Could a multistate healthcare staffing company avoid penalty based on an earlier CPA review that concluded no New Mexico gross receipts tax was due?

Plain-English summary

PPR Healthcare Staffing did not prove reasonable reliance on a CPA's tax advice and remained liable for a $43,136.73 negligence penalty. The record lacked the substance of the CPA's analysis, and PPR took no action for two years after learning that it owed New Mexico gross receipts tax.

PPR, also doing business as Professional Placement Resources Talent Management Group, was based in Jacksonville, Florida and operated in 48 states. In New Mexico it provided temporary healthcare recruiting and staffing services in medical settings.

It filed no gross receipts tax returns and paid no gross receipts tax from January 2006 through November 2011. The Department assessed $202,678.74 tax, $43,136.73 penalty, and $49,440.12 interest, totaling $295,255.59.

PPR conceded the tax principal and interest and protested only penalty.

Proving a CPA's title was not enough

PPR's 2006 controller, Marley Harris, was a CPA. A later executive believed she had surveyed the states in which the company operated and determined that PPR owed tax in Washington but not New Mexico.

But the executive did not work for PPR in 2006 and could not explain the review beyond calling it “due diligence.” The record did not show what facts Harris considered, whether her conclusion rested on a factual or legal error, or what advice she actually gave.

The decision said hiring an accountant alone did not establish nonnegligence. The taxpayer had to show competent incorrect advice, full disclosure of relevant facts, and reasonable reliance.

Knowledge in 2009 ended any continuing reliance

A September 2012 letter from PPR's then-controller said communications with a new client in 2009 made the company aware of New Mexico gross receipts tax and its responsibility to pay.

PPR nevertheless did not contact the Department, file, or pay during 2009 through 2011. It entered a payment plan only after receiving a Department liability notice in 2011.

The same 2012 letter did not mention reliance on Harris. Instead, it attributed the failure to pay to the economy. Taken together, those facts defeated reasonable-reliance relief.

Result: protest DENIED. PPR remained liable for the $43,136.73 civil-negligence penalty, in addition to the conceded principal and interest.

What this means for you

Multistate businesses

Keep the actual research memorandum or adviser opinion supporting each state's filing position. A later witness's general statement that someone performed “due diligence” may not prove reasonable reliance.

Businesses learning of a missed tax obligation

Act promptly once contrary information arrives. Even if an earlier position was reasonably based on advice, continued nonfiling after actual notice can independently support negligence.

In-house tax and accounting teams

Document who advised the company, the facts disclosed, the law analyzed, and the conclusion. A professional credential by itself does not establish that particular advice was competent or reasonable.

Common questions

Q: Was the 2006 controller a CPA?
A: Yes. The problem was the absence of evidence about her analysis and advice.

Q: When did PPR learn it owed New Mexico tax?
A: Its own letter said a new-client communication made it aware in 2009.

Q: Did PPR dispute the underlying tax?
A: No. It admitted liability for principal and interest and challenged only penalty.

Q: Why did the 2012 letter hurt the reliance argument?
A: It blamed the economy for nonpayment and did not say PPR had continued relying on the former controller's advice.

Citations and references

Statute and regulations:

• NMSA 1978, § 7-1-17(C) — assessment presumption
• NMSA 1978, § 7-1-69(A) — civil negligence penalty
• Regulations 3.1.6.13, 3.1.11.10, and 3.1.11.11(D) NMAC — penalty presumption, negligence, and reliance on competent tax advice

Case cited:

• El Centro Villa Nursing Center v. Taxation and Revenue Department, 1989-NMCA-070 — reasonable conduct and limits of accountant reliance

Source

• Listing: New Mexico Decisions & Orders
• Decision post: PPR Healthcare Staffing
• Decision PDF: D&O 14-15

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
PPR HEALTHCARE STAFFING No. 14-15
TO ASSESSMENT ISSUED
UNDER LETTER ID NO. L0688056640

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on February 24, 2014, before

Monica Ontiveros, Hearing Officer. At the hearing, the Taxation and Revenue Department

(“Department”) was represented by Elena Morgan, attorney for the Department. Ms. Milagros

Bernardo, protest auditor, appeared as a witness for the Department. PPR Healthcare Staffing

(“Taxpayer”) was represented by Joe Marino, Senior Vice-President of PPR Talent Management

Group who appeared at the appointed time. A letter dated September 24, 2012, Exhibit D, was

introduced by the Department.

Based on the aforementioned pleadings, the testimony and evidence introduced at the

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

FINDINGS OF FACT

1. On October 5, 2012, the Department assessed Taxpayer in gross receipts tax in

the amount of $202,678.74 in principal, $43,136.73 in penalty and $49,440.12 in interest for the

tax period from January 31, 2006-November 30, 2011. Letter Id No. L0688056640.

2. Taxpayer filed a protest to the assessment on November 5, 2012.

3. On June 18, 2013, the Department requested a hearing in this matter.

4. On June 20, 2013, the Hearings Bureau mailed a Notice of Administrative

Hearing setting the hearing for August 29, 2013.

5. Taxpayer requested a continuance on August 23, 2013. The hearing was reset for

February 24, 2014.

6. Taxpayer also does business as Professional Placement Resources Talent

Management Group which is based in Jacksonville, Florida. Taxpayer operates in 48 states.

7. During the tax period from January 31, 2006 through November 30, 2011,

Taxpayer did not file its gross receipts returns or pay gross receipts taxes for services it provided.

8. The services provided in New Mexico by Taxpayer were temporary healthcare

recruiting and staffing services in different medical settings.

9. Taxpayer protested only penalty and admitted liability to both the principal and

interest portions of the assessment. Protest Letter; (CD 03:32-3:36).

10. In 2006, Marley Harris, was the controller for Taxpayer. (CD 30:20-31:00).

11. Mr. Marino was not employed by Taxpayer in 2006 but he believes that Ms.

Harris conducted due diligence in determining whether Taxpayer owed taxes in New Mexico.

(CD 30:20-31:00).

12. Mr. Marino believes that the “due diligence” performed by Ms. Harris meant that

she surveyed all the states in which Taxpayer was doing business and identified which states

Taxpayer owed taxes.

13. Ms. Harris determined that Taxpayer did not owe taxes in New Mexico but owed

taxes in the State of Washington. (CD 30:20-31:00).

14. Ms. Harris is a certified public accountant but is no longer employed by

Taxpayer.

In the Matter of the Protest of PPR Healthcare Staffing
Page 2 of 8

15. In Taxpayer’s letter, Ms. Jenenne Hollister, controller for Taxpayer, stated that in

“communications with a new client in 2009 we became aware of the New Mexico Gross

Receipts Tax and our responsibility to pay this tax.” Exhibit D.

16. Taxpayer took no action in paying its taxes between 2009 and 2011.

17. In 2011, Taxpayer entered into a payment plan with the Department to pay the

principal and interest portions of the assessment only after it received a notice from the

Department that it had a tax liability. (CD 11:20-12:02).

DISCUSSION

The sole issue to be determined is whether Taxpayer was negligent in not paying gross

receipts tax. Taxpayer argued that it was not negligent because the controller, a certified public

accountant, in 2006 performed due diligence in ascertaining whether Taxpayer owed any taxes.

Burden of Proof and Standard of Review.

Section 7-1-17(C) provides that any assessment of taxes made by the Department is

presumed to be correct. NMSA 1978, Section 7-1-17(C) (2007). Any penalty assessed is also

presumed to be correct. 3.1.6.13 NMAC (1/15/01). Accordingly, it is Taxpayer’s burden to

present evidence and legal argument to show that it is entitled to an abatement, in full or in part,

of the assessment issued against it. See, TPL, Inc. v. Taxation and Revenue Dep’t, 2000-NMCA-

083, ¶8, 129 N.M. 539, 542, 10 P.2d 3d 863, 866, cert. granted, 129 N.M. 519, 10 P.3d 843,

rev’d on other grounds, 2003-NMSC-7, 133 N.M. 447, 64 P.3d, 474. When a taxpayer presents

sufficient evidence to rebut the presumption, the burden shifts to the Department to show that the

assessment is correct. See, MPC Ltd. v. N.M. Taxation and Revenue Dep’t., 2003-NMCA-021, ¶

13, 133 N.M. 217, 219-220, 62 P.3d 308, 310-311; Grogan v. New Mexico Taxation and

Revenue Department, 2003-NMCA-033, ¶11, 133 N.M. 354, 357-58, 62 P.3d 1236, 1239-40.

In the Matter of the Protest of PPR Healthcare Staffing
Page 3 of 8
Under NMSA 1978, Section 7-1-17(C) (2007), the assessment issued in this case is presumed to

be correct. Consequently, Taxpayer has the burden to show that the Department’s assessment is

incorrect. See Archuleta v. O'Cheskey, 1972-NMCA-165, ¶7, 84 N.M. 428, 431, 504 P.2d 638,

641.

Civil Penalty.

Civil penalty is imposed when a taxpayer is “negligent” or disregards the Department’s

rules and regulations in not filing a return or paying tax when it is due. Section 7-1-69(A) states

that:

(e)xcept as provided in Subsection C of this section, in the case of failure due to
negligence or disregard of department rules and regulations, but without intent
to evade or defeat a tax, to pay when due the amount of tax required to be
paid, to pay in accordance with the provisions of Section 7-1-13.1 NMSA 1978
when required to do so or to file by the date required a return regardless of
whether a tax is due, there shall be added to the amount assessed a penalty in an
amount equal to the greater of:

(1) two percent per month or any fraction of a month from the date the
tax was due multiplied by the amount of tax due but not paid, not to exceed
twenty percent of the tax due but not paid;

(Emphasis added). NMSA 1978, Section 7-1-69 (A) (1) (2007). The Department’s regulation

provides that “negligence” includes “failure to exercise ordinary business care and prudence

which reasonable taxpayers would exercise under like circumstances; inaction where action is

required; inadvertence, indifference, thoughtlessness, carelessness, erroneous belief or

inattention” for either failing to file a return on time or failing to make a payment on time.

Regulation 3.1.11.10 NMAC (1/15/01). Inadvertent error is defined as “negligence.” See El

Centro Villa Nursing Ctr. v. Taxation & Revenue Dep’t, 1989-NMCA-070, ¶14, 108 N.M. 795,

799, 779 P.2d 982, 986.

In the Matter of the Protest of PPR Healthcare Staffing
Page 4 of 8
The regulations provide exceptions to the negligence definition. After reviewing the

exceptions or indications of nonnegligence found in regulation 3.1.11.11 NMAC (1/15/01), Mr.

Marino argued that because the controller, Ms. Harris, a CPA, performed due diligence in

ascertaining whether any taxes were owed in New Mexico that paragraph D of the regulation

applied. Regulation 3.1.11.11(D) provides that:

(t)he taxpayer proves that the failure to pay tax or to file a return
was caused by reasonable reliance on the advice of competent tax
counsel or accountant as to the taxpayer’s liability after full
disclosure of all relevant facts; failure to make a timely filing of a
tax return, however, is not excused by taxpayer’s reliance on an
agent;

To meet this regulation, it requires Taxpayer prove that it reasonably relied on the advice

of a competent accountant and that the competent accountant provided incorrect tax advice. The

term “reasonable reliance” is a factual determination made by the Hearing Officer. It requires

evidence that the taxpayer acted reasonably or acted in a “(f)air, proper or moderate under the

circumstances” and the person exercised reliance or a “(d)ependence or trust” on the advice of a

competent accountant. Black’s Law Dictionary, 1379, 1404 (9th ed. 2009). This indication, as

with the other indications of nonnegligence, are in keeping with the holding in El Centro Villa

Nursing Ctr. v. Taxation & Revenue Dep’t, where the court stated that “(u)nder the statutory

definition of negligence, it is inappropriate to impose a penalty where the taxpayer as acted

reasonably in failing to report income or to pay taxes.” Id. at ¶6. The court also held that a

taxpayer is not relieved of his or her duty to ascertain the possible tax consequences of his action or

inaction by abdicating this responsibility by merely appointing an accountant to act as an agent in

tax matters. Id. at ¶14. Thus, in reading the regulation and El Centro Villa, the hiring of an

accountant by itself is insufficient to prove that a taxpayer is nonnegligent. The taxpayer must act

reasonably and he or she must have relied on the accountant’s incorrect tax advice.

In the Matter of the Protest of PPR Healthcare Staffing
Page 5 of 8
The Hearings Bureau has ruled in numerous cases that reasonable reliance on a CPA may

be a reason for abatement of penalty especially when it seems clear from the evidence that the

accountant provided “incorrect tax advice.” See, Carlos Chavez Formerly dba Mayan

Construction, Decision and Order No. 12-09 (the accountant failed to review the work of

Taxpayer’s employee and failed to properly advise Taxpayer of time deadlines), Jesus Hernandez,

Decision and Order No. 11-16 (the accountant stated in a letter that he had provided taxpayer with

incorrect advice), Wal-Mart, Decision and Order No. 06-07 (taxpayer relied on in-house tax

accountants to form a subsidiary company to reduce state tax liability), Children’s Orchard,

Decision and Order No. 01-05 (taxpayer hired an accountant to give them advice to assist them in

making sure their taxes were properly paid) and Eileen P. Cahoon, Decision and Order No. 98-38

(taxpayer relied on her accountant’s advice in not providing a timely NTTC). But see, Marilyn

Stock, Decision and Order 05-04 (taxpayer was not granted a refund of the penalty amount she paid

even though she had relied on her CPA who used the wrong tax table in determining her tax

liability).

In this case, Taxpayer was able to prove that Ms. Harris was a CPA and that sometime in

2006, Ms. Harris conducted some sort of review of all the states Taxpayer was doing business in,

to determine where it owed taxes. Ms. Harris determined that Taxpayer owed taxes in the State

of Washington but not in the State of New Mexico. Mr. Marino was not employed by Taxpayer

in 2006 and he was unable to testify as to the type of review that was conducted by Ms. Harris

other than to state that Taxpayer conducted “due diligence” in determining whether it owed

taxes. There is insufficient evidence to show that the advice or “due diligence” performed by

Ms. Harris meets the requirement that the accountant provide incorrect tax advice.

In the Matter of the Protest of PPR Healthcare Staffing
Page 6 of 8
Even assuming there is sufficient evidence to prove that Taxpayer relied on the advice in

2006 of a competent CPA, there is not sufficient evidence to prove that the reliance was

reasonable. There is no evidence to show why Ms. Harris believed that Taxpayer did not owe

any gross receipts taxes. Was Ms. Harris’ belief based on a factual error or a legal error? There

is no explanation provided by Taxpayer as to how Ms. Harris formed this belief. It also does not

explain why Taxpayer in 2009, when it became aware that it owed gross receipts taxes, failed to

contact the Department to inquire about how to file and pay gross receipts taxes. It wasn’t until

Taxpayer was audited in 2011 that Taxpayer came forward to pay its gross receipts taxes. It is

also interesting to note that in its letter dated September 24, 2012, signed by the controller, Ms.

Hollister, she never mentions that Taxpayer had failed to pay gross receipts returns because

Taxpayer had relied on Ms. Harris’ advice. Instead Ms. Hollister states that they Taxpayer failed

to pay gross receipts taxes because of the economy. All of these facts reviewed together indicate

that Taxpayer was unable to meet its burden by proving that it reasonable relied on the advice of

a competent CPA.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely written protest of the Notice of Assessment Letter Id No.

L0688056640 for gross receipts tax penalty for the tax periods ending January 31, 2006 through

November 30, 2011.

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

C. There was insufficient information to find that the certified public accountant

provided incorrect tax advice to Taxpayer in 2006.

D. Taxpayer did not reasonably rely on the incorrect tax advice of the accountant.

In the Matter of the Protest of PPR Healthcare Staffing
Page 7 of 8
E. Taxpayer was negligent in not filing its CRS returns for the tax periods ending

January 31, 2006 through November 30, 2011; accordingly, it owes penalty.

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

DATED: April 28, 2014

Monica Ontiveros
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 (1989), Taxpayer has 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 NMRA, 12-601 of the Rules of Appellate Procedure. 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.

In the Matter of the Protest of PPR Healthcare Staffing
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