had told him — from an employee whose name he never noted — was not reasonable (Bien Mur).
• The delay in assessing didn't matter. For unfiled returns, the Department has seven years to assess (§ 7-1-18(C)). The February 1997 assessments for 1993–1994 were well within that window, and a taxpayer can't treat the state's silence as proof no tax is due.

What this means for you

Contractors who wonder if they're really "employees"

If you get a 1099, file a Schedule C, pay self-employment tax, use your own tools, and run under your own business name, New Mexico will treat you as an independent contractor who owes gross receipts tax — even if a client tells you what to do, where, and when. Control over the result isn't control over the manner of your work. And you can't have it both ways: report as self-employed to the IRS and then claim to be an employee to dodge state gross receipts tax. New Mexico requires consistent treatment.

Anyone told by a government employee that they don't owe a tax

Verbal assurance from a state employee is dangerous to rely on. New Mexico will generally not be estopped by oral advice — the estoppel statute protects you only if you relied on a written ruling addressed to you or a regulation. If someone at the Department tells you something surprising (like "you're exempt"), get it in writing, note who told you and when, and keep the record. Oral advice that contradicts the written rules is treated as unreasonable to rely on.

Businesses hoping a late assessment means they're in the clear

Don't assume that because months (or years) passed with no bill, you're safe. For returns you never filed, the Department has seven years to assess. The clock is long, and its delay is not a defense.

Accountants and tax professionals

This decision pairs the standard § 7-9-17 worker-classification analysis (Harger / Regulation 3 NMAC 2.17.7 / consistency under Stohr and Co-Con) with a thorough equitable-estoppel analysis against the Department. Note the two independent estoppel hurdles: § 7-1-60 limits statutory estoppel to reliance on a personally-addressed ruling or a regulation, and common-law estoppel (Bien Mur; Johnson & Johnson) requires reasonable reliance, which oral advice contradicting written guidance won't satisfy. For unfiled returns, keep the seven-year § 7-1-18(C) window in mind.

Common questions

Q: Burger King told me what to do, where, and when — doesn't that make me an employee?
A: Not by itself. The test is whether the client controlled how you did the work, not just what result it wanted. With your own supplies, business name, a 1099, and self-employment tax filings, the totality pointed to independent-contractor status, so the employee exemption didn't apply.

Q: A Department employee told me my income was exempt. Doesn't the state have to honor that?
A: Generally no. New Mexico rarely estops the state on taxes, and the estoppel statute protects reliance only on a written ruling addressed to you or a regulation — not oral advice. Here the hearing officer also didn't find the account credible and held that relying on unrecorded oral advice contradicting the written rules wasn't reasonable.

Q: The state waited years to bill me — isn't that too late?
A: No. When you don't file a required return, the Department has seven years to assess. Assessments issued within that period are valid, and the delay is not a defense.

Q: How do I protect myself if I get surprising tax advice from the state?
A: Get it in writing, ideally as a ruling addressed to you, record who gave it and when, and keep the document. Oral assurances that conflict with published instructions generally won't estop the Department later.

Q: Does this decision apply to my situation?
A: Not directly. A Decision and Order resolves one taxpayer's protest on its specific facts and the law in effect at the time. It illustrates New Mexico's worker-classification and estoppel rules, but your facts may differ.

Citations and references

Statutes and regulations:

• § 7-9-4 NMSA 1978 — imposes gross receipts tax on those engaging in business; § 7-9-3(E) — "engaging in business"; § 7-9-3(F) — "gross receipts"; § 7-9-17 — exempts employees' wages, salaries, and commissions
• § 7-1-7 NMSA 1978 — a tax assessment is presumed correct
• § 7-1-60 NMSA 1978 — the Department is estopped only where the taxpayer relied on a ruling addressed to him or on a regulation
• § 7-1-18(C) NMSA 1978 — seven-year period to assess when a required return was not filed; § 7-1-24 NMSA 1978 — protest procedure
• Regulation 3 NMAC 2.17.7 — indicia for determining employee status; Regulation 3 NMAC 2.11.13 — CRS filing due dates

Case law cited:

• Harger v. Structural Services, Inc., 121 N.M. 657, 916 P.2d 1324 (1996); Restatement (Second) of Agency § 220; Tafoya v. Casa Vieja, Inc., 104 N.M. 775, 727 P.2d 83 (Ct. App. 1986) — right-to-control test for employee vs. independent contractor
• Stohr v. New Mexico Bureau of Revenue, 90 N.M. 43, 559 P.2d 420 (Ct. App. 1976); Co-Con, Inc. v. Bureau of Revenue, 87 N.M. 118, 529 P.2d 1239 (Ct. App. 1974); Rock v. Commissioner, 83 N.M. 478, 493 P.2d 963 (Ct. App. 1972) — exemptions strictly construed; consistent federal/state treatment required
• Mears v. Bureau of Revenue, 87 N.M. 240, 531 P.2d 1213 (Ct. App. 1975); Archuleta v. O'Cheskey, 84 N.M. 428, 504 P.2d 638 (Ct. App. 1972) — presumption of correctness
• Kerr-McGee Nuclear Corp. v. Property Tax Division, 95 N.M. 685, 625 P.2d 1202 (Ct. App. 1980); Taxation and Revenue Department v. Bien Mur Indian Market, 108 N.M. 228, 770 P.2d 873 (1989); Johnson & Johnson v. Taxation and Revenue Department, 123 N.M. 190, 936 P.2d 872 (Ct. App. 1997) — estoppel against the state applies only by statute or when right and justice demand it, and requires reasonable reliance

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Dependable Maintenance Service
• Decision PDF: D&O 98-17

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
DEPENDABLE MAINTENANCE SERVICE 98-17
ID. NO. 01-876159-00-3
ASSESSMENT NOS. 2109506 & 2109507

DECISION AND ORDER

This matter came on for formal hearing on March 26, 1998 before Margaret B. Alcock,

Hearing Officer. Thomas D. Hassler appeared on his own behalf as the sole proprietor of Dependable

Maintenance Service. The Taxation and Revenue Department ("the Department"), was represented by

Monica M. Ontiveros, Special Assistant Attorney General. Based upon the evidence and the

arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. In the mid-1970s, Mr. Hassler started in the business of performing maintenance

services. When Mr. Hassler went to the City of Albuquerque to obtain a business license, he was told

he had to register for payment of gross receipts tax. Mr. Hassler subsequently went to the Taxation and

Revenue Department and registered under the Department’s combined reporting system (CRS) for

payment of gross receipts, compensating and withholding taxes.

2. During the early years of the business, Mr. Hassler worked primarily as a subcontractor.

Around 1980, Mr. Hassler obtained a contract to perform maintenance services for Burger King. From

that point on, this contract accounted for virtually all of his business.

3. Mr. Hassler’s services included basic cleaning, degreasing floors, washing windows

and minor repair and painting projects.

4. Mr. Hassler charged a base fee, plus an hourly fee for additional maintenance projects

requested by Burger King.

5. Burger King did not withhold income taxes or social security taxes from its payments

to Mr. Hassler. Each year, Burger King issued Mr. Hassler a federal Form 1099 reporting his payments

under the maintenance contract.

6. Mr. Hassler reported and paid self-employment taxes to the federal government and

reported his income and business deductions on Schedule C of federal Form 1040.

7. In 1982, Mr. Hassler applied to the Department to file his gross receipts tax returns on a

six-month basis.

8. After 1983, Mr. Hassler fell behind in reporting and paying his gross receipts taxes.

9. In 1985, Mr. Hassler filed an application with the Department to obtain New Mexico

nontaxable transaction certificates.

10. In January 1987, Mr. Hassler filed a registration change request with the Department

changing the location and mailing addresses of his business.

11. In 1988, Mr. Hassler’s registration for payment of gross receipts, compensating and

withholding taxes was retired.

12. Mr. Hassler was not affirmatively misled concerning his liability for gross receipts

tax by a Department employee.

13. The Department’s CRS-1 Filer’s Kit contains a Registration Change Request form and

an ID Number Cancellation Request form. Department Exhibit C.

14. It is Department policy that any change to a taxpayer’s registration, including

retirement of a taxpayer’s account, must be documented by a written request from the taxpayer.

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15. The Department has an information sharing agreement with the IRS under which the

Department is able to obtain information about the federal income tax returns filed by taxpayers who

are residents of New Mexico. The information is not available to the Department until about three

years after the federal returns have been filed.

16. The Department received information from the IRS concerning Mr. Hassler’s

business income as reported on Schedule C of Mr. Hassler’s 1993 and 1994 federal income tax

returns. When the Department investigated, it found that Mr. Hassler’s registration for payment of

gross receipts tax was retired.

17. On February 19, 1997, as a result of the information received from the IRS, the

Department issued two assessments against Mr. Hassler for calendar years 1993 and 1994:

Assessment No. 2109506 in the amount of $2,245.92 gross receipts tax, $224.64 penalty, and

$1,193.16 interest; and Assessment No. 2109507 in the amount of $2,315.88 gross receipts tax,

$231.60 penalty, and $882.93 interest.

18. On March 17, 1997, the Department received Mr. Hassler’s written protest to the

above assessments.

DISCUSSION

Mr. Hassler’s protest raises the issue of estoppel, asserting that Mr. Hassler should not be

held liable for the assessments of gross receipts tax, penalty and interest because he was misinformed

as to his tax liability by a Department employee. At the hearing, Mr. Hassler suggested that the

employee may have concluded that Mr. Hassler was an employee of Burger King, rather than an

independent contractor. It was never clear whether Mr. Hassler was taking an affirmative position

that he was an employee of Burger King and therefore exempt from gross receipts tax or whether he

was simply offering a possible explanation for the advice he said he received. Because Mr. Hassler’s

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status as an independent contractor affects his liability for the tax assessed, that issue will be

addressed as well as the issue of estoppel.

I. Employee v. Independent Contractor.

A. Statement of the Law. Section 7-9-4 NMSA 1978 imposes an excise tax on the gross

receipts of any person engaging in business in New Mexico. “Engaging in business” is defined in

Subsection E of Section 7-9-3 NMSA 1978 to mean “carrying on or causing to be carried on any

activity with the purpose of direct or indirect benefit.” The term “gross receipts” is defined in

Subsection F of Section 7-9-3 NMSA 1978 as:

the total amount of money or the value of other consideration received from selling
property in New Mexico, from leasing property employed in New Mexico, from selling
services performed outside New Mexico the product of which is initially used in New
Mexico or from performing services in New Mexico.

Section 7-9-17 NMSA 1978 exempts from gross receipts tax “the receipts of employees from wages,

salaries, commissions or from any other form of remuneration for personal services.”

In determining whether a person is an employee or an independent contractor, the common

law meaning of those terms will apply unless there is persuasive evidence of a contrary legislative

intent. Harger v. Structural Services, Inc., 121 N.M. 657, 663, 916 P.2d 1324, 1330 (1996). In

Harger, the New Mexico Supreme Court adopted the approach set out in the Restatement (Second)

of Agency § 220(1) (1958) to determine a worker’s status as an employee or an independent

contractor. Among the factors to be considered are: whether the party employed engages in a

distinct occupation or business; whether the work is part of the employer’s regular business; the skill

required in the particular occupation; whether the employer supplies the instrumentalities, tools, or

the place of work; the duration of a person’s employment and whether that person works full-time or

regular hours; or whether the parties believe they have created the relationship of employer and

employee, insofar as this belief indicates an assumption of control by one and submission to control

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by the other. Id., comments h-m. The manner and method of payment is also relevant to the issue of

control. Harger, 121 N.M. at 667, 916 P.2d at 1334; Tafoya v. Casa Vieja, Inc., 104 N.M. 775, 777,

727 P.2d 83, 85 (Ct. App. 1986). While all of these factors may be considered, it is the totality of the

circumstances that should determine whether the employer has the right to exercise essential control

over a particular worker.

The Department has adopted a regulation under Section 7-9-17 that uses similar criteria to

determine whether a worker qualifies as an employee. Regulation 3 NMAC 2.17.7 (formerly GR

17:1) provides as follows:

7.1 In determining whether a person is an employee, the department
will consider the following indicia:

1. is the person paid a wage or salary;

2. is the “employer” required to withhold income tax from the
   person’s wage or salary;

3. is F.I.C.A. tax required to be paid by the “employer”;

4. is the person covered by workmen’s compensation insurance;

5. is the “employer” required to make unemployment insurance
   contributions on behalf of the person;

6. does the person’s “employer” consider the person to be an
   employee;

7. does the person’s “employer” have a right to exercise control
   over the means of accomplishing a result or only over the
   result (control does not mean “mere suggestion’).

B. Burden of Proof. There is a statutory presumption that the Department’s assessment of

gross receipts taxes is correct. Section 7-1-7, NMSA 1978; Mears v. Bureau of Revenue, 87 N.M. 240,

241, 531 P.2d 1213, 1214 (Ct. App. 1975). In order for the taxpayer to be successful, he must clearly

overcome this presumption. Archuleta v. O'Cheskey, 84 N.M. 428, 431, 504 P.2d 638, 641 (Ct. App.

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1972). Moreover, where an exemption from tax is claimed, the exemption is strictly construed in favor

of the taxing authority. Stohr v. New Mexico Bureau of Revenue, 90 N.M. 43, 46, 559 P.2d 420, 423

(Ct. App. 1976), cert. denied, 90 N.M. 254, 561 P.2d 1347 (1977); Rock v. Commissioner, 83 N.M.

478, 479, 493 P.2d 963, 964 (Ct. App. 1972).

C. Application of Law to Facts. In this case, Mr. Hassler entered into a contract with

Burger King to provide maintenance services, including cleaning and minor repair jobs. When the

Department’s counsel asked Mr. Hassler whether he was an employee of Burger King, Mr. Hassler

answered that it was an “interesting” question. Mr. Hassler stated that:

they had the right to tell me what to do, where to do it and when to do it. So it’s hard to
say. Because of the control that they had I could say yes, I was an employee. But as far
as for income purposes, it appeared that they did not pay my federal income tax or
anything of that nature. So, yes and no.

Mr. Hassler did not provide any other testimony to illustrate the nature of Burger King’s control. For

example, there was nothing to indicate whether someone at Burger King would simply tell Mr. Hassler

that the floor at a certain restaurant location needed to be degreased that night or whether Burger King

directed Mr. Hassler as to the method and specific cleaning agent to be used in cleaning the floor.

Applying the factors set out in the Restatement (Second) of Agency and in the Department’s

regulation to the testimony and documentary evidence that was submitted at the hearing leads to the

conclusion that Burger King did not exercise sufficient control over the manner in which Mr. Hassler

accomplished his work to support the conclusion that he was an employee:

The sale of maintenance and janitorial services is a distinct line of business; when Mr. Hassler
first started his business, he applied to the City of Albuquerque for a business license.

The sale of maintenance services is not part of Burger King’s regular business.

Mr. Hassler’s Schedule C deductions establish that he provided his own supplies and
transportation.

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The registration change request filed with the Department in 1987 establishes that
Dependable Maintenance Service maintained a business name, location and telephone
number separate from that of Burger King. Mr. Hassler took deductions on his Schedule C
for office expenses and utilities.

Neither Burger King nor Mr. Hassler considered Mr. Hassler to be an employee for federal
tax purposes.

The last factor is of particular importance in determining whether a person is acting as an employee

or an independent contractor. New Mexico case law holds that a taxpayer must treat transactions

uniformly for all purposes within the tax laws. The taxpayer may not treat a transaction one way for

purposes of federal tax and another way for purposes of state gross receipts tax. Stohr v. New Mexico

Bureau of Revenue, 90 N.M. 43, 46, 559 P.2d 420, 423 (Ct. App. 1976), cert. denied, 90 N.M. 254, 561

P.2d 1347 (1977); Co-Con, Inc. v. Bureau of Revenue, 87 N.M. 118, 121-122, 529 P.2d 1239, 1241-

1242 (Ct. App.), cert. denied, 87 N.M. 111, 529 P.2d 1232 (1974).

In this case, Burger King issued Mr. Hassler an annual Form 1099 indicating that its

payments to him were nonemployee compensation. There is no evidence that Burger King provided

either unemployment insurance or workmen's compensation insurance. Mr. Hassler reported and paid

self-employment taxes to the federal government, reported his income as business income on his

federal income tax return, and listed his occupation as “self-employed.” See Department Exhibits H

and I. Mr. Hassler testified to his understanding that federal law required him to file both a Schedule C

(Profit or Loss from Business) and a Schedule SE (Self-Employment Tax) with his federal Form 1040.

There is no indication that Mr. Hassler has or intends to file amended federal returns to report his

earnings as wages rather than as business income. Under New Mexico law, Mr. Hassler may not claim

to be an independent contractor for purposes of filing his 1993 and 1994 federal and state income tax

returns and then claim to be an employee exempt from filing gross receipts tax returns during the same

period.

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Based on the facts in the record, Mr. Hassler has not met his burden of proving that his

relationship with Burger King was that of an employee entitled to the exemption provided in Section 7-

9-17 NMSA 1978.

II ESTOPPEL

A. Statement of the Law. Having established that Mr. Hassler was acting as an

independent contractor and that his income was subject to New Mexico gross receipts tax, the issue to

be determined is whether equitable estoppel should operate to estop the Department from enforcing the

assessments of gross receipts tax, penalty and interest issued against him for the years 1993 and 1994.

As a general rule, courts are reluctant to apply the doctrine of equitable estoppel against the state. This

general rule is given even greater weight in cases involving the assessment and collection of taxes.

Kerr-McGee Nuclear Corp. v. Property Tax Division, 95 N.M. 685, 625 P.2d 1202 (Ct. App. 1980). In

such cases, estoppel applies only pursuant to statute or when “right and justice demand it.” Taxation

and Revenue Department v. Bien Mur Indian Market, 108 N.M. 228, 231, 770 P.2d 873, 876 (1989).

Section 7-1-60 NMSA 1978 provides for estoppel against the Department in two

circumstances: where the taxpayer acted according to a revenue ruling addressed to the taxpayer or

where the taxpayer acted according to a regulation.

Case law provides for estoppel against the State where right and justice demand its application.

For estoppel to apply, the party seeking it must show: (1) lack of knowledge of the true facts in

question; (2) detrimental reliance on the other party’s conduct; and (3) that its own reliance was

reasonable. Johnson & Johnson v. Taxation and Revenue Department, 123 N.M. 190, 195, 936 N.M.

872, 877 (Ct. App.), cert. denied, 123 N.M. 167, 936 P.2d 337 (1997).

8
B. Application of Law to Facts. Mr. Hassler testified that his failure to pay gross receipts

tax was not due to his reliance on a either a revenue ruling or a regulation issued by the Department.

Accordingly, there is no statutory basis for estoppel under Section 7-1-60.

(1) Reliance on Advice of Department Employee. Mr. Hassler argues that the

Department should be estopped from enforcing its assessments of gross receipts tax, penalty and

interest because Mr. Hassler was affirmatively misled by a Department employee who told Mr. Hassler

his income was exempt from gross receipts tax and retired his CRS registration. A review of the

evidence reveals several inconsistencies in Mr. Hassler’s account of his meeting with the Department

employee. In the protest filed in March 1997, Mr. Hassler asserted that he visited the Department’s

Albuquerque office “in 1993 or so” and was told that he was no longer required to file CRS-1 reports

because his income was exempt. The protest letter also states that the Department employee retired

Mr. Hassler’s account at that time.

The Department’s auditor testified that according to the Department’s records, Mr. Hassler’s

CRS registration was retired in 1988. The Department was not able to locate a copy of the document

retiring the account. Mr. Hassler responded to this information by stating that he did not keep any notes

and may have been mistaken as to the date. Mr. Hassler stated numerous times that his visit to the

Albuquerque office was made in response to the tax amnesty program provided by the New Mexico

legislature. He had gotten behind on filing his CRS-1 returns when he received a notice from the

Department informing him of the amnesty program. Mr. Hassler stated that the amnesty program

offered him an opportunity to get everything straightened out and so he took his records to the

Albuquerque office for review. He apologized to the hearing officer for not knowing the date, stating:

“It’s just that I cannot remember. And my records are not where I can grab them or find them for those

years anyway.”

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Mr. Hassler testified that he met with a Department employee who asked several questions

regarding the source of Mr. Hassler’s income. The Department employee then told Mr. Hassler his

income was exempt from gross receipts tax. Mr. Hassler said he “didn’t fully understand what he was

meaning at that time and I’m not so sure that I know now what he would say.” Mr. Hassler testified

several times that his CRS account was retired by the Department employee when Mr. Hassler went to

the Albuquerque office to take advantage of the tax amnesty program offered by the legislature. Mr.

Hassler did not get a copy of the document retiring the account, did not know the name of the employee

with whom he met, and did not keep any notes of the meeting.

It is understandable that Mr. Hassler might not remember exactly when he visited the

Albuquerque office. Had the tax amnesty program occurred in 1988, when Mr. Hassler’s CRS account

was retired, it might be possible to conclude that he had simply lost track of the passage of time. In this

case, however, the tax amnesty program occurred during the fiscal year beginning July 1, 1985.

Subsection A of Laws 1985, Chapter 44, Section 1 reflects the following appropriation by the 1985

legislature:

A. one hundred thousand dollars ($100,000) is appropriated from the general fund to
the taxation and revenue department for expenditure in the seventy-fourth fiscal year
for the purpose of conducting a tax amnesty program as provided in Subsection B of
this section. Any unexpended or unencumbered balance remaining at the end of the
seventy-fourth fiscal year shall revert to the general fund.

Subsection B authorized the governor “to declare an amnesty period of no more than ninety days,

provided that the entire amnesty period is within the seventy-fourth fiscal year” (emphasis added). The

state’s seventy-fourth fiscal year is the year beginning July 1, 1985 and ending June 30, 1986. A review

of the state’s session laws confirms that there has been no tax amnesty offered to CRS taxpayers since

1985.

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Mr. Hassler’s CRS account was retired in 1988. It is therefore impossible for the account to

have been retired by the Department employee with whom Mr. Hassler said he met during the state’s

tax amnesty program. Nor does the evidence support the conclusion that Mr. Hassler believed the

account was retired at that time since he himself filed a CRS registration change request with the

Department in January 1987 to reflect a change in his business location and address (Department

Exhibit E).

Based on my observations and the discrepancies in the testimony resulting from Mr. Hassler’s

admitted lack of memory and the complete absence of any records or notes that could refresh or

substantiate his recollection, I do not find Mr. Hassler’s testimony to be reliable. While it is possible

that at some point an employee of the Department met with Mr. Hassler concerning his delinquent tax

liabilities, I simply do not believe Mr. Hassler’s testimony that a Department employee reviewed all

pertinent information, including Mr. Hassler’s Schedule C business income and deductions, advised

Mr. Hassler that he was exempt from gross receipts tax on that business income, and then ignored

Department policy by retiring Mr. Hassler’s account without asking him to sign an ID Number

Cancellation Request form. In light of my finding that Mr. Hassler was not affirmatively misled

concerning his liability for gross receipts tax by a Department employee, there is no basis for

applying the doctrine of equitable estoppel.

Even if Mr. Hassler’s testimony were accepted as accurate, the account of his meeting with a

Department employee would not satisfy the requirements for equitable estoppel. In particular, Mr.

Hassler’s account of events fails to establish that his reliance on the advice he claims to have received

from the Department employee was reasonable.

When Mr. Hassler first started business, he was told by the City of Albuquerque that he had to

register with the state for payment of gross receipts tax. When Mr. Hassler registered with the

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Department, he was told he would have to file and pay gross receipts tax on his business income. The

CRS-1 Filer’s Kit sent to CRS taxpayers for the period July through December 1987, which is prior to

retirement of Mr. Hassler’s CRS account, states that every person engaged in business in New Mexico

is subject to gross receipts tax (see, Department Exhibit C). In describing his meeting with the

Department employee, Mr. Hassler testified that he did not fully understand what the employee meant

when he told Mr. Hassler that his income was exempt from gross receipts tax. Even so, Mr. Hassler

made no effort to clarify the basis for the statement or obtain written confirmation from the Department

concerning his tax status. Indeed, Mr. Hassler did not even note the name of the employee advising

him, testifying that “back then, I had no reason to find out that employee’s name.”

Under the circumstances presented, Mr. Hassler could not reasonably rely on oral advice that

directly contradicted information he had previously received from the City of Albuquerque, from other

employees of the Department and from the Department’s written tax filing instructions. The fact that

Mr. Hassler did not fully understand why his income should be exempt would have provided even more

reason for him to seek written clarification concerning his tax liability to the state. Based on the

provisions of Section 7-1-60, of which all taxpayers have at least constructive notice, reliance on the

oral representations of a Department employee is not reasonable. See also, Taxation and Revenue

Department v. Bien Mur Indian Market, 108 N.M. 228, 231, 770 P.2d 873, 876 (1989) (In light of New

Mexico’s statute providing for estoppel, taxpayer’s reliance on the oral representations of a Department

employee was not reasonable).

(2) Delay in Issuing the Assessment. Finally, Mr. Hassler argues that the

Department’s delay in notifying him of his liability for payment of gross receipts tax on his 1993 and

1994 business income should estop the Department from enforcing its assessments. Under the Tax

Administration Act, the Department has seven years from the end of the calendar year in which a tax

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is due to issue an assessment when the taxpayer has failed to complete and file any required return.

Section 7-1-18(C) NMSA 1978. As a six-month filer, the due dates for Mr. Hassler’s CRS returns

for 1993 and 1994 were as follows: for the period January-June 1993: July 25, 1993; for the period

July-December 1993: January 25, 1994; for the period January-June 1994: July 25, 1994; for the

period July-December 1994: January 25, 1995. See, Regulation 3 NMAC 2.11.13 (formerly GR

11:8).

Mr. Hassler did not file any CRS returns for 1993 or 1994, and the Department’s February

19, 1997 assessments were well within the seven-year statute of limitations provided in Section 7-1-

18(C). Mr. Hassler has not cited to any authority that would preclude the Department from

enforcing an assessment issued within the period allowed by statute based solely on a finding of

unfair delay in issuing the assessment. Nor is it reasonable for a taxpayer to rely on the

Department’s failure to issue an assessment within a few months of the due date of a return as

evidence that no tax is due when the statute of limitations for issuing the assessment is seven years.

Mr. Hassler has not established a basis for application of the doctrine of equitable estoppel in

connection with the Department’s delay in issuing the assessments.

CONCLUSIONS OF LAW

1. Mr. Hassler filed a timely, written protest to Assessment Nos. 2109506 & 2109507

pursuant to Section 7-1-24 NMSA 1978 and jurisdiction lies over the parties and the subject matter of

this protest.

2. Mr. Hassler was not an employee of Burger King and is not entitled to claim the

exemption from gross receipts tax provided in Section 7-9-17 NMSA 1978.

3. Equitable estoppel does not apply to prevent the Department from enforcing its

assessments of gross receipts tax, interest and penalty.

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For the foregoing reasons, the Taxpayers’ protest IS HEREBY DENIED.

DONE, this 6th day of April 1998.

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