August 3, 2020- Active Solutions v. New Mexico Taxation & Revenue Department, No. A-1-CA-37632

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IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO	1
ACTIVE SOLUTIONS, INCOPORATED,	2
Protestant-Appellant,	3
v. 	No. A-1-CA-37632	4
NEW MEXICO TAXATION AND	5
REVENUE DEPARTMENT,	6
Respondent-Appellee,	7
IN THE MATTER OF THE PROTEST	8
TO ASSESSMENT ISSUED UNDER	9
LETTER ID NO. L0983824688.	10
APPEAL FROM THE ADMINISTRATIVE HEARINGS OFFICE	11
Chris Romero, Hearing Officer	12
Jane B. Yohalem	13
Santa Fe, NM	14
Robert D. Gorman, P.A.	15
Robert D. Gorman	16
Albuquerque, NM	17
for Appellant	18
Hector H. Balderas, Attorney General	19
David E. Mittle, Special Assistant Attorney General	20
Santa Fe, NM	21
for Appellee	22
Court of Appeals of New Mexico
Filed 8/3/2020 11:07 AM

2
MEMORANDUM OPINION	1
BOGARDUS, Judge.	2
{1} 	Active Solutions, Incorporated (Taxpayer) appeals from the administrative	3
hearing officer’s (the AHO) decision and order affirming the New Mexico Taxation	4
and Revenue Department’s (the Department) assessment of unpaid gross receipts	5
tax, pursuant to New Mexico Gross Receipts and Compensating Tax Act, NMSA	6
1978, §§ 7-9-1 to -117 (1966, as amended through 2020), against Taxpayer in the	7
amount of $795,878.57, including penalty and interest through May 30, 2018. For	8
the reasons that follow, we affirm.	9
BACKGROUND	10
{2} 	Under an agreement with the New Mexico Department of Human Services,	11
the New Mexico Department of Health administers the Developmental Disabilities	12
Medicaid Waiver Program (the DD Waiver Program). Although a variety of services	13
are provided under the DD Waiver Program, none are provided directly by the	14
Department of Health. Instead, the Department of Health contracts with third-party	15
service provider agencies who are responsible for providing the services.	16
{3} 	During all times relevant to this protest, Taxpayer was under contract with the	17
Department of Health as a DD Waiver Program service provider providing family	18
living 	services. 	Family 	living 	services 	are 	intended 	to 	provide 	services 	to	19
developmentally disabled individuals in a setting as similar to a home as possible,	20

3
as opposed to an institutional setting. Nearly all aspects of the delivery of family	1
living services are state-regulated.	2
{4} 	In order to provide the family living services to its clients, Taxpayer contracts	3
with direct service providers that are qualified to deliver the service. Nevertheless,	4
it is Taxpayer that bills the state for the provided family living services. Taxpayer’s	5
payments to its direct service providers are conditioned on Taxpayer first receiving	6
payment from the state.	7
{5} 	In 2013, Taxpayer stopped paying gross receipts tax on the funds it received	8
from the state for the family living services it was providing because Taxpayer	9
considered itself to be an agent of the state. In March 2017, the Department assessed	10
Taxpayer $770,648.21 in past unpaid gross receipts tax, a $154,129.60 penalty, and	11
$63,673.54 in interest. Taxpayer formally protested the assessment in June 2017,	12
and the matter proceeded to a hearing in front of the AHO.	13
{6} 	At the hearing, the Department entered into evidence an updated assessment	14
in the amounts of $550,469.50 in gross receipts tax, $154,130.86 in penalty, and	15
$91,278.21 in interest. Following the hearing, the parties submitted written closing	16
arguments. Thereafter, the AHO entered a decision and order denying Taxpayer’s	17
protest. The decision and order included the following conclusions, as relevant to	18
this appeal: (1) “[t]he statutes, rules, policies, procedures, and contracts governing	19
the relationship between the state and Taxpayer failed to establish a disclosed agency	20
relationship in which Taxpayer had actual authority to bind the state to obligations	21

4
with third parties, and Taxpayer was therefore not a disclosed agent under . . . Section	1
7-9-3.5(A)(3)(f) and . . . 3.2.1.19(C)(1) NMAC”; (2) “[s]ince Taxpayer was not a	2
disclosed agent under [that statute and regulation], Taxpayer’s receipts derived from	3
providing [f]amily [l]iving [s]ervices under the DD Waiver [Program] were taxable	4
gross receipts”; (3) “[u]nder NMSA 1978, Section 7-1-67 [(2013)], Taxpayer is	5
liable for accrued interest under the Assessment, which shall continue to accrue until	6
the tax principal is satisfied”; and (4) “[u]nder NMSA 1978, Section 7-1-69 (2007),	7
Taxpayer is liable for [a] civil negligence penalty under the negligence definition	8
found under . . . 3.1.11.10(C) NMAC.” This appeal followed.	9
DISCUSSION	10
{7} 	Taxpayer advances four arguments on appeal: (1) the AHO erred by applying	11
3.2.1.19(C) NMAC rather than the law of agency when deciding whether Taxpayer	12
was entitled to the tax exclusion in Section 7-9-3.5(A)(3)(f); (2) if it was not error to	13
apply 3.2.1.19(C) NMAC, the AHO erred by concluding that Taxpayer had not met	14
the requirements of that regulation as applied to the statute; (3) the assessment of	15
gross receipts tax against Taxpayer under these circumstances is inconsistent with	16
both federal and state tax policy; and (4) if it was not error to deny Taxpayer’s	17
protest, the AHO erred by upholding the penalty imposed because Taxpayer acted	18
in good faith when it concluded it was an agent of the state. We begin by setting	19
forth our standard of review and relevant presumptions. We then address each of	20
Taxpayer’s arguments in turn.	21

5
I. 	Standard of Review and Relevant Presumptions	1
{8} 	“On appeal from an agency determination, we determine whether, viewing the	2
evidence in a light most favorable to the agency’s decision, the findings have	3
substantial support in the record as a whole.” Wing Pawn Shop v. N.M. Taxation &	4
Revenue Dep’t, 1991-NMCA-024, ¶ 8, 111 N.M. 735, 809 P.2d 649. “Under this	5
standard, we review whatever evidence fairly detracts from the administrative	6
findings as well.” Id. (internal quotation marks and citation omitted). Further, while	7
we are not bound by the agency’s interpretation of the law, see A&W Rests., Inc. v.	8
N.M. Taxation & Revenue Dep’t, 2018-NMCA-069, ¶ 6, 429 P.3d 976, cert. denied,	9
2018-NMCERT-___ (No. S-1-SC-37272, Oct. 26, 2018) (stating that our review is	10
de novo when we engage in statutory construction), “we give a heightened degree	11
of deference to legal questions that implicate special agency expertise or the	12
determination of fundamental policies within the scope of the agency’s statutory	13
function.” Jicarilla Apache Nation v. Rodarte, 2004-NMSC-035, ¶ 25, 136 N.M.	14
630, 103 P.3d 554 (internal quotation marks and citation omitted). We also	15
acknowledge that this Court can only set aside the AHO’s decision and order if it is	16
“(1) arbitrary, capricious or an abuse of discretion; (2) not supported by substantial	17
evidence in the record; or (3) otherwise not in accordance with the law.” NMSA	18
1978, § 7-1-25 (2015).	19
{9} 	“To prevent evasion of the gross receipts tax and to aid in its administration,	20
it is presumed that all receipts of a person engaging in business are subject to the	21

6
gross receipts tax.” Section 7-9-5(A). “[T]he taxpayer has the burden of overcoming	1
this presumption.” ITT Educ. Servs., Inc. v. N.M. Taxation & Revenue Dep’t, 1998-	2
NMCA-078, ¶ 5, 125 N.M. 244, 959 P.2d 689. “Where an exemption or deduction	3
from tax is claimed, the statute must be construed strictly in favor of the taxing	4
authority, 	the 	right 	to 	the 	exemption 	or 	deduction 	must 	be 	clearly 	and	5
unambiguously expressed in the statute, and the right must be clearly established by	6
the taxpayer.” Wing Pawn Shop, 1991-NMCA-024, ¶ 16 (internal quotation marks	7
and citation omitted).	8
{10} 	Additionally, “[a]ny assessment of taxes or demand for payment made by the	9
department is presumed to be correct.” NMSA 1978, § 7-1-17(C) (2007). Therefore,	10
“the taxpayer [also] has the burden of coming forward with some countervailing	11
evidence tending to dispute the factual correctness of the assessment made by the	12
secretary.” 3.1.6.12(A) NMAC. “Unsubstantiated statements that the assessment is	13
incorrect cannot overcome the presumption of correctness.” Id. If a taxpayer rebuts	14
this presumption, the burden is shifted back to the department to show the	15
correctness of the assessment. MPC Ltd. v. N.M. Taxation & Revenue Dep’t, 2003-	16
NMCA-021, ¶ 13, 133 N.M. 217, 62 P.3d 308.	17
II. 	Taxpayer Has Not Demonstrated That the AHO Erred by Applying	18
3.2.1.19(C) NMAC When Analyzing Whether Taxpayer Was Entitled to	19
the Exemption Found in Section 7-9-3.5(A)(3)(f)	20
{11} 	Taxpayer argues that the AHO erred in applying 3.2.1.19(C) NMAC for two	21
reasons: First, 3.2.1.19(C) NMAC does not apply to the facts of this case. Second,	22

7
3.2.1.19(C) NMAC is an unlawful limitation of Section 7-9-3.5(A)(3)(f). Under both	1
scenarios, Taxpayer urges this Court to conclude that the AHO erred by applying the	2
requirements of the regulation when deciding whether Taxpayer was entitled to the	3
exemption found in the statute. In its answer brief, the Department contends that	4
Taxpayer has impermissibly changed its theory on appeal. See § 7-1-25(A) (“If the	5
protestant or secretary is dissatisfied with the decision and order of the hearing	6
officer, the party may appeal to the court of appeals for further relief, but only to the	7
same extent and upon the same theory as was asserted in the hearing before the	8
hearing officer.”). Replying to the Department’s contention, Taxpayer asserts that it	9
made these arguments in the written closing argument submitted to the AHO.	10
{12} 	As a threshold matter, we address whether Taxpayer has impermissibly	11
changed its theory in this appeal. Following our independent review of the record, it	12
is clear that Taxpayer argued for application of both Section 7-9-3.5(A)(3)(f) and	13
3.2.1.19(C) NMAC throughout the protest, from its initial protest letter to the joint	14
prehearing statement to its closing argument. Therefore, we will not further address	15
Taxpayer’s contention that 3.2.1.19(C) NMAC does not apply to the facts of this	16
case because it constitutes an impermissible change in theory on appeal. See § 7-1-	17
25(A). Further, Taxpayer’s argument for application of the regulation contributed,	18
at least in part, to any error that the AHO committed by applying that regulation. See	19
Cordova v. Taos Ski Valley, Inc., 1996-NMCA-009, ¶ 13, 121 N.M. 258, 910 P.2d	20
334 (“A party who has contributed, at least in part, to perceived shortcomings in	21

8
a . . . ruling should hardly be heard to complain about those shortcomings on	1
appeal.”). As for Taxpayer’s other contention—that 3.2.1.19(C) NMAC is an	2
unlawful limitation of Section 7-9-3.5(A)(3)(f)—this argument was set forth in	3
Taxpayer’s closing argument and is therefore not an impermissible change in theory	4
on appeal. Accordingly, we need only address Taxpayer’s argument that 3.2.1.19(C)	5
NMAC is an unlawful limitation of Section 7-9-3.5(A)(3)(f).	6
{13} 	In MPC Ltd., this Court construed the language of 3.2.1.19(C) NMAC to	7
define “disclosed agency capacity” as used in Section 7-9-3(F)(2)(f).1 MPC Ltd.,	8
2003-NMCA-021, ¶ 37. In doing so, the Court indicated that the regulation and the	9
statute required two circumstances to demonstrate a “disclosed agency capacity.”2
10
Id. First, the agent must have the authority to bind the principal to an obligation	11
created by the agent. Id. Second, the beneficiary of that obligation must be informed	12
by contract that he or she has a right to proceed against the principal to enforce the	13
obligation. Id.	14
{14} 	Taxpayer argues that MPC Ltd. is distinguishable because the taxpayer in that	15
case did not contest that the regulation applied. See id. ¶ 14 (noting that the taxpayer	16
1 This Court in MPC Ltd. was interpreting the language of Section 7-9-
3(F)(2)(f) (2002), which excluded “amounts received solely on behalf of another in
a disclosed agency capacity” from gross receipts tax. This tax exemption is now
codified at Section 7-9-3.5(A)(3)(f)—the statute at issue in this case—and employs
the same language.
2 This Court also noted that, in addition to those two circumstances, “the
taxpayer must also engage in specific bookkeeping and billing procedures.” Id. ¶ 37.

9
did not attack the “conclusion of law that the receipts attributed to payroll constituted	1
‘reimbursement of expenditures incurred’ ”). However, as we explained above,	2
Taxpayer argued for application of both the statute and the regulation throughout its	3
protest up until this appeal, effectively putting itself in the same position as the	4
taxpayer in MPC Ltd. Accordingly, we decline to distinguish MPC Ltd. on that basis.	5
Further, as did this Court in MPC Ltd., we view 3.2.1.19(C) NMAC as being	6
harmonious with the plain language of Section 7-9-3.5(A)(3)(f) and not an unlawful	7
limitation of that statute. We therefore conclude that Taxpayer has not demonstrated	8
that the AHO erred in applying the requirements of 3.2.1.19(C) NMAC when	9
deciding whether Taxpayer was entitled to the tax exemption at Section 7-9-	10
3.5(A)(3)(f).	11
III. 	Taxpayer Has Not Demonstrated That the AHO Erred by Concluding	12
That Taxpayer Had Not Met the Requirements of Section 7-9-3.5(A)(3)(f)	13
and 3.2.1.19(C) NMAC	14
{15} 	Taxpayer, alternatively, also argues that it nonetheless met the requirements	15
for the exemption discussed in Section 7-9-3.5(A)(3)(f) and 3.2.1.19(C) NMAC.	16
Therefore, we must now analyze whether the AHO erred by concluding that	17
Taxpayer failed to demonstrate that (1) it had the authority to bind the principal (the	18
state) to an obligation created by Taxpayer; and (2) that the beneficiaries of that	19
obligation (the direct service providers) were informed by contract that they had a	20
right to proceed against the principal (the state) to enforce that obligation. See MPC	21
Ltd., 2003-NMCA-021, ¶ 37.	22

10
{16} 	Taxpayer offers extensive argument surrounding the first requirement in its	1
brief in chief and, in support, cites the portion of the record containing the provider	2
agreement it entered into with the state regarding its provision of services under the	3
DD Waiver Program. However, even if we were to accept Taxpayer’s argument that	4
it had the authority to bind the state, Taxpayer fails to establish that it met the second	5
requirement. In its brief in chief, Taxpayer cites no evidence in the record suggesting	6
that it informed the direct service providers by contract that they had a right to	7
proceed against the state. Instead, Taxpayer argues that, under the New Mexico	8
Administrative Code, the direct service provider “has entered into an agreement with	9
the [s]tate as principal.” See 3.2.1.12(G) NMAC (“Any individual who enters into	10
an agreement with the [S]tate of New Mexico to provide home based support	11
services 	for 	developmentally 	disabled 	individuals 	in 	the 	home 	of 	the	12
developmentally disabled individuals or the home of the support provider and	13
receives payments which under 26 [U.S.C. §] 131[2018] are ‘qualified foster care	14
payments’ is not thereby engaging in business.”). It is not until its reply brief that	15
Taxpayer cites the portion of the record proper containing its contracts with the direct	16
service providers when arguing that those contracts informed the direct service	17
providers that they have a right to proceed against the state to enforce an obligation.	18
{17} 	Generally, this Court will not consider arguments that were not raised in the	19
brief in chief, unless such arguments are directed to new arguments or authorities in	20
the answer brief. Wilcox v. N.M. Bd. of Acupuncture & Oriental Med., 2012-NMCA-	21

11
106, ¶ 15, 288 P.3d 902. Here, we cannot say that Taxpayer’s argument based on the	1
direct service provider contracts was directed to new arguments or authorities in the	2
answer brief. Nevertheless, even when we consider Taxpayer’s contracts with the	3
direct service providers, we are not persuaded that the AHO erred by concluding that	4
Taxpayer had not informed the direct service providers by contract that they had a	5
right to proceed against the state as required under MPC Ltd., 2003-NMCA-021,	6
¶ 37. We explain.	7
{18} 	Taxpayer does not direct this Court to any portion of contracts it had with the	8
direct service providers that explicitly informs the direct service providers that they	9
could enforce the payment obligation against the state, and we have been unable to	10
identify any such contractual language in our independent review. Instead, Taxpayer	11
argues that the following language put the direct service providers on notice that	12
they had no recourse against Taxpayer for the state’s nonpayment and instead only	13
had recourse against the state:	14
For DD Waiver Family Living Support Service for each consumer:	15
$2,075.00 	per 	complete 	calendar 	month 	of 	service. 	Payment 	is	16
contingent on successful billing by [Taxpayer]. Partial months of	17
service shall be prorated by day. This sum is subject to change as the	18
state billing rate changes. This sum is subject to being withheld in part	19
or total if the consultant does not deliver the service as provided in this	20
contract. This sum may also be adjusted at the discretion of [Taxpayer]	21
Management should the consumer be hospitalized or missing for more	22
than one week.	23
We note first that the cited language is found under a heading setting out Taxpayer’s	24
payment obligations rather than the state’s payment obligations. Second, that	25

12
contract language neither explicitly informs the direct service providers of a right to	1
enforce a payment obligation against the state nor does it imply such a right. The	2
provision merely notifies the direct service providers that payment is contingent on	3
Taxpayer receiving funds and identifies situations in which payment would deviate	4
from the identified monthly payment amount. Therefore, based on the language	5
relied on by Taxpayer, we cannot say that the AHO erred by concluding that	6
Taxpayer had not informed the direct service providers by contract that they had a	7
right to proceed against the state. See MPC Ltd., 2003-NMCA-021, ¶ 37. Because	8
Taxpayer has failed to demonstrate that the AHO erred in so concluding, we hold	9
that the AHO’s conclusion that Taxpayer was not entitled to the tax exemption found	10
at Section 7-9-3.5(A)(3)(f) was not arbitrary, capricious, an abuse of discretion, or	11
otherwise not in accordance with the law and was supported by substantial evidence.	12
IV. 	Taxpayer’s Public Policy Argument Is Unsupported by Citation to	13
Authority and We Decline to Address It	14
{19} 	Taxpayer argues that the “Department’s attempt to assess and collect gross	15
receipts tax from [Taxpayer] and other agencies serving as agents of the [s]tate for	16
the provision of in-home family living services is contrary to both federal and state	17
tax policy.” Taxpayer argues that “[s]uch a tax would restrict the agencies willing	18
and able to assist the [s]tate in providing these services to a very limited number of	19
non-profit agencies that do this work in New Mexico.”	20

13
{20} 	As we have recognized, “[w]here an exemption or deduction from tax is	1
claimed, the statute must be construed strictly in favor of the taxing authority, the	2
right to the exemption or deduction must be clearly and unambiguously expressed	3
in the statute, and the right must be clearly established by the taxpayer.” Wing Pawn	4
Shop, 1991-NMCA-024, ¶ 16 (internal quotation marks and citation omitted). For	5
the reasons discussed in the preceding sections, we have concluded that Taxpayer	6
has failed to meet that burden in this case. Further, Taxpayer has not cited any	7
authority suggesting that this Court can independently recognize a public policy	8
exemption to gross receipts tax that goes beyond the statutory exemptions created	9
by our Legislature. See El Castillo Ret. Residences v. Martinez, 2017-NMSC-026,	10
¶ 27, 401 P.3d 751 (“It is the particular domain of the [L]egislature, as the voice of	11
the people, to make public policy.” (alteration, internal quotation marks, and citation	12
omitted)). Accordingly, we decline to further address this argument. See Curry v.	13
Great Nw. Ins. Co., 2014-NMCA-031, ¶ 28, 320 P.3d 482 (“Where a party cites no	14
authority to support an argument, we may assume no such authority exists.”).	15
V. 	Taxpayer Has Not Demonstrated That the AHO Erred by Upholding the	16
Penalty Assessed by the Department	17
{21} 	Lastly, Taxpayer argues that the AHO “did not challenge [its] good faith” in	18
failing to pay gross receipts tax on the funds it received for providing family living	19
services and contends that “it was reasonable for [it] to arrive at the conclusion that	20
no gross receipts tax was due” on those funds. Accordingly, Taxpayer urges this	21

14
Court to “reverse the hearing officer’s decision to assess a penalty, even if this Court	1
holds against Taxpayer and decides that gross receipts tax is due.”	2
{22} 	Under the Tax Administration Act, a penalty shall be assessed when a	3
taxpayer fails to pay the required amount of tax due, if the failure is “due to	4
negligence or disregard of department rules and regulations[.]” Section 7-1-69(A).	5
However, “[n]o penalty shall be assessed against a taxpayer if the failure to pay an	6
amount of tax when due results from a mistake of law made in good faith and on	7
reasonable grounds.” Section 7-1-69(B). In this case, the AHO concluded that	8
“Taxpayer is liable for [a] civil negligence penalty under the negligence definition	9
found under . . . 3.1.11.10(C) NMAC.” Under that regulation, “negligence” is	10
defined as “inadvert[e]nce, indifference, thoughtlessness, carelessness, erroneous	11
belief or inattention.” Id.	12
{23} 	Here, Taxpayer failed to cite any evidence in the record in support of its	13
argument that it acted reasonably when it decided to forego payment of gross receipts	14
tax on the funds it received for providing family living services. “We will not search	15
the record for facts, arguments, and rulings in order to support generalized	16
arguments.” Muse v. Muse, 2009-NMCA-003, ¶ 72, 145 N.M. 451, 200 P.3d 104.	17
Nevertheless, having independently reviewed the record, we note that it indicates	18
that Taxpayer did not confer with legal counsel or a tax professional about its gross	19
receipts tax liability and instead relied on its own interpretation of Section 7-9-3.5	20
and discussions with unidentified colleagues when it decided to forego paying gross	21

15
receipts 	tax 	on 	the 	funds 	it 	received 	for 	providing 	family 	living 	services.	1
Additionally, Taxpayer has not challenged the AHO’s finding that Taxpayer had not	2
read the regulations that governed the claimed exemption. See Lopez v. N.M.	3
Taxation & Revenue Dep’t, 1997-NMCA-115, ¶ 5, 124 N.M. 270, 949 P.2d 284	4
(“Unchallenged findings of fact are binding on appeal.”). Accordingly, we conclude	5
that “Taxpayer did not demonstrate that [it] reasonably attempted to ascertain	6
whether [its] actions were justifiable under the tax statutes and regulations.” Grogan	7
v. N.M. Taxation & Revenue Dep’t, 2003-NMCA-033, ¶ 35, 133 N.M. 354, 62 P.3d	8
1236. For that reason, Taxpayer has not demonstrated that the AHO erred by	9
upholding the penalty assessed by the Department.	10
CONCLUSION	11
{24} 	We affirm.	12
{25} 	IT IS SO ORDERED.	13
____________________________	14
KRISTINA BOGARDUS, Judge	15
WE CONCUR:	16
______________________________	17
J. MILES HANISEE, Chief Judge	18
_______________________________	19
JACQUELINE R. MEDINA, Judge	20