Could a home-health agency deduct federal EEOICPA payments because its patients were Medicare beneficiaries, or exclude services involving Navajo Nation members?

View original ruling (PDF)

Plain-English summary

Four Corners Healthcare Corporation was not entitled to a $1,325,343.10 gross receipts tax refund for home-health services paid by the U.S. Department of Labor under the Energy Employees Occupational Illness Compensation Program Act (EEOICPA). Its patients' Medicare status did not turn EEOICPA payments into Medicare payments, the corporation was not a health care practitioner under the 2016 statute, and its records did not establish a tribal-territory exclusion.

Four Corners was a licensed home-health agency serving people with serious occupational illnesses linked to radiation, beryllium, silica, or other toxic exposures at federal energy and mining work sites. EEOICPA, administered primarily by the Department of Labor under 42 U.S.C. § 7384 et seq., paid for the services. Many patients were Medicare beneficiaries, but overlapping Medicare and EEOICPA payment for the same home-health service was prohibited.

In June 2017, Four Corners filed 19 refund applications and amended CRS-1 returns for January 2014 through September 2016. The applications contained no underlying source documentation, and the Department denied the combined $1,325,343.10 claim.

EEOICPA payments were not Medicare Title 18 payments

Section 7-9-77.1(E) allowed a home-health agency to deduct federal payments for medical, health, and palliative services provided to Medicare beneficiaries pursuant to Title 18 of the Social Security Act. Both conditions mattered.

Four Corners emphasized that its patients were Medicare beneficiaries and the payer was a federal agency. But the receipts came through EEOICPA, not Title 18. Reading the statute to cover any federal payment benefiting anyone eligible for Medicare would erase the Title 18 phrase and greatly expand the deduction beyond its text.

An informal Department email did not bind the state

A Department employee had emailed Four Corners that medical services provided by its home-health agency to Medicare beneficiaries could be deductible. The email apparently assumed that the Department of Labor payments were made under Title 18, which was factually incorrect.

The email was not a binding ruling under Sections 7-1-60 and 9-11-6.2. It lacked the required legal review and formal indication of that review. It also was not an “instruction,” which cannot deal with the merits of the law. Statutory estoppel therefore failed.

Equitable estoppel failed too. The record did not show that the employee accurately knew the relevant facts or engaged in affirmative misconduct, and estoppel could not require a result contrary to Section 7-9-77.1's Title 18 limitation.

The corporation was not a practitioner under the 2016 law

Four Corners later invoked Section 7-9-93. An older version had supported deductions for entities such as home-health agencies, but the parties agreed that the 2016 version governed the 2017 refund applications. That version limited the deduction to receipts of a defined health care practitioner.

A home-health agency was not included in that definition. Employing or contracting with licensed nurses did not convert the corporation's own receipts into the nurses' receipts.

Tribal membership evidence did not prove an exclusion

Four Corners also relied on Regulation 3.2.4.9(D), which addresses services sold to an Indian tribe or member and performed on that tribe's territory when federal law prohibits the tax. But the buyer here was the U.S. Department of Labor, not the Navajo Nation or its members.

The documentation independently failed. The agency produced only sample enrollment statements and service agreements, many outside the refund period. The statements were undated, the service records often used post-office-box addresses, and the evidence did not establish where all services occurred or the receipts attributable to qualifying services. Four Corners acknowledged that other unproduced records would be needed to compute tax.

Federal preemption did not supply relief. No EEOICPA provision prohibited New Mexico's tax or showed a conflict making compliance impossible, and the evidence did not show the tax burden shifted to the Navajo Nation or its members.

Result: protest DENIED. The full $1,325,343.10 refund claim remained denied.

What this means for you

Beneficiary status and payment authority are separate tests

A patient may be Medicare-eligible while a particular service is paid under a different federal program. Section 7-9-77.1(E) required payment pursuant to Medicare Title 18, not merely a Medicare-eligible recipient.

Entity receipts are not automatically practitioner receipts

Under the 2016 version applied here, a home-health agency did not qualify just because licensed nurses performed its services.

Informal agency communications have limited protection

An email can be useful guidance without being a formal ruling that binds the Department. Binding status requires the statutory formalities and an accurate, specified factual foundation.

Tribal exclusions demand transaction-level proof

Keep records showing the purchaser's tribal status, the service location within tribal territory, the dates, and the exact receipts tied to each qualifying transaction.

A refund amount must be computable

Even a winning legal theory is insufficient without records establishing the precise overpayment. The taxpayer, not the Department, bears that proof burden.

Common questions

Q: Were Four Corners' patients Medicare beneficiaries?
A: The owner estimated that all were Medicare beneficiaries, but the services at issue were paid under EEOICPA and could not simultaneously be billed to Medicare.

Q: Why didn't payment by a federal agency qualify?
A: The statute required the payment to be for services pursuant to Medicare Title 18. Department of Labor EEOICPA payments arose under a different federal law.

Q: Did the Department employee's email create estoppel?
A: No. It was not a formally reviewed ruling, was not a qualifying instruction, appeared based on an inaccurate understanding of the payment source, and showed no affirmative misconduct.

Q: Could the employed nurses claim the practitioner deduction?
A: The ruling addressed Four Corners' corporate receipts. The 2016 statute required receipts of a defined practitioner, and the corporation did not qualify merely because nurses performed the care.

Q: Why did the Navajo Nation argument fail?
A: The Department of Labor was the buyer, and the records did not reliably establish which services were performed for tribal members on Navajo territory or how much revenue those services generated.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-9-77.1(E) (2016) — home-health deduction for federal payments under Medicare Title 18
• NMSA 1978, § 7-9-93(A), (C)(3) (2016) — health care practitioner deduction and definition
• NMSA 1978, §§ 7-9-4, 7-9-3.5(A)(1), and 7-9-5 — gross receipts tax and presumption of taxability
• NMSA 1978, §§ 7-1-10(A), 7-1-26, and 7-1-60 — records, refund claims, and statutory estoppel
• NMSA 1978, § 9-11-6.2(B)-(C), (G) — rulings, instructions, and formal requirements
• Regulation 3.2.4.9(D) NMAC — tribal purchaser, tribal territory, and record requirements
• Regulation 3.1.2.8 NMAC — formal requirements for Department rulings
• 42 U.S.C. § 7384 et seq. — EEOICPA

Cases:

• Security Escrow Corp. v. State Taxation and Revenue Department, 1988-NMCA-068 — statutes read as a harmonious whole and deductions strictly construed
• Kilmer v. Goodwin, 2004-NMCA-122 — governmental knowledge, reliance, and affirmative misconduct for estoppel
• Rainaldi v. Public Employees Retirement Board, 1993-NMSC-028 — no estoppel contrary to statutory requirements
• AA Oilfield Service v. New Mexico State Corporation Commission, 1994-NMSC-085 — uncertainty of equitable relief in administrative proceedings
• Ramah Navajo School Board v. Bureau of Revenue, 458 U.S. 832 (1982) — tribal tax-burden analysis distinguished
• Rice v. Santa Fe Elevator Corp., 331 U.S. 218 (1947) — federal preemption requires clear congressional purpose

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Four Corners Healthcare Corp
• Decision PDF: D&O 20-06

Original ruling text

1 STATE OF NEW MEXICO
2 ADMINISTRATIVE HEARINGS OFFICE
3 TAX ADMINISTRATION ACT

4 IN THE MATTER OF THE PROTEST OF
5 FOUR CORNERS HEALTHCARE CORP
6 TO DENIAL OF REFUND ISSUED UNDER
7 LETTER ID NO. L1522048304

8 v. AHO Case Number 18.03-072R, D&O #20-06

9 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

10 DECISION AND ORDER

11 On October 23, 2019, Hearing Officer Chris Romero, Esq., conducted a hearing on the

12 merits of the protest of Four Corners Healthcare Corporation (“Taxpayer”) pursuant to the Tax

13 Administration Act and the Administrative Hearings Office Act. Mr. Dennis A. Banning, Esq.

14 (New Mexico Financial Law, P.C.) appeared on behalf of Taxpayer, accompanied by Mr. Travis

15 Shumway who also testified on behalf of Taxpayer.

16 Mr. David Mittle, Esq. appeared on behalf of the opposing party in the protest, the

17 Taxation and Revenue Department (“Department”), accompanied by Mr. Danny Pogan, protest

18 auditor, who also appeared as a witness for the Department.

19 Taxpayer Exhibits Nos. 1 – 15 and Department Exhibit A were admitted into the

20 evidentiary record by stipulation without objection. Taxpayer requested that exhibits identifying

21 patients/clients be sealed in order to preserve and maintain client confidentiality. The

22 Department did not object. The Administrative Hearings Office subsequently entered an order

23 sealing Taxpayer Exhibit Nos. 2, 4, 5, 6, 7, 8, 9, 10, and 15.

24 The issues in the protest are: (1) whether receipts derived from services funded by a federal

25 program, not Medicare, are deductible from gross receipts under NMSA 1978, Section 7-9-77.1

26 (2016); (2) whether Taxpayer is entitled to a deduction pursuant to NMSA 1978, Section 7-9-93

In the Matter of the Protest of Four Corners Healthcare Corp.
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1 (2016); and (3) whether Taxpayer is entitled to an exclusion pursuant to NMSA 1978, Section 7-9-4

2 (2000) as implemented by Regulation 3.2.4.9 (D) NMAC. As expounded in greater detail below,

3 the Hearing Officer determined that Taxpayer did not establish entitlement to its claimed

4 exclusions, exemptions, and deductions from gross receipts and for that reason, it did not establish

5 entitlement to a refund of taxes previously remitted to the Department. IT IS DECIDED AND

6 ORDERED AS FOLLOWS:

7 FINDINGS OF FACT

8 Witnesses

9 1. Mr. Travis Shumway is a founder and majority owner of Taxpayer, Four Corners

10 Healthcare Corporation. [Direct examination of Mr. Shumway]

11 2. Mr. Danny Pogan is a protest supervisor and auditor. He has been employed by

12 the Department for more than 25 years. [Direct Examination of Mr. Pogan]

13 3. Mr. Pogan was assigned to the above-referenced protest in February of 2018.

14 [Direct Examination of Mr. Pogan]

15 Taxpayer’s Business Background

16 4. Taxpayer is a licensed skilled nursing provider delivering nursing services to

17 patients having medical conditions resulting from exposure to chemicals during their

18 employment at laboratories and mining operations. [Direct examination of Mr. Shumway;

19 Taxpayer Ex. 13]

20 5. Taxpayer’s business activities relevant to the protest arose from services provided

21 under the Energy Employees Occupational Illness Compensation Program Act (“EEOICPA”).

22 [Direct Examination of Mr. Shumway; Taxpayer Ex. 11; 42 U.S.C. Section 7384 et seq.]

23 6. EEOICPA was enacted in October 2000. Part B of the EEOICPA, effective on

In the Matter of the Protest of Four Corners Healthcare Corp.
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1 July 31, 2001, compensates current or former employees, or their survivors, of the United States

2 Department of Energy (“DOE”), its predecessor agencies, and certain of its vendors, contractors

3 and subcontractors, who were diagnosed with a radiogenic cancer, chronic beryllium disease,

4 beryllium sensitivity, or chronic silicosis, as a result of exposure to radiation, beryllium, or silica

5 while employed at covered facilities. [42 U.S.C. Section 7384 et seq.]

6 7. The EEOICPA also provides compensation to individuals, or their eligible

7 survivors, awarded benefits by the Department of Justice under Section 5 of the Radiation

8 Exposure Compensation Act (“RECA”). Part E of the EEOICPA (enacted October 28, 2004)

9 compensates DOE contractor and subcontractor employees, eligible survivors of such

10 employees, and uranium miners, millers, and ore transporters as defined by RECA Section 5, for

11 any occupational illnesses that are causally linked to toxic exposures in the DOE or mining work

12 environment. [42 U.S.C. Section 7384 et seq.]

13 8. Taxpayer is headquartered in Blanding, Utah. It was established in 2009 and

14 began serving patients in 2010. [Direct Examination of Mr. Shumway]

15 9. Taxpayer presently serves patients in approximately 30 states. [Direct

16 examination of Mr. Shumway]

17 10. Taxpayer extended its business operations into New Mexico in 2013 or 2014.

18 [Direct examination of Mr. Shumway]

19 11. Taxpayer operated in New Mexico during all relevant times under a limited

20 liability company. The limited liability company is a separate entity from Taxpayer. [Cross

21 Examination of Mr. Shumway]

22 12. Taxpayer maintains offices in Grants and Shiprock, New Mexico, with the

23 majority of its patients residing in the northwestern corner of the state and being served from the

In the Matter of the Protest of Four Corners Healthcare Corp.
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1 Shiprock office. [Direct examination of Mr. Shumway]

2 13. Taxpayer is licensed by the New Mexico Department of Health to maintain and

3 operate a Home Health Agency in New Mexico. [Direct Examination of Mr. Shumway;

4 Taxpayer Ex. 13]

5 14. Taxpayer employs or contracts with nursing professionals licensed inside and

6 outside New Mexico, but pursuant to the Nursing Licensure Compact, of which New Mexico is a

7 participating state, nursing professionals licensed in other participating states may provide

8 nursing services in New Mexico without the need to acquire a New Mexico nursing license.

9 Other participating states include Colorado, Arizona, and Utah. [Direct examination of Mr.

10 Shumway]

11 15. Taxpayer does not employ or contract with medical doctors. [Direct examination

12 of Mr. Shumway]

13 16. Since all of the conditions for which Taxpayer’s patients receive care are

14 terminal, Taxpayer’s nursing services are typically provided through the end of the patient’s life.

15 [Direct Examination of Mr. Shumway]

16 17. Taxpayer serves Navajo Nation members residing within the Navajo Nation, as

17 well as non-Navajo Nation residents in non-tribal areas of the northwestern quadrant of the state.

18 [Direct examination of Mr. Shumway]

19 18. Mr. Shumway estimates that 100 percent of Taxpayer’s patients are Medicare

20 beneficiaries, 65 years of age or older. However, Medicare prohibits patients from receiving

21 overlapping and simultaneous benefits under both the EEOICPA and the Medicare program. For

22 that reason, Taxpayer’s services are compensated by EEOICPA, not Medicare, even if the patient

23 may also be a Medicare beneficiary. [Direct Examination of Mr. Shumway; Taxpayer Ex. 15]

In the Matter of the Protest of Four Corners Healthcare Corp.
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1 19. Billing Medicare and EEOICPA for overlapping services is “double dipping” and

2 prohibited. [Direct Examination of Mr. Shumway]

3 20. Patients receiving services under EEOICPA are required to acknowledge that the

4 United States Department of Labor will be billed for services provided instead of Medicare,

5 other entities, or third parties. [Taxpayer Exs. 4 – 10]

6 21. Mr. Shumway estimates that approximately 90 percent or more of its patients are

7 Navajo tribal members. [Direct examination of Mr. Shumway]

8 22. Not all of Taxpayer’s employees or contractors, who provide home health

9 services, are licensed registered or practical nurses. Taxpayer’s employees or contractors include

10 non-licensed personnel as well, such as home health aides or certified nursing assistants. [Cross

11 Examination of Mr. Shumway]

12 23. Mr. Shumway was unable to recall how many people Taxpayer employed but

13 suggested he would not be surprised if Taxpayer presently employed 22 individuals and

14 maintained contracts with 200 or more independent contractors. [Cross Examination of Mr.

15 Shumway]

16 24. Mr. Shumway perceives the care that Taxpayer provides as equivalent to hospice

17 care and palliative care services. [Direct examination of Mr. Shumway]

18 Qualifying for Taxpayer’s Services Under the EEOICPA

19 25. Taxpayer’s patients must be qualified by the federal government to receive

20 services by establishing that they were exposed to certain chemicals during their employment.

21 [Direct examination of Mr. Shumway]

22 26. After a patient is qualified, Taxpayer will refer the patient to a medical doctor to

23 evaluate the patient and prescribe a health care plan, which may or may not include receiving

In the Matter of the Protest of Four Corners Healthcare Corp.
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1 home health care services. [Direct examination of Mr. Shumway]

2 27. Once Taxpayer receives a Letter of Medical Necessity (“LMN”), it submits the

3 LMN along with other information to the federal government which then makes a final

4 determination regarding the services for which a patient will be eligible. [Direct examination of

5 Mr. Shumway]

6 28. After obtaining approval for services from the federal government, Taxpayer will

7 formulate a specific care schedule in consultation with the patient reflecting the services for

8 which the patient was approved. [Direct examination of Mr. Shumway]

9 29. The frequency of in-home care per patient will vary depending on an individual

10 patient’s needs and will typically continue until a patient’s death barring unusual circumstances.

11 [Direct examination of Mr. Shumway]

12 Taxpayer’s Applications for Refund

13 30. Having concerns about its profit margin, Taxpayer conferred with other similar

14 providers in New Mexico which allegedly reported that they were not paying taxes in New

15 Mexico. Taxpayer then contacted an attorney who purported to have information that not only

16 identified providers that were not paying taxes, but also purportedly verified that Taxpayer was

17 the only such entity in New Mexico that was paying taxes. [Direct examination of Mr.

18 Shumway]

19 31. Taxpayer thereafter communicated with its Utah accountant as well as several

20 New Mexico accountants which purportedly advised that Taxpayer was “tax exempt.” [Direct

21 examination of Mr. Shumway]

22 32. Taxpayer thereafter communicated with various individuals at the Department

23 until it made contact with a supervisor, Mr. Duane R. Spitzer. [Direct examination of Mr.

In the Matter of the Protest of Four Corners Healthcare Corp.
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1 Shumway]

2 33. After several communications, Mr. Spitzer composed an email on November 16,

3 2016 to Mr. Shumway which stated the following:

4 Upon review of your companies [sic] services to provide Medicare
5 beneficiaries in New Mexico home health care in accordance with
6 NM Statute 7-9-77.1 (E.) Receipts of a home health agency from
7 payments by the United States government or any agency thereof
8 for medical, other health and palliative services provided by the
9 home health agency to Medicare beneficiaries pursuant to the
10 provisions of Title 18 of the federal Social Security Act may be
11 deducted from gross receipts. It is the Departments position that
12 payments received from the federal Department of Labor for
13 medical services provided by your home health agency to
14 Medicare beneficiaries may be deducted from gross receipts.

15 If you need any other assistance, please do not hesitate to contact
16 me.

17 [Direct examination of Mr. Shumway; Taxpayer Ex. 1]

18 34. Mr. Spitzer’s email repeated almost verbatim a significant portion of NMSA

19 1978, Section 7-9-77.1 (E) (2016), chiefly with respect for his explanation that “[r]eceipts of a

20 home health agency from payments by the United States government or any agency thereof for

21 medical, other health and palliative services provided by the home health agency to Medicare

22 beneficiaries pursuant to the provisions of Title 18 of the federal Social Security Act may be

23 deducted from gross receipts.” The quoted portion of Mr. Spitzer’s email derived from a recently

24 enacted amendment to the law that had become effective nearly two weeks earlier on November

25 1, 2016 1. [Taxpayer Ex. 1]

1
2016 N.M. SB 6 was signed by the governor on October 19, 2016. The bill contained an emergency clause
meaning that the bill would take immediate effect on that date, except for sections specified in Section 9 of SB 9 to
which the Legislature provided different dates. It specified that if the act took effect after October 1, 2016, then the
effective date of certain provisions, including the section containing the amendment to Section 7-9-77.1 would be
the first day of the month following the date the act took effect. Therefore, because the bill took immediate effect on
October 19, 2016, the effective date of the 2016 version of Section 7-9-77.1, presently in effect, was November 1,
2016. See https://www.nmlegis.gov/Sessions/16%20Special/ExecMessages/senate/SB0006GovMsg.pdf

In the Matter of the Protest of Four Corners Healthcare Corp.
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1 35. Mr. Spitzer’s email did not make reference to the fact that payments from the

2 Department of Labor were not made pursuant to Title 18 of the Social Security Act. Taxpayer’s

3 receipts from payments are instead made pursuant to Title 42 of the Energy Employees

4 Occupational Illness Compensation Program Act (“EEOICPA”) which is administered primarily

5 by the U.S. Department of Labor. [Taxpayer Ex. 1; Administrative Notice (42 U.S.C. 7384 et

6 seq.)]

7 36. Taxpayer filed 19 Applications for Refund on June 7, 2017, accompanied by

8 amended CRS-1 returns. The Applications sought refunds for all periods in which it allegedly

9 overpaid tax beginning in January of 2014 through September of 2016:

10 a. January 2014: $17,981.78
11 b. February 2014: $31,687.86
12 c. March 2014: $24,034.33
13 d. April 2014: $34,491.24
14 e. May 2014: $62,081.77
15 f. June 2014: $29,883.97
16 g. July 2014 – September 2014: $134,673.75
17 h. October 2014 – December 2014: $121,986.90
18 i. January 2015 – March 2015: $123,046.79
19 j. April 2015 – June 2015: $99,265.73
20 k. July 2015 – September 2015: $154,585.45
21 l. October 2015 – December 2015: $41,985.52
22 m. January 2016 – March 2016: $132,482.96
23 n. April 2016: $51,860.74
24 o. May 2016: $27,413.63
25 p. June 2016: $77,596.91
26 q. July 2016: $33,852.80
27 r. August 2016: $57,816.08
28 s. September 2016: $68,614.89

29 [Taxpayer Ex. 11]

30 37. The Applications for Refund and the amended CRS-1 returns provide no

31 underlying supporting source documentation. [Taxpayer Ex. 11]

32 38. The Applications for Refund were submitted in the name of Four Corners

In the Matter of the Protest of Four Corners Healthcare Corp.
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1 Healthcare Corporation rather than the local limited liability company. [Cross examination of

2 Mr. Shumway; Taxpayer Ex. 11]

3 39. The amounts sought for refund represent amount overpaid in New Mexico only,

4 and do not include revenue generated from business activities in other states. [Cross examination

5 of Mr. Shumway]

6 40. Taxpayer’s Applications for Refund indicated as the bases for the refund that

7 “[Taxpayer] receives payments from the United States Government Department of Labor

8 EEOICPA and is exempt under section 7-9-77.1. These payments from the Department of Labor

9 were included in our New Mexico Gross Receipts[.]” [Taxpayer Ex. 11]

10 41. Taxpayer’s Applications for Refund asserted no other grounds for its requests for

11 refund. [Taxpayer Ex. 11]

12 42. On or about, July 13, 2017, the Department made a request for additional

13 information to which Taxpayer did not respond. The Department requested, “Detail records

14 utilized to prepared monthly CRS-1 reports to include: Invoice date, invoice amount, full detail

15 customer name. [T]otals should tie to the amended monthly CRS-1 Totals.” The request

16 specified a deadline of August 15, 2017. [Direct Examination of Mr. Pogan; Department Ex. A]

17 43. Mr. Shumway had no recollection of seeing the Request for Additional

18 Information but did recall discussing it at or near the time it would have been received by

19 Taxpayer. [Cross Examination of Mr. Shumway; Department Ex. A-001]

20 44. Mr. Shumway could not state with certainty whether Taxpayer responded to the

21 Request for Additional Information but explained he would have been very disappointed if the

22 request had been overlooked or disregarded. [Cross Examination of Mr. Shumway]

23 45. A variety of records could have been beneficial to the Department’s review of

In the Matter of the Protest of Four Corners Healthcare Corp.
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1 Taxpayer’s refund applications, none of which were provided despite the specific request.

2 [Direct Examination of Mr. Pogan]

3 46. Records that could have assisted the Department in evaluating Taxpayer’s claim

4 for refund might have included: documents establishing the source of Taxpayer’s receipts;

5 contracts; billing statements or forms such as Medicare 1500 Form; remittance vouchers, or other

6 documents permitting the Department to confirm the reliability of Taxpayer’s claims and

7 computations. [Direct Examination of Mr. Pogan]

8 47. Medicare 1500 Form reports services provided, including the qualifications of the

9 person providing the service, as well as other information including demographics and patient

10 information. [Cross Examination of Mr. Shumway]

11 48. Taxpayer’s Applications for refund, in the total amount of $1,325,343.10 were

12 denied on August 29, 2017 under Letter ID No. L1522048304. The basis provided for the denial

13 was the receipts upon which the refund was premised were not derived from payments to

14 Medicare beneficiaries pursuant to Title 18 of the Social Security Act. [Taxpayer Ex. 12]

15 49. On or about November 22, 2017, Taxpayer submitted a Formal Protest stating that

16 “[t]he Taxpayer was advised by the State that the claimed deductions from gross receipts for

17 payment from federal Department of Labor for medical services provided by the company to

18 Medicare beneficiaries may be deducted from gross receipts.” [Administrative File; Direct

19 examination of Mr. Shumway; Taxpayer Ex. 1; Taxpayer Ex. 3]

20 Evidence Presented at Hearing in Support of and in Opposition to the Refund

21 50. Taxpayer could not specify what percentage of its services, or gross receipts

22 deriving from those services, were generated by individuals not licensed as registered nurses and

23 practical nurses. [Cross Examination of Mr. Shumway]

In the Matter of the Protest of Four Corners Healthcare Corp.
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1 51. Taxpayer’s Application for Refund did not reflect any adjustments to indicate

2 what percentage of its receipts were derived from performing services in New Mexico, not

3 within the boundaries of the Navajo Nation. [Cross Examination of Mr. Shumway]

4 52. Taxpayer estimated without reference to any evidence in the record that receipts

5 derived from services performed in New Mexico, not on the Navajo Nation, was approximately

6 10 percent of its total receipts. [Cross Examination of Mr. Shumway]

7 53. The cumulative amount of Taxpayer’s requested refund might include receipts

8 derived from services provided by non-licensed personnel, such as home health aides or certified

9 nursing assistants. [Cross Examination of Mr. Shumway]

10 54. Although Taxpayer provided written statements from individuals verifying their

11 enrollment in the Navajo Nation, the statements were undated and did not specify that the

12 declarants received services from Taxpayer within the boundaries of the Navajo Nation during

13 the periods of time relevant to the protest. [Taxpayer Ex. 2]

14 55. A comparison of Taxpayer Ex. 2 (27 statements of individuals verifying Navajo

15 Nation membership) with Taxpayer Exs. 4 through 10 (executed Admission Service Agreements

16 proffered in each relevant year) identified two members consenting to care/services in the

17 periods 2014 through 2016. [Taxpayer Ex. 2.1; Taxpayer Ex. 2.22; Taxpayer Ex. 7.011;

18 Taxpayer Ex. 8.005]

19 56. A comparison of Taxpayer Ex. 2 (27 statements of individuals verifying Navajo

20 Nation membership) with Taxpayer Exs. 4 through 10 (executed Admission Service

21 Agreements) identified 16 members consenting to care/services in the periods 2011 through

22 2013. [Taxpayer Ex. 2.2; Taxpayer Ex. 4.16; Taxpayer Ex. 2.3 and 2.9 (duplicate of Taxpayer

23 Ex. 2.3); Taxpayer Ex. 6.005; Taxpayer Ex. 2.4; Taxpayer Ex. 6.003; Taxpayer Ex. 2.5;

In the Matter of the Protest of Four Corners Healthcare Corp.
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1 Taxpayer Ex. 4.017; Taxpayer Ex. 2.7; Taxpayer Ex. 5.029; Taxpayer Ex. 2.8; Taxpayer Ex.

2 6.021; Taxpayer Ex. 2.10; Taxpayer Ex. 5.008; Taxpayer Ex. 2.13; Taxpayer Ex. 4.001;

3 Taxpayer Ex. 2.15; Taxpayer Ex. 4.018; Taxpayer Ex. 2.16; Taxpayer Ex.4.012; Taxpayer Ex.

4 2.17; Taxpayer Ex. 4.005; Taxpayer Ex. 2.20; Taxpayer Ex. 5.003; Taxpayer Ex. 2.21; Taxpayer

5 Ex. 5.018; Taxpayer Ex. 2.26; Taxpayer Ex. 5.034; Taxpayer Ex. 2.27; Taxpayer Ex. 4.009;

6 Taxpayer Ex. 2.28 – 2.31; Taxpayer Ex. 5.026]

7 57. Although Taxpayer’s patients may not simultaneously receive Medicare and

8 EEOICPA benefits for home health care services, both programs are funded by the federal

9 government. [Direct Examination of Mr. Shumway]

10 58. It could not be determined why the tax rates specified in Taxpayer’s Amended

11 CRS-1 Returns fluctuated or why it reported the occasional use of special codes. [Direct

12 Examination of Mr. Pogan; Cross Examination of Mr. Shumway; Taxpayer Ex. 11]

13 59. Taxpayer Exhibits 2, and 4 – 11 are not exhaustive. Taxpayer has more patients

14 than those who were identified in the stated exhibits. [Cross Examination of Mr. Shumway]

15 60. Taxpayer acknowledged that its exhibits did not provide sufficient information to

16 compute tax due, although Mr. Shumway acknowledged that the computation could be

17 accomplished with other documents that Taxpayer did not admittedly provide or introduce at the

18 hearing. [Cross Examination of Mr. Shumway]

19 61. Should Taxpayer prevail in its protest, then a portion of its refund might be

20 applied to satisfy potential tax liabilities incurred with the Navajo Nation. [Cross Examination of

21 Mr. Shumway]

22 62. Taxpayer did not provide verification that all of its patients for which it claims

23 services were provided on the Navajo Nation, were actually provided within the boundaries of

In the Matter of the Protest of Four Corners Healthcare Corp.
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1 the Navajo Nation. [Cross Examination of Mr. Shumway]

2 63. The Department evaluates refund claims under the statute in effect at the time the

3 Application for Refund is submitted for review. Therefore, Taxpayer requests for refund were

4 evaluated under NMSA 1978, Section 7-9-77.1 (2016). [Direct Examination of Mr. Pogan]

5 64. Mr. Shumway’s impression is that Taxpayer is “tax exempt” based on discussions

6 he has had with competitors, tax attorneys, tax professionals and members of the community.

7 [Direct Examination of Mr. Shumway]

8 65. Taxpayer was unaware of any specific exclusions, exemptions, or deductions for

9 which any of its competitors may have claimed or received. [Cross Examination of Mr.

10 Shumway]

11 66. Records provided by Taxpayer were insufficient to enable the Department to

12 verify Taxpayer’s asserted entitlement to any exclusion, exemption, or deduction. [Direct

13 Examination of Mr. Pogan; Taxpayer Exs. 1 – 15]

14 Procedural History of Protest

15 67. Taxpayer’s protest of the denial of its refund applications was acknowledged by

16 the Department on February 12, 2018 under Letter ID No. L0488545072. [Administrative File]

17 68. The Department filed a Hearing Request on March 29, 2018 in which it requested

18 a hearing to address scheduling issues relating to Taxpayer’s protest. [Administrative File]

19 69. On March 30, 2018, the Administrative Hearings Office entered a Notice of

20 Telephonic Scheduling Hearing which set an initial hearing to occur on April 20, 2018.

21 [Administrative File]

22 70. An initial scheduling hearing was conducted on April 20, 2018. Neither party

23 objected that the hearing satisfied the 90-day hearing deadline provided by NMSA 1978, Section

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 13 of 36
1 7-1B-8 (A) (2015). [Administrative File; Record of Hearing (4/20/2018)]

2 71. On April 23, 2018, the Administrative Hearings Office entered a Scheduling

3 Order and Notice of Administrative Hearing which among other deadlines, set a hearing on the

4 merits of Taxpayer’s protest to occur on December 4, 2018. [Administrative File]

5 72. On October 29, 2018, Mr. Don F. Harris, Esq. and Mr. Dennis A. Banning (NM

6 Financial Law, P.C.) entered their appearance on behalf of Taxpayer. [Administrative File]

7 73. On November 20, 2018, Taxpayer filed a Motion to Convert Merits Hearing

8 requesting that the hearing on the merits of its protest be continued and that a scheduling hearing

9 occur in its place. [Administrative File]

10 74. On November 26, 2018, the Administrative Hearings Office entered an Order

11 Vacating Hearing on Merits and Notice of Telephonic Scheduling Hearing. A second scheduling

12 hearing subsequently occurred on December 4, 2018. [Administrative File]

13 75. On December 6, 2018, the Administrative Hearings Office entered a Second

14 Scheduling Order and Notice of Administrative Hearing. Among other deadlines, a hearing on

15 the merits of Taxpayer’s protest was set for June 17, 2019. [Administrative File]

16 76. On April 25, 2019, the Administrative Hearings Office entered an Order Vacating

17 Hearing on Merits and Notice of Telephonic Scheduling Hearing. The order vacated the hearing

18 previously set for June 17, 2019 due to unanticipated circumstances, and set a third scheduling

19 hearing to occur on May 15, 2019. [Administrative File]

20 77. On May 16, 2019, the Administrative Hearings Office entered a Third Scheduling

21 Order and Notice of Administrative Hearing which among other deadlines, set a hearing on the

22 merits of Taxpayer’s protest for October 23, 2019. [Administrative File]

23 78. On October 2, 2019, Taxpayer filed Position Statement for Merits Hearing

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 14 of 36
1 (hereinafter “Taxpayer’s Prehearing Statement”). [Administrative File]

2 79. On October 2, 2019, the Department filed Department’s Prehearing Statement.

3 [Administrative File]

4 80. On November 1, 2019, the Administrative Hearings Office entered a Post Hearing

5 Scheduling Order. [Administrative File]

6 81. On November 21, 2019, the parties filed a notice that they had stipulated to an

7 agreement to extend the deadlines for their closing briefs. [Administrative File]

8 82. On November 27, 2019, Taxpayer filed its Post-Hearing Brief and a Motion to

9 Supplement Record with Affidavit of Mr. Shumway. [Administrative File]

10 83. On December 10, 2019, the Department filed Department’s Motion to Strike and

11 Response Brief. The Motion to Strike opposed Taxpayer’s Motion to Supplement filed on

12 November 27, 2019. [Administrative File]

13 84. Taxpayer, as of entry of this Decision and Order did not respond to the

14 Department’s Motion to Strike, filed December 10, 2019. [Administrative File]

15 85. On March 6, 2020, the Administrative Hearings Office entered an Order Sealing

16 Exhibits which formalized Taxpayer’s unopposed request that exhibits identifying its clients be

17 sealed. [Administrative File]

18 DISCUSSION

19 This protest originated from diverging views on whether Taxpayer was entitled to a

20 deduction from gross receipts deriving from services provided pursuant to the EEOICPA under

21 NMSA 1978, Section 7-9-77.1 (2016). That analysis begins with the plain meaning of the language

22 of the statute and must eventually contemplate the effect of Mr. Spitzer’s email of November 16,

23 2016 (Taxpayer Ex. 1).

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 15 of 36
1 The analysis will also consider the application of two other statutes, raised for the first time

2 21 days before the hearing and more than 22 months after filing its Formal Protest. See Taxpayer’s

3 Prehearing Statement. Those statutes are NMSA 1978, Section 7-9-4 (2010), as implemented by

4 Regulation 3.2.4.9 (D) NMAC, and NMSA 1978, Section 7-9-93 (2016). The Hearing Officer does

5 not call out the delay with the intention to criticize, but to emphasize that the delay may have

6 deprived both parties of the opportunity to fully develop the record in reference to Taxpayer’s

7 alternative claims based on those statutes. This is particularly critical to Taxpayer’s position since,

8 as will be discussed momentarily, it is the one bearing the burdens of proof and persuasion.

9 There is minimal dispute regarding the general facts. Taxpayer is a home health agency

10 engaged in business in New Mexico. The specific source of revenue relevant to this protest derives

11 from services provided to individuals qualifying for home health services under the EEOICPA,

12 administered by the United States Department of Labor.

13 Taxpayer by virtue of the geographic area in which it engages in business, serves a

14 significant number of Native American patients on tribal lands, particularly the Navajo Nation.

15 However, it also provides services under the EEOICPA to native and non-native patients on non-

16 tribal lands. Although a significant segment of Taxpayer’s clients might also be Medicare

17 beneficiaries, the services central to this protest are not provided by Medicare nor delivered

18 pursuant to Title 18 of the Social Security Act.

19 Taxpayer asserts entitlement to refunds for gross receipts taxes paid over a period of 33

20 months in the total amount of $1,325,343.10 on receipts derived from services provided pursuant

21 to the EEOICPA.

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 16 of 36
1 Burden of Proof.

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

3 receipts of any person engaged in business. See NMSA 1978, Section 7-9-4 (2002). Under

4 NMSA 1978, Section 7-9-3.5 (A) (1) (2007), the term “gross receipts” is broadly defined to mean:

5 [T]he total amount of money or the value of other consideration received
6 from selling property in New Mexico, from leasing or licensing property
7 employed in New Mexico, from granting a right to use a franchise employed
8 in New Mexico, from selling services performed outside New Mexico, the
9 product of which is initially used in New Mexico, or from performing
10 services in New Mexico.

11 “Engaging in business” is defined as “carrying on or causing to be carried on any activity

12 with the purpose of direct or indirect benefit.” See NMSA 1978, Section 7-9-3.3 (2003). Under

13 the Gross Receipts and Compensating Tax Act, there is a statutory presumption that all receipts of a

14 person engaged in business are taxable. See NMSA 1978, Section 7-9-5 (2002). Despite the general

15 presumption of taxability of an entity engaged in business in New Mexico, taxpayers may also

16 reduce their tax liability by asserting entitlement to the benefits of various deductions, exemptions,

17 or exclusions.

18 Our courts have long adhered to the rule that tax statutes “must be construed strictly in favor

19 of the taxing authority, the right to the exemption or deduction must be clearly and unambiguously,

20 expressed in the statute, and the right must be clearly established by the taxpayer.” See Wing Pawn

21 Shop v. Taxation and Revenue Department, 1991-NMCA-024, ¶16, 111 N.M. 735 (internal citation

22 omitted); See also TPL, Inc. v. N.M. Taxation & Revenue Dep’t, 2003-NMSC-7, ¶9, 133 N.M. 447;

23 Corr. Corp. of Am. of Tenn. v. State, 2007-NMCA-148, ¶17 & ¶29, 142 N.M. 779 (Court of

24 Appeals reviewed a refund denial through “lens of presumption of correctness” and applied the

25 principle that deductions underlying the claim for refund are to be construed narrowly).

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 17 of 36
1 Yet, Wing Pawn Shop also cautions that “[o]nce it is determined that a tax is applicable,

2 after allowing for any statutory deduction, the statute permitting the deduction must be narrowly,

3 yet reasonably construed. ‘A tax statute must also be given a fair, unbiased, and reasonable

4 construction, without favor or prejudice to either the taxpayer or the State, to the end that the

5 legislative intent is effectuated and the public interests to be subserved thereby are furthered.’”

6 See Wing Pawn Shop, 1991-NMCA-024, ¶16 (quoting Chavez v. Comm’r of Revenue, 1970-

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

8 Misquotations of Law

9 As a preliminary observation, the Hearing Officer noted that Taxpayer’s quotations of

10 various statutes in Taxpayer’s Closing Argument as well as in Taxpayer’s Prehearing Statement

11 reproduced prior versions of the law that were no longer in effect at the time Taxpayer filed its

12 Applications for Refund, particularly with regard to Sections 7-9-77.1 and 7-9-93 which were

13 both amended by Senate Bill 6 during the Second Special Session of 2016.

14 Because Taxpayer agreed that there was no dispute that the statute governing this protest

15 was the version currently in effect, the Hearing Officer will presume that any misquotations of

16 the statue were mere scrivener’s error. [Record of Hearing: 01:43:15 – 01:47:00; 01:47:25 –

17 01:48:05; 02:41:50 – 02:43:12]. Accordingly, the Hearing Officer will construe Taxpayer’s legal

18 arguments under the current law, to the extent possible. If any argument relies on a provision that

19 is clearly no longer in effect, then the argument as to that specific provision is rejected.

20 Application of NMSA 1978, Section 7-9-77.1 (2016)

21 From June 7, 2017 until October 2, 2019, Taxpayer’s sole basis for relief stemmed from

22 Section 7-9-77.1 (2016). Although Taxpayer’s legal briefing asserted relief under Subsections A

23 and E under the previous version of the law, the Hearing Officer will consider Taxpayer’s claims

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 18 of 36
1 only under Subsection E of the current version of the statute. Subsection A in its present form is

2 clearly not applicable because it applies only to the receipts of “health care practitioners” as

3 defined at Section 7-9-77.11 (I) (3), which does not include home health agencies. Subsection E

4 states:

5 E. Receipts of a home health agency from payments by the United
6 States government or any agency thereof for medical, other health
7 and palliative services provided by the home health agency to
8 medicare beneficiaries pursuant to the provisions of Title 18 of the
9 federal Social Security Act may be deducted from gross receipts.

10 Taxpayer emphasizes that the receipts of the home health agency may derive from “any

11 agency” of the federal government. Taxpayer is clearly correct in that regard, yet there is more to

12 consider. Taxpayer further asserts that the receipts are deductible even if they are not derived

13 from the Medicare program itself, so long as the receipts are derived from services provided to a

14 Medicare beneficiary.

15 Although Taxpayer’s interpretation may seem reasonable at first blush, it fails to give full

16 effect to the phrase, “pursuant to the provisions of Title 18 of the federal Social Security Act.”

17 When given effect, that phrase not only requires that the receipts be derived from services

18 provided for the benefit of Medicare beneficiaries, but also paid “pursuant to the provisions of

19 Title 18 of the federal Social Security Act.”

20 Otherwise stated, in order to reach the conclusion Taxpayer promotes, one must disregard

21 the phrase “pursuant to the provisions of Title 18 of the federal Social Security Act” rendering

22 Taxpayer’s receipts deductible so long as they derive from “any agency” of the federal

23 government for the benefit of a Medicare beneficiary, even if the service was not a Medicare

24 benefit, such as with services provided pursuant to the Energy Employees Occupational Illness

25 Compensation Program Act, a program not established or administered pursuant to Title 18 of

26 the federal Social Security Act. It is instead established and administered pursuant to 42 U.S.C.

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 19 of 36
1 Section 7384, et seq.

2 Taxpayer’s interpretation sidesteps several well-established and longstanding rules

3 directing the methods by which tax statutes are to be construed. For example, statutes “must be

4 construed so that no part of the statute is rendered surplusage or superfluous.” See Katz v. N.M.

5 Dep’t of Human Servs., Income Support Div., 1981-NMSC-012, ¶18, 95 N.M. 530, 624 P.2d 39.

6 For that reason, the Hearing Officer is not at liberty to minimize or disregard any part of the

7 statute and must give effect to the phrase, “pursuant to the provisions of Title 18 of the federal

8 Social Security Act.” See Sec. Escrow Corp. v. State Taxation & Revenue Dep't, 1988-NMCA-

9 068, ¶7, 107 N.M. 540, 760 P.2d 1306 (statutes should be read in their entirety and each part

10 construed with each and every other part “to produce a harmonious whole.”).

11 In this case, the phrase “pursuant to the provisions of Title 18 of the federal Social

12 Security Act” means that it is not enough to qualify for the deduction that the receipts derive

13 from an agency of the federal government for the benefit of a Medicare beneficiary. The receipts

14 must also be derived through Title 18 of the federal Social Security Act. Had that not been the

15 Legislature’s intention, then it could have omitted the entire phrase “pursuant to…” and relied

16 solely on the term “Medicare” since that proper noun has become so engrained in our vernacular

17 that one only need to apply the plain meaning rule to decipher the Legislature’s intent when it

18 used it. To illustrate, Meriam-Webster defines “Medicare” as “a government program of medical

19 care especially for the aged.” See “Medicare.” Merriam-Webster.com Dictionary, Merriam-

20 Webster, https://www.merriam-webster.com/dictionary/Medicare. Accessed 28 Feb. 2020.

21 Therefore, because the term “Medicare” is capable of standing on its own and speaking

22 for itself, the Legislature intended the subsequent phrase, “pursuant to…” to impose an

23 additional requirement that the payments for the services provided to Medicare beneficiaries also

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 20 of 36
1 derive from a particular source, specifically Title 18 of the federal Social Security Act.

2 Otherwise the phrase, “pursuant to the provisions of Title 18 of the federal Social Security Act”

3 is rendered surplusage and superfluous.

4 The problems with Taxpayer’s interpretation are further emphasized when evaluating its

5 potential consequences. For example, Taxpayer’s interpretation would exponentially expand the

6 availability of the deduction to any receipts derived from federal government expenditures for

7 any purpose so long as they were expended for the benefit of someone that is a Medicare

8 beneficiary, whether or not the service is related to Medicare. That result is absurd because it

9 effectively obliterates the intent of the Legislature as exemplified in the plain language of the

10 statute to limit the deduction for receipts derived from a particular source for specified purpose.

11 Yet, statutes are not to be construed in a manner that will defeat the purpose of the enactment or

12 produce an absurd result. See Padilla v. Montano, 1993-NMCA-127, ¶23, 116 N.M. 398, 862

13 P.2d 1257. Moreover, Taxpayer’s interpretation represents a construction that strictly construes

14 the statute in favor of Taxpayer contrary to longstanding and well-established precedent that tax

15 statutes should be construed strictly in favor of the taxing authority. See Sec. Escrow Corp, 1988-

16 NMCA-068, ¶ 8, 107 N.M. 540, 760 P.2d 1306

17 Taxpayer presents reasonable questions underlying the policy of the Legislature, such as,

18 “Why would the New Mexico legislature want to tax one source of benefits but not the other,

19 when both sources come from the federal government?” See Taxpayer’s Closing Argument, Page

20 4. However, those arguments are best left for the Legislature. “[I]t is not the business of the

21 courts to look beyond the plain meaning of the words of a clearly drafted statute in an attempt to

22 divine the intent of the Legislature.” See State v. Ellenberger, 1981-NMSC-056, ¶6, 96 N.M.

23 287, 629 P.2d 1216. Instead, “[t]he intent of the Legislature is to be sought first in the meaning

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 21 of 36
1 of the words used, and when they are free from ambiguity no other means of interpretation

2 should be resorted to.” See Arnold v. State, 1980-NMSC-030, ¶11, 94 N.M. 381, 610 P.2d 1210.

3 In this case, the Legislature’s policy considerations are embodied in its enactment, and

4 the enactment is free from ambiguity. Not only does this construction faithfully adhere to our

5 courts longstanding rules of statutory construction, but it also remains true to the well-established

6 rule that “[w]here an exemption or deduction from tax is claimed, the statute must be construed

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

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

9 taxpayer.” See Sec. Escrow Corp., 1988-NMCA-068, ¶8.

10 The Hearing Officer observed that Taxpayer’s Closing Argument, at least with respect

11 for its arguments relating to issues of statutory construction, cited no authority contradicting

12 conclusions thus far reached. “When a party cites no authority for a proposition, we assume that,

13 after a diligent search, it was unable to find authority for support.” See State Human Rights

14 Comm'n v. Accurate Mach. & Tool Co., 2010-NMCA-107, ¶12, 149 N.M. 119, 245 P.3d 63.

15 This conclusion now requires that the effect of Mr. Spitzer’s email be considered.

16 Taxpayer argues that the email from Mr. Spitzer to Mr. Shumway should bind the Department in

17 this protest, to Taxpayer’s interpretation of the law.

18 The first point to consider is whether Taxpayer should be afforded statutory estoppel

19 against the Department. NMSA 1978, Section 7-1-60 states:

20 In any proceeding pursuant to the provisions of the Tax
21 Administration Act, the department shall be estopped from
22 obtaining or withholding the relief requested if it is shown by the
23 party adverse to the department that the party's action or inaction
24 complained of was in accordance with any regulation effective
25 during the time the asserted liability for tax arose or in accordance
26 with any ruling addressed to the party personally and in writing by
27 the secretary, unless the ruling had been rendered invalid or had

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 22 of 36
1 been superseded by regulation or by another ruling similarly
2 addressed at the time the asserted liability for tax arose.

3 [Emphasis Added]

4 Taxpayer did not assert that its reliance was grounded on any regulation in effect at any

5 relevant time. Instead, it asserted that its reliance was grounded on the statement contained in Mr.

6 Spitzer’s email which it proclaimed should be afforded the weight of a “ruling”. However, the

7 Legislature’s use of the term “ruling” was not without thoughtful consideration. NMSA 1978,

8 Section 9-11-6.2 (B) (2) states that “rulings shall be written statements of the secretary, of limited

9 application to one or a small number of persons, interpreting the statutes to which they relate,

10 ordinarily issued in response to a request for clarification of the consequences of a specified set of

11 circumstances.”

12 Perhaps without more, Mr. Spitzer’s email might conceivably come within that definition,

13 along with thousands of other communications from the Department to taxpayers on numerous

14 subjects relating to state taxation. However, the Legislature did not intend for just any

15 communication to be afforded the weight of a ruling. Section 9-11-6.2 (C) established specific

16 requirements that must be satisfied in order for a statement to be afforded the weight of a “ruling,”

17 and therefore become binding on the Department.

18 Section 9-11-6.2 (C) requires, “[t]o be effective, any ruling or regulation issued by the

19 secretary shall be reviewed by the attorney general or other legal counsel of the department prior to

20 being filed as required by law, and the fact of the review shall be indicated on the ruling or

21 regulation.” See also Regulation 3.1.2.8 NMAC. Since Mr. Spitzer’s email lacks these formalities, it

22 clearly falls short of the requirements that would afford it the binding effect of a ruling under

23 Section 7-1-60. Therefore, Mr. Spitzer’s email represents neither a regulation nor a ruling and is

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 23 of 36
1 excluded from the categories of communications that would carry any binding effect under Section

2 7-1-60, noting that the statute is explicitly applicable to regulations and rulings only.

3 In the alternative, Taxpayer argues that if the email is not to be afforded the weight of a

4 ruling, then it should be afforded the weight of an instruction, pointing out that instructions are

5 presumed to be proper implementations of the law under NMSA 1978, Section 9-11-6.2 (G). This

6 argument fails to persuade as well. Instructions are defined as “other written statements or

7 directives of the secretary or secretary's delegate not dealing with the merits of any law but

8 otherwise in aid of the accomplishment of the duties of the secretary.” See NMSA 1978, Section

9 9-11-6.2 (B) (4) (Emphasis Added). First, there was no evidence to establish that Mr. Spitzer was

10 the “secretary’s delegate.” Second, even if he was, Mr. Spitzer’s email deals with the merits of

11 the law.

12 However, perhaps the most significant observation regarding Mr. Spitzer’s email is not

13 what is states, but what it lacks, which is any suggestion that he possessed a precise and accurate

14 understanding of the underlying facts. Mr. Spitzer appears to assume that receipts from the U.S.

15 Department of Labor under the EEOICPA are payments made pursuant to Title 18 of the Social

16 Security Act. However, the evidence clearly established that is not the case. In fact, as Mr.

17 Shumway explained, seeking compensation under Title 18 of the Social Security Act for services

18 provided under the authority of the EEOICPA is strictly prohibited. This observation leads to

19 considering whether Taxpayer has potentially established entitlement to its refund through

20 equitable estoppel.

21 The first step in evaluating the application of equitable estoppel is to simply recognize that

22 its availability is uncertain in administrative proceedings. See e.g. AA Oilfield Serv. v. N.M. State

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 24 of 36
1 Corp. Comm’n, 1994-NMSC-085, ¶18, 118 N.M. 273, 881 P.2d 18 (equitable remedies are not part

2 of the “quasi-judicial” powers of administrative agencies).

3 However, even if equitable estoppel were available in the context of an administrative

4 proceeding, courts are reluctant to apply the doctrine against the state in cases involving the

5 assessment and collection of taxes. See Taxation & Revenue Dep’t v. Bien Mur Indian Mkt. Ctr.,

6 1989-NMSC-015, ¶9, 108 N.M. 228, 770 P.2d 873. In such cases, estoppel applies only pursuant

7 to statute or when “right and justice demand it.” Yet in no circumstances may estoppel lie against

8 the state when the act sought would be contrary to the requirements expressed by statute. See

9 Rainaldi v. Public Employees Retirement Board, 1993-NMSC-028, ¶18-19, 115 N.M. 650.

10 In order for Taxpayer to establish equitable estoppel against the Department, Taxpayer

11 must show that (1) the government knew the facts; (2) the government intended its conduct to be

12 acted upon or so acted that plaintiffs had the right to believe it was so intended; (3) plaintiffs

13 must have been ignorant of the true facts; and (4) plaintiffs reasonably relied on the

14 government’s conduct to their injury. See Kilmer v. Goodwin, 2004-NMCA-122, ¶26, 136 N.M.

15 440, 99 P.3d 690.

16 This is where the observation of the accuracy of the statement made in Mr. Spitzer’s

17 email becomes significant, because if he failed to demonstrate an accurate understanding of the

18 facts, then a claim for equitable estoppel fails upon the first element in Kilmer. However, even if

19 Mr. Spitzer’s email were read as Taxpayer’s suggested, it still fails to establish a claim for relief

20 under the doctrine of equitable estoppel.

21 Kilmer also requires that Taxpayer show “affirmative misconduct on the part of the

22 government.” See Kilmer, 2004-NMCA-122, ¶26 (Emphasis Added). In addition to the lack of

23 any evidence to establish that the Department had an accurate comprehension of the relevant

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 25 of 36
1 facts, there is also a palpable lack of evidence to suggest affirmative misconduct by any

2 employee of the Department with whom Taxpayer communicated.

3 Therefore, the evidence is insufficient to establish any entitlement to statutory or

4 equitable estoppel. However, even if Taxpayer’s evidence on the issues of statutory or equitable

5 estoppel was more persuasive, Taxpayer would still not be entitled to the relief it seeks because

6 estoppel may not lie against the state when the act sought would be contrary to the requirements

7 expressed by statute. See Rainaldi, 1993-NMSC-028, ¶18-19. As previously stated, Section 7-9-

8 77.1 (E) (2016) requires that receipts be derived “pursuant to Title 18 of the federal Social

9 Security Act.” In this case, relevant receipts were derived through the EEOICPA, pursuant to 42

10 U.S.C. 7384 et seq., and Mr. Spitzer’s email may not be construed in a manner that essentially

11 re-writes the law to provide relief that is not already expressly provided.

12 Relief Under NMSA 1978, Section 7-9-93 (2016)

13 On October 2, 2019, Taxpayer raised for the first time, entitlement to a deduction under

14 Section 7-9-93 (2016). As previously noted, Taxpayer concurred that the version of Section 7-9-

15 93 relevant to its Applications for Refund would be the statute enacted and operative in 2016. In

16 summary, Taxpayer’s Applications for Refund were subsequently submitted for consideration,

17 denied and protested in 2017.

18 Although the Administrative Hearings Office previously held In the Matter of the Protest

19 of HealthSouth Rehabilitation, Decision and Order No. 16-16 (non-precedential), that entities

20 such as home health agencies were entitled to a deduction under the previous version of Section

21 7-9-93 (2007), the statute relevant to that protest was significantly amended in 2016 to limit

22 availability of its deduction to the receipts of a “health care practitioner.”

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 26 of 36
1 The current version of Section 7-9-93 (A) (2016) provides no deduction for the receipts

2 of a home health agency, even if it employs or contracts with health care practitioners. It states in

3 relevant part:

4 Receipts of a health care practitioner for commercial contract
5 services or medicare part C services paid by a managed health care
6 provider or health care insurer may be deducted from gross
7 receipts if the services are within the scope of practice of the health
8 care practitioner providing the service. Receipts from fee-for-
9 service payments by a health care insurer may not be deducted
10 from gross receipts.

11 [Emphasis Added]

12 Section 7-9-93 (C) (3) (2016) thereafter continues to define the term “health care

13 practitioner.” A review of the definition reveals that entities such as home health agencies are

14 excluded. Although it is true that Taxpayer may employ or contract with health care

15 practitioners. The plain meaning of the statute nevertheless requires that the receipts eligible for

16 deduction be the receipts of the health care practitioner, not the receipts of the entity that

17 employed or contracted with them as previously permitted under the prior version of the law, as

18 concluded by HealthSouth.

19 The Hearing Officer will not reinterpret Taxpayer’s citations to the prior version of a

20 statute as asserting that the prior statute should apply. Taxpayer concurred at the hearing that the

21 statute enacted in 2016 and presently in effect, governed the outcome of its protest in reference

22 to this specific claim, a position that is consistent with the rule that absent some explicit directive

23 from the Legislature, the law in effect at the time of the relevant event will govern. See Gea

24 Integrated Cooling Tech. v. State Taxation & Revenue Dep't, 2012-NMCA-010, ¶11, 268 P.3d

25 48; Owens v. N.M. Taxation & Revenue Dep't, No. A-1-CA-37892, (Ct. App. Nov. 26, 2019)

26 (non-precedential). “A statute does not operate retroactively just because it is applied to facts and

27 conditions existing on its effective date, even though the condition results from events that

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 27 of 36
1 occurred prior to its enactment.” See Gea, 2012-NMCA-010, ¶8. Taxpayer has not established

2 right or entitlement to a deduction under Section 7-9-93 (2016).

3 Relief Under NMSA 1978, Section 7-9-4 (2010) and Regulation 3.2.4.9 (D)

4 On October 2, 2019, Taxpayer amended its protest to include a claim for relief under

5 Section 7-9-4 and Regulation 3.2.4.9 (D) NMAC. Section 7-9-4 simply states:

6 A. For the privilege of engaging in business, an excise tax equal to
7 five and one-eighth percent of gross receipts is imposed on any
8 person engaging in business in New Mexico.

9 B. The tax imposed by this section shall be referred to as the
10 “gross receipts tax”.

11 Taxpayer’s primary assertion under this statute arises from Regulation 3.2.4.9 (D)

12 NMAC which in relevant part exempts certain receipts derived from performing services sold “to

13 an Indian tribe or member thereof on that tribe’s territory … if taxation of such receipts is

14 prohibited by federal law.” See Regulation 3.2.4.9 (D) (1) NMAC. The Department does not

15 necessarily quarrel over the potential application of its regulation, but asserts that Taxpayer has

16 nevertheless failed to carry its burden by proffering reliable and trustworthy evidence capable of

17 establishing the amount of any refund to which Taxpayer should be entitled upon application of

18 Subsection D of Section 3.2.4.9 NMAC.

19 Regulation 3.2.4.9 (D) (2) NMAC states “[t]he seller of the services must demonstrate

20 that the service is sold to an Indian tribe or member thereof. The seller must also demonstrate

21 that the service is performed on the tribe's territory. The documents demonstrating that the

22 receipts are not subject to tax under Subsection D of Section 3.2.4.9 NMAC shall be retained in

23 the seller’s records.” The first observation is that there is no evidence to establish that the Navajo

24 Nation or any of its members are the buyers of Taxpayer’s services. In contrast, the buyer of

25 Taxpayer’s services is the U.S. Department of Labor. However, setting this observation

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 28 of 36
1 momentarily aside, the Hearing Officer nevertheless finds that Taxpayer’s claims to relief under

2 Regulation 3.2.4.9 (D) (2) are undermined by its lack of adequate documentation.

3 For example, Taxpayer may establish the first element “by obtaining a statement signed

4 by the purchaser that the purchaser is an Indian tribe or member thereof.” In this regard,

5 Taxpayer provided 27 statements from individuals stating their status as enrolled members of the

6 Navajo Nation and providing their tribal census numbers. However, Taxpayer also

7 acknowledged that the statements represented a mere sample of individuals to whom services

8 were provided and were not exhaustive. In fact, there is nothing in the record on which to

9 determine the true number of tribal members receiving services on tribal land.

10 Moreover, and more significantly, the value of the statements is diminished because they

11 are undated and provide no method of computing the sum of receipts generated from services

12 performed for those members within the boundaries of the Navajo Nation.

13 The second requirement “may be met if the seller keeps records adequate to document

14 that the services are performed on the purchaser’s tribe’s territory.” This is where the sufficiency

15 of Taxpayer’s records unquestionably falters because the majority of Taxpayer’s records fail to

16 reliably establish the location where Taxpayer provided services. For example, the principal

17 category of record upon which Taxpayer relies is the Admission Service Agreement (Taxpayer

18 Exs. 4 – 10). Yet, those agreements do not necessarily prove that services were actually provided

19 or any means to compute the amount of receipts generated from those services. Even the location

20 at which the services were provided is questionable because, in many cases, the addresses in the

21 agreements were post office boxes. Once again, Taxpayer acknowledged that the agreements

22 represented only a sample, and were not exhaustive. Taxpayer provided agreements for 76

23 individuals between 2011 and 2017, of which 20 were executed during the relevant periods.

In the Matter of the Protest of Four Corners Healthcare Corp.
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1 Taxpayer attempted to alleviate the potential perception that the records it relied upon at

2 the hearing were inadequate by offering to gather additional evidence to substantiate its claims,

3 but the purpose of the hearing was not to conduct discovery. That opportunity had long since

4 passed. In fact, the Department had requested detailed documents as far back as July of 2017, but

5 Taxpayer never acted (Department Ex. A).

6 Despite observing several shortcomings with respect for the records provided, the most

7 significant obstacle to Taxpayer’s claims were that they failed to provide any means to compute

8 the sum of receipts generated from services sold to the Navajo Nation or to members of the

9 Navajo Nation, and provided within the boundaries of the Navajo Nation. This is a critical

10 computation because the sum would represent the precise amount of Taxpayer’s potential

11 exclusion. Even though Mr. Shumway’s testimony was generally credible, his estimate of the

12 percentage of services performed within the boundaries of the Navajo Nation was speculative at

13 best, not to mention that the buyer of the services was the U.S. Department of Labor, not the

14 Navajo Nation or any of its members.

15 The best method of computing its liability was observance of NMSA 1978, Section 7-1-

16 10 (A) (2007) which requires taxpayers to maintain records that will permit the accurate

17 computation of state taxes, which would necessarily include records permitting the computation

18 of applicable deductions, exemptions, or exclusions.

19 Taxpayer has not established, based on the totality of the evidence proffered, any

20 entitlement to deductions, exemptions, or exclusions under Regulation 3.2.4.9 (D) (1) NMAC.

21 Federal Pre-Emption and
22 Sufficiency of the Evidence

23 At the conclusion of the hearing, Taxpayer requested the opportunity to submit briefing

24 regarding the potential effect of federal preemption. Taxpayer claimed, with respect to the facts

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 30 of 36
1 underlying its protest that the “Department is in effect … pre-empting federal law and imposing

2 New Mexico gross receipts on exempt receipts.”

3 Clearly, if any part of the Gross Receipts and Compensating Tax Act conflicted with, or

4 frustrated the EEOICPA, as Taxpayer suggested, then the state law must yield to the supreme

5 law of the land. See CSX Transp. v. Easterwood, 507 U.S. 658, 663 (1993).

6 The general rule is that the historic police powers of the states will not be superseded, or

7 preempted, by any federal act unless that was the clear and manifest purpose of Congress. See

8 Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947) citing Napier v. Atlantic Coast Line

9 R. Co., 272 U.S. 605 (1926); See also Dep’t of Revenue of Or. v. ACF Indus., 510 U.S. 332, 345

10 (1994).

11 The purpose of Congress may be ascertained in various ways. In ideal circumstances,

12 Congress will merely state its intentions and purposes. However, this may not always occur in

13 which courts may infer intent under various conditions. The first circumstance is where Congress

14 has legislated so comprehensibly within an area that it has left no room for the state to

15 supplement federal law. The second circumstance is where the state law conflicts with the

16 federal law, making it impossible to comply with both, or creating an obstacle to the execution

17 and accomplishment of congressional objectives embodied in the federal law. See Nw. Cent.

18 Pipeline Corp. v. State Corp. Comm’n, 489 U.S. 493, 509 (1989).

19 In this protest, there is no suggestion that Congress expressly preempted the New Mexico

20 Gross Receipts and Compensating Tax Act. Taxpayer does not direct the Hearing Officer’s

21 attention to any language in the EEOICPA which directly or indirectly prohibited the imposition

22 of any tax on the receipts of persons engaged in the business of providing services pursuant to

23 the EEOICPA.

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 31 of 36
1 Other than the conclusory statement that taxpayer is engaged in a field of business

2 “heavily regulated by the U.S. government” (Taxpayer’s Closing Argument, Page 8), there is

3 also nothing in the record on which to find that providing services pursuant to the EEOICPA is

4 so heavily regulated that there is no room for the state’s imposition of tax in New Mexico.

5 Moreover, there is simply nothing in the record to suggest circumstances in which state law

6 conflicts with federal law, creating the impossibility of complying with both, or creating an

7 obstacle to the execution and accomplishment of congressional objectives embodied in the

8 federal law. In other words, the imposition of tax under these facts does not create an obstacle to

9 qualified individuals obtaining services under the EEOICPA.

10 Momentarily surmising that Taxpayer’s primary concern relates not to a conflict between

11 the EEOICPA and the Gross Receipts and Compensating Tax Act, but to the Department’s

12 purported desire to tax services provided to Navajo Nation members on Navajo Nation lands,

13 Taxpayer’s citation to Ramah Navajo Sch. Bd. v. Bureau of Revenue, 458 U.S. 832, (1982) is

14 unavailing. The situation at hand is clearly distinguishable from that in Ramah where the Court

15 observed that the ultimate burden of the tax fell on the tribal organization. In this case, however,

16 the burden of the tax falls on Taxpayer. There is no evidence to suggest that the burden of the tax

17 has shifted in any manner to the Navajo Nation, any other tribal organizations in the areas served

18 by Taxpayer, or their members. See Ramah, 458 U.S. 832 at 844. As the Department emphasizes,

19 imposition of the gross receipts tax does not affect the quality of services any native or non-

20 native individual will receive, nor increase financial burdens on any person or entity, except

21 Taxpayer. That burden on Taxpayer, however, is imposed on all persons engaging in business in

22 New Mexico. See Section 7-9-5.

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 32 of 36
1 In any event, regardless of the legal issue. Taxpayer’s records are insufficient for

2 accurately and reliably computing Taxpayer’s liability and the amount of any resulting refund

3 even if the Taxpayer successfully argued that Department’s ability to tax services under these

4 facts should be curtailed by federal law.

5 Taxpayer has the burden to establish by a preponderance of evidence its precise tax

6 liability, and in doing so the amount of any refund to which it asserts entitlement. However, none

7 of the records Taxpayer relied upon enabled the Department prior to the hearing, nor the Hearing

8 Officer at the present time, the ability to accurately compute Taxpayer’s gross receipts tax

9 liability and the amount of any refund to which Taxpayer could be entitled. It is not the

10 Department’s burden to proof the amount of Taxpayer’s refund. That burden has always rested

11 upon Taxpayer.

12 Taxpayer’s Motion to Supplement Record

13 On November 27, 2019, Taxpayer filed a Motion to Supplement the record with an

14 affidavit. According to Taxpayer’s motion, the affidavit was intended to introduce new evidence

15 “without the need for filing additional documentation in the case.” See Motion to Supplement,

16 Page 1, Para. 3. The Department filed a Motion to Strike on December 10, 2019. Taxpayer did

17 not file a response to the Department’s Motion to Strike.

18 The Hearing Officer hereby denies the motion. On November 1, 2019, the Hearing

19 Officer prepared and entered a Post-Hearing Scheduling Order which established deadlines for

20 the parties to submit written legal arguments on two discreet issues.

21 The Post-Hearing Scheduling Order explicitly stated:

22 IT IS FURTHER ORDERED that neither Taxpayer’s post-hearing
23 brief nor any response filed by the Department may exceed 15
24 pages, excluding a signature block and certificate of service. The
25 parties shall not reference facts not already in evidence, nor

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 33 of 36
1 attempt to introduce new evidence. Reference to facts not in
2 evidence shall be disregarded, and new evidence not already
3 existing in the record of the hearing shall be summarily excluded.

4 [Emphasis Added]

5 Moreover, the Hearing Officer had previously explained that unless there was some

6 agreement by the parties to supplement the record, that fairness required that any request to

7 introduce new evidence at such a late stage in the protest should be denied. [01:40:40]. Since

8 there was no stipulation among the parties for the submission of new evidence, because the

9 Department opposed Taxpayer’s Motion to Supplement, and because Taxpayer did not respond

10 to the Department’s Motion to Strike, the Hearing Officer agreed that Taxpayer’s Motion to

11 Supplement should be, and hereby is, DENIED.

12 CONCLUSIONS OF LAW

13 A. Taxpayer filed a timely, written protest to the Department’s denial of its Application

14 for Refund, and jurisdiction lies over the parties and the subject matter of the protest.

15 B. A hearing was timely set and held within 90-days of Taxpayer’s protests under

16 NMSA 1978, Section 7-1B-8 (2015).

17 C. A tax statute must be given a fair, unbiased, and reasonable construction, without

18 favor or prejudice to either the taxpayer or the State, to the end that the legislative intent is

19 effectuated and the public interests to be subserved thereby are furthered. Wing Pawn Shop,

20 1991-NMCA-024, ¶16 (quoting Chavez v. Comm’r of Revenue, 1970-NMCA-15 116, ¶7, 82

21 N.M. 97, 476 P.2d 67)

22 D. Receipts deriving from services provided to Medicare beneficiaries, but

23 compensated by the U.S. Department of Labor under the EEOICPA are not deductible under

24 NMSA 1978, Section 7-9-77.1 (2016).

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 34 of 36
1 E. Receipts from service provided under the EEOICPA are not deductible under

2 NMSA 1978, Section 7-9-93 (2016) because Taxpayer is not a “health care practitioner” as that

3 term is defined at Section 7-9-93 (C) (3) (2016).

4 F. Every taxpayer shall maintain books of account or other records in a manner that

5 will permit the accurate computation of state taxes under NMSA 1978, Section 7-1-10 (A).

6 G. Taxpayer’s records were insufficient to establish entitlement to any deduction,

7 exemption or exclusion under Regulation 3.2.4.9 (D) NMAC.

8 For the foregoing reasons, Taxpayer’s protest IS DENIED.

9 DATED: March 6, 2020

10
11 Chris Romero
12 Hearing Officer
13 Administrative Hearings Office
14 P.O. Box 6400
15 Santa Fe, NM 87502
16

In the Matter of the Protest of Four Corners Healthcare Corp.
Page 35 of 36
1 NOTICE OF RIGHT TO APPEAL

2 Pursuant to NMSA 1978, Section 7-1-25 (2015), the parties have the right to appeal this

3 decision by filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the

4 date shown above. If an appeal is not timely filed with the Court of Appeals within 30 days, this

5 Decision and Order will become final. Rule of Appellate Procedure 12-601 NMRA articulates

6 the requirements of perfecting an appeal of an administrative decision with the Court of Appeals.

7 Either party filing an appeal shall file a courtesy copy of the appeal with the Administrative

8 Hearings Office contemporaneous with the Court of Appeals filing so that the Administrative

9 Hearings Office may begin preparing the record proper. The parties will each be provided with a

10 copy of the record proper at the time of the filing of the record proper with the Court of Appeals,

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

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

13 CERTIFICATE OF SERVICE

14 On March 6, 2020, a copy of the foregoing Decision and Order was submitted to the parties

15 listed below in the following manner:

16 First Class Mail Interdepartmental Mail

17 INTENTIONALLY BLANK IN DIGITAL COPY
18
19
20 John Griego
21 Legal Assistant
22 Administrative Hearings Office
23 P.O. Box 6400
24 Santa Fe, NM 87502

In the Matter of the Protest of Four Corners Healthcare Corp.
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