Could New Mexico assess Eastern Sunbelt Real Estate for gross receipts tax on transactions Roy Rackler conducted individually and mistakenly reported on Schedule C?

Plain-English summary

Eastern Sunbelt Real Estate won full abatement because it was the wrong taxpayer and the transactions were not subject to gross receipts tax. The Department acknowledged at the hearing that the business had supplied sufficient proof and that the relevant facts were undisputed.

Owner Roy Rackler had reported transactions on Schedule C with his 2011 and 2012 federal income tax returns without paying gross receipts tax on them. Because Rackler's name was tied to Eastern Sunbelt's CRS number in the Department's database, the Department assessed the business.

The decision found two separate errors:

• the transactions were conducted by Rackler individually, not by Eastern Sunbelt; and
• Rackler had mistakenly reported them on Schedule C as business income when they should have been reported on Schedule D as capital gains.

The assessments were:

• for 2011, $7,632.42 tax, $1,526.48 penalty, and $998.12 interest; and
• for 2012, $29,656.14 tax, $5,931.22 penalty, and $2,960.72 interest.

Together, the two assessments totaled $48,705.10.

At the hearing, the Department agreed that Eastern Sunbelt was not involved in the transactions and did not owe the assessed tax. The AHO further concluded that the transactions were not gross receipts tax transactions.

Result: protest GRANTED and both assessments ABATED IN FULL. The decision expressly stated that the abatement did not prevent the Department from assessing the appropriate taxpayer under the appropriate tax provision, subject to Sections 7-1-17 and 7-1-18.

What this means for you

Owners with multiple businesses or tax accounts

Confirm that each transaction is reported under the correct person and entity. Here, a database link between the owner's name and the business's CRS number led to assessments against an entity that did not conduct the transactions.

Taxpayers correcting federal return classifications

The distinction between Schedule C business income and Schedule D capital gains mattered because the Department's gross receipts assessments rested on the mistaken Schedule C reporting.

Businesses protesting a wrong-party assessment

Supply records showing who actually conducted the transactions. Eastern Sunbelt obtained full abatement after proving that the owner acted in his individual capacity.

Common questions

Q: Why did the Department assess Eastern Sunbelt?
A: Rackler's name was tied to the business's CRS number in the Department's database, and his federal returns showed transactions on Schedule C without corresponding gross receipts tax.

Q: Did Eastern Sunbelt conduct the transactions?
A: No. Rackler conducted them in his individual capacity.

Q: Were the transactions subject to gross receipts tax?
A: No. The AHO found they were capital-gain transactions mistakenly reported on Schedule C instead of Schedule D.

Q: How much was abated?
A: Both assessments were abated in full, totaling $48,705.10 in tax, penalty, and interest.

Q: Could the Department assess someone else?
A: The decision did not prohibit an assessment against the appropriate taxpayer under the appropriate tax provision.

Citations and references

• NMSA 1978, § 7-9-1 et seq. — Gross Receipts and Compensating Tax Act
• NMSA 1978, §§ 7-1-17 and 7-1-18 — assessment authority and assessment limitations

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Eastern Sunbelt Real Estate
• Decision PDF: D&O 17-36

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
EASTERN SUNBELT REAL ESTATE, No. 17-36
TO THE ASSESSMENTS ISSUED UNDER
LETTER ID NOS. L0341307952 and L1570605616

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on August 18, 2017 before

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

represented by Mr. David Mittle, Staff Attorney. Ms. Milagros Bernardo, Auditor, also appeared

on behalf of the Department. Mr. Roy Rackler, owner of Eastern Sunbelt Real Estate

(Taxpayer), appeared for the hearing with his wife, Mrs. Genelda Rackler. No exhibits were

submitted. 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 February 23, 2016, the Department assessed the Taxpayer for gross receipts tax,

penalty, and interest for the tax period from January 1, 2011 through December 31, 2011.

The assessment was for $7,632.42 tax, $1,526.48 penalty, and $998.12 interest.

2. On February 23, 2016, the Department assessed the Taxpayer for gross receipts tax,

penalty, and interest for the tax period from January 1, 2012 through December 31, 2012.

The assessment was for $29,656.14 tax, $5,931.22 penalty, and $2,960.72 interest.

3. On April 21, 2016, the Taxpayer filed a formal protest letter.

4. On June 10, 2016, the Department filed a Request for Hearing asking that the Taxpayer’s

protest be scheduled for a formal administrative hearing.

5. On June 10, 2016, the Hearings Office issued a notice of hearing.

6. On June 24, 2016, a telephonic scheduling hearing was conducted. The hearing was held

within ninety days of the protest.

7. At the mutual requests of the parties, the hearing was reset several times, and telephonic

scheduling hearings were also conducted on January 30, 2017, on March 10, 2017, and

on May 15, 2017.

8. The parties explained that they needed additional time to obtain copies of federal return

information and other paperwork. The Taxpayer and Mr. Rackler were hindered in

getting copies of some paperwork because the accountant who handled their taxes in

2011 and 2012 had passed away.

9. On August 18, 2017, the Department filed a motion to continue the hearing as it was still

reviewing paperwork and believed that the assessment needed to be reevaluated. The

motion was denied.

10. Mr. Rackler owns a number of businesses. Some have a separate corporate identity, but

the Taxpayer is owned wholly by him. Therefore, the Taxpayer’s CRS number is tied to

Mr. Rackler’s name in the Department’s database.

11. The Department determined that Mr. Rackler had filed a Schedule C with his 2011 and

2012 income tax returns, but had not paid gross receipts taxes on the transactions.

12. Because Mr. Rackler’s name was tied to the Taxpayer’s CRS number in the database, the

Department mistakenly assessed the Taxpayer for the gross receipts taxes.

13. The transactions at issue were not conducted by the Taxpayer. They were conducted by

Mr. Rackler in his individual capacity.

Eastern Sunbelt Real Estate
Letter ID No. L0341307952 and L1570605616
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14. Moreover, the transactions at issue were mistakenly reported by Mr. Rackler on a

Schedule C for business income. They should have been reported on a Schedule D for

capital gains income.

15. At the hearing, the Department acknowledged that the Taxpayer had provided sufficient

proof over the course of the protest, and agreed that the facts were not in dispute.

16. Therefore, the Taxpayer was not involved in the transactions and did not owe any tax.

17. Furthermore, the tax involved in the transactions is not the gross receipts tax.

CONCLUSIONS OF LAW

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

under Letter ID numbers L0341307952 and L1570605616, and jurisdiction lies over the parties and

the subject matter of this protest.

B. The Taxpayer was not the entity involved in the transactions, and the transactions

were not subject to gross receipts tax. See NMSA 1978, § 7-9-1 et seq.

C. Nothing in this decision should be construed to prohibit the Department from

assessing the appropriate taxpayer under the appropriate tax provision. See NMSA 1978, § 7-1-17

and § 7-1-18.

For the foregoing reasons, the Taxpayer's protest is GRANTED. The assessments are

HEREBY ABATED IN FULL.

DATED: August 31, 2017.

Dee Dee Hoxie
DEE DEE HOXIE
Hearing Officer
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502
Eastern Sunbelt Real Estate
Letter ID No. L0341307952 and L1570605616
page 3 of 4
NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, Section 7-1-25 (2015), 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. If an appeal is not filed with the Court of Appeals within 30 days, this Decision and Order will
become final. Rule of Appellate Procedure 12-601 NMRA articulates the requirements of perfecting an
appeal of an administrative decision with the Court of Appeals. Either party filing an appeal shall file a
courtesy copy of the appeal with the Administrative Hearings Office contemporaneous with the Court of
Appeals filing so that the Administrative Hearings Office may begin preparing the record proper. The
parties will each be provided with a copy of the record proper at the time of the filing of the record with
the Court of Appeals, which occurs within 14 days of the Administrative Hearings Office’s receipt of the
docketing statement from the appealing party. See Rule 12-209 NMRA.

CERTIFICATE OF SERVICE

I hereby certify that I mailed the foregoing Order to the parties listed below this _ day of
___, 20__ in the following manner:

Eastern Sunbelt Real Estate
Letter ID No. L0341307952 and L1570605616
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