Are fees earned by a New Mexico consultant taxable when some work is done from an Albuquerque home office and separate speaking engagements occur out of state?

Plain-English summary

David Baldridge won an abatement for $2,700 of speaking fees earned outside New Mexico, but not for $13,050 paid for his work as a nonprofit's executive director. The Administrative Hearings Office ordered the Department to recalculate his 2017 gross receipts tax, penalty, and interest using $13,050 of taxable receipts.

Baldridge lived in Albuquerque and was a co-founder and independent-contractor executive director of the International Association for Indigenous Aging, a nonprofit based in Silver Spring, Maryland. The nonprofit paid him $13,050 in 2017. He traveled for its work, but he also claimed a home-office expense and supplied no records allocating his hours or payments between work inside and outside New Mexico.

The hearing officer held that an out-of-state customer does not by itself make services nontaxable. Services performed in New Mexico are gross receipts, and Baldridge did not connect particular nonprofit payments to particular out-of-state work. The decision noted that the 2021 destination-sourcing change was not at issue because these services predated it.

The other $2,700 was different. A $1,000 Form 1099-MISC from the University of Minnesota and a $1,700 Form 1099-MISC from the Indian Health Service corroborated Baldridge's testimony about presentations in Minnesota and Milwaukee, Wisconsin. Those services and any product of them were outside New Mexico, so the related tax, penalty, and interest were abated.

The original assessment was $1,454.06: $1,086.04 of gross receipts tax, $217.20 of penalty, and $150.82 of interest, based on $15,750 of receipts. The decision did not state the recalculated dollar balance. It directed the Department to use $13,050 of receipts and said interest would continue until fully paid.

Baldridge's medical explanation did not eliminate the remaining penalty. He said an unnamed neurological condition made reviewing retained records difficult, but did not show that the condition caused the 2017 filing failure or prevented him from obtaining another person to prepare the returns.

Result: protest GRANTED IN PART and DENIED IN PART.

What this means for you

The customer's location does not control by itself

Work for an organization outside New Mexico may still produce taxable gross receipts when the service is performed from a New Mexico home office.

Separate out-of-state engagements can be excluded with evidence

Forms 1099-MISC, expense records, and credible testimony tied the two honoraria to presentations outside New Mexico. That evidence supported a partial abatement even though original travel records were missing.

Allocate mixed-location work contemporaneously

When a project involves travel and home-office work, retain contracts, calendars, invoices, and time records connecting each payment to where the service was performed. General evidence of travel did not establish that the nonprofit's periodic payments were for out-of-state work.

Illness must explain the filing failure to support penalty relief

Difficulty producing records during a later protest was not enough. The taxpayer needed to show an inability to file and pay, and an inability to obtain help, because of the illness.

Common questions

Q: Was all income from the Maryland nonprofit exempt from New Mexico gross receipts tax?
A: No. Baldridge worked partly from his Albuquerque home and did not prove what portion of the $13,050 was earned elsewhere.

Q: Why were the two honoraria treated differently?
A: The two Forms 1099-MISC and related evidence tied $1,000 to a Minnesota presentation and $1,700 to a Milwaukee presentation.

Q: Did missing original records automatically defeat the protest?
A: No. The hearing officer found Baldridge credible and accepted summary documents and tax forms as sufficient corroboration for the two honoraria, but not for allocating the nonprofit work.

Q: How much did Baldridge ultimately owe?
A: The decision did not calculate the final amount. It ordered the Department to recompute tax, penalty, and interest on $13,050 rather than $15,750.

Q: Was the negligence penalty fully abated?
A: No. Only the tax, penalty, and interest attributable to the $2,700 of out-of-state receipts were abated.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-9-3.3, 7-9-4, and 7-9-5(A) — engaging in business, imposition of gross receipts tax, and presumption of taxability
• NMSA 1978, § 7-9-3.5 (2019) — definition of gross receipts, including services performed in New Mexico
• NMSA 1978, § 7-1-17(C) — assessment presumed correct
• NMSA 1978, § 7-1-10(A) — taxpayer recordkeeping
• NMSA 1978, § 7-1-69 — civil negligence penalty
• NMSA 1978, §§ 7-1-24(D) and 7-1B-8(F) — protest jurisdiction and hearing timing
• Regulation 3.2.1.14(A)(3)-(4) NMAC — sourcing of services performed inside and outside New Mexico
• Regulations 3.1.11.10 and 3.1.11.11 NMAC — negligence and circumstances indicating nonnegligence

Cases:

• New Mexico Taxation & Revenue Department v. Casias Trucking, 2014-NMCA-099 — burden to rebut an assessment
• MPC Ltd. v. New Mexico Taxation & Revenue Department, 2003-NMCA-021 — burden shifts after sufficient rebuttal evidence
• Security Escrow Corp. v. State Taxation & Revenue Department, 1988-NMCA-068 — deductions and exemptions construed strictly
• El Centro Villa Nursing Center v. Taxation and Revenue Department, 1989-NMCA-070 — inadvertent error may constitute negligence

Source

• Listing: New Mexico Decisions & Orders
• Decision post: David Baldridge
• Decision PDF: D&O 22-02

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 DAVID J. BALDRIDGE
6 TO ASSESSMENT ISSUED UNDER
7 LETTER ID NO. L0922947248

8 v. AHO Case Number 21.06-040A, Decision and Order No. 22-02

9 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

10 DECISION AND ORDER

11 On August 17, 2021, Hearing Officer Ignacio V. Gallegos, Esq., conducted an

12 administrative hearing on the merits of the matter of the tax protest of David J. Baldridge

13 (Taxpayer) pursuant to the Tax Administration Act and the Administrative Hearings Office Act.

14 At the video conference hearing, Ms. Amber Gray-Fenner, Enrolled Agent, appeared

15 representing David J. Baldridge, who also appeared and testified as Taxpayer’s sole witness.

16 Staff Attorney Kenneth Fladager appeared, representing the opposing party in the protest, the

17 Taxation and Revenue Department (Department). Department protest auditor Alma Tapia

18 appeared as a witness for the Department. Taxpayer offered Exhibit 1 at the hearing. Without

19 objection, Taxpayer’s exhibit was admitted. Department offered no exhibits. Exhibits are more

20 fully described in the Exhibit Log. The administrative file is considered part of the record.

21 In quick summary, this protest involves Taxpayer’s claim that income reported on a

22 Schedule C was received for services performed out of state, and thus not subject to New Mexico’s

23 Gross Receipts and Compensating Tax reporting and not taxable as gross receipts income. The

24 Department was not satisfied by the Taxpayer’s records in support of the claim. Ultimately, after

25 making findings of fact and discussing the issue in more detail throughout this decision, the hearing

In the Matter of the Protest of David J. Baldridge, page 1 of 16.
1 officer finds that Taxpayer’s claim is supported in some respects, but not others, therefore the

2 protest is granted in part and denied in part. IT IS DECIDED AND ORDERED AS FOLLOWS:

3 FINDINGS OF FACT

4 Procedural Findings

5 1. On August 5, 2020, under Letter Id. No. L0922947248, the Department issued a

6 Notice of Assessment of Taxes and Demand for Payment to Taxpayer. Under the Assessment

7 letter, Taxpayer owed Project Gross Receipts Tax of $1,086.04, penalty of $217.20, and interest

8 of $150.82 for a total assessment of tax due of $1,454.06 for tax reporting periods from January

9 1, 2017 to December 31, 2017. [Administrative File].

10 2. On November 3, 2020, Taxpayer submitted a Formal Protest letter, alleging that

11 the Department was incorrect in its assessment of tax because the income was from services

12 performed outside New Mexico not subject to gross receipts. [Administrative File].

13 3. On November 3, 2020, Taxpayer submitted a Tax Information Authorization

14 form, granting Amber Gray-Fenner, Enrolled Agent, access to Taxpayer’s tax records.

15 [Administrative File].

16 4. On December 28, 2020, under Letter Id. No. L0859537840 the Department issued

17 a letter informing the Taxpayer that the Department acknowledged receipt of Taxpayer’s protest

18 of Combined Reporting System (CRS) taxes for tax periods beginning January 1, 2017 through

19 December 31, 2017. [Administrative File].

20 5. On June 16, 2021, the Department submitted a Request for Hearing to the

21 Administrative Hearings Office, requesting a scheduling hearing to address Taxpayer’s protest.

22 The Request for Hearing stated that the total at issue was $1,454.06. [Administrative File].

In the Matter of the Protest of David J. Baldridge, page 2 of 16.
1 6. On June 16, 2021, the Department submitted its Answer to Protest to the

2 Administrative Hearings Office, claiming that the Taxpayer reported income on a federal form

3 Schedule C without reporting the income as gross receipts, or paying the gross receipts tax. The

4 Answer further states that the Taxpayer failed to provide evidence of an exemption from tax.

5 [Administrative File].

6 7. Between the filing of the protest letter and the Department’s Request for Hearing,

7 the parties’ representatives shared information and corresponded by email. [Administrative File].

8 8. On June 17, 2021, the Administrative Hearings Office mailed a Notice of

9 Telephonic Scheduling Hearing to the parties, by email, setting the matter for a telephonic

10 scheduling hearing on July 9, 2021. [Administrative File].

11 9. At the telephonic scheduling hearing of July 9, 2021, the parties appeared. Amber

12 Gray-Fenner, Enrolled Agent, appeared on behalf of Taxpayer David J. Baldridge. Attorney

13 Kenneth Fladager appeared on behalf of the Department, accompanied by Protest Auditor Alma

14 Tapia. The parties did not object that conducting the scheduling hearing satisfied the 90-day

15 hearing requirements of Section 7-1B-8 (F) (2019) while still allowing meaningful time for

16 completion of the other statutory requirements under Section 7-1B-6 (D) (2015). See also

17 Regulation 22.600.3.8 (E) NMAC. The Hearing Officer preserved a recording of the hearing.

18 [Administrative File].

19 10. On July 9, 2021, the Administrative Hearings Office mailed a Scheduling Order

20 and Notice of Administrative Hearing to the parties, setting various deadlines, and scheduling the

21 matter for a hearing on the merits of Taxpayer’s protest on August 17, 2021, by video

22 conference, upon request of the parties. [Administrative File].

In the Matter of the Protest of David J. Baldridge, page 3 of 16.
1 11. The undersigned Administrative Hearing Officer Ignacio V. Gallegos conducted

2 the merits hearing on August 17, 2021, with the parties and witnesses present by video

3 conference. The Administrative Hearings Officer preserved a recording of the hearing (“Hearing

4 Record” or “H.R.”). The recording contains echo and feedback interferents, among other issues

5 related to the videoconference format of communication. Despite the poor quality of the

6 connection, parties did not request rehearing. [Administrative File].

7 Substantive Findings

8 12. Taxpayer David J. Baldridge is an individual residing in Albuquerque, New

9 Mexico. [Administrative File; Direct examination of D. Baldridge, H.R. 19:50-20:45].

10 13. Taxpayer is co-founder and, during 2017, Executive Director of International

11 Association for Indigenous Aging (IAIA or IA²), a small non-profit organization based in Silver

12 Spring, Maryland. [Administrative File; Exhibit #1-10; Direct examination of D. Baldridge, H.R.

13 19:50-20:45, 23:25-23:35].

14 14. Taxpayer and IAIA did not enter a formal employment contract. In 2017

15 Taxpayer worked for IAIA informally as an independent contractor. He did not receive a Form

16 1099 nor a W-2 for this work in 2017. IAIA paid Taxpayer a total of $13,050 in 2017.

17 [Administrative File; Direct examination of D. Baldridge, H.R. 21:35-23:25; Explanation of

18 exhibits by A. Gray-Fenner, accord by D. Baldridge H.R. 25:10-43:15; Taxpayer Exhibit #1-4,

19 #1-10.].

20 15. As Executive Director of IAIA, Taxpayer was paid periodically as the

21 organization’s finances permitted. He used his home office and travelled outside of New Mexico

22 to perform this work. The organization reported that he worked an average of 40 hours per week.

In the Matter of the Protest of David J. Baldridge, page 4 of 16.
1 [Administrative File (Schedule C, Line 30; Form 8829); Taxpayer Exhibit #1-10 (line 6); Direct

2 examination of D. Baldridge, H.R. 22:50-23:40, explanation of A. Gray-Fenner, accord by D.

3 Baldridge H.R. 25:10-43:15].

4 16. In the same vein as his work with IAIA, but paid separately, Taxpayer provided

5 services outside of New Mexico in the form of speaking engagements. The total for the speaking

6 engagements as reflected by two Forms 1099-MISC was $2,700. [Administrative File; Direct

7 examination of D. Baldridge, explanation of A. Gray-Fenner, accord by D. Baldridge H.R.

8 25:10-43:15].

9 17. The Department detected a discrepancy or mismatch between the Taxpayer’s

10 federal Schedule C federal tax filings and the Taxpayer’s gross receipts tax filings on CRS-1

11 returns between January 1, 2017 and December 31, 2017, because the Taxpayer reported

12 business income on a Schedule C, but did not report or pay gross receipts tax, leading to the

13 assessment of gross receipts tax. [Administrative File; Direct Examination of A. Tapia, H.R.

14 44:45-47:40; Cross examination of A. Tapia, H.R. 53:00-54:30].

15 18. Mr. Baldridge did not file New Mexico form CRS-1 returns to report and pay

16 gross receipts tax. [Administrative File; Direct examination of D. Baldridge, H.R. 20:40-21:35].

17 19. Department auditors requested documentary support of the Taxpayer’s claims, but

18 Taxpayer provided sparse documentation. Mr. Baldridge provided no documentation of the

19 percentage or hours of work for IAIA was provided outside New Mexico, and what percentage

20 or hours was performed in New Mexico. [Administrative File; Direct examination of Alma

21 Tapia, H.R. 46:00-46:35; 47:40-52:40; AHO examination of A. Tapia, H.R. 1:05:55-1:08:10].

22 20. Department auditors composed workpapers for Taxpayer’s 2017 gross receipts

23 tax liability with possible deductions, including deductions for work out-of-state and deductions

In the Matter of the Protest of David J. Baldridge, page 5 of 16.
1 for expense reimbursement payments. The possible deductions did not result in an abatement.

2 [Administrative File; Direct examination of D. Baldridge, explanation of A. Gray-Fenner, accord

3 by D. Baldridge H.R. 25:10-43:15; AHO examination of Alma Tapia, H.R. 55:45-59:35;

4 1:06:10-1:08:15; Redirect examination of A. Tapia, H.R.1:08:15-1:09:15].

5 21. The workpapers showed that the assessment was based on a gross taxable income

6 of $15,750. [Administrative File (workpapers); AHO examination of A. Tapia H.R. 55:45-

7 56:35].

8 22. The workpapers summarized travel reimbursements in the amount of $810.23.

9 This was excluded from Taxpayer’s reported income, and not a part of the income on which the

10 assessment was based. [Administrative File (workpapers); AHO examination of A. Tapia H.R.

11 55:45-59:35].

12 23. The workpapers also summarized expense reimbursements from IAIA to

13 Taxpayer of $832.77. Rounding up to $833, this number is corroborated by the IAIA tax return

14 Form 990. This was not included as part of the purported gross receipts that was the starting

15 point for the assessment. [Administrative File (Workpapers, Form 1040); AHO examination of

16 A. Tapia H.R. 55:45-59:35; 1:05:55-; Taxpayer exhibit #1-13].

17 24. The workpapers summarized the two 2017 Form 1099-Misc income reports and

18 other documents totaling $4,075, from entities outside of New Mexico. Mr. Baldridge testified

19 that these identified separate speaking engagements outside of New Mexico. Two of them were

20 corroborated by a 1099-Misc issued to Mr. Baldridge, totaling $2,700. [Administrative File;

21 AHO examination of A. Tapia H.R., 55:45-58:30; AHO examination of Alma Tapia, H.R. 55:45-

22 59:35; 1:06:10-1:08:15; Redirect examination of A. Tapia, H.R.1:08:15-1:09:15

In the Matter of the Protest of David J. Baldridge, page 6 of 16.
1 25. Taxpayer reported self-employment income on his IRS Form 1040, Schedule C,

2 including earnings from all sources, in the amount of $15,750. Of this $13,050 was from IAIA,

3 leaving a balance of $2,700 from other sources. [Administrative File; Taxpayer exhibit #1-10].

4 26. The $2,700 from other sources can be tied back to the two Forms 1099-Misc, one

5 for $1,000 from the Regents of the University of Minnesota, and the other for $1,700 from the

6 DHHS Indian Health Service. [Administrative File; AHO examination of A. Tapia H.R., 55:45-

7 58:30].

8 27. Taxpayer claimed he suffers from a neurological disease that limits his ability to

9 report. [Administrative File; Direct examination of D. Baldridge, H.R. 21:00-21:10].

10 DISCUSSION

11 For tax year 2017, David J. Baldridge filed Schedule C forms as part of his federal

12 personal income tax returns. The Schedule C reported business income. The Taxpayer did not

13 file gross receipts tax returns on the combined reporting system (CRS-1) forms to the State of

14 New Mexico during the same year. Taxpayer claimed he was not required to file gross receipts

15 tax returns because the business income was for work performed out of state and not taxable by

16 New Mexico as gross receipts. However, in New Mexico it is Taxpayer’s responsibility to prove

17 that the income is not taxable, not the Department’s responsibility to prove it is taxable, as there

18 is a presumption of taxability.

19 Mr. Baldridge is a co-founder and executive director of the International Association for

20 Indigenous Aging (IAIA or IA²), a non-profit organization based in Silver Spring, Maryland.

21 Part of his responsibility in 2017 was to attend and give conference presentations at locations

22 around the United States. His main contention was that he provided services to the Oklahoma

23 University Health Sciences Center, the University of Minnesota, Washington State University,

In the Matter of the Protest of David J. Baldridge, page 7 of 16.
1 and the National Adult Protective Service Association (NAPSA) in Washington, D.C. While

2 some receipts show work completed outside the boundaries of the state, Taxpayer also claimed a

3 space in his home as dedicated for work. It is clear some of the work, a service, took place in

4 New Mexico.

5 Presumption of correctness

6 Under NMSA 1978, Section 7-1-17 (C) (2007), the assessment issued in this case is

7 presumed correct. Consequently, Taxpayer has the burden to overcome the assessment. See

8 Archuleta v. O'Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428. Unless otherwise specified, for the

9 purposes of the Tax Administration Act, “tax” is defined to include interest and civil penalty. See

10 NMSA 1978, Section 7-1-3 (Z) (2019); see also Regulation 3.1.1.16 (12/29/2000). Under

11 Regulation 3.1.6.13 NMAC, the presumption of correctness under Section 7-1-17 (C) extends to

12 the Department’s assessment of penalty and interest. See Chevron U.S.A., Inc. v. State ex rel. Dep't

13 of Taxation & Revenue, 2006-NMCA-50, ¶16, 139 N.M. 498, 503 (agency regulations interpreting

14 a statute are presumed proper and are to be given substantial weight). Accordingly, it is a

15 taxpayer’s burden to present some countervailing evidence or legal argument to show that they

16 are entitled to an abatement, in full or in part, of the assessment issued in the protest. See N.M.

17 Taxation & Revenue Dep't v. Casias Trucking, 2014-NMCA-099, ¶8. When a taxpayer presents

18 sufficient evidence to rebut the presumption, the burden shifts to the Department to show that the

19 assessment is correct. See MPC Ltd. v. N.M. Taxation & Revenue Dep't, 2003-NMCA-21, ¶13, 133

20 N.M. 217.

21 The burden is also on taxpayers to prove that they are entitled to an exemption or

22 deduction, if one should potentially apply. See Pub. Serv. Co. v. N.M. Taxation & Revenue Dep't,

23 2007-NMCA-050, ¶141 N.M. 520, 157 P.3d 85; See also Till v. Jones, 1972-NMCA-046, 83

In the Matter of the Protest of David J. Baldridge, page 8 of 16.
1 N.M. 743, 497 P.2d 745. “Where an exemption or deduction from tax is claimed, the statute must

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

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

4 by the taxpayer.” See Sec. Escrow Corp. v. State Taxation & Revenue Dep't, 1988-NMCA-068,

5 ¶8, 107 N.M. 540, 760 P.2d 1306. See also Wing Pawn Shop v. Taxation & Revenue Dep't, 1991-

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

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

8 Receipts under the Gross Receipts and Compensating Tax Act.

9 The assessment in this protest arises from an application of the Gross Receipts and

10 Compensating Tax Act, NMSA 1978, Sections 7-9-1 through 7-9-117, which imposes a tax for the

11 privilege of engaging in business, on the receipts of any person engaged in business in New Mexico.

12 See NMSA 1978, Section 7-9-4 (2010). There is a statutory presumption that all receipts of a

13 person engaged in business activities are taxable. See NMSA 1978, Section 7-9-5(A) (2019). The

14 activity of providing independent contractor services as a consultant was engaging in business

15 which triggers the statutory presumption that all receipts of a person engaging in business are

16 taxable. See Section 7-9-3(P) (2019), Section 7-9-3.3 (2019), and Section 7-9-5(A) (2019). Yet,

17 despite the general presumption of taxability, a taxpayer may qualify for the benefits of various

18 deductions and exemptions.

19 Taxpayer claims the income was not derived from the sale of goods or services in New

20 Mexico, since the non-profit entity was based in Maryland, using the definition of “gross receipts.”

21 The statutory definition of “gross receipts” under Section 7-9-3.5 (2019) states, in pertinent part:

22 “‘gross receipts’ means the total amount of money or the value of other consideration received from

23 selling property in New Mexico, from leasing or licensing property employed in New Mexico, from

In the Matter of the Protest of David J. Baldridge, page 9 of 16.
1 granting a right to use a franchise employed in New Mexico, from selling services performed

2 outside New Mexico, the product of which is initially used in New Mexico, or from performing

3 services in New Mexico” (emphasis added).1 Since the Department is entitled to the presumption

4 that all receipts of a person engaging in business are taxable, it is Taxpayer’s burden to present

5 some evidence or legal argument to show that the Taxpayer is entitled to an abatement, in full or

6 in part, of the assessment issued in the protest. See Section 7-9-3.3(2019) and Section 7-9-5(A)

7 (2019); see also N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-NMCA-099, ¶8.

8 Employment as independent contractor for IAIA.

9 Mr. Baldridge earned $13,050 in 2017 for work as Executive Director of IAIA, as an

10 independent contractor. If this work had been done in Maryland, where the non-profit is based, it

11 would not be taxable as gross receipts in New Mexico. However, when a service is performed in

12 New Mexico, even for an out-of-state organization, the earnings from that service are taxable as

13 gross receipts. Evidence showed that Mr. Baldridge used his home for business purposes, showing

14 that at least part of the service was performed in New Mexico. Services performed in New Mexico

15 are taxable as gross receipts. See Section 7-9-3.5 (2019); see also Regulation 3.2.1.14 (A)(4)

16 NMAC (9/25/2018).

17 Mr. Baldridge attempted to disconnect the specific projects – University of Oklahoma and

18 Washington State University – from his work as Executive Director of IAIA. The evidence

19 presented showed that he did travel for these engagements and was refunded travel expenses.

20 However, the fact that four payments were made to him on each project over time showed that the

21 work he did was done over the course of time and did not show a nexus with the actual conference

22 out of state. Therefore, evidence presented was insufficient to show that the work was separate from

1
The 2021 statutory change to destination sourcing under NMSA 1978, Section 7-1-14 is not at issue here, as the
services performed predate the statutory change.

In the Matter of the Protest of David J. Baldridge, page 10 of 16.
1 the ordinary work of the Executive Director, or that particular payments were for the work outside

2 New Mexico.

3 Presentations outside of New Mexico.

4 Mr. Baldridge accepted two honoraria for speaking engagements outside of New Mexico, in

5 the amount of $2,700. The first honorarium was from the Regents of the University of Minnesota,

6 in the amount of $1,000, for a speaking engagement in Minnesota. The second honorarium was

7 from the DHHS Indian Health Service, in the amount of $1,700, which Mr. Baldridge explained,

8 and his later expense invoice reflects, was for a speaking engagement in Milwaukee, Wisconsin.

9 The $1,000 and $1,700 honoraria were reported on Forms 1099- Misc and submitted with his Form

10 1040. It was clear from the evidence that these would not be taxable by New Mexico as gross

11 receipts since they were services performed out of state, the product of which (if any) was also used

12 outside New Mexico. See Section 7-9-3.5 (2019); see also Regulation 3.2.1.14 (A)(3) and (A)(4)

13 NMAC (9/25/2018). The Department’s assessment of these honoraria was in error.

14 Record Keeping and Reporting.

15 New Mexico law requires that taxpayers retain records used for the taxpayers’ tax reporting

16 so that those records may be used to accurately compute state taxes. NMSA 1978, Section 7-1-10

17 (A) (2007). New Mexico tax law does not set a specific amount of time for records to be

18 maintained by taxpayers. See Regulation § 3.1.5.15 (I) NMAC (12/29/2000), Regulation § 3.1.5.8

19 (A) (12/29/2000).

20 Taxpayer kept no original records to validate his claims of out-of-state travel. He provided

21 some expense itemizations, a Form 990 from his employer, and several 1099s from the entities that

22 paid him to make presentations. In addition, Taxpayer’s Federal income tax return Form 1040 and

23 Schedule C provide some corroboration to his statements under oath. The absence of original

In the Matter of the Protest of David J. Baldridge, page 11 of 16.
1 records is not fatal to these claims, as there was substantial evidence of travel and reimbursement

2 for the expenses incurred in the travel. The summary documents provided, even if not original, are

3 viewed in light of a taxpayer’s credibility on a case-by-case basis. Mr. Baldridge was credible, and

4 his statements under oath are corroborated by the documents he provided.

5 Penalty

6 Under NMSA 1978, Section 7-1-69 (2007), when a taxpayer fails to pay taxes due to the

7 State because of negligence or disregard of rules and regulations, but without intent to evade or

8 defeat a tax, the Department must impose a civil negligence penalty on that taxpayer. “There shall

9 be added to the amount assessed a penalty” under the statute. Mr. Baldridge did not believe he was

10 required to file and pay gross receipts tax returns, but had no intention to evade a tax.

11 The use of the word “shall” makes the imposition of penalty mandatory in all instances

12 where a taxpayer’s actions or inactions meets the legal definition of “negligence.” See Marbob

13 Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, ¶22, 146 N.M. 24 (use of the

14 word “shall” in a statute indicates provision is mandatory absent clear indication to the contrary).

15 Negligence can be found in several ways. Regulation § 3.1.11.10 NMAC (1/15/01) defines

16 “negligence” as “failure to exercise that degree of ordinary business care and prudence which

17 reasonable taxpayers would exercise under like circumstances; inaction by taxpayers where action is

18 required; inadvertence, indifference, thoughtlessness, carelessness, erroneous belief or inattention.”

19 Not filing gross receipts tax returns or paying the taxes on time is certainly negligence under this

20 definition.

21 Taxpayer claims nonnegligence because of his stated infirmity. Regulation § 3.1.11.11

22 NMAC (1/15/01) defines “nonnegligence” by describing several situations which may indicate an

23 absence of negligence, allowing the Department to issue an abatement. The list provided in

In the Matter of the Protest of David J. Baldridge, page 12 of 16.
1 regulation includes “B. the taxpayer, disabled because of injury or prolonged illness, demonstrates

2 the inability to prepare a return and make payment and was unable to procure the services of another

3 person to prepare a return because of the injury or illness.” Regulation § 3.1.11.11 NMAC.

4 Taxpayer’s only evidence provided was that he suffered an unnamed ailment that made it

5 difficult to review retained records, hence he was unable to provide records to his representative or

6 to the Department at the time of the protest. The infirmity certainly made it so that his ability to

7 overcome the assessment was impaired, but one may not assume that the infirmity was a factor in

8 procuring the services of another person to prepare a return in 2017. See El Centro Villa Nursing

9 Center v. Taxation and Revenue Department, 1989-NMCA-070, ¶10, 108 N.M. 795 (inadvertent

10 error meets the definition of civil negligence). Taxpayer did not show that his infirmity factored into

11 his belief that he did not have to file gross receipts returns, or that it impaired his ability to procure

12 the services of another to do so on his behalf. No abatement of penalty under Regulation 3.1.11.11

13 NMAC (01/15/01) is allowed.

14 Conclusion.

15 Mr. Baldridge provided evidence to support some of his contentions, and the assessment

16 will be reduced to reflect the reduction in the amount of gross receipts obtained from honoraria from

17 speaking engagements outside of New Mexico. Yet, for his IAIA income, he did not provide clear

18 evidence of the location of the work performed. This, coupled with the fact that he claimed a space

19 in his home in Albuquerque as devoted to work, provides substantial evidence that Taxpayer

20 performed the work, a service, in New Mexico. See Section 7-9-3.5 (“performing services in New

21 Mexico”). Mr. Baldridge also offered a medical excuse, unsupported by documentation, to suggest

22 that a medical infirmity made it so he could not review or retain records. A reduction of the penalty

23 due to Taxpayer’s medical excuse is not proper. See Regulation § 3.1.11.11 (B) NMAC.

In the Matter of the Protest of David J. Baldridge, page 13 of 16.
1 The protest is granted in part and denied in part.

2 CONCLUSIONS OF LAW

3 A. The Taxpayer filed a timely written protest to the Notice of Assessment of Tax and

4 Demand for Payment issued under Letter ID number L0922947248, and jurisdiction lies over the

5 parties and the subject matter of this protest. See NMSA 1978, Section 7-1-24 (D) (2017).

6 B. A scheduling hearing was timely set and held within 90-days of protest under

7 NMSA 1978, Section 7-1B-8 (F)(2019). Parties did not object that the scheduling hearing

8 satisfied the 90-day hearing requirement of Section 7-1B-8. See also Regulation 22.600.3.8 (E)

9 NMAC (02/01/2018).

10 C. Any assessment of tax made by the Department is presumed to be correct.

11 Therefore, it is the taxpayer’s burden to come forward with evidence and legal argument to establish

12 that the Department’s assessment should be abated, in full or in part. See NMSA 1978, Section 7-1-

13 17 (C) (2007).

14 D. “Tax” is defined to include not only the tax program’s principal, but also interest and

15 penalty. See NMSA 1978, Section 7-1-3 (Z) (2019); see also Regulation 3.1.1.16 (12/29/2000).

16 Assessments of penalties and interest therefore also receive the benefit of a presumption of

17 correctness. See Regulation 3.1.6.13 NMAC (1/15/01).

18 E. Taxpayer overcame the presumption of correctness in the assessment, based on

19 evidence that two payments as honoraria were not taxable in New Mexico as they were services

20 performed outside the state. See NMSA 1978, Section 7-9-3 (P) (2019) Section 7-9-3.3 (2019)

21 and Section 7-9-5(A) (2019).

22 F. Taxpayer failed to meet his burden to show that the consulting work he performed

23 at his home office in Albuquerque, New Mexico as Executive Director for a small non-profit

In the Matter of the Protest of David J. Baldridge, page 14 of 16.
1 organization based outside of New Mexico was entitled to receive the benefit of any deductions

2 or exemptions to taxable business income. See NMSA 1978, Section 7-1-17 (C) (2007); see also

3 Section 7-9-3.5 (2019); see also Regulation 3.2.1.14 (A)(4) NMAC (9/25/2018).

4 For the foregoing reasons, the Taxpayer’s protest IS DENIED in part and GRANTED in

5 part. IT IS ORDERED that the Department recalculate the tax, penalty, and interest due to reflect

6 the gross receipts of $13,050. The tax, penalty and interest against the $2,700 of out-of-state receipts

7 is abated. Taxpayer is responsible for payment of the recalculated tax, penalty, and interest. Interest

8 accrues until fully paid.

9 DATED: February 10, 2022.

10

11
12 Ignacio V. Gallegos
13 Hearing Officer
14 Administrative Hearings Office
15 P.O. Box 6400
16 Santa Fe, NM 87502

17 NOTICE OF RIGHT TO APPEAL

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

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

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

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

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

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

In the Matter of the Protest of David J. Baldridge, page 15 of 16.
1 Hearings Office contemporaneous with the Court of Appeals filing so that the Administrative

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

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

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

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

6 CERTIFICATE OF SERVICE

7 On February 10, 2022, a copy of the foregoing Decision and Order was submitted to the

8 parties listed below in the following manner:

9 First Class Mail and Email Mail and Email
10
11 INTENTIONALLY BLANK

In the Matter of the Protest of David J. Baldridge, page 16 of 16.