If you file a refund claim and the state never acts on it, then you refile after the deadline, can you still get your money back?

Subject

Joe Anaya, d/b/a Anaya’s Carpet Service (D&O 98-56)

Plain-English summary

Joe Anaya worked as a carpet-installation subcontractor for two carpet stores from 1994 to 1997. He had paid $833.68 in gross receipts tax for January–June 1994, then stopped paying, and in May 1997 the Department assessed him $2,348 for the later unpaid periods, which he paid. He then got Type 5 (service-for-resale) NTTCs from the stores, which meant his subcontract receipts were deductible — so he was entitled to refunds.

A tax service was supposed to file his refund claims but never did, so Anaya filed his own claim on September 4, 1997, seeking the $2,348 and (via attached amended returns) the $833.68. The Department eventually refunded the $2,348 in March 1998 but not the $833.68. Anaya then refiled a claim for the $833.68 on April 16, 1998, which the Department denied as time-barred. Hearing Officer Margaret B. Alcock denied his protest.

The problem was procedure, not the merits. Under Section 7-1-26, if the Department neither grants nor denies a refund claim within 120 days, the taxpayer must take one of three affirmative steps within the deadline:

1. refile the claim within the three-year limitations period,
2. file an administrative protest of the Department's inaction, or
3. file a civil suit in district court.

Anaya's September 1997 claim went unanswered; on the 121st day (January 3, 1998) the Department lost the power to act on it (a 1997 amendment, applying Unisys Corp., bars the Department from acting after 120 days). Meanwhile, the three-year window to claim a refund of the 1994 tax had already closed at the end of December 1997. So by the time Anaya refiled in April 1998, it was too late, and because he had not protested or sued on the stalled September claim, that avenue was gone too. Result: no refund of the $833.68.

(The Hearing Officer noted in passing that the Department's $2,348 refund, paid after the 120 days, was itself erroneous and unauthorized — and that Anaya could have preserved the $833.68 by refiling as late as December 2000 measured from the date that tax was assessed and paid, but he had not done so.)

What this means for you

• A refund claim the state ignores is not automatically safe — you must act. If the Department doesn't grant or deny your claim within 120 days, you must, within the deadline, either refile in time, file a protest of the inaction, or sue. Waiting does not preserve your money.
• Watch the three-year limitations clock. A refund of tax is generally barred three years from the end of the year the tax was due. A stalled first claim doesn't stop that clock, so a refiling after the window closes is too late.
• "My tax preparer was supposed to handle it" is not a defense. Here the tax service never filed the claim, and the taxpayer bore the consequences. Confirm that your representative actually filed, and keep copies.
• Pick the right remedy quickly. When your claim sits unanswered, the safest move is often a formal protest of the inaction or a timely refile — don't assume a later informal refiling will work.
• Being right on the merits doesn't help if you miss the deadline. Anaya genuinely had the resale certificates entitling him to the deduction, but the procedural bar defeated the refund.

Key questions answered

Why was a valid overpayment not refunded?
Because of timing and procedure. When the Department didn't act on his September 1997 claim within 120 days, Anaya had to refile in time, protest the inaction, or sue. He did none of those before the three-year limitations period for the 1994 tax expired at the end of December 1997, and his April 1998 refiling was time-barred.

What are the three remedies when the Department sits on a refund claim?
Under Section 7-1-26, after 120 days of inaction you may (1) refile the claim within the three-year limitations period, (2) file an administrative protest of the failure to act, or (3) bring a civil action in district court. You must choose one within the applicable deadline.

What does the 120-day rule do?
After 120 days without a grant or denial, the Department loses discretion to act on the claim (a 1997 amendment codifying Unisys Corp.). That is precisely why the taxpayer must then take affirmative action to protect the refund rather than wait.

Did it matter that his tax service failed to file?
Not to the outcome. The claim the tax service was supposed to file never reached the Department, and the burden and consequences fell on Anaya, who ultimately missed the deadlines to preserve the $833.68.

Verbatim citations

The refund procedure and 120-day inaction rule (Section 7-1-26(B)):

If the department has neither granted nor denied any portion of a claim for refund within one hundred twenty days of the date the claim was mailed or delivered to the department, the department may not approve or deny the claim but the person may refile it within the time limits set forth in Subsection C of this section or may within ninety days elect to pursue one, but only one of the remedies in Paragraphs (1) and (2)....

Why the refund was lost:

Instead, Mr. Anaya refiled his claim for refund after the statute of limitations for doing so had expired. Having failed to exercise either of the remedies open to him, and because his second claim for refund is barred by the statute of limitations, Mr. Anaya is not entitled to a refund of the $833.68.

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Joe Anaya, d/b/a Anaya’s Carpet Service
• Decision PDF: D&O 98-56

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
JOE ANAYA, d/b/a ANAYA'S CARPET SERVICE No. 98-56
ID No. 02-243668-00 5
PROTEST TO REFUND DENIAL

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on November 16, 1998, before

Margaret B. Alcock, Hearing Officer. Joe Anaya appeared on his own behalf. The Taxation and

Revenue Department ("the Department") was represented by Frank D. Katz, Chief Counsel. Based on

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

FINDINGS OF FACT

1. During the period January 1994 through May 1997, Joe Anaya was engaged in

performing services as a subcontractor for two carpet stores.

2. In July 1994, Mr. Anaya paid gross receipts tax of $833.68 for the six-month period

January-June 1994.

3. Mr. Anaya did not pay gross receipts tax during subsequent tax periods, and in May

1997, the Department assessed Mr. Anaya $2,348.00 for unpaid gross receipts tax, penalty and

interest.

4. Mr. Anaya paid the assessment and then consulted a tax service known as Tax

Express.

5. Mr. Anaya obtained a Type 5 (Service For Resale) nontaxable transaction certificate

from the carpet stores for which he had performed services . The Type 5 certificates allowed Mr.

Anaya to deduct his receipts from performing services for the two stores.

6. Mr. Anaya understood that Tax Express would file a refund claim on his behalf to

recover the $2,348.00 Mr. Anaya paid on the Department's assessment, as well as the $833.68 Mr.

Anaya paid for the period January-June 1994.

7. The Department did not receive a refund claim on behalf of Mr. Anaya, nor did Tax

Express provide Mr. Anaya with a copy of any refund claim.

8. After determining that the Department had not received a refund claim from Tax

Express, Mr. Anaya filed his own refund claim on September 4, 1997.

9. Although the application form filed by Mr. Anaya was limited to a request for refund

of the $2,348.00 paid on the May 1997 assessment, Mr. Anaya included amended returns for the

period January-June 1994, indicating that he was entitled to an additional refund of $833.68.

10. The Department employee who took Mr. Anaya's refund claim told him she thought

the amended returns would serve as a claim for refund of the $833.68, even though this amount was

not requested on his application form.

11. On March 25, 1998, the Department mailed Mr. Anaya a refund check in the amount

of $2,348.00. Mr. Anaya did not receive a refund of the additional $833.68.

12. On April 16, 1998, Mr. Anaya filed a new Application for Tax Refund requesting

refund of the $833.68 of gross receipts tax he had paid for the period January-June 1994.

13. On May 1, 1998, the Department denied Mr. Anaya's refund because the refund

claim was not filed within the limitations period set out in NMSA 1978, Section 7-1-26 (1997

Cum.Supp.).

14. On May 12, 1998, Mr. Anaya filed a protest of the Department's denial of his claim

for refund of $833.68.

DISCUSSION

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Mr. Anaya does not dispute that his April 16, 1998 claim for refund of $833.68 of gross

receipts tax paid for the period January-June 1994 was not filed within the three-year limitations

period set out in NMSA 1978, Section 7-1-26(C) (1997 Cum.Supp.). Mr. Anaya maintains that he is

still entitled to the refund because he filed a timely claim for this amount on September 4, 1997.1 It

is the Department's position that Mr. Anaya is not entitled to the refund claimed in September 1997

because he failed to follow the statutory procedures for protesting the Department's failure to act on

the refund within 120 days of the date the claim was filed.

NMSA 1978, Section 7-1-26 (1997 Cum.Supp.) provides, in pertinent part:

A. Any person who believes that an amount of tax has been paid by or
withheld from that person in excess of that for which the person was
liable...may claim a refund by directing to the secretary, within the time
limited by the provisions of Subsections C, D and E of this section, a written
claim for refund....

B. The secretary or the secretary's delegate may allow the claim in whole
or in part or may deny the claim.... If the department has neither granted nor
denied any portion of a claim for refund within one hundred twenty days of
the date the claim was mailed or delivered to the department, the department
may not approve or deny the claim but the person may refile it within the
time limits set forth in Subsection C of this section or may within ninety days
elect to pursue one, but only one of the remedies in Paragraphs (1) and (2) of
this section.... The remedies are as follows:

(1) the person may direct to the secretary a written protest against the
denial of, or failure to either allow or deny, the claim ...; or

(2) the person may commence a civil action in the district court....

In Unisys Corp. v. New Mexico Taxation and Revenue Department, 117 N.M. 609, 874 P.2d 1273

(Ct. App. 1994), the New Mexico Court of Appeals held that while the Department retained

discretion to grant or deny a claim for refund after the passage of 120 days, it could not be compelled to

1
Although it could be argued that Mr. Anaya's 1997 application was limited to a claim for refund of $2,348.00 and
did not include the additional $833.68, the Department has taken the position that Mr. Anaya's inclusion of amended

3
do so. In 1997, the legislature amended Section 7-1-26 to expressly prohibit the Department from

taking action on a refund claim after 120 days from the date the claim is filed.2 This change made it

clear that any taxpayer whose refund claim is not acted upon in a timely manner must take

affirmative action to protect his refund by: (1) refiling the claim within the three-year limitations

period set out in Subsection C of Section 7-1-26; (2) filing an administrative protest to the

Department's inaction; or (3) filing a civil suit in district court.

In this case, Mr. Anaya filed his refund claim on September 4, 1997. On January 3, 1998, the

121st day after delivery of the claim, the Department lost discretion to either grant or deny Mr.

Anaya's refund.3 The time within which a claim for refund of the $833.68 of gross receipts tax paid

in 1994 could be filed expired at the end of December 1997, which is three years from the end of the

year in which the tax was due. With regard to this portion of the claim, the only recourse open to

Mr. Anaya was to file a protest of the Department's failure to act on his claim or file a civil action in

district court. Instead, Mr. Anaya refiled his claim for refund after the statute of limitations for doing

so had expired. Having failed to exercise either of the remedies open to him, and because his second

claim for refund is barred by the statute of limitations, Mr. Anaya is not entitled to a refund of the

$833.68.

CONCLUSIONS OF LAW

1. Mr. Anaya filed a timely, written protest to the Department's denial of his claim for

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

returns for the January-June 1994 reporting period was sufficient to constitute a valid claim for refund of the
$833.68.
2
Laws 1997, ch. 67, sec. 11, made the amendment applicable to claims for refund filed on or after July 1, 1997.
3
In fact, the Department did refund $2,348.00 of Mr. Anaya's claim after expiration of 120 days. This refund was
erroneous and not authorized by the 1997 amendment to Section 7-1-26. It should be noted, nonetheless, that Mr.

4

2. Mr. Anaya is not entitled to the $833.68 refund claimed on April 16, 1998 because the

claim was not filed within the limitations period set out in NMSA 1978, Section 7-1-26(C) (1997

Cum.Supp.).

3. Mr. Anaya is not entitled to the $833.68 refund claimed on September 4, 1997 because

he did not exercise either of the remedies available to him when the Department failed to act on the

refund within 120 days.

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

DONE, this 4th day of December 1998.

Anaya could have refiled this portion of his claim as late as December 2000, which is three years from the end of the
year in which the assessment was issued and paid.

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