Were consulting fees taxable as New Mexico gross receipts when Colorado businesses performed every service by phone and internet from Colorado for New Mexico clients?

Plain-English summary

Consulting services performed entirely in Colorado were exempt from New Mexico gross receipts tax even though the clients and the initial use of the work product were in New Mexico. The Administrative Hearings Office granted Michael and Meredith Hartnagle's protest and ordered the full $5,882.20 assessment abated.

The Hartnagles operated two Colorado businesses from their Broomfield residence: Michael Hartnagle, LTD, primarily a construction business, and Meredith Investments, focused on real-estate investment. Both also provided occasional consulting services.

Meredith Investments advised Manzano Mountain Retreat on business issues in fall 2013 and spring 2014. Michael Hartnagle, LTD advised Cow Creek Ranch on post-wildfire rehabilitation and flood control. All of the services were performed from Colorado by telephone and internet. The Department's auditor agreed that the Hartnagles did not travel to New Mexico to perform the work.

Their CPA acknowledged that service income earned in Colorado had been incorrectly reported as New Mexico income, which may have contributed to a Schedule C mismatch. The Department assessed $4,535.24 tax, $907.04 penalty, and $439.92 interest.

The initial-use language did not override the exemption

Section 7-9-3.5(A)(1) included in “gross receipts” money received from services performed outside New Mexico when the product was initially used in New Mexico. The Department argued that the Hartnagles transmitted consulting deliverables to New Mexico by phone and email, where their clients first used them.

The AHO held that Section 7-9-13.1 changed that result. It expressly exempted receipts from services performed outside New Mexico whose product was initially used in the state, except for research and development services. The Hartnagles' consulting was not research and development.

Regulation 3.2.1.18(E) stated the same rule: services other than research and development performed outside New Mexico were not subject to gross receipts tax. The decision also cited two Department publications saying that non-R&D services performed outside New Mexico were exempt.

Nexus did not determine this exemption

The Department tried to distinguish a regulatory example involving an Iowa data-processing business by arguing that the hypothetical business lacked New Mexico nexus. The AHO found nexus irrelevant to entitlement under Section 7-9-13.1.

Another Department example involved a Colorado architectural firm with a Las Cruces branch that designed a New Mexico building entirely from Colorado. Even with an in-state physical presence, the example treated the design receipts as exempt because the work was performed outside New Mexico and was not research and development.

The Hartnagles therefore rebutted the assessment presumption by proving that every service at issue was performed in Colorado and fell within the exemption. The Department did not re-establish the assessment's correctness.

Result: protest GRANTED. The Department was ordered to abate all $4,535.24 tax, $907.04 penalty, and $439.92 interest.

What this means for you

Out-of-state consultants serving New Mexico clients

For the law applied in this decision, the place where the services were actually performed controlled the Section 7-9-13.1 exemption. A New Mexico client and New Mexico use of the work product did not by themselves make non-R&D services taxable.

Remote-service businesses

Keep records showing where personnel performed the work, whether anyone traveled into New Mexico, how deliverables were transmitted, and whether the work involved research and development.

Accountants preparing multistate returns

Source service receipts carefully. The taxpayers' CPA acknowledged that Colorado service income had been reported as New Mexico income, contributing to the dispute.

Businesses with some New Mexico presence

The AHO treated nexus as separate from this statutory exemption. Its cited architectural example involved a Colorado firm with a New Mexico branch and still treated Colorado-performed, non-R&D design services as exempt.

Common questions

Q: Were the Hartnagles' New Mexico wages part of this dispute?
A: No. When physically present in New Mexico they worked as employees and received W-2 wages. The assessment dispute concerned independent-contractor consulting performed from Colorado.

Q: Did the New Mexico location of the clients make the consulting receipts taxable?
A: No. The services were performed entirely in Colorado and were not research and development, so Section 7-9-13.1 exempted the receipts.

Q: Did sending advice by telephone and email count as initial use in New Mexico?
A: The Department argued that it did, and the decision assumed that theory could fit the gross-receipts definition. The separate Section 7-9-13.1 exemption still removed the non-R&D services from tax.

Q: Would the result have been the same for research and development services?
A: The decision says no general exemption applied to research and development services performed outside New Mexico when their product was initially used in New Mexico. The Hartnagles' services were not R&D.

Q: Did New Mexico nexus defeat the exemption?
A: No. The AHO held that nexus was not relevant to entitlement under Section 7-9-13.1.

Q: What was abated?
A: The full assessment: $4,535.24 tax, $907.04 penalty, and $439.92 interest, totaling $5,882.20.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-9-13.1(A) and (B) — exemption for out-of-state services and R&D exception
• NMSA 1978, § 7-9-3.5(A)(1) — gross-receipts definition and initial use in New Mexico
• NMSA 1978, §§ 7-9-4 and 7-9-5 — gross receipts tax and taxable-receipts presumption
• NMSA 1978, §§ 7-9-3.3 and 7-9-3(M) — definitions of engaging in business and service
• NMSA 1978, § 7-1-17(C) — assessment presumption
• Regulation 3.2.1.18(E) NMAC — treatment of services performed outside New Mexico
• Regulations 3.1.6.12 and 3.1.6.13 NMAC — assessment presumption and unsupported statements

Department publications cited:

• FYI-105, Gross Receipts & Compensating Taxes: An Overview, revision 05/18
• FYI-270, Information on Research and Development, revision 3/14

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Michael Andrew & Meredith L. Hartnagle
• Decision PDF: D&O 18-26

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
MICHAEL ANDREW & MEREDITH L. HARTNAGLE
TO ASSESSMENT ISSUED UNDER LETTER ID NO. L0941329712

v. D&O 18-26

NEW MEXICO TAXATION AND REVENUE DEPARTMENT

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on July 17, 2018 before

Hearing Officer, Chris Romero, Esq., in Santa Fe, New Mexico. The Taxation and Revenue

Department (hereinafter “Department”) was represented by Mr. Peter Breen, Staff Attorney. Mr.

Nicholas Pacheco, Auditor, also appeared and testified as a witness on behalf of the Department.

Mr. Michael Andrew Hartnagle and Ms. Meredith L. Hartnagle appeared representing

themselves pro se (hereinafter “Taxpayers”).

As a preliminary matter, Taxpayers identified an error in the caption of the protest which

originated with a mistake in the original assessment. The assessment referred incorrectly to

Michael Andres & Meredith L. Hartnagle.” Mr. Hartnagle’s correct name is Michael Andrew.

The caption is revised to reflect this correction.

The Hearing Officer took notice of all documents in the administrative file, including

Department Exhibits A, and C through J, which the Department proffered on February 22, 2018

after the Taxpayers’ failure to appear.

Taxpayer Exhibits 1 – 10 and Department Exhibits J-1 were admitted into the evidentiary

record of the hearing without objection. A more detailed description of exhibits submitted at the

hearing is included on the Administrative Exhibit Coversheet. Based on the evidence and

arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:
FINDINGS OF FACT

1. On July 10, 2017, the Department issued a Notice of Assessment of Taxes and

Demand for Payment for $4,535.24 in gross receipts tax, $907.04 in gross receipts tax penalty,

and $439.92 in gross receipts tax interest for a total assessment of $5,882.20 under Letter ID No.

L0941329712 (hereinafter “Assessment”). [See Administrative File].

2. On October 5, 2017, Taxpayers executed a Formal Protest that was received by

the Department’s Protest Office on October 11, 2017. [See Administrative File].

3. On November 7, 2017, the Department acknowledged receipt of Taxpayers’

Formal Protest under Letter ID No. L1036575536. [See Administrative File].

4. On November 29, 2017, the Department filed a Hearing Request with the

Administrative Hearings Office in which it requested a hearing on the merits of Taxpayer’s

protest. [See Administrative File].

5. On November 30, 2017, the Administrative Hearings Office entered a Notice of

Administrative Hearing setting a hearing on the merits of Taxpayers’ protest for January 3, 2018.

[See Administrative File].

6. On December 27, 2017, Taxpayers submitted a request for a continuance in which

they expressly waived the 90-day hearing requirement under NMSA 1978, Section 7-1B-8 (A)

(2015). [See Administrative File].

7. Noting that the Department did not express any position regarding the request for

a continuance, the Administrative Hearings Office entered a Continuance Order and Amended

Notice of Administrative Hearing on January 2, 2018 that set a hearing on the merits of

Taxpayers’ protest for February 22, 2018. [See Administrative File].

In the Matter of Michael Andrew and Meredith L. Hartnagle
Page 2 of 15

8. On February 22, 2018, Taxpayers failed to appear for the hearing on the merits of

their protest. The Administrative Hearings Office entered a Decision and Order on February 26,

2018 that denied their protest as a result of their failure to appear. [See Administrative File].

9. On March 2, 2018, Taxpayers submitted correspondence explaining their failure

to appear and requested reconsideration of the Decision and Order denying their protest. [See

Administrative File].

10. On March 27, 2018, observing that the Department had not expressed opposition

to the request to set aside the Decision and Order, the Administrative Hearings Office entered an

Order Setting Aside Decision and Order and Notice of Administrative Hearing. A hearing on the

merits was set for July 17, 2018. [See Administrative File].

11. On July 17, 2018, all parties appeared and presented evidence and argument in

reference to the subject matter of the protest. [See Administrative File].

12. Mr. Michael Andrew Hartnagle and Ms. Meredith Lanier Hartnagle are married.

[Testimony of Ms. Hartnagle].

13. In 2013 and 2014, Taxpayers resided in Colorado and New Mexico, although they

considered themselves to be domiciled in New Mexico with the intention of eventually moving

fulltime to Colorado in the future. [Testimony of Ms. Hartnagle; See Taxpayer Exhibit 10].

14. In 2013 and 2014, Taxpayers were present in New Mexico during the warm-

weather months of April or May through September or October of those years, and in Colorado

for the remainder of time. [Testimony of Ms. Hartnagle].

15. When present in New Mexico, Taxpayers were employed by Manzano Mountain

Retreat and Cow Creek Ranch. They were compensated as employees and their wages were

reported on Forms W-2. [Testimony of Ms. Hartnagle].

In the Matter of Michael Andrew and Meredith L. Hartnagle
Page 3 of 15

16. For all other periods during the relevant time, Taxpayers resided in the State of

Colorado where they owned and operated two businesses relevant to their protest: 1) Michael

Hartnagle, LTD; and 2) Meredith Investments. [Testimony of Ms. Hartnagle].

17. Michael Hartnagle, LTD and Meredith Investments are both organized under the

laws of the State of Colorado and were operated from Taxpayers’ residence, which during the

relevant years was in Broomfield, Colorado. [Testimony of Ms. Hartnagle; See Taxpayer

Exhibits 7-13, 8-14, 9-2; and 9-3].

18. Michael Hartnagle, LTD engages primarily in the business of construction and

Meredith Investments focuses on real estate investment, with both providing occasional

consulting services. [Testimony of Ms. Hartnagle].

19. Taxpayers’ certified public accountant acknowledged that income derived from

providing services in Colorado was erroneously reported as income earned in New Mexico

which may have contributed to a Schedule C mismatch. [See Taxpayer Exhibits 7; 8; and 10].

20. Income that was erroneously reported as being earned in New Mexico was

actually generated from services that Taxpayers performed as independent contractors in

Colorado for New Mexico clientele: Manzano Mountain Retreat in Albuquerque, New Mexico;

and Cow Creek Ranch in Pecos, New Mexico. [Testimony of Ms. Hartnagle; Testimony of Mr.

Hartnagle].

21. More specifically, Ms. Hartnagle, through Meredith Investments, LLC, provided

consulting services to Manzano Mountain Retreat in the Fall of 2013 and the Spring of 2014

regarding a variety of business-related issues. All services were performed exclusively from

Colorado by telephone and internet. [Testimony of Ms. Hartnagle; Testimony of Mr. Pacheco;

See Taxpayer Exhibits 6-3; 7-3 – 7-7].

In the Matter of Michael Andrew and Meredith L. Hartnagle
Page 4 of 15

22. Mr. Hartnagle, through Michael Hartnagle, LTD, provided consulting services for

Cow Creek Ranch regarding matters related to post-wildfire rehabilitation and flood control. All

services were performed exclusively from Colorado by telephone and internet. [Testimony of

Ms. Hartnagle; Testimony of Mr. Hartnagle; Testimony of Mr. Pacheco; See Taxpayer Exhibits

6-2; 8-5 – 8-13].

23. Mr. Pacheco agreed that all services were provided in Colorado and that the

Taxpayers did not travel to New Mexico for any purpose in the provision of services to Manzano

Mountain Retreat or Cow Creek Ranch. [Testimony of Mr. Pacheco].

24. Taxpayers did not have formalized written contracts to provide services to

Manzano Mountain Retreat and Cow Creek Ranch. Relevant agreements to provide services

were oral. [Testimony of Mr. Hartnagle; Testimony of Ms. Hartnagle].

DISCUSSION

The primary issue in this case is whether gross receipts derived from services performed

exclusively in Colorado, for a New Mexico purchaser, are taxable in New Mexico under the

Gross Receipts and Compensating Tax Act, NMSA 1978, Sections 7-9-1 to -115.

Presumption of Correctness and Burden of Proof.

Under NMSA 1978, Section 7-1-17 (C) (2007), the assessment from which this protest

arises is presumed correct and the burden is on Taxpayers to overcome the presumption. See

Archuleta v. O’Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428, 504 P.2d 638. Unless otherwise

specified, for the purposes of the Tax Administration Act, “tax” is defined to include interest and

civil penalty. See NMSA 1978, Section 7-1-3 (X) (2013). Under Regulation 3.1.6.13 NMAC, the

presumption of correctness under Section 7-1-17 (C) extends to the Department’s assessment of

penalty and interest. See Chevron U.S.A., Inc. v. State ex rel. Dep’t of Taxation & Revenue,

In the Matter of Michael Andrew and Meredith L. Hartnagle
Page 5 of 15
2006-NMCA-50, ¶16, 139 N.M. 498, 503, 134 P.3d 785, 791 (agency regulations interpreting a

statute are presumed proper and are to be given substantial weight).

For these reasons, Taxpayers carry the burden of presenting countervailing evidence or

legal argument to show that they are entitled to an abatement of the assessment. See N.M.

Taxation & Revenue Dep’t v. Casias Trucking, 2014-NMCA-099, ¶8, 336 P.3d 436.

“Unsubstantiated statements that the assessment is incorrect cannot overcome the presumption of

correctness.” See MPC Ltd. v. N.M. Taxation & Revenue Dep’t, 2003-NMCA-021, ¶13, 133

N.M. 217, 62 P.3d 308; See also Regulation 3.1.6.12 NMAC. If a taxpayer presents sufficient

evidence to rebut the presumption, then the burden shifts to the Department to re-establish the

correctness of the assessment. See MPC, 2003-NMCA-021, ¶13.

Gross Receipts Tax.

For the privilege of engaging in business, New Mexico imposes a gross receipts tax on the

receipts of any person engaged in business. See NMSA 1978, Section 7-9-4 (2017). The Gross

Receipts and Compensating Tax Act establishes a presumption that all receipts of a person

engaged in business are taxable. See NMSA 1978, Section 7-9-5 (2002). “Engaging in business” is

defined as “carrying on or causing to be carried on any activity with the purpose of direct or

indirect benefit.” See NMSA 1978, Section 7-9-3.3 (2003). The term “gross receipts” is defined at

NMSA 1978, Section 7-9-3.5 (A) (1) (2007) to mean:

the total amount of money or the value of other consideration
received from selling property in New Mexico, from leasing or
licensing property employed in New Mexico, from granting a right to
use a franchise employed in New Mexico, from selling services
performed outside New Mexico, the product of which is initially used
in New Mexico, or from performing services in New Mexico.

(Emphasis Added)

In the Matter of Michael Andrew and Meredith L. Hartnagle
Page 6 of 15
The term “service” is defined to mean “all activities engaged in for other persons for a

consideration, which activities involve predominantly the performance of a service as

distinguished from selling or leasing property.” See NMSA 1978, Section 7-9-3 (M).

Despite the presumption that all receipts of a person engaged in business are taxable, a

taxpayer may also avail itself of any number of exemptions or deductions. If a taxpayer asserts

entitlement to an exemption or deduction from gross receipts, then the burden is on the taxpayer

to prove the entitlement. See Pub. Serv. Co. v. N.M. Taxation & Revenue Dep’t, 2007-NMCA-

050, ¶32, 141 N.M. 520, 157 P.3d 85. See also Till v. Jones, 1972-NMCA-046, 83 N.M. 743,

497 P.2d 745. “Where an exemption or deduction from tax is claimed, the statute must be

construed strictly in favor of the taxing authority, the right to the exemption or deduction must be

clearly and unambiguously expressed in the statute, and the right must be clearly established by

the taxpayer.” See Sec. Escrow Corp. v. State Taxation & Revenue Dep’t, 1988-NMCA-068, ¶8,

107 N.M. 540, 760 P.2d 1306. See also Wing Pawn Shop v. Taxation & Revenue Dep’t, 1991-

NMCA-024, ¶16, 111 N.M. 735, 809 P.2d 649. See also Chavez v. Comm’r of Revenue, 1970-

NMCA-116, ¶7, 82 N.M. 97, 476 P.2d 67.

Whether Taxpayers’ Receipts are Excluded or Exempt from Taxation.

The material facts at issue in this case are generally undisputed. All services were

performed exclusively in Colorado and did not relate to research and development. Taxpayers

only contacts with New Mexico during the provision of such services occurred through email

and telephone. The Department acknowledged as much, but asserted that the substance of those

emails or telephone communications represented deliverables, which when conveyed to New

Mexico, gave rise to an obligation to also pay gross receipts tax in New Mexico.

In the Matter of Michael Andrew and Meredith L. Hartnagle
Page 7 of 15
Because the parties did not dispute that the services at issue were performed exclusively

in Colorado, the Hearing Officer will focus the following discussion on taxing receipts from

performing services outside of New Mexico in which the product of the service is initially used in

New Mexico under Section 7-9-3.5 (A) (1). As a practical matter, distinguishing between the

methods through which the Department extends its taxing authority in this case is inconsequential to

the outcome of this protest.

When read in isolation, Section 7-9-3.5 (A) (1) establishes that services performed outside

New Mexico are taxable where the product of the service is initially used in New Mexico. If that

were the extent of the rule, then the Department’s position might be solidified based on the evidence

presented. Mr. Pacheco testified that Taxpayers performed out-of-state services, the product which

was transmitted to New Mexico by telephone and email, where it was “initially used.”

However, that is not the extent of the rule. Instead, that portion of the definition of gross

receipts is generally regarded as applying only to services in the area of research and development

since another statute, NMSA 1978, Section 7-9-13.1 (A), specifically exempts “from gross receipts

tax the receipts from selling services performed outside New Mexico the product of which is

initially used in New Mexico[,]” with the exclusion of “research and development services[.]” See

NMSA 1978, Section 7-9-13.1 (B). Accordingly, that which the Legislature gave in Section 7-9-3.5,

it also took away in Section 7-9-13.1, with a solitary exception for out-of-state services relating to

research and development.

The Department has acknowledged the relationship between Section 7-9-3.5 and Section 7-

9-13.1 on various occasions. In Regulation 3.2.1.18 (E) (1) NMAC, it stated that “[r]eceipts from

performing services, except research and development services, outside New Mexico are not subject

to the gross receipts tax under the provisions of Section 7-9-13.1 NMSA 1978.” As previously

In the Matter of Michael Andrew and Meredith L. Hartnagle
Page 8 of 15
recognized, agency regulations interpreting a statute are presumed proper and are given

substantial weight. See Chevron, 2006-NMCA-50, ¶16.

The Department has also circulated no less than two publications addressing the relationship

between NMSA 1978, Section 7-9-3.5 and Section 7-9-13.1. In FYI-105 (Gross Receipts &

Compensating Taxes: An Overview), the Department summarized the general definition of “gross

receipts” as “the total amount of money or other consideration received from selling property in

New Mexico, leasing or licensing property employed in New Mexico, granting a right to use a

franchise employed in New Mexico, performing services in New Mexico or selling research and

development services performed outside New Mexico the product of which is initially used in New

Mexico.” See FYI-105, Rev. 05/18, Page 4 (Emphasis Added). This definition mostly adopted the

statutory definition of “gross receipts” contained in Section 7-9-3.5, with obvious deviation for the

purpose of integrating the exemption contained in Section 7-9-13.1 (A).

Likewise, in FYI-270 (Information on Research and Development), the Department

explained that “[r]esearch and development services performed outside New Mexico the product of

which is initially used in New Mexico are subject to the gross receipts tax . . . All other services

performed outside New Mexico are exempt from the gross receipts tax (Section 7-9-13.1).” See FYI-

270, Rev. 3/14, Page 4 (Emphasis Added).

Accordingly, the Hearing Officer finds that the applicable statutes, regulations, and the

Department’s publications establish a definite and unambiguous rule that services performed

outside New Mexico are exempt from the gross receipts tax, subject to an exception not germane to

the facts of this protest because Taxpayers were not engaged in research and development.

Nevertheless, the Hearing Officer, acknowledging some difficulty reconciling the

Department’s legal position at the hearing with the foregoing, requested that the Department discuss

In the Matter of Michael Andrew and Meredith L. Hartnagle
Page 9 of 15
the application of Regulation 3.2.1.18 (E) NMAC to the facts of this protest, including Example 2 at

Regulation 3.2.1.18 (E) (3) which states:

D is a data processing bureau located in Lone Tree, Iowa. X, a New
Mexico accounting and bookkeeping firm, mails accounting data to
D. D then processes this material into general ledgers, payroll
journals and other journals and then returns this material by mail to
X. The receipts of D are receipts from performing services entirely
outside New Mexico and therefore are not subject to the gross
receipts tax.

The Department explained that Example 2 was not applicable to the facts in the present

matter because the out-of-state business did not have nexus in New Mexico, assuming facts not

actually contained in the example. Nevertheless, the Department’s reliance on nexus is misplaced.

Nexus is not relevant to establishing a claim for an exemption under Section 7-9-13.1. Consider

Example 1 from FYI-270:

A Colorado architectural firm with a branch office in Las Cruces,
New Mexico has been hired by a New Mexico client to design a
building in Raton, New Mexico. The Colorado firm performs all the
work in Colorado and upon completion of the architectural plans,
sends them to its New Mexico client. Because the service is
performed outside New Mexico but the product of the service is
initially used (that is, first employed for its intended purpose) in New
Mexico, the Colorado firm does have gross receipts in New Mexico.
Its receipts, however, are exempt from gross receipts tax under
Section 7-9-13.1(A) NMSA 1978 because architectural design of a
building is not a research and development service.

This example suggests that nexus is irrelevant for the purpose of Section 7-9-13.1. The

taxpayer in the example has a physical presence within the state in the form of a branch office, but

that was of no significance to asserting entitlement the exemption. See N.M. Taxation & Revenue

Dep’t v. Barnesandnoble.com LLC (In re Barnesandnoble.com LLC), 2012-NMCA-063, ¶15, 283

P.3d 298 (physical presence “can be established by the presence of in-state offices even when the

activities of those offices are not related to the in-state activity being taxed.”) citing Nat’l

In the Matter of Michael Andrew and Meredith L. Hartnagle
Page 10 of 15
Geographic Soc’y v. Cal. Bd. of Equalization, 430 U.S. 551, 561, 97 S. Ct. 1386, 51 L. Ed. 2d 631

(1977).

These examples are analogous with the facts underlying Taxpayers’ protest. Taxpayers

performed services entirely outside of New Mexico that did not relate to research and development.

Taxpayers’ receipts are exempt from taxation under Section 7-9-13.1.

Therefore, Taxpayers rebutted the presumption of correctness that attached to the

assessment by establishing entitlement to the exemption under NMSA 1978, Section 7-9-13.1 (A).

The Department did not re-establish the correctness of its assessment as provided by MPC, 2003-

NMCA-021, ¶13.

At this time, the Hearing Officer will note that the Department proffered several exhibits

at the previous hearing in which Taxpayers failed to appear. Those exhibits, consisting of

Department Exhibits A, and C through J, have been in the administrative file since February 22,

2018.

Upon reviewing the contents of the administrative file at the onset of the hearing,

Taxpayers’ objected to the consideration of those exhibits because they had not been previously

disclosed to them. The Department argued that Taxpayers waived their objections to the

admissibility of those exhibits by virtue of their failure to appear at the previous hearing where

they were proffered. Taxpayers were provided with an opportunity to seek a continuance, but

declined. The Hearing Officer thereafter reserved ruling on the objection.

Interestingly, and despite its rigorous opposition to the objection, the Department never

again, for any purpose, referred to Department Exhibits A, and C through J, leaving the Hearing

Officer to simply speculate as to their significance to the issues in the case. Counsel for the

Department even remarked that he could not recollect the content of the exhibits.

In the Matter of Michael Andrew and Meredith L. Hartnagle
Page 11 of 15
The Hearing Officer took administrative notice of the exhibits over Taxpayers’ objection,

and observed that the apparent relevance of the various exhibits was tenuous, at best, in the

absence of further evidence or argument that might illuminate their significance to the

Department’s position.

Our courts have recognized that “[i]t is not the responsibility of . . . the trial court to

search the record for evidence to support a claim or assertion. That responsibility belongs to the

attorney.” See State v. Maestas, 2018-NMSC-010, ¶51, 412 P.3d 79. The same observation is

pertinent in tax protest hearings as well. Evidence pertinent to a material issue must be identified

by some reference to the relevant portions of an exhibit. Without some minimal reference, a fact

finder should not be expected to search the record in an effort to determine whether there exists

dormant evidence which might have some bearing on the outcome of a case. See Adler v. Wal-

Mart Stores, 144 F.3d 664, 672 (10th Cir. 1998) (“[courts] have a limited and neutral role in the

adversarial process, and are wary of becoming advocates who comb the record of previously

available evidence and make a party’s case for it.”); See also United States v. Dunkel, 927 F.2d

955, 956 (7th Cir.1991) (“Judges are not like pigs, hunting for truffles buried in briefs”).

Accordingly, although the Hearing Officer took administrative notice of Department

Exhibits A, and C through J, they are not afforded any weight since they are not relevant to

whether Taxpayers are entitled to the exemption under NMSA 1978, Section 7-9-13.1, and

Department did not find it necessary or beneficial to make any further reference to them beyond

responding to Taxpayers’ objection.

Taxpayers’ protest should be GRANTED.

In the Matter of Michael Andrew and Meredith L. Hartnagle
Page 12 of 15
CONCLUSIONS OF LAW

A. Taxpayers filed a timely written protest to the Notice of Assessment of Taxes and

Demand for Payment issued under Letter ID No. L0941329712, and jurisdiction lies over the parties

and the subject matter of this protest.

B. Taxpayer waived the 90-day hearing requirement under NMSA 1978, Section 7-1B-

8 (A) (2015).

C. Taxpayers’ receipts from services performed in Colorado are exempt from gross

receipts taxation under NMSA 1978, Section 7-9-13.1 and Regulation 3.2.1.18 (E) NMAC.

For the foregoing reasons, Taxpayers’ protest is GRANTED. The Department is hereby

ORDERED to abate tax, penalty, and interest under the Assessment.

DATED: August 10, 2018

Chris Romero
Hearing Officer
Administrative Hearings Office
P.O. Box 6400
Santa Fe, NM 87502

In the Matter of Michael Andrew and Meredith L. Hartnagle
Page 13 of 15
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 timely 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 proper with the Court of Appeals,

which occurs within 14-days of the Administrative Hearings Office receipt of the docketing

statement from the appealing party. See Rule 12-209 NMRA.

In the Matter of Michael Andrew and Meredith L. Hartnagle
Page 14 of 15
CERTIFICATE OF SERVICE

On August 10, 2018, a copy of the foregoing Decision and Order was mailed to the parties

listed below in the following manner:

First Class Mail Interagency Mail

INTENTIONALLY BLANK

John D. Griego
Legal Assistant
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502
PH: (505)827-0466
FX: (505)827-9732
[email protected]

In the Matter of Michael Andrew and Meredith L. Hartnagle
Page 15 of 15