IN RE PROTEST OF KILMER, 23,738.

• Citation: 136 N.M. 440,99 P.3d 690
• Decision Date: 31 August 2004
• Docket Number: No. 23,738.,23,738.
• Parties: In the Matter of the PROTEST OF Val KILMER and Joanne Whalley, Val Kilmer and Joanne Whalley, Defendants-Appellants, v. Jan Goodwin, Secretary, New Mexico Taxation and Revenue Department, Plaintiff-Appellee.
• Court: Court of Appeals of New Mexico

99 P.3d 690

136 N.M. 440

In the Matter of the PROTEST OF Val KILMER and Joanne Whalley,

Val Kilmer and Joanne Whalley, Defendants-Appellants, v. Jan Goodwin, Secretary, New Mexico Taxation and Revenue Department, Plaintiff-Appellee.

No. 23,738.

Court of Appeals of New Mexico.

August 31, 2004.

Paul A. Bleicher, Albuquerque, NM, for Appellants.

Patricia A. Madrid, Attorney General, Bruce J. Fort, Special Assistant Attorney General, New Mexico Taxation & Revenue Department, Santa Fe, NM, for Appellee.

OPINION

WECHSLER, Chief Judge.

{1} The issue in this case is whether the New Mexico Taxation and Revenue Department ("Department") and its hearing officer properly determined that Val Kilmer and Joanne Whalley's ("Taxpayers") claim for a tax refund was time barred. We consider the relevant statutes, Taxpayers' claim that estoppel should be applied against the Department, and Taxpayers' claims that certain findings of the hearing officer are not supported by substantial evidence. Because it was incumbent upon Taxpayers to either file a protest or an action in district court within the 210-day period contained in NMSA 1978, § 7-1-26 (1997), and because the requirements for estoppel are not met, we affirm.

Background

{2} Taxpayers filed a New Mexico personal income tax return for 1995. However, at some point in the latter part of 1995, Ms. Whalley had moved to California in contemplation of a divorce. The exact date of her move was disputed. In 1998, the California Franchise Tax Board ("Board" or "California authorities") began auditing Taxpayers' 1995 tax return because it believed that Ms. Whalley had moved to California about August 1, 1995. Taxpayers contested that conclusion and attempted to convince the Board otherwise.

{3} In 1999, while the California audit was pending, Taxpayers began investigating filing a protective claim for refund in New Mexico, because their 1995 New Mexico return was premised on Ms. Whalley's status as a New Mexico resident for the entire year. A protective claim is a claim designed to protect a taxpayer's position in one jurisdiction in case another jurisdiction rules against the taxpayer. Taxpayers continued their attempt to convince the Board that Ms. Whalley did not become a California resident as early as the Board had claimed, but began taking steps to protect their position in New Mexico in the event that the Board ruled against them.

{4} Taxpayers' representative in dealing with New Mexico was Ms. Enza Cohn, a California certified public accountant employed by Gelfand, Rennert & Feldman, LLC, a business management firm. The firm is a subsidiary of the national accounting firm PricewaterhouseCoopers. Ms. Cohn knew that California had a special form for protective claims. She was advised by tax experts at PricewaterhouseCoopers that New Mexico did not have a comparable form for protective claims.

{5} In late November 1999, Ms. Cohn called the Department for information regarding filing the refund claim. She spoke with Mr. Jerry Wells, the head of the Department's Income Tax Section, seeking advice about how she should file the claim for a tax refund. The evidence concerning the conversation is conflicting, and we discuss it in detail later in this opinion. Essentially, Ms. Cohn testified that she told Mr. Wells it was a protective claim. Mr. Wells did not remember being told it was a protective claim, but did remember that they discussed problems with the allocation between California and New Mexico based on a residency issue.

{6} Around December 20, 1999, Ms. Cohn called Mr. Wells because the December 31 statute of limitations deadline was nearing and she was concerned that the amended return she would be filing on Taxpayers' behalf might get lost due to mailing problems that commonly occur during the holiday period. Ms. Cohn stated that Mr. Wells told her to send the return directly to him, at a different address from the standard Department address.

{7} On December 21, 1999, Ms. Cohn mailed an amended 1995 New Mexico return claiming a refund on behalf of Taxpayers in the amount of $304,217.00. The return was timely mailed and was received by the Department on December 29. A cover letter contained a notation that it was regarding an "Amended Tax Return" and stated in relevant part:

On behalf of the above taxpayers, we are filing the attached amended returns. The statute of limitations are [sic] due to expire December 31, 1999.

The return is being amended for Joanne Whalley was found to be a nonresident of New Mexico as of August 1, 1995. She was a resident in the state of California for that period and forward.

Attached to the tax return is a schedule that shows how the income was allocated between the two spouses for the period Joanne became a nonresident.

{8} In January 2000, Mr. Wells contacted Ms. Cohn and asked for a copy of Taxpayers' 1995 California return. Ms. Cohn stated that she found the request somewhat "puzzling," but she complied. Ms. Cohn testified that she once again mentioned that the claim was protective, however Mr. Wells testified that he did not recall a protective claim ever being mentioned. Ms. Cohn stated that she called Mr. Wells "once or twice" more in the next six months and left messages, but her calls were not returned.

{9} The amended return was not processed because the Department lost it. Department policy may have been partly to blame. Prior year income tax returns are not entered into the Department's computer system, but are handled manually. Additionally, in early 2000, the Department made a decision that it would not work prior year income tax returns three or more years old until it could get caught up processing the current year returns. This policy was in effect for three months in early 2000, and during this period, the Department did not take action on 800 returns. Of the 800, twenty percent became stale because there was no action taken by the taxpayers within the relevant statutory period to confront the Department inaction and keep the refund claim alive.

{10} On July 27, 2000, Ms. Cohn called the Department. The employee who answered the call said that there was no record of the amended return being filed and that she would look into the status of the refund. She suggested that Ms. Cohn resubmit the amended return.

{11} On July 31, 2000, the Department sent a letter which stated in pertinent part:

Your application for tax refund date December 21, 1999 in the amount of $304,217.00, for tax year 1995 has been denied pursuant to Section 7-1-26 NMSA 1978. This section provides that you may direct a written request for a hearing of your claim to the Secretary of Taxation and Revenue within thirty (30) days after the mailing of the denial. Enclosed is a copy of "Taxpayer's Remedies" for your information.

This denial is made because your claim is stale and can no longer be acted on by the department.

{12} Taxpayers filed a protest on August 23, 2000. The protest was presented to a hearing officer, who considered evidence and issued a decision containing findings of fact and conclusions of law. The hearing officer determined that the Department had no authority to act on the claim because it was time barred. The hearing officer also rejected Taxpayers' argument that estoppel should be applied against the Department.

Standard of Review

{13} Under NMSA 1978, § 7-1-25(C) (1989), we review the hearing officer's decision to determine whether it is arbitrary, capricious, or an abuse of discretion; not supported by substantial evidence in the record; or otherwise not in accordance with law. To the extent this appeal requires us to interpret statutes, our review is de novo. See Morgan Keegan Mortgage Co. v. Candelaria, 1998-NMCA-008, ¶ 5, 124 N.M. 405, 951 P.2d 1066

. We review factual findings to determine whether, considering the whole record, they are supported by substantial evidence, which is defined as evidence that a reasonable mind would find adequate to support a conclusion. See Landavazo v. Sanchez, 111 N.M. 137, 138, 802 P.2d 1283, 1284 (1990) (defining substantial evidence); Alexander v. Anderson, 1999-NMCA-021, ¶ 23, 126 N.M. 632, 973 P.2d 884 (stating that the whole record is considered); El Centro Villa Nursing Ctr. v. Taxation & Revenue Dep't, 108 N.M. 795, 796, 779 P.2d 982, 983 (Ct.App. 1989).

Time Limitations

Section 7-1-26

{14} In Unisys Corp. v. New Mexico Taxation & Revenue Department, 117 N.M. 609, 610-13, 874 P.2d 1273, 1274-77 (Ct.App. 1994), this Court addressed an older version of Section 7-1-26 and held that a refund claim was time barred when the taxpayer did not confront the department inaction by timely filing either a protest or a civil action. Since Unisys Corp., the legislature has amended Section 7-1-26 several times. See History Notes to NMSA 1978, § 7-1-26 (2001). Taxpayers appear to concede that the version in effect in December 1999, when they filed their claim for refund, applies to this case. Section 7-1-26 states in relevant part:

B. The secretary or the secretary's delegate may allow the claim in whole or in part or may deny the claim. If the claim is denied in whole or in part in writing, the claim may not be refiled. If the claim is not granted in full, the person, within ninety days after either the mailing or delivery of the denial of all or any part of the claim, may elect to pursue one, but not more than one, of the remedies in Paragraphs (1) and (2) of this subsection [a written protest, or a civil action in Santa Fe County district court]. If the department has neither granted nor denied any portion of a claim for refund within one hundred twenty days of the date the claim was mailed or delivered to the department, the department may not approve or deny the claim but the person may refile it within the time limits set forth in Subsection C of this section or may within ninety days elect to pursue one, but only one, of the remedies in Paragraphs (1) and (2) of this

...