Could an Alaska Native jewelry maker avoid back gross receipts tax on sales at Santa Fe's Palace of the Governors because payment would cause severe hardship?

Subject

Maize Elford-White (D&O 98-28)

Plain-English summary

Maize Elford-White, an Alaska Native artist living in Santa Fe, made and sold handmade jewelry through the Museum of New Mexico's Native-American Vendors Program. The program allowed Native American artists to sell authentic handmade jewelry, pottery, and other crafts beneath the portal of the Palace of the Governors.

Elford-White reported the sales as Schedule C business income on her 1993 federal return but did not register for or pay New Mexico gross receipts tax because she did not know the tax applied. An IRS information match led the Department to assess $825.10 gross receipts tax, $82.52 penalty, and $340.36 interest for 1993. Once informed, she began reporting and paying tax on later jewelry sales.

Elford-White did not argue that the old sales were legally exempt. The decision applied the rule that, absent contrary federal law, Native Americans acting beyond reservation boundaries are subject to nondiscriminatory state laws, including tax laws. Her Palace of the Governors receipts were not derived from within her native lands.

Instead, she asked the Department to forgive the assessment in exchange for future compliance. She explained that she was a single mother whose income barely supported her and her daughter, that she could not go back and collect tax from past customers, and that payment would create severe hardship.

Hearing Officer Gerald B. Richardson found no authority to grant that relief. The assessment was presumed correct, and Elford-White presented no evidence or legal argument showing an error. Section 7-1-20 allowed compromise only when there was a good-faith doubt about liability; financial difficulty did not create such doubt. The protest was DENIED.

What this means for you

• Sales outside native lands were not exempt merely because the seller was Native American. The decision applied New Mexico's generally applicable, nondiscriminatory gross receipts tax to the Santa Fe sales.
• Not knowing the tax applied did not eliminate the assessment. Elford-White corrected her filings going forward, but future compliance did not erase past tax, penalty, or interest.
• Financial hardship was not a statutory basis for compromise. The tribunal said it lacked power to grant relief based on how difficult payment would be.
• A compromise required genuine doubt about legal liability. Elford-White did not dispute taxability or prove that the Department's calculations were wrong.
• Inability to collect tax retroactively from customers did not shift the seller's liability. The assessment remained against the vendor.

Key questions answered

Were the Palace of the Governors jewelry sales exempt?
No. The receipts were earned outside Elford-White's native lands, and the generally applicable state tax applied.

Did the Hearing Officer question her good-faith misunderstanding?
No. The decision accepted that she did not know or understand the law and noted that she complied once informed. That did not create legal authority to abate the debt.

Could future compliance be exchanged for forgiveness of past tax?
No. The statute did not authorize that bargain when liability for the earlier period was clear.

Why couldn't hardship support compromise?
Section 7-1-20 limited compromise to cases involving a good-faith doubt about liability, and the tribunal found none.

Verbatim citations

The off-reservation rule applied by the decision:

absent express federal law to the contrary, Indians going beyond reservation boundaries are subject to nondiscriminatory state laws otherwise applicable to all citizens of the state, and that principle is as applicable to state tax laws as it is to other state laws, such as criminal laws.

The assessment's presumption:

The Taxpayer did not present any evidence or legal argument which would establish that the Department’s assessment is incorrect, nor is this decision maker aware of any legal authority which would establish the same.

The limit on hardship relief:

It is simply beyond the power or the purview of this forum to grant the relief Ms. Elford-White requests, regardless of the severity of the hardship which payment would impose.

The holding on the location of the sales:

Because the Taxpayer’s receipts from selling jewelry were not derived from within her native lands, they are not exempt from the imposition of New Mexico’s gross receipts tax.

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Maize Elford-White
• Decision PDF: D&O 98-28

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
MAIZE ELFORD-WHITE NO. 98-28
ID. NO. 02-315626-00 0, PROTEST TO
ASSESSMENT NO. 2046196

DECISION AND ORDER

This matter came on for formal hearing on April 16, 1998 before Gerald B.

Richardson, Hearing Officer. Maize Elford-White, hereinafter, “Taxpayer”, represented

herself at the hearing. The Taxation and Revenue Department, hereinafter,

“Department”, was represented by Frank D. Katz, Chief Counsel. Based upon the

evidence and arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer is an Alaska Native-American who makes and sells hand-made

jewelry as a participant in the Native-American Vendors Program of the Museum of New

Mexico.

2. The Native-American Vendors Program is a living exhibit of the Museum of

New Mexico whereby only Native-Americans are allowed to sell authentic, hand-made

jewelry, pottery and other Native-American crafts under the portal of the Palace of the

Governors museum in Santa Fe, New Mexico.

3. The Taxpayer, resides in Santa Fe, New Mexico.
4. For tax year 1993, the Taxpayer filed a Schedule C with her federal personal

income tax return, reporting as income from a business or profession her receipts from

jewelry sales during 1993 made while participating in the Native-American Vendor’s

Program.

5. The Department has an information sharing agreement with the Internal

Revenue Service (“IRS”) whereby the IRS shares information from the federal income

tax returns of New Mexico residents with the Department.

6. The Taxpayer was not registered with the Department during tax year 1993 to

pay or report gross receipts taxes and paid no gross receipts taxes upon her gross receipts

from the sale of jewelry at the Palace of the Governors.

7. The Taxpayer did not know or understand that she was subject to gross

receipts taxes upon her gross receipts from the sale of jewelry at the Palace of the

Governors.

8. As a result of the information the Department received from the IRS with

respect to the receipts the Taxpayer reported on federal Schedule C, on July 3, 1996 the

Department issued Assessment No. 2046196 to the Taxpayer, assessing $825.10 in gross

receipts tax, $340.36 in interest and $82.52 in penalty for the reporting periods of

January, 1993 through December, 1993.

9. On July 16, 1996, the Taxpayer filed a timely, written protest to Assessment

No. 2046196 with the Department.

10. Subsequent to the Department’s assessment and upon becoming informed as

to the applicability of the gross receipts tax to her jewelry sales receipts, the Taxpayer has

reported and paid gross receipts tax upon her jewelry sales.

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DISCUSSION

The sole issue presented for determination is whether the Department’s

assessment may be abated in return for the Taxpayer’s agreement to report and pay taxes

from July, 1996, forward. The Taxpayer’s failure to report and pay gross receipts taxes

was based upon her misunderstanding of how the tax laws of the State of New Mexico

applied to her. It is beyond dispute, that absent express federal law to the contrary,

Indians going beyond reservation boundaries are subject to nondiscriminatory state laws

otherwise applicable to all citizens of the state, and that principle is as applicable to state

tax laws as it is to other state laws, such as criminal laws. Mescalero Apache Tribe v

Jones, 411 U.S. 145, 149-150 (1973). Thus, Ms. Elford-White does not dispute that she

was subject to gross receipts tax upon her receipts from selling jewelry. She asks,

however, for relief from the tax, penalty and interest assessed based upon the financial

hardship it would cause her to have to pay these back taxes. After the Department’s

assessment and upon becoming aware of the law, she began reporting and paying tax on

her jewelry sales receipts. As a single mother whose income can just support herself and

her daughter, and who cannot go back and recover the tax from her customers from

previous years, she requests relief from the amount of the assessment.

There is a presumption of correctness which attaches to any assessment of tax by

the Department. Section 7-1-17(C) NMSA 1978. Because “tax” is defined to include the

amount of any interest or civil penalty relating thereto, Section 7-1-2(U) NMSA 1978, the

presumption of correctness also attaches to the assessment of penalty and interest. In this

case, the Taxpayer did not present any evidence or legal argument which would establish

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that the Department’s assessment is incorrect, nor is this decision maker aware of any

legal authority which would establish the same. Thus, the Department’s assessment is

presumptively correct.

The Department’s authority to compromise an assessment of tax is quite limited.

The legislature has granted that authority only in circumstances where a good faith doubt

as to the liability exists. Section 7-1-20 NMSA 1978. As noted above, the law is clear

that Ms. Elford-White’s status as a Native-American does not provide a defense to the

imposition of the tax at issue. Thus, there is no good faith doubt as to the liability.

Additionally, this decision maker is not aware of any authority which allows taxes to be

abated or compromised based upon the difficulty which payment would cause to a

Taxpayer. Presumably, no such authority exists because of the importance to the state of

collecting the tax revenues properly due it. It is simply beyond the power or the purview

of this forum to grant the relief Ms. Elford-White requests, regardless of the severity of

the hardship which payment would impose. For these reasons, the Taxpayer’s protest

must be denied.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to Assessment No. 2046196 and

jurisdiction lies over both the parties and the subject matter of this protest.

2. Because the Taxpayer’s receipts from selling jewelry were not derived from

within her native lands, they are not exempt from the imposition of New Mexico’s gross

receipts tax.

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3. The Taxpayer failed to present evidence or legal argument to overcome the

presumption of correctness which attaches to the Department’s assessment of tax and

thus, the assessment is presumptively correct.

4. This forum lacks the authority to compromise or abate taxes based upon the

financial hardship which payment of such taxes would impose upon a taxpayer.

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

DONE, this 15th day of May, 1998.

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