A plumbing subcontractor overpaid gross receipts tax for 1993-1994 and its accountant never filed the refund claim. Could New Mexico still refund the money years later?

Subject

KD Plumbing Works, Inc. (D&O 00-08)

Plain-English summary

KD Plumbing Works did subcontract plumbing work for general contractors. For years it paid gross receipts tax on that work, not realizing that if it collected nontaxable transaction certificates (NTTCs) from the contractors, those receipts could be deducted (the classic sale-for-resale situation). In 1996 another plumber tipped off the company's president; the accountant confirmed a refund was possible; and by July 1996 the company had obtained the NTTCs and told the accountant to file amended returns and claim refunds for everything back to 1993.

The accountant filed refund claims for 1995-1996 (the company received $14,604.50) but never filed for 1993-1994. That gap was only discovered in 1998, after the company fired the accountant and hired a new one. The company then filed a $20,802.04 refund claim for 1993-1994 in late 1998. The Department denied it as too late, and the company protested.

The Hearing Officer denied the protest. Under Section 7-1-26(C)(1)(a), a refund claim must be filed within three years of the end of the calendar year in which the tax was originally due (there was no assessment here, so that measuring date controlled). Gross receipts tax for January 1993 was due in February 1993, so the refund window closed at the end of 1996; the November 1994 tax's window closed at the end of 1997. The 1993-1994 claim, filed in late 1998, was too late. The company's argument that Section 7-1-13(E) allowed a 12-month extension failed for three reasons: that provision extends only the time to file returns or pay tax, not the time to claim a refund; no extension was ever requested and you cannot retroactively extend the deadline for taxes already paid on time; and the regulation the company cited covers an accountant who dies or becomes disabled, not one who is able to work but simply fails to carry out instructions. Relying on the accountant did not excuse the deadline — that failure was "a matter between Taxpayer and Mr. Kingsbury."

What this means for you

• A New Mexico tax refund has a hard three-year clock, measured from when the tax was originally due. If you overpaid, the deadline to claim it back does not wait for you to notice the mistake — it runs from the original due date of the tax (Section 7-1-26). Miss it and the money is gone, no matter how clearly you overpaid.
• File refund claims for the oldest years first. Here the company recovered 1995-1996 but lost 1993-1994 purely to timing. When you discover an overpayment spanning several years, the earliest years are closest to expiring — claim them immediately.
• The Section 7-1-13(E) extension does not help with refunds. That "good cause" extension only pushes back the date to file a return or pay tax; it gives the Department no power to extend the refund deadline. Don't count on it to rescue a late refund claim.
• Your accountant's mistake is still your deadline to miss. New Mexico charges every taxpayer with the duty to know the tax consequences of action or inaction; hiring an accountant does not shift that duty. If the claim is filed late, your recourse is against the accountant, not a waiver from the Department.

Key questions answered

Why was the 1993-1994 refund denied when the company clearly overpaid?
Because the claim was filed too late. Section 7-1-26(C) requires a refund claim within three years of the end of the year the tax was originally due. The 1993 and 1994 windows closed at the end of 1996 and 1997; the claim came in late 1998.

Didn't the company get a refund for 1995-1996?
Yes — $14,604.50. Those years were still within the three-year window when claimed. Only the older 1993-1994 years had expired.

Could Section 7-1-13(E)'s 12-month extension save the claim?
No. That extension applies only to filing returns or paying tax, not to refund claims; no extension was ever requested; and even an extension to pay would not have changed the original due date that starts the refund clock.

Does it matter that the accountant, not the company, dropped the ball?
No. The Hearing Officer held that reliance on an accountant does not excuse compliance with the tax laws, and the regulation for a disabled or deceased accountant did not apply to one who was able to act but failed to follow instructions. The company's remedy was against its former accountant.

Verbatim citations

The three-year refund deadline:

[N]o credit or refund of any amount may be allowed or made to any person unless as the result of a claim made by that person as provided in this section: (1) within three years of the end of the calendar year in which: (a) the payment was originally due or the overpayment resulted from an assessment by the department pursuant to Section 7-1-17 NMSA 1978, whichever is later;

Why the Section 7-1-13(E) extension did not apply:

First, Section 7-1-13(E) gives the secretary authority to grant an extension of time to file returns or pay taxes. The statute does not give the secretary authority to grant an extension of time within which to file a refund claim. A refund claim must be filed within the time limit provided in Section 7-1-26(C)(1)(a) ....

Accountant reliance is no excuse:

Taxpayer's reliance on its accountant does not excuse Taxpayer from its obligation to comply with New Mexico's tax laws. ... "We are not inclined to hold that the taxpayer can abdicate this responsibility merely by appointing an accountant as its agent in tax matters." ... The failure of Taxpayer's accountant to file timely refund claims is a matter between Taxpayer and Mr. Kingsbury.

The holding:

Taxpayer's claim for refund of $20,802.04 of gross receipts taxes paid during the period 1993-1994 was not filed within the statutory time limit set out in Section 7-1-26(C). ... For the foregoing reasons, Taxpayer's protest IS DENIED.

Source

• Listing: New Mexico Decisions & Orders
• Decision post: KD Plumbing Works, Inc.
• Decision PDF: D&O 00-08

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
KD PLUMBING WORKS, INC. No. 00-08
I.D. No. 02-173929-00-3
TO DENIAL OF CLAIM FOR REFUND

DECISION AND ORDER

A formal hearing on the above-referenced protest was held February 22, 2000, before

Margaret B. Alcock, Hearing Officer. KD Plumbing Works, Inc. ("Taxpayer") was represented by

Clifford C. Gramer, Esq.. The Taxation and Revenue Department ("Department") was repre-sented by

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

presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. Taxpayer is a licensed plumbing business established in 1992.

2. Taxpayer provides plumbing services to general contractors on a subcontract basis.

3. Taxpayer’s CRS-1 returns for reporting periods June 1993 through December 1996

were prepared and filed by its accountant, Robert Kingsbury.

4. Taxpayer paid the Department the gross receipts taxes reported on the CRS-1 returns

prepared and filed by its accountant.

5. In 1996, Kenny Diaz, Taxpayer’s president, was advised by another plumber that

because Taxpayer was doing subcontract work, it might be overpaying gross receipts taxes.

6. Mr. Diaz relayed this information to Robert Kingsbury and asked him to determine

whether Taxpayer was paying too much gross receipts taxes.

7. Mr. Kingsbury subsequently discovered that if Taxpayer obtained nontaxable

transaction certificates (“NTTCs”) from the general contractors for whom it performed services,

Taxpayer would be entitled to deduct its receipts from those services.

8. Mr. Kingsbury told Mr. Diaz that Taxpayer could claim a refund of gross receipts

taxes previously paid. Mr. Kingsbury indicated there was a time limit within which to file the claim,

but did not tell Mr. Diaz when that deadline expired.

9. By July 1996, Taxpayer had obtained NTTCs from all the general contractors for

whom it performed services.

10. At that time, Mr. Diaz directed Mr. Kingsbury to file amended CRS-1 returns for

Taxpayer and apply for a refund of gross receipts taxes paid since 1993.

11. Mr. Kingsbury prepared amended CRS-1 returns for 1995 and 1996, but did not file a

refund claim for these periods with the Department. Mr. Kingsbury did not prepare amended returns

or file a refund claim for 1993 or 1994.

12. In January 1998, Taxpayer terminated Mr. Kingsbury’s services and hired Fila Y.

Diaz to take charge of Taxpayer’s books and accounts.

13. After obtaining Taxpayer’s files from Mr. Kingsbury, Mrs. Diaz discovered that no

claim for refund had been filed to recover the gross receipts taxes paid by Taxpayer during the years

1993 through 1996.

14. In August 1998, Taxpayer filed a claim for refund of gross receipts taxes paid during

the period 1995-1996 and received a refund in the amount of $14,604.50.

15. Sometime between November 20, 1998 and December 2, 1998, Taxpayer filed a

claim for refund of $20,802.04 of gross receipts taxes paid during the period 1993-1994. None of

these taxes had been paid as the result of an assessment by the Department.

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16. On December 11, 1999, the Department denied the refund because it was not filed

within the three-year limitations period set out in Section 7-1-26 NMSA 1978.

17. On March 2, 1999, Taxpayer filed a written protest of the denial of its claim for

refund of gross receipts taxes paid during the period 1993-1994.

DISCUSSION

The issue to be determined is whether the Department properly denied Taxpayer’s claim for

refund of $20,802.04 of gross receipts taxes paid for tax periods January 1993 through November

1994. The Department denied the refund because the statute of limitations for claiming the refund

had passed. The statutory provision at issue is Section 7-1-26 (C)(1)(a) NMSA 1978, which

provides, in pertinent part1:

[N]o credit or refund of any amount may be allowed or made to any
person unless as the result of a claim made by that person as provided in
this section:

(1) within three years of the end of the calendar year in which:

(a) the payment was originally due or the overpayment
resulted from an assessment by the department pursuant to Section 7-1-17
NMSA 1978, whichever is later;

No assessment was issued against Taxpayer. Accordingly, Taxpayer’s claim for refund of gross

receipts tax was required to be filed within three years of the end of the calendar year in which

payment of the tax was originally due.

Pursuant to Section 7-9-12 NMSA 1978, gross receipts taxes “are to be paid on or before the

twenty-fifth day of the month following the month in which the taxable event occurs.” Gross

receipts taxes for tax period January 1993 were due on or before February 25, 1993; the time within

which a taxpayer could claim a refund of these taxes expired December 31, 1996. Gross receipts

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taxes for tax period November 1994 were due on or before December 25, 1994; the time within

which a taxpayer could claim a refund of these taxes expired December 31, 1997. Taxpayer’s claim

for refund of gross receipts taxes paid for reporting periods January 1993 through November 1994

was filed with the Department sometime between November 20, 1998 and December 2, 1998. The

claim was not filed within the limitations period required by Section 7-1-26(C) and was properly

denied by the Department.

Taxpayer argues that Section 7-1-13(E) NMSA 1978 gives the Department discretion to

grant Taxpayer a 12-month extension of time to file its refund claim. That section provides:

E. The secretary or the secretary’s delegate may, for good cause, extend in
favor of a taxpayer or a class of taxpayers, for no more than a total of twelve
months, the date on which payment of any tax is required or on which any
return required by provision of the Tax Administration Act shall be filed, but
no extension shall prevent the accrual of interest as otherwise provided by
law....

Taxpayer relies on the following example found in Department Regulation 3 NMAC 1.4.12.1.5:

Example 3: If the taxpayer’s accountant has suddenly died or has become
disabled and unable to perform services for the taxpayer and the taxpayer can
show that the taxpayer is unable either to complete the return or to procure
the services of a person to complete the return before the due date, an
extension will be given favorable consideration.

There are several problems with Taxpayer’s argument. First, Section 7-1-13(E) gives the secretary

authority to grant an extension of time to file returns or pay taxes. The statute does not give the

secretary authority to grant an extension of time within which to file a refund claim. A refund claim

must be filed within the time limit provided in Section 7-1-26(C)(1)(a), i.e., within three years of the

end of the calendar year in which the payment was originally due.

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This is the version of Section 7-1-26(C) in effect in November 1998, the date the Taxpayer’s claim for refund was
filed.

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Second, no request for extension was ever filed with the Department. The gross receipts

taxes at issue were due in 1993 and 1994 and payments were made in a timely manner. Taxpayer

cannot retroactively request an extension of time to pay taxes that have already been paid. Even if

Taxpayer had obtained an extension of time to pay his 1993 and 1994 gross receipts taxes, this

would not have changed the original, statutory due date or changed the date on which the statute of

limitations to claim a refund of those taxes expired.

Third, the facts presented do not provide a basis for granting Taxpayer an extension of time

to either file or pay. The regulation cited by Taxpayer addresses a situation where an accountant

suddenly dies or becomes disabled and is unable to carry out his accounting duties. The regulation

does not cover a situation where an accountant is able to act but simply fails to carry out his client’s

instructions. Taxpayer’s reliance on its accountant does not excuse Taxpayer from its obligation to

comply with New Mexico’s tax laws. As stated by the New Mexico Court of Appeals in El Centro

Villa Nursing Center v. Taxation and Revenue Department, 108 N.M. 795, 779 P.2d 982 (Ct. App.

1989):

"[e]very person is charged with the reasonable duty to ascertain the possible
tax consequences of his action [or inaction]." Tiffany Constr. Co. v. Bureau
of Revenue, 90 N.M. at 17, 558 P.2d at 1156. We are not inclined to hold that
the taxpayer can abdicate this responsibility merely by appointing an
accountant as its agent in tax matters.

The failure of Taxpayer’s accountant to file timely refund claims is a matter between Taxpayer and Mr.

Kingsbury. The facts of this case do not provide grounds for the Department to extend or waive the

statute of limitations for filing refund claims set by the New Mexico legislature.

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CONCLUSIONS OF LAW

1. KD Plumbing Works, Inc. filed a timely, written protest to the Department’s denial of

Taxpayer’s claim for refund, and jurisdiction lies over the parties and the subject matter of this protest.

2. Taxpayer’s claim for refund of $20,802.04 of gross receipts taxes paid during the

period 1993-1994 was not filed within the statutory time limit set out in Section 7-1-26(C).

3. There is no basis for the Department to extend or waive the statute of limitations set

out in Section 7-1-26 NMSA 1978.

4. Taxpayer’s refund claim was properly denied by the Department.

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

DATED March 3, 2000.

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