A fuel dealer overpaid a New Mexico petroleum fee for years, then filed for a refund. Can it get back the overpayments from more than three years ago by blaming the state's forms?

Subject

Tedken Oil Co. (D&O 98-20)

Plain-English summary

Tedken Oil Co. sells fuel, including diesel, in Farmington, New Mexico. New Mexico's Petroleum Products Loading Fee Act (Section 7-13A-1 et seq., effective July 1, 1990) charges a loading fee when gasoline or special fuel is loaded in the state. Critically, "special fuel" covers only fuel used to propel motor vehicles — diesel sold for off-highway equipment is excluded and carries no fee.

For years Tedken paid the loading fee on all the fuel it received, including the off-highway diesel that was never subject to the fee. The Department's own report form told dealers to report total gallons received but did not define "special fuel" or warn that off-highway fuel was exempt. In 1992, Mrs. T.J. Paulson took over the company's tax reporting and, working with an accountant, discovered the overpayments.

On April 25, 1996, Tedken filed refund claims for the loading fee it had overpaid from July 1990 through February 1996. The Department:

• Refunded $14,626.69 for December 1992 through February 1996 — the periods still within the three-year window; and
• Denied $21,632.45 for July 1990 through November 1992, because those claims were filed more than three years after the end of the calendar year the payments were due, and were therefore barred by Section 7-1-26.

Tedken protested the denial, arguing the Department should be estopped from raising the statute of limitations because its forms and instructions had led Tedken to overpay in the first place. Hearing Officer Margaret B. Alcock denied the protest:

• Statutory estoppel (Section 7-1-60) did not apply. It estops the Department only when a taxpayer relied on a regulation or a written ruling addressed to it. There was no such regulation, and the one ruling on the subject — Ruling 640-92-1 (October 1992) — correctly held that off-highway fuel is not subject to the fee and was not addressed to Tedken. Had Tedken asked for a ruling, it would have caught the error in time to file within the deadline.
• Equitable estoppel ("right and justice") did not apply. The forms did not misstate the law; the Department did not know Tedken was overpaying (Tedken never told it, or asked, whether off-highway fuel was covered); New Mexico's tax laws are public record that Tedken could have checked; and reliance on the oral advice of Department employees — who themselves seemed unsure of the forms — was not reasonable, especially with an accountant involved.

What this means for you

• The three-year refund deadline is strict. Under Section 7-1-26, a claim for refund must be filed within three years of the end of the calendar year in which the tax or fee was originally due. Overpayments older than that are generally lost, no matter how genuine.
• Confusing government forms usually will not extend the deadline. Estoppel against the state in tax cases is rare. A form that is silent about an exemption is not the same as a form that misstates the law, and silence rarely amounts to the kind of misrepresentation estoppel requires.
• If you think you are overpaying, get a written ruling — fast. A ruling addressed to you (or a regulation you can point to) is the footing Section 7-1-60 recognizes. A ruling request here would have flagged the overpayment while the earlier periods were still recoverable.
• Know which fuel is actually subject to the loading fee. Only fuel used to propel motor vehicles counts as "special fuel." Diesel sold for off-highway equipment is excluded, so paying the fee on it is money you may not get back if too much time passes.
• Oral advice from the tax office is weak protection. The taxpayer's own witnesses said the Department's employees seemed confused about the forms. Relying on such advice, without checking the statutes or getting written guidance, was not reasonable.

Key questions answered

Why did Tedken get some refunds but not others?
The Department refunded every overpayment from the last three years (December 1992 through February 1996, totaling $14,626.69) but denied the older claims (July 1990 through November 1992, $21,632.45) because they were filed more than three years after the end of the year the fees were due — outside the limit in Section 7-1-26.

Wasn't Tedken overpaying because the Department's form was misleading?
The Hearing Officer found the form was not misleading. It told dealers to report total gallons of "special fuel," and special fuel by definition (Section 7-13A-2(K)) covers only fuel used to propel motor vehicles. The form never directed Tedken to pay the fee on off-highway fuel; it simply did not spell out the exemption.

Could the Department's mistake estop it from using the deadline?
No. Statutory estoppel under Section 7-1-60 needs reliance on a regulation or a ruling addressed to the taxpayer, and neither existed here. Equitable estoppel needs a false representation, the state's knowledge, and reasonable reliance — none of which Tedken proved, since it never told the Department it was paying on off-highway fuel and could have checked the public statutes itself.

What was Ruling 640-92-1 and why didn't it help Tedken?
It was an October 1992 Department ruling that off-highway fuel (like fuel for a railroad locomotive) is not subject to the loading fee. It was correct and public, but it was not addressed to Tedken, so it could not support statutory estoppel — and had Tedken sought its own ruling, it would have learned of the overpayment in time.

Verbatim citations

Off-highway diesel is outside the fee (Finding of Fact 5):

Diesel fuel used in equipment other than motor vehicles is excluded from the definition of "special fuel" subject to the loading fee under the Act. No loading fee was due on these gallons.

Why the older claims were time-barred (Conclusion of Law 2):

The Taxpayer's claims for refund for the period July 1990 through November 1992 were not submitted to the Department until more than three years following the end of the calendar year in which the payment was originally due and are therefore barred by the limitations period set out in Section 7-1-26 NMSA 1978.

Statutory estoppel requires a regulation or a ruling addressed to the taxpayer (Section 7-1-60):

Section 7-1-60 NMSA 1978 provides for estoppel against the Department in two circumstances: where the taxpayer acted according to a regulation or where the taxpayer acted according to a revenue ruling addressed to the taxpayer.

The one ruling on point was correct and not addressed to Tedken:

Although Ruling 640-92-1 was not addressed to the Taxpayer in this case, it was issued at the same time that the Paulsons were conducting their review of the company's payment of the loading fee. Had the Taxpayer applied to the Department for a ruling... the Taxpayer would have been alerted to its overpayment of the loading fee in time to file a claim for refund within the limitations period set out in Section 7-1-26 NMSA 1978.

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Tedken Oil Co.
• Decision PDF: D&O 98-20

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT

IN THE MATTER OF THE PROTEST OF
TEDKEN OIL CO. I.D. No. 01-864754-00-5 No. 98-20
PROTEST TO DENIAL OF CLAIM FOR REFUND

DECISION AND ORDER

This matter came on for hearing on April 8, 1998, before Margaret B. Alcock, hearing

officer. Tedken Oil Co. ("the Taxpayer") was represented by William T. Paulson, its president, and

his wife, T. J. Paulson, who prepared and filed the claims for refund at issue in this protest. The

Taxation and Revenue Department ("the Department") was represented by Bridget Jacober, Special

Assistant Attorney General. Based upon the evidence and the arguments presented, IT IS DECIDED

AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer is in the business of selling fuel, including diesel fuel, in Farmington,

New Mexico.

2. The Petroleum Products Loading Fee Act, Section 7-13A-1 et seq. NMSA 1978 ("the

Act"), effective July 1, 1990, imposes a fee ("the loading fee") on loading of gasoline or special fuels

in New Mexico.

3. For each month of the period July 1990 through February 1996, the Taxpayer filed

with the Department a "Petroleum Products Loading Fee Report", reporting quantities of fuel and

calculating fees due to the Department.

4. The Taxpayer reported and paid the loading fee on the total quantity of fuel received

each month, including gallons of diesel fuel that were sold for use in equipment other than motor

vehicles.

5. Diesel fuel used in equipment other than motor vehicles is excluded from the

definition of "special fuel" subject to the loading fee under the Act. No loading fee was due on these

gallons.

6. The report forms used by the Taxpayer (referred to as the "original form") were

provided to the Taxpayer by the Department. Department Exhibits 1-3.

7. The original form directed the Taxpayer to report the total gallons of gasoline and

special fuel received. Neither the form nor the accompanying instructions defined the term “special

fuel” or specifically informed the Taxpayer that fuel not used in motor vehicles did not come within

the definition of special fuel (as defined by the Act) and therefore was not subject to the loading fee.

Conversely, neither the form nor the instructions directed the Taxpayer to include these quantities of

fuel in the amounts reported to the Department or to pay the loading fee on them.

8. In September 1992, T. J. Paulson took over the job of reporting taxes for the

Taxpayer.

9. Because Mr. and Mrs. Paulson were concerned about the company’s expenses, Mrs.

Paulson worked with an accountant to conduct a careful review of the company’s tax reporting.

10. Mrs. Paulson discovered that the former bookkeeper had made substantial

overpayments of the gross receipts tax and filed claims for refund of these overpaid taxes. The

Department approved and paid the claims made within the limitations period set out in Section 7-1-

26 NMSA 1978.

11. Mrs. Paulson also reviewed the Taxpayer’s payment of the loading fee and had

numerous conversations with employees of the Department concerning the proper method of

reporting the fee. In working through the forms with various Department employees, Mrs. Paulson

was told to report total gallons received from the supplier.

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12. Although Mr. Paulson questioned why the company was paying the loading fee on

fuel that was sold for off-highway use, Mrs. Paulson never specifically asked the Department’s

employees whether this fuel was subject to the loading fee, nor did anyone at the Department

volunteer the information that diesel fuel used in equipment other than motor vehicles is excluded

from the definition of "special fuel" and that no loading fee was due on these gallons.

13. The Taxpayer did not at any time request a formal ruling or other written clarification

from the Department as to whether diesel fuel sold by the Taxpayer for use in equipment other than

motor vehicles was subject to the loading fee.

14. In November 1995, the Department revised the report form used to report the loading

fee (“revised form”), although the Taxpayer did not receive a copy of the form until April 1996.

Department Exhibit 4.

15. The revised form included a worksheet as part of the instructions on the back of the

form. The instructions and worksheet directed the Taxpayer to subtract, from total gallons received,

the number of gallons not used in motor vehicles.

16. After learning that the company had overpaid the loading fee, Mrs. Paulson called the

Department and was told to file claims for refund back to July 1990.

17. On April 25, 1996, the Taxpayer filed claims for refund of the overpaid loading fee

for the period July 1990 through February 1996.

18. The Department approved the refunds for the period December 1992 through

February 1996 and refunded $14,626.69 to the Taxpayer.

19. By letters dated April 26, 1996, the Department denied the claims for refund for the

period July 1990 through November 1992 in the amount of $21,632.45 on the grounds that these

claims were barred by the limitations period set out in Section 7-1-26 NMSA 1978 because they

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were filed more than three years after the end of the calendar year in which the payments were

originally due.

20. By letter dated April 30, 1996, the Taxpayer protested the refund denials.

DISCUSSION

The Taxpayer maintains that the Department’s failure to specifically advise taxpayers that

the petroleum products loading fee does not apply to diesel fuel sold for use in vehicles other than

motor vehicles should estop the Department from raising the statute of limitations as a bar to the

Taxpayer’s claims for refund of the fees paid on such fuel.

As a general rule, courts are reluctant to apply the doctrine of equitable estoppel against the

state. This general rule is given even greater weight in cases involving the assessment and collection of

taxes. Kerr-McGee Nuclear Corp. v. Property Tax Division, 95 N.M. 685, 625 P.2d 1202 (Ct. App.

1980). In such cases, estoppel applies only pursuant to statute or when “right and justice demand it.”

Taxation and Revenue Department v. Bien Mur Indian Market, 108 N.M. 228, 231, 770 P.2d 873, 876

(1989).

Estoppel Based on Statute. Section 7-1-60 NMSA 1978 provides for estoppel against the

Department in two circumstances: where the taxpayer acted according to a regulation or where the

taxpayer acted according to a revenue ruling addressed to the taxpayer. Rulings are issued under the

authority of Section 9-11-6.2(B)(2) NMSA 1978, which states:

rulings shall be written statements of the secretary, of limited application to a
small number of persons, interpreting the statutes to which they relate,
ordinarily issued in response to a request for clarification of the consequences
of a specified set of circumstances.

To be effective, all regulations and rulings must be reviewed by the attorney general or other legal

counsel of the department. Section 9-11-6.2(C). All regulations and rulings must be filed as public

records and are open to inspection by taxpayers. See Section 9-11-6.2(A).

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In this case, the Department does not have a regulation explicitly addressing the issue of

whether taxpayers are or are not required to report and pay the loading fee on gallons of diesel fuel

sold for use in equipment other than motor vehicles. There is, however, a ruling on this issue. In

October 1992, the Department issued Ruling 640-92-1 in response to a question as to whether diesel

fuel sold for various off-highway uses (e.g. a railroad locomotive) was subject to the petroleum

products loading fee.1 The ruling concluded that it was not, stating:

the petroleum products loading fee applies only to the loading of gasoline or
special fuel that is to be used in a motor vehicle. Gasoline or special fuel
destined for uses other than in motor vehicles is not subject to the fee.

Although Ruling 640-92-1 was not addressed to the Taxpayer in this case, it was issued at the same

time that the Paulsons were conducting their review of the company’s payment of the loading fee.

Had the Taxpayer applied to the Department for a ruling to clarify Mr. Paulson’s questions

concerning the sale of fuel for off-highway use, the Taxpayer would have been alerted to its

overpayment of the loading fee in time to file a claim for refund within the limitations period set out

in Section 7-1-26 NMSA 1978.

Clearly, estoppel cannot be applied against the Department under Section 7-1-60. There was

no regulation addressing the application of the loading fee to diesel fuel sold for use in equipment

other than motor vehicles, nor was there a ruling addressed to this Taxpayer on the issue. The only

ruling that did address the application of the loading fee correctly concluded that diesel fuel not used

in motor vehicles was not subject to the loading fee.

Estoppel Based “Right and Justice”. Case law provides for estoppel against the State where

right and justice demand its application. In determining whether estoppel is appropriate, the conduct

of both parties must be considered. Gonzales v. Public Employees Retirement Board, 114 N.M. 420,

1
I take notice of Ruling 640-92-1 as a nonconfidential business record of the Department and a public record open

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427, 839 P.2d 630, 637 (Ct. App.), cert. denied, 114 N.M. 227, 836 P.2d 1248 (1992). The

following elements must be shown as to the party to be estopped: (1) conduct that amounts to a false

representation or concealment of material facts, (2) actual or constructive knowledge of the true

facts, and (3) an intention or expectation that the other party will act on the representations. As to

the party claiming estoppel, the following must be shown: (1) lack of knowledge of the true facts,

(2) detrimental reliance on the adverse party's representations or concealment of facts, and (3)that

such reliance was reasonable. Id. See also, Johnson & Johnson v. Taxation and Revenue Department,

123 N.M. 190, 195, 936 N.M. 872, 877 (Ct. App.), cert. denied, 123 N.M. 167, 936 P.2d 337 (1997).

When estoppel is invoked to avoid application of a statute of limitations, the issue is whether

the defendant has taken some action to prevent the plaintiff from bringing suit within the prescribed

period. Kern v. St. Joseph Hospital, Inc., 102 N.M. 452, 455-456, 697 P.2d 135, 138-139 (1985).

See also, Molinar v. City of Carlsbad, 105 N.M. 628, 735 P.2d 1134 (1987). The party asserting

estoppel has the burden of showing not only that he failed to discover the cause of action prior to the

running of the statute of limitations, but also that he exercised due diligence and that some

affirmative act of fraudulent concealment frustrated discovery notwithstanding such diligence.

Continental Potash, Inc. v. Freeport-McMoran, Inc., 115 N.M. 690, 698, 858 P.2d 66, 74 (1993). In

such circumstances, the statute is tolled until the right of action is discovered, or until it could have

been discovered through the exercise of due diligence. Bolton v. Board of County Commissioners of

Valencia County, 119 N.M. 355, 890 P.2d 808 (Ct.App. 1994), cert. denied 119 N.M. 311, 889 P.2d

1233 (1995).

The facts of this case do not establish a basis for applying equitable estoppel against the

Department. First, there is no evidence that the Department misrepresented or concealed the fact

to inspection by taxpayers and other members of the public.

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that the loading fee is not due on fuel sold for off-highway use. The Taxpayer argues that the

Department’s instructions misled the Taxpayer into paying the loading fee on such fuel. A review of

the instructions indicates otherwise. The instructions on the original form required the Taxpayer to

report total gallons of special fuel and gasoline received during the reporting month. The Petroleum

Products Loading Fee Act defines "special fuel" to include only fuel used to propel motor vehicles.

Section 7-13A-2(K). "Motor vehicle" is defined to include only those vehicles capable of being used

on public highways to transport persons or property. Section 7-13A-2(F). Neither the petroleum

products loading fee report form nor the accompanying instructions directed the Taxpayer to report

gallons sold for use in equipment other than motor vehicles or to pay the fee on those gallons.

Second, there is no evidence that the Department knew the Taxpayer was paying the loading

fee on fuel not used in motor vehicles or that the Department advised the Taxpayer to continue this

practice. Mrs. Paulson maintains that the Department’s employees misled her into paying the

loading fee on exempt fuel by advising her to report the fee on the total gallons received from the

Taxpayer’s supplier. When Mrs. Paulson was asked whether she explained to the Department that

some of the fuel was sold for use in equipment other than motor vehicles, Mrs. Paulson admitted that

she did not. Nor did she ever specifically inquire as to whether fuel not used in motor vehicles was

subject to the loading fee. Mrs. Paulson said she did not think it was necessary to provide this

information since it was common knowledge among people in the industry that some fuel would be

sold for off-highway use.

What is common knowledge in a particular industry is not necessarily common knowledge to

employees of the tax department. Mrs. Paulson never informed the Department that she was paying

the loading fee on fuel sold for off-highway use in equipment other than motor vehicles or asked

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whether the fee was due on such fuel. Given these facts, there is no basis for finding that the

Department knowingly misled the Taxpayer into continuing to pay the loading fee on exempt fuel.

Turning to the other side of the coin, the Taxpayer has not established its own lack of

knowledge or shown that it exercised due diligence to insure proper reporting of the loading fee. In

Continental Potash, Inc. v. Freeport-McMoran, Inc., 115 N.M. 690, 698, 858 P.2d 66, 74 (1993), the

New Mexico Supreme Court emphasized that the party asserting equitable estoppel to toll a statute

of limitations must show not only a lack of knowledge of the truth as to the facts in question, but also

“the lack of means by which knowledge might be obtained.” In Bolton v. Board of County

Commissioners of Valencia County, 119 N.M. 355, 369, 890 P.2d 808, 822 (Ct.App. 1994), cert.

denied 119 N.M. 311, 889 P.2d 1233 (1995), the court of appeals upheld the district court’s refusal

to toll the statute of limitations on equitable grounds, finding that the plaintiffs had access to public

records that would have provided them with complete information concerning the bond ordinance at

issue.

New Mexico’s tax laws are a matter of public record available to all of the state’s taxpayers.

In this case, the Taxpayer was free to review the pertinent tax statutes at any time following their

enactment and could have determined that it had erroneously paid the loading fee on fuel sold for use

in equipment other than motor vehicles. The Taxpayer also had access to the statutes setting out the

time limit for filing claims for refund. The Department neither prevented the Taxpayer from

discovering its reporting error nor discouraged it from filing timely claims to recover overpaid

sums.2

2
In 1996 Mrs. Paulson was incorrectly advised that she could file refund claims for periods as far back as 1990.
While the erroneous advice was unfortunate, and led Mrs. Paulson to expend unnecessary time and effort researching
the earlier periods, the Taxpayer cannot claim that this advice prevented the Taxpayer from discovering its reporting
error back in 1992 or 1993, when there still would have been time to recover all of the overpayments made between
July 1990 and November 1992.

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Finally, the Taxpayer has not established that its failure to file timely refund claims was

attributable to reasonable reliance on the advice of the Department’s employees. Mr. Paulson

testified that he did not understand why the company was required to pay the loading fee on fuel sold

for off-highway use. Mrs. Paulson testified that she had questions concerning how to report the

loading fee. Mrs. Paulson said that the Department employees with whom she spoke also seemed

confused as to the proper method of completing the report forms and would sometimes call her back

to change the advice they had previously given her. Based on these facts, it was not reasonable for

the Taxpayer to rely on the oral advice of these Department employees to determine its tax liability.

This is especially true in light of the fact that the Taxpayer had engaged an accountant to work with

Mrs. Paulson in reviewing the Taxpayer’s tax reporting. It appears that the Taxpayer’s overpayment

of the loading fee was attributable to their accountant’s failure to properly advise them as much as to

the Department’s failure to inform them that the definition of special fuel does not include fuel sold

for use in equipment other than motor vehicles.

The party relying on estoppel has the burden of establishing all facts necessary to support the

claim. In re Estates of Salas, 105 N.M. 472, 475, 734 P.2d 250, 253 (Ct. App. 1987). The Taxpayer

in this case has not met its burden of establishing that the Department engaged in fraudulent conduct

that prevented the Taxpayer from discovering its error in reporting the loading fee or prevented the

Taxpayer from filing timely claims for refund to recover its overpayments.

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CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to the Department’s denial of the

Taxpayer’s claims for refund for the period July 1990 through November 1992 and jurisdiction lies

over the parties and the subject matter of this protest.

2. The Taxpayer's claims for refund for the period July 1990 through November 1992

were not submitted to the Department until more than three years following the end of the calendar

year in which the payment was originally due and are therefore barred by the limitations period set

out in Section 7-1-26 NMSA 1978.

3. The Department is not equitably estopped to assert the statute of limitations as a bar

to the Taxpayer's claims.

For the foregoing reasons, the Taxpayer's protest IS HEREBY DENIED.

DONE this 17th day of April 1998.

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