Did Healthsouth preserve its 2006 gross-receipts-tax refund by filing the original claim on time and later refiling after Department inaction?

Plain-English summary

Healthsouth Rehabilitation lost its refund for January through November 2006 because it did not challenge the Department's inaction within 210 days and could no longer refile those periods after the three-year limitations deadline. The original claim had been timely, but filing it did not keep the claim alive indefinitely.

Healthsouth filed a gross-receipts-tax refund claim on October 8, 2009 for January 2006 through December 2008. The Department took no action within 120 days. On May 19, 2010, it sent a “210-day letter” saying it could no longer act on the claim and that Healthsouth could refile if the statute of limitations had not expired.

Healthsouth refiled that same day. The Department granted the portion covering December 2006 through December 2008, but denied January through November 2006 as time-barred.

Inaction created a separate 210-day deadline

Section 7-1-26 gave the Department 120 days to grant or deny a refund claim. If it did neither, the taxpayer could pursue an administrative protest or district-court action within the next 90 days—no later than 210 days after filing.

For Healthsouth's October 8, 2009 claim:

• the 120th day was February 5, 2010; and
• the 210th day was May 6, 2010.

Healthsouth did not file a protest or court action by May 6. Under the statute and Kilmer v. Goodwin, that failure prevented the Department from acting on the original claim.

Refiling was available only while the underlying period remained open

The same statute allowed a taxpayer to refile after Department inaction, but only if the ordinary refund limitations period had not expired. Refund claims had to be filed within three years after the end of the calendar year in which payment was originally due.

Payments for the January-November 2006 reporting periods were due during 2006. Their refund deadline was therefore December 31, 2009. By the time Healthsouth refiled on May 19, 2010, those periods were stale. The later periods remained open and were granted.

Credible oral advice did not change the statute

Healthsouth's representative testified that a Department employee said the limitations period would not apply because the original claim had been timely and was being processed. The employee denied making that statement, but the hearing officer found Healthsouth's witness more credible.

That factual finding did not change the result. The decision held that reliance on a Department employee's oral statement did not excuse missing the statutory protest or lawsuit deadline. It also explained that equitable estoppel was a judicial remedy that the administrative hearing officer lacked authority to grant.

Result: the protest was denied, and the partial denial for January-November 2006 was upheld.

What this means for you

Businesses with pending refund claims

Calendar the 120-day and 210-day dates when the claim is filed. Department silence can trigger a deadline to protest or sue even though the taxpayer filed the refund claim itself on time.

Taxpayers considering refiling

Check the underlying three-year limitations date separately. Refiling after inaction works only while the tax periods are still open.

Taxpayers receiving oral agency guidance

Do not rely on an oral assurance to suspend a statutory deadline. The hearing officer believed that the assurance was given and still could not use it to preserve the claim.

Common questions

Q: Was Healthsouth's original claim timely?
A: Yes. It was filed October 8, 2009, before the December 31, 2009 limitations deadline for the disputed 2006 periods.

Q: Why did the timely claim still fail?
A: The Department did not act within 120 days, and Healthsouth did not protest or file in district court within 210 days of the claim.

Q: Could Healthsouth simply refile?
A: Only for periods still within the three-year limitations period. January-November 2006 had already closed by the May 2010 refiling.

Q: What happened to the later periods?
A: The Department granted the refund claim for December 2006 through December 2008.

Q: Did the Department employee's statement create estoppel?
A: No. The decision held that oral advice did not excuse the deadline and that an administrative agency could not grant the equitable remedy of estoppel.

Citations and references

Statute:

• NMSA 1978, § 7-1-26(B)-(D) — Department inaction, protest or court remedies, refiling, and the three-year refund limitations period

Cases cited:

• Kilmer v. Goodwin, 2004-NMCA-122, 136 N.M. 440, 99 P.3d 690
• AA Oilfield Service v. New Mexico State Corporation Commission, 118 N.M. 273, 881 P.2d 18 (1994)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Healthsouth Rehabilitation
• Decision PDF: D&O 11-19

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
HEALTHSOUTH REHABILITATION, No. 11-19
TO THE DENIAL OF REFUND UNDER
ID NO. L0402881600

DECISION AND ORDER

A formal hearing on the above-referenced protest was held August 4, 2011, before Dee

Dee Hoxie, Hearing Officer. The Taxation and Revenue Department (Department) was

represented by Mr. Nelson Goodin, Chief Counsel. Mr. Tom Dillon, Auditor, also appeared on

behalf of the Department. Ms. Julie Gonzales, an employee of the Department, also appeared as

a witness on behalf of the Department. Mr. Ronnie Gregory, CPA with Deloitte Tax LLP,

appeared for the hearing and represented Healthsouth Rehabilitation (Taxpayer). Mr. Chris

Muth, an attorney with Deloitte Tax LLP, also appeared as a witness on behalf of the Taxpayer.

The Hearing Officer took notice of all documents in the administrative file. Most of the facts

were also stipulated to at the hearing. Based on the evidence and arguments presented, IT IS

DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On October 8, 2009, the Taxpayer filed a claim for refund (claim) for the gross receipts tax

periods from January 2006 through December 2008.

2. On May 19, 2010, the Department sent the Taxpayer a letter (210-day letter) indicating that

the Department could not take any action on the claim because more than 210 days had

passed since the claim was filed. The letter also advised that the claim could be refiled

provided that the statute of limitations had not expired.

3. Mr. Muth spoke to Ms. Gonzales about the 210-day letter, refiling the claim, and the statute

of limitations. Mr. Muth was told that the statute of limitations would not apply because the

claim had originally been filed within the time and was presently being processed.

4. The Taxpayer refiled the claim on May 19, 2010.

5. On July 20, 2010, the Department issued a letter partially denying the claim for refund due to

the statute of limitations.

6. The part of the claim that was denied was for the tax periods of January 2006 through

November 2006. The remaining part of the claim, for the tax periods December 2006

through December 2008, was granted.

7. The Taxpayer filed a formal protest by letter dated October 7, 2010.

8. The Department acknowledged the protest by letter dated February 1, 2011.

9. The Department filed a request for hearing on May 9, 2011.

10. The Hearings Bureau sent the parties notice of hearing on May 13, 2011.

DISCUSSION

The issue to be decided is whether the Department properly denied the claim for refund

for the January 2006 through the November 2006 gross receipts tax periods based on the statute

of limitations.

Statute of Limitations for Filing a Claim.

All claims for refund must be filed within three years of the end of the calendar year in

which the payment was originally due. See NMSA 1978, § 7-1-26 (D). The Taxpayer’s gross

receipts tax payments were due monthly in 2006, so the January 2006 through November 2006

tax periods would have had payments due February 2006 through December 2006, respectively.

Therefore, the final date on which to file a claim for the January 2006 through November 2006

tax periods would have been December 31, 2009. The Taxpayer filed a timely claim for refund
In the Matter of Healthsouth Rehabilitation, page 2 of 5
on October 8, 2009. However, the claim was neither granted nor denied within 120 days of being

filed, and the Taxpayer failed to perfect its right to appeal the inaction by the Department within

210 days of the filing of the claim. The Taxpayer refiled the claim on May 19, 2010. At the time

of refiling, the claim had become stale as it was after the December 31, 2009 deadline, and the

Department could not act on the claim.

Remedies for Inaction by the Department.

When a claim for refund is neither granted nor denied within 120 days of the date the

claim was filed, taxpayers have the option of refiling the claim or of pursuing a legal or

administrative remedy within 90 days of the 120th day, that is within 210 days of the date of the

claim. See NMSA 1978, § 7-1-26 (B). Taxpayers may only refile the claim if there is still time

to do so under the statute of limitations. See NMSA 1978, § 7-1-26 (B) and (D). Taxpayers

must file an administrative protest or a lawsuit in district court within 210 days of the date that

the claim was filed. See NMSA 1978, § 7-1-26 (B) and (C).

The Taxpayer argues that it was relying on statements made by Ms. Gonzales when the

210-day letter was sent and that the statute of limitations should not apply. The Taxpayer also

argues that the claim was originally filed within the time limits. To the extent that the

Taxpayer’s argument might encompass equitable estoppel, it is overruled as equitable estoppel is

an exclusively judicial remedy. See AA Oilfield Service v. New Mexico State Corp. Comm’n, 118

N.M. 273, 881 P.2d 18 (1994) (holding that an administrative agency cannot grant the equitable

remedy of estoppel because that power is held exclusively by the judiciary).

Ms. Gonzales denied telling the Taxpayer that the claim would not be barred by the

statute of limitations. Ms. Gonzales explained that she did not say that because she did not have

the authority to say that. Mr. Muth indicated that Ms. Gonzales told him that the statute of

In the Matter of Healthsouth Rehabilitation, page 3 of 5
limitations would not apply since the claim was previously made and was under process, and that

her supervisor had assured her of that fact. I found Mr. Muth’s testimony to be more credible

than Ms. Gonzales’s testimony. However, the statute absolutely bars the Department from acting

on a claim for refund that is more than 210 days old even when the claim was originally filed

within the statute of limitations. See Kilmer v. Goodwin, 2004-NMCA-122, 136 N.M. 440, 99

P.3d 690. It is incumbent on a taxpayer to file the protest or action in court within the 210-day

period. See id. at ¶1. A taxpayer’s failure to file a protest or an action within the 210-day period

is not excused by the taxpayer’s reliance on oral statements of an employee of the Department.

See id. at ¶45.

The claim for refund was filed on October 8, 2009. The Department neither granted nor

denied the refund by February 5, 2010, which was 120 days from the date of the claim. The

Taxpayer neither filed a protest nor an action in district court by May 6, 2010, which was 210

days from the date of the claim. Therefore, the Taxpayer failed to perfect its right to appeal the

inaction of the Department on the original claim. Consequently, the Department is statutorily

prohibited from acting on the claim. See NMSA 1978, § 7-1-26 (B). See also Kilmer, 2004-

NMCA-122. The Taxpayer filed a timely protest to the denial of its refiling of the claim.

However, the claim for the January 2006 through November 2006 tax period was statutorily

barred from being filed after December 31, 2009. See NMSA 1978, § 7-1-26 (D). Therefore, the

Department’s denial of the claim for refund for the January 2006 through the November 2006 tax

periods was appropriate.

CONCLUSIONS OF LAW

In the Matter of Healthsouth Rehabilitation, page 4 of 5

1. The Taxpayer filed a timely written protest to the partial denial of its claim for

refund that was issued under Letter ID No. L0402881600, and jurisdiction lies over the parties and

the subject matter of this protest.

2. The claim for gross receipts tax periods from January 2006 through November

2006 was barred by the statute of limitations. Therefore, the partial denial of the claim, with

respect to those tax periods, was appropriate.

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

DATED: September 6, 2011.

In the Matter of Healthsouth Rehabilitation, page 5 of 5