Did a prior New Mexico tax refund and Department penalty letter operate as a binding ruling that prevented later tax on Medicaid receipts?

Plain-English summary

A refund granted for earlier years did not prevent New Mexico from later taxing Medicaid payments that Torrance County Counseling had deducted from gross receipts. The refund documents and a separate Department letter did not meet the legal requirements for a binding written ruling.

The counseling business filed and paid gross receipts tax for 2005 and 2006. It later learned of deductions, filed refund claims on February 23, 2007, and included Medicaid payments among the deducted receipts. The Department granted the refunds and issued a notice, check, and warrant remittance that September.

The business used the same deductions on returns for 2008 through 2013. The Department later assessed:

• $45,474.89 tax and $7,432.99 interest for January 2008 through July 2010; and
• $42,439.73 tax and $2,691.70 interest for June 2008 through June 2013.

No penalty was assessed. During the protest, Torrance County Counseling abandoned its challenge to the tax calculation and conceded that Medicaid payments were not deductible. Its remaining argument was that the earlier refund and Department correspondence prevented the later assessments.

A refund is not automatically a Department ruling

Section 7-1-60 could estop the Department when a taxpayer acted because of a regulation or a written ruling personally addressed to it by the Secretary and in effect when the liability arose.

But New Mexico imposed formal requirements on rulings. Section 9-11-6.2 required a ruling to interpret specific statutes and to show review by the Attorney General or Department counsel. Regulation 3.1.2.8 required signatures from the Secretary and counsel.

The 2007 refund notice, check, and warrant remittance did not interpret the deduction statute or show the required legal review. A separate July 2007 letter concerned repeal of a double-penalty option, not the Medicaid deduction. None of those documents was a qualifying ruling.

Equitable estoppel was unavailable and unsupported

The hearing officer also lacked authority to grant equitable estoppel, an equitable remedy reserved to the judiciary. The decision added that estoppel against the state is disfavored in tax matters.

Even if the remedy had been available, Torrance County Counseling knew the essential fact: it was including Medicaid payments in the deductions. That defeated its assertion that it lacked knowledge of the relevant facts.

Interest remained mandatory

Section 7-1-67(A) required interest on tax not paid by the due date. The AHO treated interest as compensation for the time value of unpaid revenue, not punishment, and had no discretion to abate it.

Result: protest DENIED. The tax and interest assessments remained in place.

What this means for you

Businesses receiving a refund

A processed refund does not necessarily create prospective protection for the same return position in later years. Statutory estoppel requires a document that satisfies New Mexico's formal ruling requirements.

Health-care and counseling providers

Identify the legal basis for excluding or deducting each payment source. In this case, the taxpayer ultimately conceded that Medicaid payments were not eligible for its claimed deduction.

Accountants and tax professionals

Distinguish a refund notice or general Department letter from a formal ruling. Check whether the document interprets a specific statute, is personally addressed by the Secretary, reflects legal review, and carries the required signatures.

Common questions

Q: Did the AHO decide the underlying Medicaid-deduction issue?
A: No contested issue remained. Torrance County Counseling conceded that the payments were taxable and abandoned the deduction argument.

Q: Why wasn't the 2007 refund a ruling?
A: The refund documents did not interpret the deduction statute or show the required legal review.

Q: Did the double-penalty letter protect the deduction?
A: No. It concerned a repealed penalty option, not whether Medicaid payments were deductible.

Q: Could the hearing officer grant equitable estoppel anyway?
A: No. The decision said an administrative agency could not award that equitable remedy.

Citations and references

Statutes and regulation:

• NMSA 1978, §§ 7-1-17 and 7-1-3 — assessment presumption and definition of tax
• NMSA 1978, § 7-1-60 — statutory estoppel based on a regulation or written ruling
• NMSA 1978, § 9-11-6.2(B)(2), (C) — requirements for Department rulings
• NMSA 1978, § 7-1-67(A) — mandatory interest
• Regulation 3.1.2.8 NMAC — ruling signatures and legal review

Cases cited:

• In re Kilmer, 2004-NMCA-122 — a Department letter stating a conclusion did not satisfy statutory estoppel
• AA Oilfield Service v. New Mexico State Corporation Commission, 1994-NMSC-085 — administrative agency could not grant equitable estoppel
• Taxation and Revenue Department v. Bien Mur Indian Market, 1989-NMSC-015 — equitable estoppel against the state is disfavored in tax cases
• Johnson & Johnson v. Taxation and Revenue Department, 1997-NMCA-030 — equitable-estoppel elements

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Torrance County Counseling, LLC
• Decision PDF: D&O 14-46

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
TORRANCE COUNTY COUNSELING, LLC, No. 14-46
TO ASSESSMENTS ISSUED UNDER
ID NOS. L1534778832 and L0743375824

DECISION AND ORDER

A formal hearing on the above-referenced protest was held August 22, 2014 and November

21, 2014, before Dee Dee Hoxie, Hearing Officer. The Taxation and Revenue Department

(Department) was represented by Ms. Elena Morgan, Staff Attorney. Mr. Tom Dillon, Auditor, also

appeared on behalf of the Department. Torrance County Counseling, LLC (Taxpayer) appeared by

and through its owner, Ms. JoAnn Del Curto, for the hearing and was represented by its attorney, Ms.

Patricia Tucker. 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. On March 31, 2014, the Department assessed the Taxpayer for gross receipts tax and interest

for the tax period from January 31, 2008 through July 31, 2010. The assessment was for

$45,474.89 tax and $7,432.99 interest. No penalty was assessed.

2. On March 31, 2014, the Department assessed the Taxpayer for gross receipts tax and interest

for the tax period from June 30, 2008 through June 30, 2013. The assessment was for

$42,439.73 tax and $2,691.70 interest. No penalty was assessed

3. On June 9, 2014, the Taxpayer filed a formal protest letter to the assessments.

4. On August 6, 2014, the Department filed a Request for Hearing asking that the Taxpayer’s

protest be scheduled for a formal administrative hearing.

5. On August 7, 2014, the Hearings Bureau issued a notice of hearing. The hearing date was set

within ninety days of the protest.

6. On August 22, 2014, the hearing was commenced. The parties requested a continuance of

the hearing because the Taxpayer had just retained counsel and wanted to amend the issues of

the protest.

7. The testimony commenced, and the parties were instructed that any party who testified on

August 22, 2014 must be available for further testimony and cross-examination when the

hearing was recommenced.

8. The delay of the hearing was attributable to the Taxpayer.

9. On August 27, 2014, the Hearings Bureau sent amended notices of hearing. The hearing was

set to recommence on October 23, 2014.

10. On September 30, 2014, the Taxpayer’s attorney filed a request for continuance.

11. The request was granted. On October 6, 2014, the Hearings Bureau sent second amended

notices of hearing. The hearing was set to recommence on November 21, 2014. The delay of

the hearing was again attributable to the Taxpayer.

12. The Taxpayer filed gross receipts taxes for the 2005 and 2006 tax years.

13. Later, the Taxpayer learned of deductions to which it was entitled. On February 23, 2007,

the Taxpayer filed for refunds on the 2005 and 2006 tax years based on those deductions.

14. The Taxpayer included payments made by Medicaid in its deductions at that time.

15. On July 27, 2007, the Department issued a letter to the Taxpayer advising that a recent

change in law would affect the Taxpayer. This letter was regarding a double penalty option

that had been repealed.

16. The refunds were granted. The Department issued a Notice of Refund to the Taxpayer with a

check and a warrant remittance on September 14, 2007.

Torrance County Counseling, LLC
Letter ID Nos. L1534778832 and L0743375824
page 2 of 6

17. The Taxpayer filed its gross receipts tax for the following tax years, from 2008 through 2013,

with deductions. The deductions claimed were the same as those claimed in the request for

refund, and the deductions also included payments made by Medicaid.

18. The Taxpayer abandoned the arguments that the assessment was incorrect and that it was

entitled to the deductions.

19. The Taxpayer conceded that the Medicaid payments were not eligible for the deduction and

should have been included in the taxable gross receipts.

20. The Taxpayer argued that the letter on the double penalty and the refund granted in 2007

were tantamount to a ruling and argued that the Department was estopped from collecting

against the Taxpayer.

DISCUSSION

The issue to be decided is whether the Department is estopped from assessing for tax and

interest for the tax periods from January 31, 2008 through July 31, 2010, and June 30, 2008 through

June 30, 2013.

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 Ctr. v. Taxation and Revenue Department, 1989-NMCA-070, 108 N.M.

795. 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 it is entitled to an abatement

of the assessment.

Estoppel.

Torrance County Counseling, LLC
Letter ID Nos. L1534778832 and L0743375824
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The Taxpayer argued that the Department was estopped from assessing because the

Department issued the Taxpayer a refund in 2007 for the same deductions that were subsequently

claimed by the Taxpayer from 2008 through 2013. The Taxpayer argued that the refund notice,

check, warrant remittance, and letter about double penalty all served to satisfy the requirements of a

ruling. The Department argues that the refund is not a ruling as it does not meet the requirements of

a ruling.

The Department can be estopped from taking action against a taxpayer when the party’s

action or inaction was due to a regulation in effect at the time or a ruling addressed to the party

personally in writing by the secretary that was in effect at the time that the liability arose. See

NMSA 1978, § 7-1-60 (1993). Rulings must meet certain criteria. See id. See also NMSA 1978, §

9-11-6.2 (1995). To be effective, a ruling must be reviewed by the attorney general or other legal

counsel of the Department and the ruling must reflect that such review was done. See NMSA 1978,

§ 9-11-6.2 (C). A ruling must be signed by the secretary and by counsel to show that such a review

took place. See 3.1.2.8 NMAC (2000). Rulings are also required to be written statements that

interpret specific statutes. See NMSA 1978, § 9-11-6.2 (B) (2). The refund and other documents

relied upon by the Taxpayer are not a ruling as they do not meet the criteria required; they do not

indicate review by counsel and do not interpret the statute on the deduction. See id. A letter from the

Department that states a conclusion does not meet the requirements for estoppel. See In re Kilmer,

2004-NMCA-122, ¶ 43, 136 N.M. 440. Therefore, statutory estoppel does not apply.

Hearing officers are also unable to grant equitable remedies. See AA Oilfield Service v. New

Mexico State Corp. Comm’n, 1994-NMSC-085, ¶ 18, 118 N.M. 273 (holding that an administrative

agency cannot grant the equitable remedy of estoppel because that power is held exclusively by the

judiciary). Moreover, equitable estoppel against the state is disfavored, especially in cases involving

taxes. See Taxation and Revenue Dep’t v. Bien Mur Indian Market, 1989-NMSC-015, ¶9-10, 108

Torrance County Counseling, LLC
Letter ID Nos. L1534778832 and L0743375824
page 4 of 6
N.M. 228. Equitable estoppel will not apply against the state when it would be contrary to the

requirements of statute. See Kilmer, 2004-NMCA-122, ¶ 26. The party asserting estoppel must

show a lack of knowledge of the essential facts in question, that the party reasonably relied upon the

other’s conduct, and that the reliance was detrimental. See Johnson and Johnson v. Taxation and

Revenue Dep’t, 1997-NMCA-030, ¶ 28, 123 N.M. 190. Generally, statements of opinion on matters

of law do not give rise to estoppel when the facts are known to both parties. See Rainaldi v. Pub.

Employees Ret. Bd., 1993-NMSC-028, ¶ 16, 115 N.M. 650. In this case, the Taxpayer had

knowledge of the essential facts, specifically that it was including payments made by Medicaid in its

deductions. Therefore, it does not appear that equitable estoppel would apply even if it were

available as an administrative remedy.

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 Marbob Energy Corp. v. N.M. Oil Conservation Comm’n., 2009-NMSC-013, ¶ 22,

146 N.M. 24. The assessment of interest is not designed to punish taxpayers, but to compensate the

state for the time value of unpaid revenues. Because the tax was not paid when it was due, interest

was properly assessed.

CONCLUSIONS OF LAW

A. The Taxpayer filed a timely written protest to the Notices of Assessment of gross

income taxes issued under Letter ID numbers L1534778832 and L0743375824, and jurisdiction lies

over the parties and the subject matter of this protest.

B. The Taxpayer abandoned its argument and conceded that it was not entitled to the

deductions claimed with respect to payments made by Medicaid.

Torrance County Counseling, LLC
Letter ID Nos. L1534778832 and L0743375824
page 5 of 6
C. The Department did not issue a ruling to the Taxpayer by granting a refund. See

NMSA 1978, §§ 7-1-60 and 9-11-6.2.

D. Therefore, the Department was not estopped from assessing the Taxpayer. See

NMSA 1978, § 7-1-60.

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

DATED: December 29, 2014.

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

Torrance County Counseling, LLC
Letter ID Nos. L1534778832 and L0743375824
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