Can a New Mexico dialysis provider (an end-stage renal disease facility) claim the Section 7-9-93 gross receipts deduction for managed-care payments?

Plain-English summary

The dialysis companies won on summary judgment — and this is the case that shows where the hospital line stops. ISD Renal, Inc. and Total Renal Care, Inc. ("TRC") are wholly-owned subsidiaries of DaVita Inc. that operate dialysis clinics in New Mexico, each licensed by the New Mexico Department of Health as an "end-stage renal disease facility." For 2014–2016 they paid gross receipts tax on managed-care payments for dialysis services and then applied for refunds under Section 7-9-93, the deduction for certain managed-care and Medicare Part C receipts. The Department denied every refund, stating that a corporation "is not a 'health care practitioner'" under the statute. The denied amounts were about $214,733 for TRC ($63,081 + $67,327 + $84,325) and $895,842 for ISD ($254,933 + $305,137 + $335,772).

Hearing Officer Chris Romero granted the taxpayers' motion for summary judgment and reversed the denials.

The reasoning turns on the Department's own regulations:

• A business entity can be a "health care practitioner." Since 2006, Regulation 3.2.241.13 NMAC has said a corporation or other legal entity may deduct under Section 7-9-93 its managed-care receipts for services "provided on its behalf by health care practitioners who own or are employed by" it. The dialysis centers employed 29 registered nurses who provided or oversaw the dialysis services, so the receipts fit that regulation.
• Only certain facilities are carved out. The same regulation (and companion Regulation 3.2.241.17 NMAC) excludes 501(c)(3) organizations and entities licensed as an HMO, hospital, hospice, nursing home, or an entity that is solely an outpatient facility or intermediate care facility under the Public Health Act.
• Dialysis centers are not on that list. The taxpayers are licensed as end-stage renal disease facilities under Regulation 7.36.2 NMAC — a category the Department of Health treats as distinct from "outpatient facilities" (licensed under Regulation 7.11.2 NMAC). Because the regulator that defines these terms does not classify a dialysis center as an outpatient facility, dialysis centers fall outside the exclusion.
• Golden Services cuts the other way here. The Court of Appeals' nonprecedential Golden Services decision — the authority the Department used to defeat the hospitals and hospices in the companion D&Os 23-01 through 23-06 — actually approved Regulations 3.2.241.13 and 3.2.241.17. Those excluded taxpayers were health care facilities the regulation names; these dialysis taxpayers are not. As the hearing officer in Robison put it, "this is a crucial distinction."
• The Department could not disown its own rules. The Department argued the regulations were "void" and "nonsensical," yet it had left them in place for 15+ years, cited them to another taxpayer as valid in Ruling 420-20-02 (2020), and the Legislature codified them in the 2021 amendment to Section 7-9-93. Under Section 7-1-60, the Department is estopped from denying relief where a taxpayer acted in accordance with an effective regulation.

Result: taxpayers' motion GRANTED; refund denials reversed.

What this means for you

The taxpayer named in the deduction can be a company, not just an individual

Section 7-9-93 is written for a "health care practitioner," but Regulation 3.2.241.13 lets a business entity stand in that role when the qualifying services are performed by practitioners the entity employs or that own it. A corporation billing managed-care payers for its clinicians' work is not automatically disqualified just because it is a company.

A facility exclusion is read narrowly and by its actual license

The decision did not ask whether a dialysis clinic "feels like" an outpatient facility. It asked how the Department of Health actually licenses it — as an end-stage renal disease facility under a separate regulation — and noted the exclusion reaches only an entity that is solely an outpatient facility. If your operation is licensed under its own category, check whether that category is really on the exclusion list before assuming a deduction is lost.

Golden Services is not a blanket bar on entity-level deductions

Golden Services denied the deduction to hospices, hospitals, and nursing homes — facilities the regulation expressly excludes. It did not hold that every business entity is disqualified; it upheld the very regulations that let qualifying entities deduct. The hospital line and the dialysis result come from the same case.

An agency can be held to a regulation it later dislikes

Because the dialysis companies relied on regulations that were on the books, approved by the Court of Appeals, cited by the Department to other taxpayers, and eventually codified by the Legislature, Section 7-1-60 estopped the Department from calling those rules void. A long-standing, unrepealed regulation is a real basis for a taxpayer's position.

This decision concerns specific statutes and periods

It construes the 2007 and 2016 versions of Section 7-9-93 (and reads the 2021 codification as confirming legislative intent) for the 2014–2016 periods. Confirm the law in effect for your own reporting period rather than treating this as current-law confirmation.

Common questions

Q: Who won, and what did they get?
A: The taxpayers won. The hearing officer granted their summary-judgment motion and reversed the Department's denials of their Section 7-9-93 refund claims for 2014–2016.

Q: Why did these dialysis companies qualify when the hospitals in the companion cases (D&Os 23-01 to 23-06) did not?
A: Regulation 3.2.241.13 excludes hospitals, hospices, and nursing homes from claiming the deduction, but it does not exclude end-stage renal disease facilities. The dialysis centers are licensed in that separate category, so the exclusion the hospitals lost under did not apply to them.

Q: The statute says "health care practitioner" — how can a corporation claim it?
A: The Department's own Regulation 3.2.241.13 NMAC construes the term to let a corporation or other legal entity deduct receipts for qualifying services provided by health care practitioners it employs or that own it, unless the entity is one of the listed excluded facilities.

Q: The Department argued its regulations were void. Why didn't that work?
A: The court in Golden Services had relied on those same regulations, the Department kept citing them to other taxpayers as valid, and the Legislature codified them in 2021. Section 7-1-60 estops the Department from denying relief to a taxpayer who relied on a regulation that was in effect.

Q: Isn't a dialysis clinic an "outpatient facility"?
A: The hearing officer said no. The New Mexico Department of Health licenses dialysis providers as end-stage renal disease facilities, a different category than outpatient facilities, and the exclusion applies only to an entity that is solely an outpatient facility.

Q: Can another dialysis company treat this as automatic approval of its own refund?
A: No. This Decision and Order resolved these taxpayers' consolidated protests on their record and the law before the Administrative Hearings Office. Another taxpayer should analyze its own license, facts, tax periods, and the law then in effect.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-9-93 (2007, 2016, and 2021) — deduction for certain managed-care and Medicare Part C receipts of a health care practitioner; the 2021 amendment codified the entity-level "association of health care practitioners"
• NMSA 1978, § 7-9-77.1 (2016) — related federal-payment deduction; defines "dialysis facility" as an end-stage renal disease facility, discussed to show the Legislature distinguishes such facilities from outpatient facilities
• NMSA 1978, §§ 7-9-4 and 7-9-5 — imposition of gross receipts tax and the presumption that receipts are taxable
• NMSA 1978, § 7-1-26 — refund claims and the claimant's burden; here the refund amounts were not in dispute
• NMSA 1978, § 7-1-60 — the Department is estopped from withholding relief where a taxpayer acted in accordance with an effective regulation
• NMSA 1978, § 9-11-6.2 — Department's authority to issue regulations and the presumption that they properly implement the law
• NMSA 1978, §§ 7-1B-6 and 7-1B-8 — Administrative Hearings Office procedure and hearing timing
• NMSA 1978, § 7-1-25 — right to appeal the decision to the New Mexico Court of Appeals
• Regulations 3.2.241.13 and 3.2.241.17 NMAC (2006) — a business entity may qualify as a health care practitioner for the deduction unless it is a listed facility (HMO, hospital, hospice, nursing home, solely an outpatient or intermediate care facility, or a 501(c)(3))
• Regulation 7.36.2 NMAC (Department of Health) — licensing of end-stage renal disease facilities; Regulation 7.11.2 NMAC — licensing of outpatient facilities

Cases and rulings:

• Golden Services Home Health & Hospice v. Taxation & Revenue Dep't, No. A-1-CA-36987, 2020 WL 2045956 (N.M. Ct. App. Apr. 20, 2020) (nonprecedential), cert. denied, No. S-1-SC-38341 (N.M. Nov. 17, 2020) — approved Regulations 3.2.241.13 and 3.2.241.17 and held that health care facilities like hospices and nursing homes are not entitled to the Section 7-9-93 deduction
• Robison Medical Resource Group, LLC, Administrative Hearings Office D&O 21-14 (May 27, 2021) (nonprecedential), on appeal, No. A-1-CA-39784 — rejected the Department's argument that Golden Services voided the regulations and drew the "crucial distinction" between excluded facilities and qualifying entities
• Taxation & Revenue Department Ruling 420-20-02 (Nov. 24, 2020) — the Department itself applied Regulation 3.2.241.13 to allow a for-profit corporation the Section 7-9-93 deduction for services by its employed practitioners
• TPL, Inc. v. New Mexico Taxation & Revenue Department, 2003-NMSC-007 — taxation is the rule and the claimant must show its demand is within the letter and spirit of the law
• Sutin, Thayer & Browne v. Revenue Division, 1985-NMCA-047 — deductions are a matter of legislative grace, construed strictly against the taxpayer
• Duke City Lumber Co. v. New Mexico Environmental Improvement Board, 1984-NMSC-042 — validly promulgated agency regulations have the force of law
• Companion New Mexico Administrative Hearings Office decisions denying the deduction to hospitals and similar facilities: D&O 23-01 (Alta Vista Regional Hospital), 23-02 (Carlsbad Medical Center), 23-03 (Mimbres Memorial Hospital and Nursing Home), 23-04 (Lea Regional Hospital), 23-05 (Roswell Clinic Corporation), and 23-06 (Roswell Hospital Corporation)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: ISD Renal Inc and Total Renal Care Inc
• Decision PDF: D&O 23-07

Original ruling text

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

4 IN THE MATTER OF THE
5 CONSOLIDATED PROTESTS OF D&O No. 23-07

6 ISD RENAL, INC.
7 TO THE DENIAL OF REFUND
8 ISSUED ON APRIL 10, 2018 No. 18.08-194R

9 TOTAL RENAL CARE INC.
10 TO DENIAL OF REFUND
11 ISSUED ON APRIL 10, 2018 No. 18.08-197R

12 TOTAL RENAL CARE, INC.
13 TO THE DENIAL OF REFUND
14 ISSUED ON JANUARY 17, 2019 No. 19.06-111R

15 ISD RENAL, INC.
16 TO THE DENIAL OF REFUND
17 ISSUED ON JANUARY 18, 2019 No. 19.06-112R

18 TOTAL RENAL CARE INC.
19 TO DENIAL OF REFUND
20 ISSUED UNDER LETTER ID NO. L1054722736 No. 20.06-79R

21 ISD RENAL INC.
22 TO DENIAL OF REFUND
23 ISSUED UNDER LETTER ID NO. L0786287280 No. 20.06-80R

24 v.

25 NEW MEXICO DEPARTMENT OF
26 TAXATION AND REVENUE

27 DECISION AND ORDER
28 GRANTING SUMMARY JUDGMENT FOR TAXPAYERS

29 This matter came before the Administrative Hearings Office, Hearing Officer Chris

30 Romero, Esq., upon the following: (1) ISD Renal, Inc. and Total Renal Care, Inc.’s Motion For

31 Summary Judgment (filed May 6, 2022) (“Taxpayers’ Motion”); (2) Department’s Response to

32 Motion for Summary Judgment (filed May 20, 2022) (“Department’s Response”); and (3) Reply

33 in Support of ISD Renal, Inc. and Total Renal Care, Inc.’s Motion for Summary Judgment (filed

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
Page 1 of 34
1 June 3, 2022) (“Taxpayers’ Reply”).

2 A hearing on the foregoing motions was held on June 29, 2022. ISD Renal, Inc.

3 and Total Renal; Care, Inc. (collectively “Taxpayers”) appeared by and through Mr. John

4 C. Anderson, Esq. The Taxation and Revenue Department (“Department”) appeared by

5 and through Mr. David Mittle, Esq.

6 The facts and legal issues presented concentrate on whether “end-stage renal

7 disease facilities,” also known as “dialysis centers” are eligible to deduct any gross receipts

8 pursuant to NMSA 1978, Section 7-9-93 and Regulations 3.2.241.13 and 3.2.241.17 NMAC

9 (2006). Since the Court of Appeals in Golden Services Home Health and Hospice and

10 Unnamed Nursing and Rehabilitation Center v. Taxation and Revenue Dep’t, No. A-1-

11 CA-36987, 2020 WL 2045956, mem. op. (NMCA, April 20, 2020) (non-precedential),

12 cert. denied, No. S-1-SC-38341 (NMSC, November 17, 2020), looked upon the

13 Department’s regulations with approval, the Hearing Officer finds that Taxpayers are

14 entitled to rely upon them in seeking the deduction provided by Section 7-9-93. IT IS

15 DECIDED AND ORDERED AS FOLLOWS:

16 FINDINGS OF FACT

17 Except for inconsequential modifications, the following material facts 1 – 23 are

18 reproduced from the statement presented in Taxpayers’ Motion. All are accepted as true and

19 undisputed. References to exhibits in Paras. 1 – 23 refer to exhibits in Taxpayers’ Motion.

20 Material Facts

21 1. Total Renal Care, Inc.’s (“TRC”) is a corporation organized under the laws of the

22 State of California, with its principal place of business in Denver, Colorado. TRC is currently

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
Page 2 of 34
1 registered with the New Mexico Secretary of State and has been so registered since 1992. See

2 Affidavit of Jeannie Oh (“Oh Affidavit”) ¶ 4, attached to Taxpayers’ Motion.

3 2. ISD Renal, Inc. (“ISD”) is a corporation organized under the laws of the State of

4 Delaware, with its principal place of business in Denver, Colorado. ISD is currently registered

5 with the New Mexico Secretary of State and has been so registered since 2006. See id. ¶ 5.

6 3. Taxpayers are wholly-owned subsidiaries of DaVita Inc., a corporation organized

7 under the laws of the State of Delaware. See id. ¶ 2.

8 4. Taxpayers are in the business of providing dialysis services to patients suffering

9 from end-stage renal disease. See id. ¶ 6.

10 5. From 2014 through April 2016, TRC operated three end-stage renal disease

11 facilities (commonly known as dialysis clinics) in the State of New Mexico. From May 2016

12 through October 2016, TRC operated five end-stage renal disease facilities in New Mexico. See

13 id. ¶ 7.

14 6. From 2014-2016, ISD operated one end-stage renal disease facility in the State of

15 New Mexico. See id. ¶ 8.

16 7. At all times during their operation, all of Taxpayers’ dialysis clinics in New

17 Mexico have been duly licensed by the New Mexico Department of Health as end-stage renal

18 disease facilities. See id. ¶ 9.

19 8. For the tax years at issue (2014-2016), among other sources of payment, TRC and

20 ISD received payments from managed health care providers for the dialysis services provided at

21 their end-stage renal disease facilities in New Mexico. Information concerning payments

22 received by TRC and ISD are set forth in monthly tax filings provided to the Department. See id.

23 ¶ 12.

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
Page 3 of 34
1 9. Taxpayers also received payments for dialysis services from other sources,

2 including Medicare and Medicaid, but those payments are not at issue in these consolidated

3 matters. See id. ¶ 13.

4 10. For the tax periods at issue, managed health care providers entered into negotiated

5 contracts with DaVita through which DaVita (and Taxpayers as subsidiaries) agreed to provide

6 dialysis services to patients covered by the managed health care provider. See id. ¶ 14.

7 11. These contracts contain a negotiated fee schedule that establishes the amount the

8 managed care provider would pay for the services provided by Taxpayers. See id. ¶ 14.

9 12. During the tax periods at issue, DaVita had contracts with the following managed

10 health care providers to receive payments in exchange for the provision of dialysis services to

11 individuals covered by their respective plans: (a.) Blue Cross Blue Shield of New Mexico; (b.)

12 Aetna;(c.) United Healthcare; (d.) Cigna; (e.) Presbyterian Health Plan, Inc.; (f.) Selecthealth

13 FKA Health Plans, Inc.; (g.) Medica Health Plans; and (h.) U.S. Department of Veteran’s Affairs

14 See id. ¶¶ 15-22.

15 13. For the tax years at issue, Taxpayers paid New Mexico gross receipts tax on the

16 full amount of money they received for provision of dialysis services provided pursuant to these

17 contracts. See id. ¶ 28.

18 14. Each above-referenced payer is a managed health care provider as that term is

19 defined in NMSA 1978, § 7-9-93. Id. ¶¶ 14-23.

20 15. All dialysis services provided to patients through Taxpayers’ end-stage renal

21 disease facilities in New Mexico are overseen by a Registered Nurse licensed by the State of

22 New Mexico. See id. ¶ 25. In particular, Centers for Medicare & Medicaid Services (CMS)

23 regulations require that each shift at a dialysis center be overseen by a “charge nurse” who

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
Page 4 of 34
1 “meets the practice requirements in the State in which he or she is employed.” 42 C.F.R. §

2 494.140(b)(3). During the tax periods at issue, Taxpayers collectively employed 29 registered

3 nurses who provided directly or oversaw administration of all dialysis services at the end-stage

4 renal disease facilities. Id. ¶ 25.

5 16. Taxpayers provide dialysis services only pursuant to a prescription from a

6 physician. When a patient is referred to Taxpayers’ end-stage renal disease facilities for dialysis

7 services, the center confirms that patient’s coverage and DaVita’s billing and collection team

8 verifies the contractual payment rates contained in the contract with that managed health care

9 provider. See id. ¶ 24.

10 17. After TRC or ISD provide dialysis services to a patient covered by a managed

11 health care provider, an invoice is submitted to that managed health care provider. This invoice,

12 commonly known in the medical field as a UB-04, reflects the services provided by TRC or ISD.

13 The managed health care provider will then remit the agreed upon amount as compensation for

14 the dialysis services provided. Such remittances are generally performed through a wire transfer

15 of funds to DaVita’s designated bank account. See Ex. 17 (providing example invoices); Ex. 18

16 (providing remittance forms documenting payments to Taxpayers); Exs. 2-3 (providing sample

17 gross receipts tax returns filed by Taxpayers with the Department).

18 18. Neither TRC nor the centers it operates are licensed as an HMO, hospital,

19 hospice, nursing home, outpatient facility, or intermediate care facility licensed under the Public

20 Health Act. Oh Affidavit ¶ 33. Instead, the centers TRC operates are licensed exclusively as end-

21 stage renal disease facilities under regulations promulgated pursuant to the Public Health Act. Id.

22 ¶ 32.

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
Page 5 of 34
1 19. Neither ISD nor the center it operates are licensed as an HMO, hospital, hospice,

2 nursing home, outpatient facility, or intermediate care facility licensed under the Public Health

3 Act. Id. ¶ 35. Instead, the center ISD operates is licensed exclusively as an end-stage renal

4 disease facility under regulations promulgated pursuant to the Public Health Act. Id. ¶ 34.

5 20. Neither TRC nor the centers it operates are tax exempt organizations described in

6 Section 501(c)(3) of the United States Internal Revenue Code of 1954, as amended or

7 renumbered. Id. ¶ 30.

8 21. Neither ISD nor the centers it operates are tax exempt organizations described in

9 Section 501(c)(3) of the United States Internal Revenue Code of 1954, as amended or

10 renumbered. Id. ¶ 31.

11 22. Other than in connection with this case, TRC and ISD have not sought to deduct

12 from their New Mexico taxes the payments they receive from insurers and managed health care

13 providers. Id. ¶ 29.

14 23. TRC and ISD submitted claims for refund for the tax periods at issue, which the

15 Department denied. TRC and ISD then timely submitted protests for those tax periods to the

16 Administrative Hearings Office. The protests were consolidated. Id. ¶¶ 10-11.

17 Procedural History

18 The Hearing Officer intentionally omits events which are immaterial to the issues under

19 consideration or which are unnecessary for establishing a historical setting for the ensuing

20 discussion. A comprehensive history of the consolidated protests may be acquired by referring to

21 the administrative files.

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
Page 6 of 34
1 (Pre Golden Services)

2 Reporting Periods January 1, 2014 through January 31, 2015

3 TRC

4 24. On April 10, 2018, the Department issued a Full Refund Denial. The denial,

5 which does not bear a Letter ID Number was in response to TRC’s application for Refund

6 periods “Jan 1, 2014 – Jan 31, 2015 in the amount of [$]63,081.00” explaining that TRC is not a

7 “health care practitioner” as defined by Section 7-9-93. [Administrative File (accompanying

8 Hearing Request filed August 22, 2018)]

9 25. On June 22, 2018, TRC’s protest was received in the Department’s Protest Office.

10 [Administrative File (accompanying Hearing Request filed August 22, 2018)]

11 26. On July 3, 2018, the Department acknowledged TRC’s protest under Letter ID

12 No. L0513834800. [Administrative File (accompanying Hearing Request filed August 22, 2018)]

13 27. On August 22, 2018, the Department filed a Hearing Request in the matter of

14 TRC’s protest of the Department’s denial of its Application for Refund. [Administrative File]

15 28. The Administrative Hearings Office entered a Notice of Telephonic Scheduling

16 Hearing on August 22, 2018. The notice set a hearing for September 21, 2018. [Administrative

17 File]

18 29. An initial scheduling hearing was held on September 21, 2018. Neither party

19 objected that the hearing held on that date satisfied the 90-day hearing requirement of NMSA

20 1978, Section 7-1B-8 (A). A second scheduling hearing was also set for October 23, 2018.

21 [Administrative File]

22 ISD

23 30. On April 10, 2018, the Department issued a Full Refund Denial. The denial,

24 which does not bear a Letter ID Number was in response to ISD’s application for Refund periods

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
Page 7 of 34
1 “Jan 1, 2014 – Jan 31, 2015 in the amount of [$]254,933.00” explaining that ISD “is not a ‘health

2 care practitioner’ as defined by Section 7-9-93 NMSA 1978.” [Administrative File

3 (accompanying Hearing Request filed August 22, 2018)]

4 31. On June 22, 2018, ISD’s protest was received in the Department’s Protest Office.

5 [Administrative File (accompanying Hearing Request filed August 22, 2018)]

6 32. On July 3, 2018, the Department acknowledged ISD’s protest under Letter ID No.

7 L2124447536. [Administrative File (accompanying Hearing Request filed August 22, 2018)]

8 33. On August 17, 2018, the Department filed a Hearing Request in the matter of

9 ISD’s protest of the Department’s denial of its Application for Refund. [Administrative File]

10 34. The Administrative Hearings Office entered a Notice of Telephonic Scheduling

11 Hearing on August 17, 2018. The notice set a hearing for September 12, 2018. [Administrative

12 File]

13 35. An initial scheduling hearing was held on September 12, 2018. Neither party

14 objected that the hearing held on that date satisfied the 90-day hearing requirement of NMSA

15 1978, Section 7-1B-8 (A) and the Administrative Hearings Office entered a Scheduling Order

16 and Notice of Administrative Hearing. [Administrative File]

17 36. On October 24, 2018, the parties filed a Joint Motion to Consolidate and Hold in

18 Abeyance. More precisely, the parties sought to consolidate the protests of TRC and ISD and to

19 hold the protest in abeyance pending the outcome of Golden Services and a second, unnamed1

20 nursing home facility.

21 37. On October 29, 2018, the Administrative Hearings Office entered a Consolidation

1
The taxpayer in the appeal accompanying Golden Services was unnamed since the order from which the appeal
arose was interlocutory in nature, not a final Decision and Order, and therefore not subject to disclosure under
NMSA 1978, Section 7-8-1.3 D.

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
Page 8 of 34
1 Order, Order Vacating Setting on Merits, and Order Holding Matter in Abeyance.

2 [Administrative File]

3 Reporting Periods January 31, 2015 through December 31, 2015

4 TRC

5 38. On January 18, 2019, the Department issued a Full Refund Denial. The denial

6 issued under Letter ID No. L1227401392 was in response to TRC’s application for Refund

7 periods “Jan 31, 2015 – Dec 31, 2015 in the amount of [$]67,327.00” explaining that TRC is not

8 a “health care practitioner” as defined by Section 7-9-93. [Administrative File (accompanying

9 Hearing Request filed June 17, 2019)]

10 39. On April 9, 2019, TRC’s protest was received in the Department’s Protest Office.

11 [Administrative File (accompanying Hearing Request filed April 9, 2019)]

12 40. On April 11, 2019, the Department acknowledged TRC’s protest under Letter ID

13 No. L0754259120. [Administrative File (accompanying Hearing Request filed April 9, 2019)]

14 41. On June 17, 2019, the Department filed a Hearing Request in the matter of TRC’s

15 protest of the Department’s denial of its Application for Refund. [Administrative File]

16 ISD

17 42. On January 17, 2019, the Department issued a Full Refund Denial. The denial

18 issued under Letter ID No. L1719875760 was in response to ISD’s application for Refund

19 periods “Jan 31, 2015 – Dec 31, 2015 in the amount of [$]305,137.00” explaining that ISD is not

20 a “health care practitioner” as defined by Section 7-9-93. [Administrative File (accompanying

21 Hearing Request filed June 17, 2019)]

22 43. On April 9, 2019, ISD’s protest was received in the Department’s Protest Office.

23 [Administrative File (accompanying Hearing Request filed June 17, 2019)]

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
Page 9 of 34
1 44. On April 11, 2019, the Department acknowledged ISD’s protest under Letter ID

2 No. L0217388208. [Administrative File (accompanying Hearing Request filed June 17, 2019)]

3 45. On June 17, 2019, the Department filed a Hearing Request in the matter of ISD’s

4 protest of the Department’s denial of its Application for Refund. [Administrative File]

5 46. On June 28, 2019, the Department, ISD, and TRC filed a Joint Motion to

6 Consolidate and Hold in Abeyance in which the parties explained that the protest should be held

7 in abeyance pending the outcome of Golden Services and a second, unnamed nursing home

8 facility.

9 47. On July 15, 2019, the parties filed a Waiver of 90-day Requirement for a Hearing

10 in which the parties explicitly waived the 90-day hearing requirement under Section 7-1B-8 (F).

11 [Administrative File]

12 48. On June 16, 2019, the Administrative Hearing Office entered a Consolidation and

13 Abeyance Order. [Administrative File]

14 49. An initial scheduling hearing occurred on July 14, 2017 at which time the parties

15 agreed that the hearing satisfied the 90-day hearing requirement under NMSA 1978, Section 7-

16 1B-8 (A). The parties also requested that the matter be held “in abeyance pending resolution of

17 the scope and applicability of the §7-9-93 deduction[.]” [Administrative File]

18 50. The Hearing Officer takes administrative notice that the appeal referenced on the

19 Order Holding the Matter in Abeyance was Golden Services and a second, unnamed nursing

20 home facility.

21 Reporting Periods January 31, 2016 through October 31, 2016

22 TRC

23 51. On January 14, 2020, the Department issued a Full Refund Denial. The denial

24 issued under Letter ID No. L1054722736 was in response to TRC’s application for Refund

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
Page 10 of 34
1 periods “Jan 31, 2016 – Oct 31, 2016 in the amount of [$]84,325.00” explaining that TRC is not

2 a “health care practitioner” as defined by Section 7-9-93. [Administrative File (accompanying

3 Hearing Request filed June 3, 2020)]

4 52. On March 19, 2020, TRC’s protest was received in the Department’s Protest

5 Office. [Administrative File (accompanying Hearing Request filed June 3, 2020)]

6 53. On May 11, 2020, the Department acknowledged TRC’s protest under Letter ID

7 No. L0445736624. [Administrative File (accompanying Hearing Request filed June 3, 2020)]

8 54. On June 3, 2020, the Department filed a Hearing Request in the matter of TRC’s

9 protest of the Department’s denial of its Application for Refund. The Hearing Request included a

10 copy of the Department’s Original Answer. [Administrative File (accompanying Hearing

11 Request filed June 3, 2020)]

12 55. On June 8, 2020, the Administrative Hearings Office entered a Notice of

13 Telephonic Scheduling Hearing which set an initial scheduling hearing for July 1, 2020.

14 [Administrative File]

15 ISD

16 56. On January 14, 2020, the Department issued a Full Refund Denial. The denial

17 issued under Letter ID No. L0786287280 was in response to ISD’s application for Refund

18 periods “Jan 31, 2016 – Oct 31, 2016 in the amount of [$]335,772.00” explaining that ISD is not

19 a “health care practitioner” as defined by Section 7-9-93. [Administrative File (accompanying

20 Hearing Request filed June 3, 2020)]

21 57. On March 19, 2020, ISD’s protest was received in the Department’s Protest

22 Office. [Administrative File (accompanying Hearing Request filed June 3, 2020)]

23 58. On May 11, 2020, the Department acknowledged ISD’s protest under Letter ID

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
Page 11 of 34
1 No. L1787913904. [Administrative File (accompanying Hearing Request filed June 3, 2020)]

2 59. On June 3, 2020, the Department filed a Hearing Request in the matter of ISD’s

3 protest of the Department’s denial of its Application for Refund. The Hearing Request included a

4 copy of the Department’s Original Answer. [Administrative File (accompanying Hearing

5 Request filed June 3, 2020)]

6 60. On June 8, 2020, the Administrative Hearings Office entered a Notice of

7 Telephonic Scheduling Hearing which set an initial scheduling hearing for July 1, 2020.

8 [Administrative File]

9 61. On June 8, 2020, the Department, ISD, and TRC filed a Joint Waiver of 90 Day

10 Requirement for a Hearing, and Motion to Consolidate and Hold Protests in Abeyance in which

11 the parties explained that the protest should be held in abeyance pending the outcome of Golden

12 Services and a second, unnamed nursing home facility.

13 62. On June 25, 2020, the Administrative Hearings Office entered a Consolidation

14 Order, Order Vacating Telephonic Scheduling Hearing, and Order Holding Matter in Abeyance.

15 [Administrative File]

16 Post Golden Services

17 63. On April 20, 2020, the New Mexico Court of Appeals entered its decision in the

18 appeal for which the protest was stayed. See Golden Services Home Health & Hospice v.

19 Taxation & Revenue Dep't, A-1-CA-36987, 2020 WL 2045956 (Apr. 20, 2020) (non-

20 precedential)

21 64. On October 4, 2021, Taxpayers filed Taxpayers’ Request for a Scheduling

22 Hearing asserting that Taxpayers “[did] not believe the opinion in Golden Services [was]

23 dispositive to their protests.” [Administrative File]

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
Page 12 of 34
1 65. On October 8, 2021, the Administrative Hearings Office entered an Order to

2 Conduct Informal Conference and Notice of Telephonic Scheduling Hearing. [Administrative

3 File]

4 66. On October 29, 2021, upon Taxpayers’ request, the Administrative Hearings

5 Office entered an Order Continuing Telephonic Scheduling Hearing to January 14, 2022.

6 [Administrative File]

7 67. On January 25, 2022, the Administrative Hearings Office entered a Dispositive

8 Motions Briefing Schedule and Notice of Hearing. [Administrative File]

9 68. On March 31, 2022, the parties requested that all pending protests be

10 consolidated: AHO Cause Nos. 18.08-194R, 18.08-197R, 19.06-111R, 19.06-112R, 20.06-79R,

11 and 20.06-80R. [Administrative File]

12 69. On May 6, 2022, Taxpayers filed Taxpayers’ Motion. The Department filed

13 Department’s Response on May 20, 2022. Taxpayers filed Taxpayers’ Reply on June 3, 2022.

14 [Administrative File]

15 DISCUSSION

16 Taxpayers’ Motion concentrates on whether, as end-stage renal disease facilities, Taxpayers

17 are eligible to deduct amounts of gross receipts pursuant to NMSA 1978, Section 7-9-93, as

18 construed by Golden Services, in conjunction with the Department’s duly promulgated Regulations

19 3.2.241.13 and 3.2.241.17 NMAC (2006).

20 In controversies involving a question of law, or application of law where there are no

21 disputed facts, summary judgment is appropriate. See Koenig v. Perez, 1986-NMSC-066, ¶10-

22 11, 104 N.M. 664. If the movant for summary judgment makes a prima facie showing that it is

23 entitled to a judgment as a matter of law, the burden shifts to the opposing party to show

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
Page 13 of 34
1 evidentiary facts that would require a trial on the merits. See Roth v. Thompson, 1992-NMSC-

2 011, ¶17, 113 N.M. 331.

3 Although favored procedurally, a non-moving party cannot rely solely on the allegations

4 contained in its complaint or upon mere argument or contention to defeat a motion once a prima

5 facie showing has been made. See Oschwald v. Christie, 1980-NMSC-136, ¶ 6, 95 N.M. 251,

6 253, 620 P.2d 1276, 1278.

7 Instead, the non-movant “must demonstrate genuine issues of material fact by way of

8 sworn affidavits, depositions, and similar evidence.” See Juneau v. Intel Corp., 2006-NMSC-

9 002, ¶ 15, 139 N.M. 12, 17, 127 P.3d 548, 553; Archuleta v. Goldman, 1987-NMCA-049, ¶ 11,

10 107 N.M. 547, 551, 761 P.2d 425, 429 (a party opposing a motion for summary judgment must

11 come forward with evidence to refute assertions of fact).

12 Department’s Contentions of Disputed Facts

13 In this case, the Department first contends that the Affidavit of Ms. Jeannie Oh, provided

14 in support of Taxpayers’ Motion, is not competent nor based on personal knowledge because she

15 did not affirm that her testimony was based on personal knowledge. The Hearing Officer does

16 not agree.

17 Ms. Oh states that she “is fully competent to testify to the matters set forth herein.” See

18 Affidavit of Jeannie Oh, Para 1. She proceeds to explain her employment history and how she is

19 “familiar with the financial operation of TRC and ISD, including the services those companies

20 provide, the sources from which those companies derive revenue, and the arrangements those

21 companies maintained with managed health care providers for the tax years in issue.” See

22 Affidavit of Jeannie Oh, Para 2. Ms. Oh’s affidavit then continues to discuss relevant business

23 and tax matters in reasonable detail.

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
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1 It is clear from reading Ms. Oh’s affidavit that she is competent and knowledgeable in the

2 facts giving rise to this protest and her testimony is material and relevant. It is obvious from the

3 context of her testimony that she is personally knowledgeable in the matters at hand. “Sometimes

4 personal knowledge may be inferred from the content or context of the affidavit.” See Felps v.

5 Mewbourne Oil Co., Inc., 2020 WL 2543792, at *2 (D.N.M. May 19, 2020) (citing 11 Moore's

6 Federal Practice, § 56.94[2][b]). “If personal knowledge is to be inferred, the basis for the

7 inference must be contained in the affidavit or declaration.” Id. In this case, similar to the general

8 rule expounded by Moore's Federal Practice and followed by the courts citing it, the basis for

9 Ms. Oh’s personal knowledge is contained in her affidavit and a reasonable inference of personal

10 knowledge can be drawn from her testimony.

11 Moreover, the technical Rules of Civil Procedure and the Rules of Evidence do not apply

12 in administrative proceedings before the Administrative Hearings Office. See NMSA 1978,

13 Section 7-1B-6. Instead, Regulation 22.600.3.24 C NMAC provides that “[r]elevant and material

14 evidence shall be admissible.” The Hearing Officer views Ms. Oh’s affidavit and its contents as

15 relevant and material.

16 Second, the Department challenges, through argument alone, several material facts

17 relevant to Taxpayers’ Motion. However, argument alone is inadequate for raising a genuine

18 issue of material fact. As summarized previously, a non-moving party may not rely on mere

19 argument to defeat a motion once a prima facie showing has been made. See Oschwald, 1980-

20 NMSC-136, ¶ 6.

21 Finally, the Department argues that “the Department of Veterans Affairs (“VA”) is not a

22 managed health care provider[,]” contrary to facts asserted by Taxpayers. See Department’s

23 Motion, Page 13. The Department’s stance in the present protests contradicts the Department’s

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
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1 viewpoint in Robison where the Department stipulated to the fact the VA was a managed health

2 care provider. See Robison, Page 1; Page 3, Para 12. The Hearing Officer does not suggest that

3 the Department should be estopped from changing its mind in this protest, but in light of the

4 Department’s view of the VA in Robison, combined with the absence of actual evidence to the

5 contrary in this case, the Hearing Officer will accept as an undisputed fact that the VA is a

6 managed health care provider for the purposes of this motion.

7 The Hearing Officer therefore finds that there are not any disputed issues of material fact

8 in this protest and this matter is ripe for summary judgment.

9 Burden of Proof

10 “[T]axation is the rule and the claimant must show that his demand is within the letter as

11 well as the spirit of the law.” See TPL, Inc. v. New Mexico Taxation & Revenue Dept., 2003-

12 NMSC-007, ¶ 9, 133 N.M. 447, 451, 64 P.3d 474, 478 (quoting Rauscher, Pierce, Refsnes, Inc.

13 v. Taxation & Revenue Dep't, 2002–NMSC–013, ¶ 11, 132 N.M. 226, 46 P.3d 687.

14 The Gross Receipts and Compensating Tax Act, for the privilege of engaging in business,

15 imposes excise taxes of specified percentages on gross receipts on any person engaging in

16 business in New Mexico. “To prevent evasion of the gross receipts tax and to aid in its

17 administration, it is presumed that all receipts of a person engaging in business are subject to the

18 gross receipts tax. See NMSA 1978, Section 7-9-4 (2010, Amended 2022). For the purpose of

19 enforcing the tax, there is a presumption that all receipts of a person engaging in business in New

20 Mexico are subject to gross receipts tax. See Section 7-9-5(A) (2019).

21 Taxpayers may, however, reduce their gross receipts tax obligations by availing

22 themselves of deductions and exemptions authorized by the Legislature. “[D]eductions are a

23 matter of legislative grace and a way of achieving [the Legislature’s] policy objectives.” See

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
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1 Sutin, Thayer & Browne v. Revenue Div. of Taxation & Revenue Dept., 1985-NMCA-047, ¶ 17,

2 104 N.M. 633, 636, 725 P.2d 833, 836. The right to a deduction must be clear and unambiguous

3 with a strict construction against the taxpayer. See Sec. Escrow Corp. v. State Taxation and

4 Revenue Dep’t., 1988-NMCA-068, ¶ 8, 107 N.M. 540; See also Wing Pawn Shop v. Taxation

5 and Revenue Dep’t., 1991-NMCA-024, ¶ 16, 111 N.M. 735; Chavez v. Commissioner of

6 Revenue, 1970-NMCA-116, ¶ 7, 82 N.M. 97; Pittsburgh and Midway Coal Mining Co. v.

7 Revenue Division, 1983-NMCA-019, 99 N.M. 545.

8 Consequently, “[a] taxpayer has the burden of showing that it comes within the terms of a

9 statute permitting a tax deduction. See Sutin, Thayer & Browne, 1985-NMCA-047, ¶ 17. A

10 “deduction must be denied in the absence of a showing of clear legislative intent to permit the

11 deduction.” See Sutin, Thayer & Browne, 1985-NMCA-047, ¶ 18.

12 Even if a taxpayer can establish a legal entitlement to a deduction, a taxpayer seeking a

13 refund must support the amount of the refund claimed with credible documentation. See NMSA

14 1978, Section 7-1-26 (A) (5) and (C) (2019). Accordingly, it is not enough that a taxpayer

15 establishes a legal right to a refund, but it must also come forward with evidence to establish the

16 facts supporting the amount of the refund. See TPL, Inc., 2003-NMSC-007, ¶ 9.

17 In this protest, however, there is no indication that the amounts of Taxpayers’ requested

18 refunds are in dispute. The relevant Full Refund Denial letters and the Department’s Original

19 Answer do not take issue with the amount of the refund, but instead deny the refunds based on

20 the question of legal entitlement. The same observation is made with respect to Taxpayers’

21 Motion, Department’s Response, and Taxpayers’ Reply. Thus, the critical issue upon which

22 Taxpayers’ request for relief rests is whether Taxpayers enjoy a legal entitlement to a deduction

23 and corresponding refund under Section 7-9-93.

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
Page 17 of 34
1 Entitlement to Section 7-9-93 and application of Regulations 3.2.241.13 and 3.2.241.17
2 NMAC

3 Taxpayers claim they are eligible for a deduction under Section 7-9-93 and Regulations

4 3.2.241.13 and 3.2.241.17 NMAC. In contrast, the Department argues that Taxpayers are

5 precluded from the grace intended by the Legislature when it enacted Section 7-9-93, and the

6 regulations upon which Taxpayers support their claim should be disregarded as void because

7 they are “nonsensical when applied to non-practitioners because they do not perform services

8 pursuant to a state license.” See Department’s Response, Page 24.

9 The reporting periods at issue extend from January 1, 2014 through October 31, 2016.

10 Therefore, two versions of the statute were in effect during the relevant periods of time.

11 Taxpayers’ applications for refund, however, were all filed after the effective date2 of the 2016

12 version of the statute. The version of the statute in effect prior to October 19, 2016, provided:

13 Receipts from payments by a managed health care provider or
14 health care insurer for commercial contract services or medicare
15 part C services provided by a health care practitioner that are not
16 otherwise deductible pursuant to another provision of the Gross
17 Receipts and Compensating Tax Act may be deducted from gross
18 receipts, provided that the services are within the scope of practice
19 of the person providing the service. Receipts from fee-for service
20 payments by a health care insurer may not be deducted from gross
21 receipts. The deduction provided by this section shall be
22 separately stated by the taxpayer.

23 The 2016 amendment, effective on October 19, 2016, provided:

24 Receipts of a health care practitioner for commercial contract
25 services or medicare part C services paid by a managed health care
26 provider or health care insurer may be deducted from gross
27 receipts if the services are within the scope of practice of the health
28 care practitioner providing the service. Receipts from fee-for-
29 service payments by a health care insurer may not be deducted
30 from gross receipts.

2
Section 10 of SB 6 stated “It is necessary for the public peace, health and safety that this act take effect
immediately.” The governor signed the bill on October 19, 2016. See also N.M. Const., Art. 4, Sec. 23.

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
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1 Despite their differences, both versions of the statute have common elements: 1) receipts

2 must be paid by a managed health care provider or health care insurer; 2) receipts are payments

3 for commercial contract services or medicare part C services; and 3) the services were performed

4 by a health care practitioner within the scope of their practice. See id. (2007 and 2016).

5 The Legislature again amended Section 7-9-93 in 2021. That version of the statute

6 codified the regulations that the Department now asserts should be void. The significance of the

7 2021 amendment will be addressed momentarily.

8 Under the regulations, a business entity can qualify as a health care practitioner.

9 The Department’s position with respect to the application of Section 7-9-93 (2007 and

10 2016) is that the deduction is not available to the category of business entities to which

11 Taxpayers belong, meaning a “corporation, unincorporated business association, or other legal

12 entity” as provided by Regulation 3.2.241.13 NMAC.

13 The Department argues that the deduction is limited to individual “health care

14 practitioners” citing ” See Golden Services, No. A-1-CA-36987, mem. op. While Golden

15 Services resolved the application of Section 7-9-93 with respect to certain facilities, such as

16 hospices and hospitals, its holding may not be as far-reaching as the Department proclaims. In

17 other words, Golden Services did not necessarily find that all business entities were disqualified.

18 Golden Services explained that the statute “lends support to the conclusion that only

19 health care practitioners could hold qualifying ‘receipts from payments by a managed health care

20 provider or health care insurer.’” See Golden Services, No. A-1-CA-36987, mem. op., ¶ 25. It

21 further pronounced that the 2016 amendment “finalize[d] once and for all that the Legislature

22 does not intend to bestow a tax deduction to simply ‘any taxpayer’ and thus non-practitioner

23 transactions do not fall within the purview of” the statute. Id. at ¶ 26. Specifically, under the

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
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1 facts of the decision, Golden Services held that “health care facilities … are not entitled to claim

2 the deduction.” Id. at ¶ 24.

3 Yet, Golden Services also looked upon certain regulations with approval as it

4 contemplated the boundaries of the deduction. Those regulations, which Golden Services

5 contemplated and ultimately determined to be proper implementations of the law were

6 Regulations 3.2.241.13 and 3.2.241.17 NMAC (2006), both of which further refined the

7 boundaries within which eligible taxpayers could qualify for the deduction under Section 7-9-93.

8 Since 2006, Regulation 3.2.241.13 NMAC has continuously provided that, “[a]

9 corporation, unincorporated business association, or other legal entity may deduct under Section

10 7-9-93 NMSA 1978 its receipts from managed health care providers or health care insurers for

11 commercial contract services…provided on its behalf by health care practitioners who own or

12 are employed by the corporation, unincorporated business association or other legal entity[.]” See

13 Regulation 3.2.241.13 NMAC (2006) (emphasis added). The regulation construes the definition

14 of a “health care practitioner” to explicitly allow business entities to claim the deduction under

15 Section 7-9-93. See id. The regulation, enacted in 2006, has remained effective through the

16 present time, including under both the 2007 and 2016 iterations of Section 7-9-93, as well as the

17 2021 version which incorporated and codified the regulations the Department now renounces.

18 See id.

19 However, not just any business entity qualifies as a health care practitioner under the

20 regulation. See id. The health care practitioners who perform eligible services on the business

21 entity’s behalf must 1) own or 2) be employed by the business entity provided the business entity

22 is not a 501 (C) (3) organization or “an HMO, hospital, hospice, nursing home, an entity that is

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
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1 solely an outpatient facility or intermediate care facility licensed under the Public Health Act.”

2 Id.

3 Conversely stated, any entity coming within the exclusions contained in Regulation

4 3.2.241.13 A or B NMAC “is not a ‘health care practitioner’ as defined by Section 7-9-93[.]”

5 See Regulation 3.2.241.17 NMAC. Similar to Regulation 3.2.241.13 NMAC, Regulation

6 3.2.241.17 NMAC has also been in effect since 2006 and remains effective at the present time.

7 Nonetheless, the Department argues that these regulations are void and invalid and

8 should be disregarded by the tribunal. It states, “[s]ince the regulation ‘expands’ the definition of

9 health care practitioner, it is void.” See Department’s Response, Page 24. It went on to claim that

10 “[i]f the regulations are in conflict with, or contrary to Legislative intent behind Section 7-9-93,

11 they are void.” Id.

12 Yet, upon careful consideration, the Department’s position with respect to its own

13 regulations is unsound, particularly when Golden Services relied on those same regulations to

14 find in favor of the Department, a ruling to which the Administrative Hearings Office has

15 faithfully adhered when considering protests with facts analogous to Golden Services. See Alta

16 Vista Regional Hospital, D&O 23-01 (1/13/2023); Carlsbad Medical Center, LLC, D&O 23-02

17 (1/13/2023); Mimbres Memorial Hospital and Nursing Home, D&O 23-03 (1/13/2023); Lea

18 Regional Hospital, D&O 23-04 (1/18/2023); Roswell Clinic Corporation, D&O 23 – 05

19 (1/20/2023); Roswell Hospital Corporation, D&O 23 – 06 (1/20/2023). This protest does not

20 present analogous facts.

21 The Department’s Regulations Have the Force of Law

22 The Department is vested with the authority to promulgate regulations “to interpret,

23 exemplify, implement and enforce the provisions of the Gross Receipts and Compensating Tax

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
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1 Act.” See 3.2.1.6 NMAC (2001). The authority stems from NMSA 1978, Section 9-11-6.2 (B)

2 (1) (2015) which grants it the authority to enact regulations that interpret and exemplify the

3 statutes to which they relate. The Department’s regulations carry a presumption that they are a

4 “proper implementation of the provisions of the laws[.]” See NMSA 1978, Section 9-11-6.2 (G).

5 Like any other agency vested with legislative authority to promulgate rules and regulations, those

6 rules and regulations “have the force of law.” See Duke City Lumber Co. v. New Mexico Envtl.

7 Improvement Bd., 1984-NMSC-042, ¶ 7, 101 N.M. 291, 292, 681 P.2d 717, 718 (Emphasis

8 Added)

9 The Department’s authority to enact regulations includes the power to amend or to repeal

10 a regulation when it becomes necessary to do so “by reason of any alteration of any such law.”

11 Id. Since 2006, the Department has not amended or repealed Regulation 3.2.241.13 or

12 Regulation 3.2.241.17 despite changes to the statute to which they relate. See 3.2.241.13 and

13 3.2.241.17 NMAC; See also NMSA 1978, Section 7-9-93 (2007) (2016) (2021). Consequently,

14 the Department’s regulations remain a published and presumptively proper implementation of

15 the statute. See id. See also NMSA 1978, Section 9-11-6.2. See also Golden Services, No. A-1-

16 CA-36987, mem. op. Therefore, it was reasonable for Taxpayers to rely on the published and

17 presumptively proper regulations as a valid implementation of the statute in support of their

18 request for refund since those regulations continue to have the force of law.

19 Consistent with Taxpayers’ perspective, Golden Services found that there was no “basis

20 to conclude that the Department’s new regulations [enacted in 2006] were an improper

21 interpretation of the statute” and that they were presumptively proper. See Golden Services, No.

22 A-1-CA-36987, mem. op., ¶ 21. Those regulations to which Golden Services referred were

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1 3.2.241.13 and 3.2.241.17, and are the regulations now at issue, which the Department contends

2 are invalid and void. See id.

3 The Department made a similar argument that was ultimately rejected by another hearing

4 officer in the protest of Robison Medical Resource Group, LLC, Administrative Hearings Office

5 D&O 21-14, (May 27, 2021) 2021 WL 5299780 (non-precedential). In Robison, the hearing

6 officer thoughtfully observed, “[t]he Department’s argument contains an inherent contradiction,

7 that the court’s decision in Golden Services, which relied upon the validity of the regulations, has

8 simultaneously rendered those regulations invalid.” See id. at Page 12. That matter is presently

9 on appeal in A-1-CA-39784, and despite the passage of time since this office considered the

10 issue in Robison, the Department has still not amended or repealed the regulations which it

11 contends should be disregarded as “nonsensical.” See Department’s Response, Page 24.

12 Yet as recently as November 24, 2020, a date subsequent to Golden Services but prior to

13 Robison, the Department issued Ruling 420-20-02 in which it determined that a “for-profit New

14 Mexico corporation” was entitled to a deduction under Regulation 3.2.241.13 NMAC and

15 Section 7-9-93. It explained:

16 Pursuant to department regulation 3.2.241.13 NMAC, X may
17 deduct under section 7-9-93 NMSA 1978 its receipts from
18 managed health care providers or health care insurers for
19 commercial contract services provided on its behalf by healthcare
20 practitioners employed by X.

21 This ruling seemingly contradicts the Department’s perception that its own regulations

22 are invalid or conflict with the law. Well after several statutory amendments and Golden

23 Services, it continues to cite the regulation which, at least for the purpose of this protest, it calls

24 “nonsensical.” Yet, the ruling clearly explained that the for-profit corporation subject of the

25 ruling was entitled to a deduction for receipts derived from eligible services provided by the

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
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1 corporation’s employees, a fact pattern not all that dissimilar to the facts now at hand, and it

2 cited Regulation 3.2.241.13 NMAC in support for its conclusion.

3 It is also apparent that the observations regarding the validity of the Department’s

4 regulation in Golden Services and Robison, and ultimately this protest, are not entirely

5 unreasonable. Taxpayers’ Motion provides examples from the First Judicial District Court, Santa

6 Fe County, in which similar observations about the scope of Golden Services and the

7 applicability of the relevant regulations have been made. See Taxpayers’ Motion (Exhibits 3 and

8 4). The Department emphasizes that those cases are all on appeal. Yet, while the Court of

9 Appeals or Supreme Court have yet to weigh in on the continuing validity of those regulations,

10 the fact that judges and hearing officers alike are perceiving the issue similarly lends credence to

11 its reasonableness.

12 In Golden Services, the taxpayers were the types of health care facilities that the

13 regulation explicitly prohibited from claiming the deduction under Section 7-9-93. See id. See

14 also 3.2.241.13 and 3.2.241.17. In the underlying protests that led to the Golden Services appeal,

15 this tribunal concluded that the regulations were improper because they placed additional

16 limitations on the deduction, which were not found in the statute. See Golden Services, No. A-1-

17 CA-36987, mem. op. The court reversed the decisions of the protests and found that the

18 regulations were proper. See id., at ¶ 20-21. The Court’s reasoning is sound and clearly

19 explained.

20 Thus, the Hearing Officer adheres to the guidance provided by Golden Services and

21 agrees that the regulations continue to be proper and valid. See id. The Hearing Officer will also

22 observe that the Department has had sufficient opportunity since Golden Services to amend or

23 repeal and replace the regulations, but it has not yet done so. In fact, the regulations have been

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
Page 24 of 34
1 undisturbed for more than 15 years despite intervening events, and only after Golden Services

2 recognized that they were proper implementations of the law does the Department seemingly

3 attempt to disown them, while still curiously citing them to other taxpayers as proper

4 implementations of the law. See Taxpayers’ Motion (Exhibit 2 - Ruling 420-20-02, Taxation and

5 Revenue Department, Issued 11/24/2020, Effective 1/1/2016)

6 Codification of Regulations

7 In its critique of Robison, the Department asserts that “[i]f the regulations are in conflict

8 with, or contrary to Legislative intent behind Section 7-9-93, they are void.” As a general

9 proposition, the Department’s assertion is reasonable and accurate. See Rainbo Baking Co. of El

10 Paso, Tex. v. Comm'r of Revenue, 1972-NMCA-139, ¶ 10, 84 N.M. 303, 305, 502 P.2d 406, 408.

11 Yet, in 2021, the Legislature codified the regulations that the Department now claims to be

12 invalid. Section 7-9-93 now reads:

13 Receipts of a health care practitioner or an association of health
14 care practitioners for commercial contract services or medicare
15 part C services paid by a managed health care provider or health
16 care insurer may be deducted from gross receipts if the services are
17 within the scope of practice of the health care practitioner
18 providing the service. Receipts from fee-for-service payments by a
19 health care insurer may not be deducted from gross receipts.

20 See Section 7-9-93 A (2021) (Emphases Added)
21
22 The term, “association of health care practitioners” is then defined at Section 7-9-93 C
23 (1) (a – b) as:

24 [A] corporation, unincorporated business entity or other legal
25 entity organized by, owned by or employing one or more health
26 care practitioners; provided that the entity is not:

27 (a) an organization granted exemption from the federal income tax
28 by the United States commissioner of internal revenue as
29 organizations described in Section 501(c)(3) of the United States
30 Internal Revenue Code of 1986, as that section may be amended or
31 renumbered; or

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
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1 (b) a health maintenance organization, hospital, hospice, nursing
2 home or an entity that is solely an outpatient facility or
3 intermediate care facility licensed pursuant to the Public Health
4 Act;

5 See Section 7-9-93 (2021)

6 Although the 2021 version of the statute is not applicable, it is relevant to extracting the

7 intention of the Legislature and demonstrates its concurrence with the regulations that the

8 Department now asserts to be invalid and “contrary to the Legislative intent behind Section 7-9-

9 93[.]” Conversely stated, if the Legislature did not agree with the Department’s regulations

10 implementing Section 7-9-93, or found the Court’s reasoning in Golden Services disagreeable, it

11 would have legislatively overruled them. Instead, it codified them. These events unambiguously

12 express Legislative approval for the regulations, not a contradiction of Legislative intent or will

13 as the Department proposes.

14 In fact, a deeper review of the Fiscal Impact Report prepared for House Bill 98 is

15 enlightening. The Legislative Finance Committee, with input from the Department, described the

16 regulatory codification as follows:

17 These clarifications are in line with TRD’s existing regulations and
18 interpretation.

19 See https://nmlegis.gov/Sessions/21%20Regular/firs/HB0098.PDF (Emphasis
20 Added)

21 Thus, to suggest that the regulations do not apply because they are void, invalid, or

22 nonsensical is incorrect. It even suggests the possibility that one party could gain an advantage in

23 a dispute by simply changing the rules of the game, or in this case, ignoring them. Yet, the

24 Legislature recognized the unfairness of such tactic by enacting NMSA 1978, Section 7-1-60

25 (1993), which clearly states:

26 In any proceeding pursuant to the provisions of the Tax
27 Administration Act, the department shall be estopped from

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
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1 obtaining or withholding the relief requested if it is shown by the
2 party adverse to the department that the party's action or inaction
3 complained of was in accordance with any regulation effective
4 during the time the asserted liability for tax arose[.]

5 Because the Legislature clearly intended for the Department’s regulations to be relied

6 upon by taxpayers, it should be estopped from now contravening them consistent with Section 7-

7 1-60.

8 Taxpayers are not Excluded Entities Under the Department’s Regulations

9 The Department asserts that even if Regulation 3.2.241.13 and 3.2.241.17 were

10 applicable, it should still prevail because Taxpayers are “outpatient facilities” and Regulation

11 3.2.241.17 NMAC specifies that “organizations licensed as a hospital, hospice, nursing home, an

12 entity that is solely an outpatient facility or intermediate care facility under the Public Health

13 Act” may not take the deduction. See Regulation 3.2.241.17 NMAC (2006).

14 The only potentially applicable category of facilities under the facts of this case concern

15 “outpatient facilities.” The Department does not assert that Taxpayers should be disqualified as a

16 “hospital, hospice, nursing home” or “an intermediate care facility.”

17 The Department contends the Taxpayer is nevertheless ineligible for the deduction

18 provided by Section 7-9-93 because it is an “outpatient facility,” meaning “an entity that is

19 “solely an outpatient facility … under the Public Health Act.” See Regulation 3.2.241.17 NMAC.

20 However, the evidence demonstrates that Taxpayers are not licensed as “outpatient

21 facilities,” but are licensed as “end-stage renal disease facilities” under Regulation 7.36.2.1

22 NMAC, enacted by the New Mexico Department of Health under the authority of the Public

23 Health Act.

24 This observation is significant because the Department has reasonably relied on the

25 expertise of the Department of Health under the Public Health Act to define the terms used to

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
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1 implement the deduction. In this case, because the Department of Health perceives “end-stage

2 renal disease facilities” differently from “outpatient facilities,” the effect was to exclude end-

3 stage renal disease facilities from its list of ineligible entities for the deduction. Outpatient

4 facilities are licensed under Regulation 7.11.2 NMAC and includes only specific types of

5 facilities, none of which are end-stage renal disease facilities. See e.g. Regulation 7.11.2.9.

6 Instead, end-stage renal disease facilities are subject to Regulation 7.36.2 NMAC.

7 Moreover, the Legislature is aware of the difference between end stage renal disease

8 facilities and outpatient care facilities. Despite the statuary distinction of terms, the Legislature

9 did not include end state renal disease facilities in its list of excluded organizations like it did

10 with outpatient facilities. For example, for the purposes of Section 7-9-77.1 (2016), “dialysis

11 facility” is defined as an “end-stage renal disease facility as defined pursuant to 42 C.F.R.

12 405.2102[.]”

13 The Legislature updated the definition in 2022 to mean:

14 “a facility that provides outpatient maintenance dialysis services
15 or home dialysis training and support services, including a facility
16 considered by the federal centers for medicare and medicaid
17 services to be an independent or hospital-based facility that
18 includes a self-care dialysis unit that furnishes only self-dialysis
19 services[.]”

20 However, the amendment did not intend to change the historic definition of “dialysis

21 center.” Instead, “[o]n review, [Legislative Finance Committee] staff determined that the

22 definition did not expand the coverage of the deduction but simply supplanted a reference to the

23 [Code of Federal Regulations] with an explicit definition.” See Fiscal Impact Report

24 (https://nmlegis.gov/Sessions/22%20Regular/firs/HB0082.PDF). In other words, the amendment

25 would no longer incorporate, by reference, a definition contained in the C.F.R. which might

26 potentially offend Article IV, Section 18 of the New Mexico Constitution. See e.g. N.M. Const.,

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
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1 Art. IV, Sec. 18 (“No law shall be revised or amended, or provision thereof extended by

2 reference to its title only[.]”) (Emphasis Added)

3 The fact that an end-stage renal disease facility may provide outpatient dialysis does not

4 automatically mean that such a facility is also an outpatient facility. The Department of Health

5 does not require Taxpayers to be licensed as outpatient facilities under its regulations. Taxpayers

6 are instead licensed as end-stage renal disease facilities. Moreover, even if aspects of its business

7 could arguably fall within the meaning of “outpatient facility,” the relevant regulation requires

8 that the “outpatient facility” have no other functions, limiting its exclusion to “an entity that is

9 solely an out-patient facility[.]” See Regulation 3.2.241.17 (Emphasis Added).

10 Taxpayers are not outpatient facilities under the Public Health Act or the regulations of

11 the Department of Health.

12 Taxpayers are Entitled to Deduction under Section 7-9-93

13 The taxpayers in Golden Services were health care facilities (hospice and nursing home)

14 claiming the deduction under the statute, even though the regulation explicitly prohibited it. See

15 id. In contrast, Taxpayers in this protest are not health care facilities precluded by the

16 regulations and are claiming the deduction under the statute based on the language in the

17 regulations that explicitly allow a business entity to claim the deduction for the health care

18 practitioners that it employs. See 3.2.241.13 NMAC; See also e.g. Ruling 420-20-02 (Exhibit 2

19 to Taxpayers’ Motion).

20 As the hearing officer in Robison observed, “[t]his is a crucial distinction, and Golden

21 Services cannot resolve issues that it did not contemplate, which is part of the reason why

22 unpublished decisions are non-precedential.” See Robison, Page 13 (D&O 21-14) (non-

23 precedential) citing Golden Services, No. A-1-CA-36987, mem. op. See also Hess Corp. v. N.M.

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
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1 Taxation & Revenue Dep’t, 2011-NMCA-043, ¶ 35, 149 N.M. 527 (indicating that unpublished

2 opinions and orders are written solely for the benefit of the parties and have no controlling

3 precedential value). See also Inc. County of Los Alamos v. Montoya, 1989-NMCA-004, ¶ 6, 108

4 N.M. 361 (noting that unpublished caselaw is not binding precedent). See State v. Granillo-

5 Macias, 2008-NMCA-021, ¶ 11, 143 N.M. 455 (noting that unpublished orders, decisions, and

6 opinions are not controlling and are written solely for the benefit of the parties). See State v.

7 Gonzales, 1990-NMCA-040, ¶ 47-48, 110 N.M. 218 (noting that unpublished orders, decisions,

8 and opinions are not meant to be controlling authority and that they rarely describe the context of

9 the issue at length, which may be of controlling importance to the decision).

10 Since the regulation contemplates that a business entity which satisfies its criteria is a

11 health care practitioner for purposes of claiming the deduction under the statute, Taxpayers

12 arguments are consistent with the holding in Golden Services that a health care practitioner, as

13 defined by the statute and valid regulations, is the taxpayer who may claim the deduction. See

14 Golden Services, No. A-1-CA-36987, mem. op.

15 Taxpayers are not health care facilities. They are is not 501 (c) (3) organizations, nor are

16 they hospitals, HMOs, hospices, nursing homes, or entities licensed under the Public Health Act

17 as outpatient facilities or intermediate care facilities. See also 3.2.241.13 and 3.2.241.17 NMAC.

18 Taxpayers are legal entities with receipts from managed health care providers for commercial

19 contract services provided on their behalf by health care practitioners who are their employees;

20 therefore, Taxpayers fall within the purview of the regulation. See 3.2.241.13 NMAC.

21 The Department’s regulations are presumptively proper. See NMSA 1978, Section 9-11-

22 6.2 (G). Regulation 3.2.241.13 and Regulation 3.2.241.17 both interpret Section 7-9-93 as

23 allowing a business entity to claim the deduction, but only if the business entity is not one of the

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
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1 listed health care facilities. See 3.2.241.13 and 3.2.241.17 NMAC. Both regulations apply to

2 both versions of the statute in effect during the tax periods at issue. See id. The decision in

3 Golden Services found that Regulation 3.2.241.13 and Regulation 3.2.241.17, specifically, were

4 presumptively proper. See Golden Services, No. A-1-CA-36987, mem. op. ¶ 20-21.

5 Regulation 3.2.241.13 construes the definition of a health care practitioner and allows

6 business entities to claim the deduction under Section 7-9-93. See 3.2.241.13 NMAC. Certain

7 types of business entities that are health care facilities are prohibited from claiming the deduction

8 under Section 7-9-93. See id. See also 3.2.241.17 NMAC. Taxpayers are not among the health

9 care facilities prohibited from claiming the deduction. See 3.2.241.13 NMAC. If it were, then

10 the regulation in conjunction with the decision in Golden Services would compel a different

11 result. See id. See also Golden Services, No. A-1-CA-36987, mem. Op.; Alta Vista Regional

12 Hospital, D&O 23-01 (1/13/2023); Carlsbad Medical Center, LLC, D&O 23-02 (1/13/2023);

13 Mimbres Memorial Hospital and Nursing Home, D&O 23-03 (1/13/2023); Lea Regional

14 Hospital, D&O 23-04 (1/18/2023); Roswell Clinic Corporation, D&O 23 – 05 (1/20/2023);

15 Roswell Hospital Corporation, D&O 23 – 06 (1/20/2023).

16 Taxpayers’ receipts meet the statutory and regulatory criteria for the deduction. See id.

17 See also NMSA 1978, Section 7-9-93. Taxpayers also meet the Department’s definition of a

18 health care practitioner under the regulation. See 3.2.241.13 NMAC. Therefore, Taxpayers may

19 claim the deduction under Section 7-9-93. See NMSA 1978, Section 7-9-93. See also

20 3.2.241.13 NMAC. See also Golden Services, No. A-1-CA-36987, mem. op. (allowing health

21 care practitioners to take the deduction and upholding the regulation that expands health care

22 practitioners to include business entities).

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
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1 Conclusion

2 Regulations 3.2.241.13 and 3.2.241.17 are presumptively proper interpretations of Section

3 7-9-93 and they have the force of law. Thus, Taxpayers are entitled to a deduction under Section

4 7-9-93 as interpreted by those regulations and the Department should be estopped from

5 renouncing them pursuant to NMSA 1978, Section 7-1-60. Taxpayers’ Motion and protests

6 should be, and hereby are, GRANTED.

7 CONCLUSIONS OF LAW

8 A. Taxpayers filed timely, written protests of the Department’s denials of its refund

9 applications and jurisdiction lies over the parties and the subject matter of this protest.

10 B. Initial hearings were timely set and held within 90 days of the protests as required by

11 NMSA 1978, Section 7-1B-8 except in those protests in which the parties promptly filed a

12 stipulated waiver of the hearing requirement.

13 C. From 2007, receipts from payments by a managed health care provider for

14 commercial contract services provided by a health care practitioner within the scope of their practice

15 may be deducted. See NMSA 1978, Section 7-9-93 (2007).

16 D. From 2019, receipts of a health care practitioner for commercial contract services

17 paid by a managed health care provider may be deducted. See NMSA 1978, Section 7-9-93 (2016).

18 E. Under both versions of the statute, the regulations interpreted the statute to allow for

19 legal entities to claim the deduction, if they are not certain types of health care facilities. See

20 3.2.241.13 and 3.2.241.17 NMAC (2006).

21 F. The regulations are presumptively a proper interpretation of the statute. See NMSA

22 1978, Section 9-11-6.2. See also Golden Services, No. A-1-CA-36987, mem. op.

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1 G. Taxpayers’ receipts were from managed health care providers for commercial

2 contract services provided by health care practitioners within the scope of their practice, and the

3 health care practitioners were employed by Taxpayers. Therefore, Taxpayers met the statutory

4 and regulatory criteria for claiming the deduction. See NMSA 1978, Section 7-9-93. See also

5 3.2.241.13 NMAC.

6 H. Taxpayers are not a 501 (C) (3) organization, an HMO, a hospital, a hospice, a

7 nursing home, or an outpatient facility or intermediate care facility licensed under the Public

8 Health Act. Therefore, Taxpayers are not prohibited from claiming the deduction. See NMSA

9 1978, Section 7-9-93. See also 3.2.241.13 and 3.2.241.17 NMAC. See also Golden Services,

10 No. A-1-CA-36987, mem. op.

11 I. The Department shall be estopped from obtaining or withholding the relief

12 requested if it is shown by the party adverse to the Department that the party’s action or inaction

13 complained of was in accordance with any regulation effective during the time the asserted

14 liability for tax arose. See Section 7-1-60.

15 For the reasons stated, Taxpayers are entitled to summary judgment and their protests

16 should be, and hereby are, GRANTED.

17 DATED: February 6, 2023

18
19 Chris Romero, Hearing Officer
20 Administrative Hearings Office
21 P.O. Box 6400
22 Santa Fe, NM 87502

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
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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 I hereby certify that I served the foregoing on the parties listed below this 6th day of

15 February, 2023 in the following manner:

16

17 INTENTIONALLY BLANK

In the Matter of the Consolidated Protests of ISD Renal, Inc. and Total Renal Care, Inc.
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