Were a psychologist's 2005-2006 contract services to a school district exempt under New Mexico's later rural-health and medical-services tax provisions?

Plain-English summary

Ann Lodge's 2005 and 2006 contract psychology services to the Los Lunas School District were subject to New Mexico gross receipts tax. The health-care provisions she relied on were enacted in 2007 and did not apply to the earlier years.

Lodge worked as a psychologist under contract with the school district and filed no gross receipts tax returns for either year. In July 2009, the Department assessed:

• 2005: $4,319.48 tax, $863.90 penalty, and $1,766.99 interest;
• 2006: $4,212.56 tax, $842.52 penalty, and $1,093.50 interest.

The two assessments originally totaled $13,098.95.

The later health-care provisions did not cover these receipts

Lodge argued that her work was exempt or deductible because she provided health services in a rural area. She cited 2007 legislation creating a rural health-care practitioner income-tax credit and expanding a gross receipts deduction for certain medical and health-care services.

She conceded that those provisions were not in effect during 2005 and 2006. The cited gross receipts deduction also concerned qualifying payments from the U.S. government or its agencies, while Lodge was paid by the Los Lunas School District.

Because she established no exemption or deduction applicable to the years and payer at issue, the in-state services remained taxable.

The assessments were timely

The ordinary assessment period was three years after the end of the calendar year in which tax was due, making the 2006 assessment timely. When no return was filed, Section 7-1-18(C) allowed seven years. Lodge admitted she had not filed, so the 2005 assessment was timely as well.

Her mistaken belief that no tax was owed supported the negligence penalty. Interest was mandatory because the tax had not been paid when due and continued while principal remained unpaid.

The hearing delay was condemned but produced no administrative remedy

Lodge protested in July 2009, but the Department did not contact her again about the protest until September 2012 and requested a hearing only in February 2013.

The hearing officer found that nearly four years of delay was unreasonable and unjustified and that Lodge was prejudiced because interest kept accruing. But the law then imposed no strict deadline for holding the hearing and gave the hearing officer no authority to dismiss the assessment or grant equitable relief.

Result: protest denied. The 2005 and 2006 tax, penalty, and interest assessments remained in place.

What this means for you

Health-care professionals working as contractors

Verify the law in effect when the receipts were earned and the identity of the payer. A later expansion of a deduction does not automatically apply retroactively.

Nonfilers facing an old assessment

Not filing can lengthen the Department's assessment period. The decision applied a seven-year period to the 2005 return that was never filed.

Taxpayers in a delayed protest

Continue monitoring interest and preserve records. The hearing officer strongly criticized the delay but lacked authority to cancel the assessment because of it.

Common questions

Q: Was Lodge treated as an employee of the school district?
A: No. The decision described her as providing contract services while engaged in business.

Q: Why didn't the 2007 health-care law help?
A: It was not in effect for the 2005-2006 receipts, and the cited deduction also required a qualifying federal payer.

Q: Why was the 2005 assessment still timely in 2009?
A: Lodge did not file a gross receipts return, so the seven-year nonfiler period applied.

Q: Did the hearing officer find the delay acceptable?
A: No. It was found unreasonable, unjustified, and prejudicial, but no administrative remedy was authorized.

Q: How much was originally assessed?
A: $8,532.04 in tax, $1,706.42 in penalty, and $2,860.49 in interest, totaling $13,098.95.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-1-17 and 7-1-3 — assessment presumption and definition of tax
• NMSA 1978, § 7-1-18(A) and (C) — three-year and seven-year assessment periods
• Regulation 3.2.1.18(A) NMAC and NMSA 1978, § 7-1-13 — in-state services and reporting duty
• NMSA 1978, §§ 7-2-18.22 and 7-9-77.1 — 2007 rural health credit and medical-services deduction
• NMSA 1978, § 7-1-67(A) — mandatory interest
• NMSA 1978, § 7-1-24(D) and Regulations 3.1.8.8-.9 NMAC — hearing process

Cases cited:

• Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16 (Ct. App. 1976)
• AA Oilfield Service v. New Mexico State Corporation Commission, 118 N.M. 273 (1994)
• El Centro Villa Nursing Center v. Taxation and Revenue Department, 108 N.M. 795 (Ct. App. 1989)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Ann Lodge, Ph.D.
• Decision PDF: D&O 13-14

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
ANN LODGE, PH.D, No. 13-14
TO ASSESSMENTS ISSUED UNDER
ID NOS. L1650802048 and L1771666816

DECISION AND ORDER

A formal hearing on the above-referenced protest was held May 2, 2013, before Dee Dee

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

Mr. Nelson Goodin, Chief Legal Counsel. Ms. Sylvia Sena, Auditor, also appeared on behalf of

the Department. Dr. Ann Lodge (Taxpayer) appeared for the hearing and represented herself.

The Hearing Officer took notice of all documents in the administrative file. Based on the

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

FINDINGS OF FACT

1. The Taxpayer was engaged in business in New Mexico as a psychologist and was

providing contract services to the Los Lunas School District in 2005 and 2006.

2. The Taxpayer failed to file gross receipts tax with the Department for 2005 and 2006.

3. On July 9, 2009, the Department assessed the Taxpayer for gross receipts tax, penalty,

and interest for the tax period ending on December 31, 2005. The assessment was for

$4,319.48 tax, $863.90 penalty, and $1,766.99 interest.

4. On July 9, 2009, the Department assessed the Taxpayer for gross receipts tax, penalty,

and interest for the tax period ending on December 31, 2006. The assessment was for

$4,212.56 tax, $842.52 penalty, and $1,093.50 interest.

5. On July 15, 2009, the Taxpayer filed a formal protest letter.
6. On February 8, 2013, the Department filed a Request for Hearing asking that the

Taxpayer’s protest be scheduled for a formal administrative hearing.

7. The Notice of Hearing was mailed to the parties from the Hearings Bureau on February 8,

2013.

8. The Taxpayer mistakenly believed that her services were exempt or deductible from the

gross receipts tax.

DISCUSSION

The issue to be decided is whether the Taxpayer is liable for gross receipts tax, penalty,

and interest for the tax periods ending in December 2005 and December 2006, due to her failure

to file and to pay gross receipts tax, and whether the Department’s actions were timely.

Burden of Proof.

Assessments by the Department are presumed to be correct. See NMSA 1978, § 7-1-17.

Tax includes, by definition, the amount of tax principal imposed and, unless the context

otherwise requires, “the amount of any interest or civil penalty relating thereto.” NMSA 1978, §

7-1-3. See also, El Centro Villa Nursing Center v. Taxation and Revenue Department, 108 N.M.

795, 779 P.2d 982 (Ct. App. 1989). Therefore, the assessment issued to the Taxpayer is

presumed to be correct, and it is the Taxpayer’s burden to present evidence and legal argument to

show that she is not liable for the tax and is entitled to an abatement of penalty and interest.

Statute of Limitations to Assess.

The Taxpayer argued that the assessments in 2009 were too late and that it was unfair to

allow the Department to assess so many years after the fact. Generally, the Department may not

assess more than three years after the end of the calendar year in which the tax was due. See

NMSA 1978, § 7-1-18 (A). Consequently, the assessment as to the 2006 gross receipts tax was

Ann Lodge, Ph.D
Letter ID Nos. L1650802048 and L1771666816
page 2 of 6
timely. The Department may also assess no more than seven years after the end of the calendar

year in which the tax was due if the taxpayer failed to file a return. See NMSA 1978, § 7-1-18

(C). The Taxpayer admitted that she did not file gross receipts tax returns for the 2005 and 2006

reporting periods. Therefore, the assessment as to the 2005 gross receipts tax was timely.

Gross Receipts Tax.

Services performed within the State of New Mexico are subject to the gross receipts tax.

See 3.2.1.18 (A) NMAC (2003). The Taxpayer’s services to the Los Lunas School District were

subject to the gross receipts tax. It is the responsibility of the taxpayer, who is in the position to

know the details of her business activities, to determine accurately and to report her tax liabilities

to the Department. See NMSA 1978, § 7-1-13. At the hearing, the Taxpayer did not dispute that

she was providing services.

The Taxpayer argued that her services were exempt or deductible from the gross receipts

tax because they were health services provided in a rural area. The Taxpayer cited to a House

Bill that was codified in 2007. The House Bill created some new statutes and amended others.

See generally NMSA 1978, § 7-2-18.22 (2007) (providing an income tax credit to rural health

care practitioners), and § 7-9-77.1 (2007) (expanding the gross receipts tax deduction for certain

medical and health care services). The Department argued that the changes made in 2007 were

inapplicable to the Taxpayer’s gross receipts tax liability from 2005 and 2006. The Taxpayer

conceded that the law was not in effect at the time her gross receipts tax liability occurred.

The Department also argued that the gross receipts tax deduction would not apply

because the Taxpayer was not being paid by an agency of the United States government. See

NMSA 1978, § 7-9-77.1 (allowing a deduction from gross receipts for some health care services

when the receipts are from payments by the U.S. government or an agency thereof). The

Ann Lodge, Ph.D
Letter ID Nos. L1650802048 and L1771666816
page 3 of 6
Taxpayer admitted that she was not receiving payments from the U.S. government and was being

paid by the Los Lunas School District.

The Taxpayer failed to establish that she was exempt from gross receipts tax and failed to

establish that she was entitled to a deduction from gross receipts tax during 2005 and 2006.

Therefore, the assessment of gross receipts tax is presumed to be correct.

Assessment of Penalty.

A taxpayer’s lack of knowledge or erroneous belief that the taxpayer did not owe tax is

considered to be negligence for purposes of assessment of penalty. See Tiffany Const. Co., Inc.

v. Bureau of Revenue, 90 N.M. 16, 558 P.2d 1155 (Ct. App. 1976). Therefore, the penalty was

properly assessed.

Assessment of Interest.

Interest “shall be paid” on taxes that are not paid on or before the date on which the tax is

due. NMSA 1978, § 7-1-67 (A). The word “shall” indicates that the assessment of interest is

mandatory, not discretionary. See State v. Lujan, 90 N.M. 103, 105, 560 P.2d 167, 169 (1977).

The assessment of interest is not designed to punish taxpayers, but to compensate the state for

the time value of unpaid revenues. Because the gross receipts tax was not paid when it was due,

interest was properly assessed. The Taxpayer was advised at the hearing that while the tax

principal remains unpaid, the interest will continue to accrue.

Timeliness of the Hearing.

The Taxpayer also argued that the Department was negligent in bringing the protest to

hearing since the Department took no action on the Taxpayer’s case from July 2009 until

September 2012. The Taxpayer pointed out that she lost the opportunity to secure evidence and

owed more interest than she would have if this matter had been resolved in 2009. The

Ann Lodge, Ph.D
Letter ID Nos. L1650802048 and L1771666816
page 4 of 6
Department sent the protest acknowledgement letter in July 2009. The Department again

contacted the Taxpayer in reference to the protest in September 2012. The Department then filed

the Request for Hearing on February 8, 2013. The Taxpayer argues that the delay of nearly four

years from filing of protest to the Department’s request for hearing was an unreasonable amount

of time. The Department argues that there is not a statute of limitations for conducting the

hearing. The Department also indicated that the delay was “unfortunate”.

It is the Department’s responsibility to “promptly set a date for hearing”. NMSA 1978, §

7-1-24 (D) (emphasis added). The Department’s delay in referring the Taxpayer’s protest for

hearing for almost four years was unreasonable and unjustified. Moreover, the Taxpayer was

prejudiced by the delay since interest continued to accrue. However, there is not at present a

strict statutory deadline or time frame within which a hearing must be held. See NMSA 1978, §

7-1-24. The Department pointed out that the statute is being amended to address this issue.

Additionally, there is no statutory or regulatory authority for the Hearing Officer to dismiss a

protest for unreasonable and unjustified delays. See id. See also 3.1.8.8 and 3.1.8.9 NMAC.

Hearing officers are also unable to grant equitable remedies. 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).

As there was not a statutory or regulatory violation in failing to refer the Taxpayer’s protest for such an

extended period of time, there is no administrative remedy that can be granted by the Hearing Officer.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely written protest to the Notice of Assessment of 2005 and

2006 gross receipts taxes issued under respective Letter ID numbers L1650802048 and

L1771666816, and jurisdiction lies over the parties and the subject matter of this protest.

Ann Lodge, Ph.D
Letter ID Nos. L1650802048 and L1771666816
page 5 of 6

2. The Taxpayer was properly assessed for gross receipts tax, penalty, and interest

for 2005 and 2006.

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

DATED: May 30, 2013.

Dee Dee Hoxie
DEE DEE HOXIE
Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, § 7-1-25, the parties have the right to appeal this decision by filing a

notice of appeal with the New Mexico Court of Appeals within 30 days of the date shown above. See

Rule 12-601 NMRA. If an appeal is not filed within 30 days, this Decision and Order will become final.

A copy of the Notice of Appeal should be mailed to John Griego, P. O. Box 630, Santa Fe, New Mexico

87504-0630. Mr. Griego may be contacted at 505-827-0466.

CERTIFICATE OF SERVICE

I hereby certify that I mailed the foregoing Order to the parties listed below this _ day of
___, 2013 in the following manner:

First Class Mail Interoffice Mail

Ann Lodge, Ph.D Nelson Goodin
500 Rodeo Rd., #1810 Taxation and Revenue Department, Legal
Santa Fe, NM 87505 1100 S. St. Francis
Santa Fe, NM 87504

Ann Lodge, Ph.D
Letter ID Nos. L1650802048 and L1771666816
page 6 of 6