Did a nine-year delay in referring Precision Eye Center's protest eliminate or reduce interest after the parties agreed the original tax assessment was too high?

Plain-English summary

Precision Eye Center reduced its gross receipts tax assessment by $37,564.16, but the Department's long delay in sending the protest to hearing did not provide a legal basis to reduce interest further. The remaining tax was $26,055.26, and interest was $24,505.35 as of December 2, 2015.

The Department originally assessed $63,619.42 of tax and $19,299.24 of interest for 2002 through mid-2005, with no penalty. Precision protested in August 2006, but the hearing office did not learn of the case until the Department requested a hearing in June 2015.

The parties substantially corrected the tax base

By the hearing, the parties had exchanged records and stipulated that Precision qualified for several adjustments:

• receipts supported by a timely NTTC;
• payments from insurance companies;
• amounts that were not gross receipts, including postage reimbursements;
• credits not originally claimed; and
• an additional deduction for eyeglass sales in the 2005 period after a change in law.

The Department recalculated principal tax at $26,055.26. The AHO abated the $37,564.16 difference from the original assessment.

The unexplained referral delay had no administrative remedy

Precision argued that the 2006-to-2015 delay should reduce interest. The law governing the 2006 protest did not impose the later 90-day hearing-setting requirement.

The AHO found no statute or regulation authorizing dismissal or a monetary remedy for an unreasonable referral delay. New Mexico cases also rejected official tardiness as a defense when the governing statute supplied no remedy.

Interest followed the tax that remained

Interest was mandatory compensation for the time value of unpaid tax. It was reduced in proportion to the principal abatements and mitigated by additional credits, but could not be reduced merely because the Department referred the protest late.

Result: protest GRANTED IN PART AND DENIED IN PART. Tax was reduced to $26,055.26; $24,505.35 of interest remained as of December 2, 2015 and continued to accrue until principal payment.

What this means for you

Medical practices with mixed receipts

Separate insured payments, product sales, reimbursements, and certificate-backed transactions in the books. Different rules may apply to each category.

Taxpayers in a delayed protest

Continue developing the merits and quantifying every adjustment. An administrative delay may be unfair without creating a statutory remedy against tax or interest.

Taxpayers reconciling an old assessment

Revisit intervening law changes, unused credits, and non-receipt reimbursements. A negotiated or stipulated reconstruction can materially reduce principal even when interest remains mandatory.

Common questions

Q: How much original tax was assessed?
A: $63,619.42.

Q: How much tax was abated?
A: $37,564.16, leaving $26,055.26.

Q: Why was the assessment reduced?
A: The parties agreed on NTTC, insurance, eyeglass, reimbursement, and credit adjustments.

Q: Did the nine-year delay eliminate interest?
A: No. The AHO found no statutory or regulatory remedy for the delay.

Q: How much interest remained?
A: $24,505.35 as of December 2, 2015, with further accrual until principal was paid.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-1-17 and 7-1-67 — assessment presumption and mandatory interest
• NMSA 1978, §§ 7-1-24 and 7-1B-8 — older protest procedure and later 90-day hearing-setting requirement
• Regulations 3.1.8.8 and 3.1.8.9 NMAC — administrative hearing procedure

Cases cited:

• Ranchers-Tufco Limestone Project Joint Venture v. Revenue Division, 1983-NMCA-126 — no defense based on delayed official action absent a statutory remedy
• Kmart Properties, Inc. v. Taxation and Revenue Department, 2006-NMCA-026 — official tardiness not a defense to state action
• Marbob Energy Corp. v. New Mexico Oil Conservation Commission, 2009-NMSC-013 — mandatory interest language

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Precision Eye Center, PC
• Decision PDF: D&O 15-43

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
PRECISION EYE CENTER, PC, No. 15-43
TO ASSESSMENT ISSUED UNDER
LETTER ID NO. L1561388288

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on November 20, 2015 before

Hearing Officer Dee Dee Hoxie. 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. Mr. Kenyon Schlenker, CPA, appeared for the hearing on behalf of Precision

Eye Center, PC (Taxpayer). 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 July 26, 2006, the Department assessed the Taxpayer for gross receipts tax and interest

for the tax periods from January 31, 2002 through June 30, 2005. The assessment was for

$63,619.42 tax and $19,299.24 interest. No penalty was assessed.

2. On August 25, 2006, the Taxpayer filed a formal protest letter.

3. On June 9, 2015, the Administrative Hearings Office first learned of the protest when the

Department filed a Request for Hearing and asked that the Taxpayer’s protest be scheduled

for a formal administrative hearing.

4. On June 10, 2015, the Hearings Office issued a notice of hearing. As the protest was made in

2006, the current statutory requirement that a protest be set within 90 days of the protest did

not apply.

5. On November 13, 2015, the Department requested a continuance of the hearing.

6. On November 17, 2015, the order was issued that denied the request for continuance.

7. The parties stipulated to the relevant facts at the hearing. The parties explained that they

have been communicating regularly since the request for hearing was made, and that they

have exchanged numerous documents and evidence. The parties are commended on their

preparation and professionalism.

8. The Taxpayer was entitled to deduct part of its gross receipts pursuant to its timely

acceptance of a nontaxable transaction certificate (NTTC).

9. The Taxpayer was entitled to deduct part of its gross receipts for payments from insurance

companies.

10. Some of the items included in the assessment were determined not to be gross receipts, such

as postage reimbursements.

11. The final proposed numbers for the assessment were available on the date of the hearing.

12. Mr. Schlenker requested additional time to review the numbers with the Taxpayer and to file

any further exceptions. The request was granted. The Taxpayer was given until December 4,

2015 to file any additional evidence and argument. The Department was given until

December 18, 2015 to file its response to any additional submissions.

13. The Taxpayer filed a timely supplemental argument. The Taxpayer argued that it should be

entitled to take additional deductions for the sales of glasses during the 2005 tax period due

to a change in the law that occurred that year.

14. The Department filed a timely response and conceded that the Taxpayer could take that

deduction and submitted its reworked and final assessment numbers. The Department

indicated that the tax owed was $26,055.26 and that the interest owed as of December 2,

2015 was $24,505.35. Interest continues to accrue until the tax principal is paid.

Precision Eye Center, PC
Letter ID No. L1561388288
page 2 of 5

15. The Taxpayer also objected to the hearing as it was conducted in 2015 when the protest was

filed in 2006. The Taxpayer argued that some consideration for the significant delay should

be given and that interest should be reduced.

16. Mr. Dillon explained that the Taxpayer was allowed to claim some additional credits, which

it had not taken in the tax periods. Mr. Dillon explained that the credits served to further

reduce the taxable receipts and served to mitigate some interest.

DISCUSSION

The parties stipulated that the Taxpayer owed the gross receipts tax and interest. The parties,

through their diligence and hard work, determined the correct amount of gross receipts, and the

assessment was adjusted accordingly. The Taxpayer argues that the lateness of the hearing should

further reduce the interest.

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 interest.

Timeliness of the Hearing.

In 2006, there was not a strict statutory deadline or time frame within which a hearing must

be held. See NMSA 1978, § 7-1-24 (2003). Currently, a hearing must be set within ninety days of

the receipt of the protest. See NMSA 1978, § 7-1B-8 (2015). However, there is no statutory or

regulatory authority for the Hearing Officer to dismiss a previously filed protest for unreasonable and

Precision Eye Center, PC
Letter ID No. L1561388288
page 3 of 5
unjustified delays. See id. See also 3.1.8.8 and 3.1.8.9 NMAC. Another taxpayer previously argued

that the Department denied it the statutory right to a prompt hearing on its protest. See Ranchers-

Tufco Limestone Project Joint Venture v. Revenue Div., 1983-NMCA-126, ¶ 12, 100 N.M. 632. That

argument ultimately failed. See id. at ¶ 13 (holding that public officers’ failure to timely carry out

their duties is not a defense to an action by the state and that the statute does not provide a remedy for

failure to set a hearing promptly). See also Kmart Properties, Inc. v. Taxation and Revenue Dep’t.,

2006-NMCA-026, ¶ 54, 139 N.M. 177 (noting that tardiness in performing duties is not a defense to

an action taken by the state). 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.

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. There is no statutory provision for the reduction of interest when the

Department does not timely refer a protest for hearing. See NMSA 1978, § 7-1-67.

CONCLUSIONS OF LAW

A. The Taxpayer filed a timely written protest to the Notice of Assessment of issued under

Letter ID number L1561388288, and jurisdiction lies over the parties and the subject matter of this

protest.

B. The parties stipulated that the Taxpayer owed some gross receipts taxes and interest.

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Letter ID No. L1561388288
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C. The parties stipulated that the amounts of the original assessment should be reduced

as the Taxpayer was entitled to claim certain deductions and credits.

D. The assessment of tax is partially abated. Of the originally assessed $63,619.42, the

Taxpayer only owes $26,055.26. The remaining $37,564.16 is HEREBY ABATED.

E. The request for hearing was made significantly later than the protest, but there is no

administrative remedy for unreasonable delays. See NMSA 1978, § 7-1B-8 (2015). See also 3.1.8.8

and 3.1.8.9 NMAC. See also Ranchers-Tufco, 1983-NMCA-126, ¶ 12. See also Kmart, 2006-

NMCA-026, ¶ 54.

F. Interest was properly assessed, and there is no statutory provision for reduction of

interest based on unreasonable delays. See NMSA 1978, § 7-1-67. The amount of interest assessed

is partially abated in correlation to the amount of tax to which it applied was also abated. As of

December 2, 2015, the amount of interest owed was $24,505.35. Interest continues to accrue until

the tax principal is paid.

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

PART.

DATED: December 31, 2015.

Dee Dee Hoxie
DEE DEE HOXIE
Hearing Officer
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502

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