Active Sols. v. N.M. Taxation & Revenue Dep't (In re Protest to Assessment Issued)
| Decision Date | 03 August 2020 |
| Docket Number | No. A-1-CA-37632,A-1-CA-37632 |
| Parties | ACTIVE SOLUTIONS, INCOPORATED, Protestant-Appellant, v. NEW MEXICO TAXATION AND REVENUE DEPARTMENT, Respondent-Appellee, IN THE MATTER OF THE PROTEST TO ASSESSMENT ISSUED UNDER LETTER ID NO. L0983824688. |
| Court | Court of Appeals of New Mexico |
This decision of the New Mexico Court of Appeals was not selected for publication in the New Mexico Appellate Reports. Refer to Rule 12-405 NMRA for restrictions on the citation of unpublished decisions. Electronic decisions may contain computer-generated errors or other deviations from the official version filed by the Court of Appeals.
APPEAL FROM THE ADMINISTRATIVE HEARINGS OFFICE
Chris Romero, Hearing Officer
Santa Fe, NM
Robert D. Gorman, P.A.
Robert D. Gorman
Albuquerque, NM
for Appellant
Hector H. Balderas, Attorney General
David E. Mittle, Special Assistant Attorney General
Santa Fe, NM
for Appellee
{1} Active Solutions, Incorporated (Taxpayer) appeals from the administrative hearing officer's (the AHO) decision and order affirming the New Mexico Taxation and Revenue Department's (the Department) assessment of unpaid gross receipts tax, pursuant to New Mexico Gross Receipts and Compensating Tax Act, NMSA 1978, §§ 7-9-1 to -117 (1966, as amended through 2020), against Taxpayer in the amount of $795,878.57, including penalty and interest through May 30, 2018. For the reasons that follow, we affirm.
{2} Under an agreement with the New Mexico Department of Human Services, the New Mexico Department of Health administers the Developmental Disabilities Medicaid Waiver Program (the DD Waiver Program). Although a variety of services are provided under the DD Waiver Program, none are provided directly by the Department of Health. Instead, the Department of Health contracts with third-party service provider agencies who are responsible for providing the services.
{3} During all times relevant to this protest, Taxpayer was under contract with the Department of Health as a DD Waiver Program service provider providing family living services. Family living services are intended to provide services to developmentally disabled individuals in a setting as similar to a home as possible, as opposed to an institutional setting. Nearly all aspects of the delivery of family living services are state-regulated.
{4} In order to provide the family living services to its clients, Taxpayer contracts with direct service providers that are qualified to deliver the service. Nevertheless, it is Taxpayer that bills the state for the provided family living services. Taxpayer's payments to its direct service providers are conditioned on Taxpayer first receiving payment from the state.
{5} In 2013, Taxpayer stopped paying gross receipts tax on the funds it received from the state for the family living services it was providing because Taxpayer considered itself to be an agent of the state. In March 2017, the Department assessed Taxpayer $770,648.21 in past unpaid gross receipts tax, a $154,129.60 penalty, and $63,673.54 in interest. Taxpayer formally protested the assessment in June 2017, and the matter proceeded to a hearing in front of the AHO.
{6} At the hearing, the Department entered into evidence an updated assessment in the amounts of $550,469.50 in gross receipts tax, $154,130.86 in penalty, and $91,278.21 in interest. Following the hearing, the parties submitted written closing arguments. Thereafter, the AHO entered a decision and order denying Taxpayer's protest. The decision and order included the following conclusions, as relevant to this appeal: (1) "[t]he statutes, rules, policies, procedures, and contracts governing the relationship between the state and Taxpayer failed to establish a disclosed agency relationship in which Taxpayer had actual authority to bind the state to obligations with third parties, and Taxpayer was therefore not a disclosed agent under . . . Section 7-9-3.5(A)(3)(f) and . . . 3.2.1.19(C)(1) NMAC"; (2) "[s]ince Taxpayer was not a disclosed agent under [that statute and regulation], Taxpayer's receipts derived from providing [f]amily [l]iving [s]ervices under the DD Waiver [Program] were taxable gross receipts"; (3) "[u]nder NMSA 1978, Section 7-1-67 [(2013)], Taxpayer is liable for accrued interest under the Assessment, which shall continue to accrue until the tax principal is satisfied"; and (4) "[u]nder NMSA 1978, Section 7-1-69 (2007), Taxpayer is liable for [a] civil negligence penalty under the negligence definition found under . . . 3.1.11.10(C) NMAC." This appeal followed.
{7} Taxpayer advances four arguments on appeal: (1) the AHO erred by applying 3.2.1.19(C) NMAC rather than the law of agency when deciding whether Taxpayer was entitled to the tax exclusion in Section 7-9-3.5(A)(3)(f); (2) if it was not error to apply 3.2.1.19(C) NMAC, the AHO erred by concluding that Taxpayer had not met the requirements of that regulation as applied to the statute; (3) the assessment of gross receipts tax against Taxpayer under these circumstances is inconsistent with both federal and state tax policy; and (4) if it was not error to deny Taxpayer's protest, the AHO erred by upholding the penalty imposed because Taxpayer acted in good faith when it concluded it was an agent of the state. We begin by setting forth our standard of review and relevant presumptions. We then address each of Taxpayer's arguments in turn.
{8} "On appeal from an agency determination, we determine whether, viewing the evidence in a light most favorable to the agency's decision, the findings have substantial support in the record as a whole." Wing Pawn Shop v. N.M. Taxation & Revenue Dep't, 1991-NMCA-024, ¶ 8, 111 N.M. 735, 809 P.2d 649. "Under this standard, we review whatever evidence fairly detracts from the administrative findings as well." Id. (internal quotation marks and citation omitted). Further, while we are not bound by the agency's interpretation of the law, see A&W Rests., Inc. v. N.M. Taxation & Revenue Dep't, 2018-NMCA-069, ¶ 6, 429 P.3d 976, cert. denied, 2018-NMCERT-___ (No. S-1-SC-37272, Oct. 26, 2018) (), "we give a heightened degree of deference to legal questions that implicate special agency expertise or the determination of fundamental policies within the scope of the agency's statutory function." Jicarilla Apache Nation v. Rodarte, 2004-NMSC-035, ¶ 25, 136 N.M. 630, 103 P.3d 554 (internal quotation marks and citation omitted). We also acknowledge that this Court can only set aside the AHO's decision and order if it is "(1) arbitrary, capricious or an abuse of discretion; (2) not supported by substantial evidence in the record; or (3) otherwise not in accordance with the law." NMSA 1978, § 7-1-25 (2015).
{9} "To prevent evasion of the gross receipts tax and to aid in its administration, it is presumed that all receipts of a person engaging in business are subject to the gross receipts tax." Section 7-9-5(A). "[T]he taxpayer has the burden of overcoming thispresumption." ITT Educ. Servs., Inc. v. N.M. Taxation & Revenue Dep't, 1998-NMCA-078, ¶ 5, 125 N.M. 244, 959 P.2d 689. "Where an exemption or deduction from tax is claimed, the statute must be construed strictly in favor of the taxing authority, the right to the exemption or deduction must be clearly and unambiguously expressed in the statute, and the right must be clearly established by the taxpayer." Wing Pawn Shop, 1991-NMCA-024, ¶ 16 (internal quotation marks and citation omitted).
{10} Additionally, "[a]ny assessment of taxes or demand for payment made by the department is presumed to be correct." NMSA 1978, § 7-1-17(C) (2007). Therefore, "the taxpayer [also] has the burden of coming forward with some countervailing evidence tending to dispute the factual correctness of the assessment made by the secretary." 3.1.6.12(A) NMAC. "Unsubstantiated statements that the assessment is incorrect cannot overcome the presumption of correctness." Id. If a taxpayer rebuts this presumption, the burden is shifted back to the department to show the correctness of the assessment. MPC Ltd. v. N.M. Taxation & Revenue Dep't, 2003-NMCA-021, ¶ 13, 133 N.M. 217, 62 P.3d 308.
{11} Taxpayer argues that the AHO erred in applying 3.2.1.19(C) NMAC for two reasons: First, 3.2.1.19(C) NMAC does not apply to the facts of this case. Second, 3.2.1.19(C) NMAC is an unlawful limitation of Section 7-9-3.5(A)(3)(f). Under both scenarios, Taxpayer urges this Court to conclude that the AHO erred by applying the requirements of the regulation when deciding whether Taxpayer was entitled to the exemption found in the statute. In its answer brief, the Department contends that Taxpayer has impermissibly changed its theory on appeal. See § 7-1-25(A) (). Replying to the Department's contention, Taxpayer asserts that it made these arguments in the written closing argument submitted to the AHO.
{12} As a threshold matter, we address whether Taxpayer has impermissibly changed its theory in this appeal. Following our independent review of the record, it is clear that Taxpayer argued for application of both Section 7-9-3.5(A)(3)(f) and 3.2.1.19(C) NMAC throughout the protest, from its initial protest letter to the joint prehearing statement to its closing argument. Therefore, we will not further address Taxpayer's contention that 3.2.1.19(C) NMAC does not apply to the facts of this case because it constitutes an...
To continue reading
Request your trial