Am I liable for New Mexico gross receipts tax on my deceased spouse's business income if I never worked in the business?

Plain-English summary

A widow who never worked in her late husband's business still owed New Mexico gross receipts tax on his business income — because tax on earnings during a marriage is a community debt. But she owed it only for the part of the year they were married, and the Department could collect only from her own half of the community property, because it had missed the deadline to file a claim against his estate. Protest GRANTED IN PART and DENIED IN PART.

James Raines worked as an independent contractor installing appliances; his wife Kay worked full-time for J.C. Penney and never took part in his business. They married on March 17, 1994, kept separate accounts, and split their living expenses. James reported $26,192 of business gross receipts on their 1994 federal return but never paid New Mexico gross receipts tax on it. He died in January 1996. In August 1998 the Department assessed $2,454.96 in gross receipts tax, penalty, and interest against both James and Kay for the 1994 business income. Kay protested.

She is liable — but as a spouse for a community debt, not as someone "in business"

Kay argued she could not owe the tax because she never engaged in business. The hearing officer explained that misses how the tax works. A "taxpayer" is anyone liable for payment of any tax (Section 7-1-3(V)), not just the person who ran the business. Under long-settled New Mexico law, income earned from either spouse's labor during marriage is community property (Katson v. Katson), even when the business itself is one spouse's separate property. Gross receipts tax on community earnings is therefore a community debt (Section 40-3-9) for which both spouses are liable.

That produced a split by date:

• January 1 – March 16, 1994 (before the marriage): the business income was James's separate property and the tax was his separate debt — Kay is not liable.
• March 17 – December 31, 1994 (during the marriage): the income was community property and the tax was a community debt — Kay is liable.

The "isolated or occasional" exemption did not apply

Kay argued that if she was in business at all, her activity was isolated and occasional and exempt under Section 7-9-28. But her liability came from the community character of James's income, and there was no evidence his appliance-installation services were isolated or occasional. The exemption did not apply.

James's death sharply limited what the Department could collect

Because the Department never filed a claim against James's estate within the one year allowed by the probate code (Section 45-3-803), several pools of property became off-limits:

• James's separate property and his one-half interest in the community property could no longer be reached.
• Property Kay received as an heir or devisee of his estate was likewise protected.
• Property covered by Kay's family allowance ($30,000) and personal-property allowance ($10,000) (Sections 45-2-402 and 45-2-403) is exempt from and has priority over estate claims.

But death did not wipe out the debt for the surviving spouse. Section 45-2-805 says that on a spouse's death "the entire community property is subject to the payment of community debts," and case law (Carpenter v. Lindauer; Moucka v. Windham) confirms a survivor stays liable for community debts. So Kay's own one-half interest in the community property — to the extent it can be traced — remained subject to the assessment.

Two more defenses failed

• 18-month delay in setting the hearing. Section 7-1-24(D) tells the Department to "promptly" set a hearing, but the statute attaches no consequence to a violation, and a public officer's tardiness is not a defense to collecting a public debt (In re Ranchers-Tufco). The delay did not bar collection.
• "Innocent spouse" relief. New Mexico tax law is not governed by federal law, and the state has no counterpart to the federal innocent-spouse provisions, so the hearing officer had no authority to grant that relief.

Result: GRANTED IN PART, DENIED IN PART. The Department was ordered to abate the tax, penalty, and interest for January 1 – March 16, 1994, and to limit its collection for the rest of 1994 to property traceable to Kay's one-half interest in the community property that existed when James died.

What this means for you

Gross receipts tax on a spouse's business income is a community debt

If your spouse runs a business during your marriage, the New Mexico gross receipts tax on that income is generally a community debt you can be assessed for — even if you never set foot in the business. Liability flows from community-property law, not from whether you personally "engaged in business."

The pre-marriage line matters

Tax on business income earned before the marriage is the operating spouse's separate debt; the other spouse is not liable for it. When a business straddles a wedding date, the tax splits at that date, and only the married-period portion is a community debt.

Missing the estate-claim deadline shifts, but does not erase, the exposure

When a business-owning spouse dies, a tax agency that fails to file a timely claim against the estate loses access to the decedent's separate property, his or her half of the community property, and inherited property. But the surviving spouse's own half of the community property — and community property that can be traced into the survivor's hands — remains fair game. Surviving spouses should not assume the debt disappeared, and estates should watch the one-year probate claim window.

Do not count on federal-style innocent-spouse relief for state tax

The federal "innocent spouse" rules do not carry over to New Mexico gross receipts tax. Even a spouse with no involvement in the business cannot use that theory to escape a community tax debt in New Mexico.

Common questions

Q: I never worked in my spouse's business. Can New Mexico still make me pay gross receipts tax on it?
A: Yes, for income earned during the marriage. That tax is a community debt, and both spouses are liable regardless of who ran the business. You are a "taxpayer" because you are liable for the tax, not because you engaged in business.

Q: Does it matter that some of the income was earned before we married?
A: Yes. Tax on business income earned before the marriage is the operating spouse's separate debt, and the other spouse is not liable for that portion. Here the pre-marriage part of 1994 was abated.

Q: My spouse died. Can the Department come after everything I own?
A: No. Because it missed the one-year deadline to file a claim against the estate, it could not reach the decedent's separate property, his half of the community property, inherited property, or property covered by the family and personal-property allowances. It could reach only the survivor's own half of the community property that can be traced.

Q: I'm an 'innocent spouse.' Doesn't that protect me?
A: Not for New Mexico tax. The federal innocent-spouse rules apply to federal tax, and New Mexico has no equivalent. The hearing officer had no authority to grant that relief.

Q: The Department took 18 months to set my hearing. Doesn't that void the assessment?
A: No. The statute says the Department should act "promptly" but sets no penalty for delay, and a public official's tardiness is not a defense to collecting a public debt. The delay did not bar collection.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-3(V) — "taxpayer" includes any person liable for payment of any tax
• NMSA 1978, § 7-1-17(C) — a Department assessment is presumed correct (Regulation 3 NMAC 1.1.13 confirms an unregistered person can still be a taxpayer)
• NMSA 1978, § 7-9-28 — isolated or occasional sale exemption (held not applicable)
• NMSA 1978, § 7-1-24(D) — the Department shall promptly set a hearing (no remedy specified for delay)
• NMSA 1978, § 40-3-9 — defines "community debt" and "separate debt"
• NMSA 1978, § 40-3-11 — priorities for satisfying community debts while both spouses live
• NMSA 1978, § 45-2-805 — on death of a spouse, the entire community property is subject to community debts; the survivor keeps one-half
• NMSA 1978, § 45-3-803 — probate claims (including the state's) barred if not presented within one year of death
• NMSA 1978, §§ 45-2-402, 45-2-403 — $30,000 family allowance and $10,000 personal-property allowance, exempt from and prior to estate claims

Cases cited:

• Katson v. Katson, 43 N.M. 214, 89 P.2d 524 (1939) — earnings attributable to a spouse's labor and talent in a separate business are community property
• Laughlin v. Laughlin, 49 N.M. 20, 155 P.2d 1010 (1944) — the labor of the parties belongs to the community
• DeTevis v. Aragon, 104 N.M. 793, 727 P.2d 558 (Ct. App. 1986) — earnings from spouses' labor during marriage are community property
• Carpenter v. Lindauer, 12 N.M. 388, 78 P. 57 (1904) — a surviving spouse remains liable for a community debt after the other spouse's death
• Moucka v. Windham, 483 F.2d 914 (10th Cir. 1973) — community property remains liable for community debts even after the community is severed
• In re Ranchers-Tufco Limestone Project Joint Venture, 100 N.M. 632, 674 P.2d 522 (Ct. App. 1983) — a public officer's failure to act "promptly" does not defeat collection of a public debt
• El Centro Villa Nursing Center v. Taxation and Revenue Dep't, 108 N.M. 795, 779 P.2d 982 (Ct. App. 1989); State v. Long, 121 N.M. 333, 911 P.2d 227 (Ct. App. 1995) — New Mexico tax is not governed by federal law; federal rules apply only if found persuasive
• Archuleta v. O'Cheskey, 84 N.M. 428, 504 P.2d 638 (Ct. App. 1972); Wing Pawn Shop v. Taxation and Revenue Dep't, 111 N.M. 735, 809 P.2d 649 (Ct. App. 1991) — the taxpayer bears the burden to overcome the presumption that an assessment is correct

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Kay E. Raines
• Decision PDF: D&O 00-18

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 KAY E. RAINES No. 00-18
ID No. 02-381427-00-6
ASSESSMENT NO. 2280401

DECISION AND ORDER

A formal hearing on the above-referenced protest was held June 8, 2000, before Margaret B.

Alcock, Hearing Officer. Kay Raines (“Taxpayer”) was represented by Charles E. Buckland, Esq.

The Taxation and Revenue Department ("Department") was represented by Javier Lopez, Special

Assistant Attorney General. Based on the evidence and arguments presented, IT IS DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. James A. and Kay E. Raines were married on March 17, 1994.

2. The Raines, who had known each other for ten years prior to their marriage,

continued to maintain separate bank accounts and credit card accounts, but did not enter into any

property agreement concerning the character of their property or earnings.

3. Both before and during the marriage, Kay Raines worked full-time as an employee of

J. C. Penney.

4. Both before and during the marriage, James Raines engaged in business as an

independent contractor installing appliances. Kay Raines never participated in James Raines’

business activities.

5. From their respective earnings, James and Kay Raines each paid one-half of the

couple’s living expenses, including mortgage payments on their house, utilities and groceries.

6. Kay Raines was involved in preparing the couple’s 1994 federal income tax return,

which included a Schedule C, Profit or Loss From Business, reporting $26,192 of gross receipts from

James Raines’ business.

7. James Raines did not report or pay New Mexico gross receipts tax on his 1994

business income.

8. On January 7, 1996, James Raines died.

9. On August 6, 1998, the Department issued Assessment No. 2280401 to James A. and

Kay E. Raines in the amount of $2,454.96, representing gross receipts tax, penalty and interest due

on Mr. Raines’ business income for tax periods January-December 1994.

10. On October 2, 1998, pursuant to an extension of time granted by the Department,

Kay Raines filed a written protest to the Department’s assessment.

DISCUSSION

The issue to be decided is whether Kay Raines is liable for gross receipts tax on the business

income of her husband, James Raines, who died more than two years prior to the date of the

Department’s assessment. The Taxpayer raises the following arguments in support of her protest:

(1) Kay Raines cannot be liable for gross receipts tax because she never participated in

her husband’s business or personally engaged in business in New Mexico;

(2) If Kay Raines is found to have engaged in business, she is entitled to the exemption

provided in Section 7-9-28 NMSA because her business activities were isolated and occasional;

(3) the Department is barred from collecting the gross receipts tax because: (a) the

Department failed to file a claim against James Raines’ estate; (b) the value of James Raines’ estate

was less than the amount of the family and personal property allowances provided by New Mexico

2
law; and (c) James Raines’ death severed the community and so there is no community property

from which the tax can be collected;

(4) the Department’s failure to promptly set a hearing on Ms. Raines’ protest bars the

Department from pursuing collection of the protested assessment; and

(5) Kay Raines is an innocent spouse as defined in the Internal Revenue Code and is

entitled to equitable relief from payment of the taxes assessed against her husband’s income.

Any assessment of tax by the Department is presumed to be correct. Section 7-1-17(C)

NMSA 1978. Accordingly, it is the Taxpayer's burden to present evidence and legal authority to

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

1972); Wing Pawn Shop v. Taxation and Revenue Department,, 111 N.M. 735, 741, 809 P.2d 649, 655

(Ct. App. 1991).

(1) Liability for Gross Receipts Tax on a Spouse’s Business Income. Kay Raines

maintains she cannot be liable for gross receipts tax because she never participated in her husband’s

business or personally engaged in business in New Mexico. This argument overlooks the statutory

definition of “taxpayer”, which includes “a person liable for payment of any tax.” Section 7-1-3(V)

NMSA 1978. Regulation 3 NMAC 1.1.13 provides:

A person who fits the definition of “taxpayer” under the provisions of
Section 7-1-3(V) but who has not registered or been identified under
provisions of Section 7-1-12 is nonetheless a “taxpayer” subject to the
provisions of the Tax Administration Act.

Section 7-1-17 NMSA 1978 requires the Department to issue an assessment once it “determines that

a taxpayer is liable for taxes in excess of ten dollars ($10.00) that are due and have not been

previously assessed to the taxpayer...” The issue, then, is not whether Kay Raines personally

engaged in business, but whether she is liable for payment of gross receipts tax due on the income

generated from her husband’s business activities.

3
New Mexico courts have consistently held that income earned from the labor of either spouse

during marriage is community property. This is true even when the business which generates the

income is the separate property of one of the spouses. More than sixty years ago, the New Mexico

Supreme Court held that “the community owns the earning power of the husband, and when it is

used in the conduct of his separate business, the portion of the earnings attributable to his personal

activities and talent is community property.” Katson v. Katson, 43 N.M. 214, 217, 89 P.2d 524, 526

(1939). See also, Laughlin v. Laughlin, 49 N.M. 20, 33, 155 P.2d 1010, 1018 (1944) (the labor of

the parties belongs to the community rather than to the individuals); DeTevis v. Aragon, 104 N.M.

793, 798, 727 P.2d 558, 563 (Ct. App. 1986) (earnings attributable to labor and talent of spouses

during marriage are community property).

Gross receipts tax due on community earnings is a community debt. Section 40-3-9 NMSA

1978 defines a "community debt" as “a debt contracted or incurred by either or both spouses during

marriage which is not a separate debt.” A “separate debt” is defined as follows:

(1) a debt contracted or incurred by a spouse before marriage or after
entry of a decree of dissolution of marriage;
(2) a debt contracted or incurred by a spouse after entry of a decree
entered pursuant to Section 40-4-3 NMSA 1978, unless the decree provides
otherwise;
(3) a debt designated as a separate debt of a spouse by a judgment or
decree of any court having jurisdiction;
(4) a debt contracted by a spouse during marriage which is identified
by a spouse to the creditor in writing at the time of its creation as the separate
debt of the contracting spouse;
(5) a debt which arises from a tort committed by a spouse before
marriage or after entry of a decree of dissolution of marriage or a separate tort
committed during marriage; or
(6) a debt declared to be unreasonable pursuant to Section 2 [40-3-
10.1 NMSA 1978] of this act.

The gross receipts tax liability at issue in this case arose from Mr. Raines’ 1994 business activities.

For the period January 1 1994 through March 16, 1994, the income from the business was Mr.

4
Raines’ separate property and the tax imposed on that income was his separate debt. Beginning with

the date of his marriage, the income earned from the business was community property, and the gross

receipts tax imposed on Mr. Raines’ income for the period March 17, 1994 through December 31,

1994 was a community debt for which both spouses were liable.

(2) Isolated and Occasional Sales. Ms. Raines argues that if she is found to have

engaged in business in New Mexico, her business activities were isolated and occasional and she is

entitled to the exemption from gross receipts tax provided in Section 7-9-28 NMSA 1978. As

discussed in Section (1), above, Ms. Raines’ liability for gross receipts tax is based on the

community character of the income earned by her husband. There is no evidence that James Raines’

appliance installation services were isolated or occasional, and the exemption provided in Section 7-

9-28 NMSA 1978 does not apply to the income from those services.

(3) Effect of James Raines’ Death on the Department’s Collection Activities. Ms.

Raines maintains the Department is barred from collecting the gross receipts tax because: (a) the

Department failed to file a claim against James Raines’ estate; (b) the value of James Raines’ estate

was less than the family and personal property allowances provided by New Mexico law; and (c)

James Raines’ death severed the community and so there is no community property from which the

tax can be collected.

(a) Failure to File a Claim. At the hearing, the Department maintained that its failure to file

a claim against the estate of James Raines was not relevant because the Department is pursuing

collection only against Ms. Raines. The failure to file a claim is relevant, however, to determining

what property now held by Kay Raines is subject to payment of the couple’s community tax debt.

5
Section 40-3-11 NMSA 1978 sets out the following priorities for the satisfaction of com-

munity debts while both spouses are living:1

A. Community debts shall be satisfied first from all community property
and all property in which each spouse owns an undivided equal interest as a
joint tenant or tenant in common, excluding the residence of the spouses.
Should such property be insufficient, community debts shall then be satisfied
from the residence of the spouses, except as provided in Subsection B of this
section or Section 42-10-9 NMSA 1978. Should such property be
insufficient, only the separate property of the spouse who contracted or
incurred the debt shall be liable for its satisfaction. If both spouses
contracted or incurred the debt, the separate property of both spouses is
jointly and severally liable for its satisfaction.

Prior to James Raines’ death, his one-half interest in community property and all of his separate

property was liable for payment of gross receipts tax due on his business income. Kay Raines’ one-

half interest in community property was also subject to payment of the tax. Ms. Raines’ separate

property could not have been reached by the Department because she did not incur the tax debt

attributable to the business activities of her husband.

After James Raines’ death in January 1996, collection of the Raines’ community debts

became subject to the provisions of New Mexico’s Uniform Probate Code. Section 45-2-805 NMSA

1978 establishes the following priorities for satisfaction of community debts and the separate debts

of a deceased spouse:

B. Upon the death of either spouse, the entire community property is
subject to the payment of community debts. The deceased spouse's separate
debts and funeral expenses and the charge and expenses of administration are
to be satisfied first from his separate property, excluding property held in
joint tenancy. Should such property be insufficient, then the deceased
spouse's undivided one-half interest in the community property shall be
liable.

1
Section 40-3-11(D) NMSA 1978 states: “This section shall apply only while both spouses and living and shall not
apply to the satisfaction of debts after the death of one or both spouses.”

6
Section 45-3-803 NMSA 1978 states that all claims against a decedent’s estate “including claims of

the state and any subdivision of the state” are barred against the estate, the personal representative

and the heirs and devisees of the decedent unless presented within the time limits set out in the

statute. Although claims may be cut off earlier if actual notice is given to creditors, all claims are

barred if not presented within one year of the decedent’s death. Because the Department failed to

file its claim for gross receipts tax against the estate of James Raines, his separate property and his

one-half interest in community property is no longer subject to payment of the tax. Nor is the

property Kay Raines received as an heir or devisee of her husband’s estate subject to payment of the

tax.

(b) Family and Personal Property Allowances. Ms. Raines argues that the Department is

barred from collecting the gross receipts tax because the value of James Raines’ estate was less than

the amount of the family and personal property allowances provided in the Uniform Probate Code.

Pursuant to Sections 45-2-402 and 45-2-403 NMSA 1978, a decedent’s surviving spouse is entitled

to a family allowance of $30,000 and a personal property allowance of $10,000. Both of these

allowances are exempt from and have priority over all claims against the decedent’s estate.

Accordingly, even if the Department had a legitimate claim against James Raines’ estate, the

Department could not collect payment from property used to satisfy Kay Raines’ family and personal

property allowances.

(c) Severance of the Community. Although the Department is barred from taking collection

action against property that passed to Kay Raines from her husband’s estate, the Department may

collect the gross receipts tax from Kay Raines’ own interest in community property. Section 45-2-

805 NMSA 1978 states that upon the death of either spouse “one-half of the community property

belongs to the surviving spouse, and the other half is subject to the testamentary disposition of the

7
decedent....” The surviving spouse’s interest in community property is not part of the decedent’s

estate. Claims against the survivor’s property are not barred by Section 45-3-803 NMSA 1978, nor

is the property subject to the family and personal property allowances.

Ms. Raines argues that her husband’s death severed the community and there is no longer

any community property from which community debts can be collected. This argument overlooks

the language of Section 45-2-805 NMSA 1978, which provides: “Upon the death of either spouse,

the entire community property is subject to the payment of community debts.” The death of one

spouse does not relieve the surviving spouse from his or her obligation for payment of community

debts. As stated by the court in Carpenter v. Lindauer, 12 N.M. 388, 395, 78 P. 57 (1904):

The entire estate of Samuel P. Carpenter being community property, Ormeda
C. Carpenter was equally liable with her husband for the Lindauer debt, it
being a community debt. She was no less liable after the death of her
husband....

This conclusion is consistent with the federal court’s decision in Moucka v. Windham, 483 F.2d 914,

916-917 (10th Cir. 1973), which held that community property remains liable for payment of

community debts, even after the community has been severed by divorce:

[U]nder New Mexico law, a community debt incurred prior to the dissolution
of the marital community, and for the benefit thereof, would properly be
payable out of "community" funds notwithstanding the fact that such
"community" property had been transmuted into "separate" property by virtue
of a decree of divorce....
...

Thus, assuming that the "community" funds now in Peggy V. Windham's
possession can be traced and identified as such, they are subject to the
payment of the amount due on the promissory note to Jean Moucka. See
Eaves v. United States, 433 F.2d 1296 (10th Cir.), and cases cited therein.

To the extent the community property of James and Kay Raines can be traced, Kay Raines’ one-half

interest in that property is subject to the Department’s assessment of gross receipts tax due for the

period March 17, 1994 through December 31, 1994.

8
(4) Delay in Setting a Hearing. Section 7-1-24(D) NMSA 1978 states: "Upon timely

receipt of a protest, the department or hearing officer shall promptly set a date for hearing and on

that date hear the protest or claim." Ms. Raines’ protest was received by the Department in October

1998. The hearing date was set in April 2000, eighteen months after the protest was filed. Ms.

Raines asks the hearing officer to find that the Department’s failure to promptly set a hearing on her

protest bars the Department from pursuing collection of the protested assessment.

The argument that a taxpayer who does not receive a prompt hearing is relieved of her tax

obligations to the state has already been considered—and rejected—by the courts. In In re

Ranchers-Tufco Limestone Project Joint Venture, 100 N.M. 632, 638, 674 P.2d 522, 528 (Ct. App.),

cert. denied , 100 N.M. 505, 672 P.2d 1136 (1983), the court of appeals addressed this issue as

follows:

Assuming, but not deciding, that the tax collector violated Section 7-1-24(D),
how does a taxpayer benefit from the violation? The statute says nothing as
to the consequence of a violation. The general rule is that tardiness of public
officers in the performance of statutory duties is not a defense to an action by
the state to enforce a public right or to protect public interests. State, ex rel.
Dept. of Human Services v. Davis, 99 N.M. 138, 654 P.2d 1038 (1982). The
general rule is applicable in these cases unless Section 7-1-24(D) makes it
inapplicable. Section 7-1-24(D) does not make the general rule inapplicable.

The Department’s delay in setting a hearing on Ms. Raines’ protest does not provide a basis for

dismissing the protest or prohibiting the Department from taking action to collect its assessment.

(5) Equitable Relief. Ms. Raines contends she is an “innocent spouse” as defined in the

Internal Revenue Code and is entitled to equitable relief from payment of the gross receipts tax

assessed against her husband’s business income. The administration and enforcement of state taxes

is not governed by federal law. See, El Centro Villa Nursing Center v. Taxation and Revenue

Department, 108 N.M. 795, 797, 779 P.2d 982, 984 (Ct. App. 1989) (standard of negligence used by

9
IRS not applicable to state taxes); State v. Long, 121 NM 333, 335, 911 P.2d 227, 229 (Ct. App.),

cert. denied, 121 N.M. 119, 908 P.2d 1387 (1995) (in tax cases, New Mexico courts follow federal

law only to the extent they find it persuasive). New Mexico has no law comparable to the federal

law providing equitable tax relief to innocent spouses, and the hearing officer has no authority to

grant such relief to Ms. Raines.

CONCLUSIONS OF LAW

1. Kay Raines filed a timely, written protest to Assessment No. 2280401, and jurisdiction

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

2. The gross receipts tax imposed on James Raines’ business income for the period

January 1, 1994 through March 16, 1994 is a separate debt for which Kay Raines has no liability.

3. The gross receipts tax imposed on James Raines’ business income for the period

March 17, 1994 through December 31, 1994 is a community debt for which Kay Raines is also

liable.

4. The Department is barred from pursuing collection of its assessment against property

Kay Raines received as a family or personal property allowance.

5. The Department is barred from pursuing collection of its assessment against property

Kay Raines received as an heir or devisee of her husband’s estate.

6. To the extent the community property of James and Kay Raines can be traced, Kay

Raines’ one-half interest in that property is subject to the Department’s assessment of gross receipts

tax due for the period March 17, 1994 through December 31, 1994.

7. The Department’s delay in setting a hearing on Ms. Raines’ protest does not provide

a basis for dismissing the protest or prohibiting the Department from taking collection action against

Ms. Raines.

10

8. Ms. Raines is not entitled to equitable relief from payment of state tax obligations

based on innocent spouse or other equitable provisions of federal law.

For the foregoing reasons, the Taxpayer's protest GRANTED IN PART AND DENIED IN

PART.

The Department is ordered to abate the amount of gross receipts tax, penalty and interest

assessed against Kay Raines for the period January 1, 1994 through March 16, 1994 and to restrict its

collection of gross receipts tax, penalty and interest due for the period March 17, 1994 through

December 31, 1994 to property that can be traced to Ms. Raines’ one-half interest in the community

property that existed at the time of James Raines’ death.

DATED June 29, 2000.

11