January 4, 2021- New Mexico Depo v. New Mexico Taxation & Revenue Department, No. A-1-CA-37835

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IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO	1
Opinion Number: ________________	2
Filing Date: January 4, 2021	3
NO. A-1-CA-37835	4
NEW MEXICO DEPO and	5
ANA KOEBLITZ,	6
Protestants-Appellants,	7
v.	8
NEW MEXICO TAXATION &	9
REVENUE DEPARTMENT,	10
Respondent-Appellee.	11
APPEAL FROM THE ADMINISTRATIVE HEARINGS OFFICE	12
Chris Romero, Hearing Officer	13
New Mexico Litigation Group, LLC	14
Robert Koeblitz	15
Albuquerque, NM	16
for Appellants	17
Hector H. Balderas, Attorney General	18
Regina Ryanczak, Special Assistant Attorney General	19
Santa Fe, NM	20
for Appellee	21
Court of Appeals of New Mexico
Filed 1/4/2021 12:56 PM

OPINION	1
B. ZAMORA, Judge.	2
{1} 	Ana Koeblitz (Taxpayer) appeals from an administrative hearing officer’s	3
decision and order upholding an assessment of gross receipts tax liability made by	4
the New Mexico Taxation and Revenue Department (the Department) pursuant to	5
the Gross Receipts and Compensating Tax Act (GRCTA), NMSA 1978, §§ 7-9-1	6
to -117 (1966, as amended through 2020). Taxpayer argues that New Mexico law	7
only permits the Department to impose tax liability on the individual or entity who	8
is engaging in business in New Mexico, and contends that the hearing officer erred	9
in holding her personally liable for taxes that should have been assessed against a	10
limited liability company (LLC) that was engaged in business. We reverse.	11
BACKGROUND	12
{2} 	New Mexico law imposes gross receipts tax on all entities that engage in	13
business in New Mexico. See § 7-9-4. With limited exceptions not relevant to this	14
case, the Department requires taxpayers subject to gross receipts tax to register with	15
the 	Department. 	When 	a 	taxpayer 	registers 	and 	opens 	an 	account 	with 	the	16
Department, the Department issues the taxpayer a Combined Reporting System	17
(CRS) number for the purposes of identification and tracking. If a taxpayer with an	18
existing CRS number converts from one form of legal entity to another (e.g., from a	19
sole proprietorship to an LLC), the Department requires the taxpayer to submit a	20

2
business tax registration update. Upon receipt of an updated business registration,	1
the Department apparently closes the taxpayer’s existing account, opens a new	2
account to reflect the change in the taxpayer’s legal status, and assigns the taxpayer	3
a new CRS number.	4
{3} 	In 2009, Taxpayer established New Mexico Depo, a business which provides	5
court reporting services. New Mexico Depo registered with the Department and was	6
assigned a CRS number for tax reporting purposes in January 2009. From 2009 until	7
2012, Taxpayer operated New Mexico Depo as a sole proprietorship. See Jackson	8
Constr. Inc. v. Smith, 2012-NMCA-033, ¶ 14, 277 P.3d 470 (clarifying that “a sole	9
proprietor is simply a single individual who owns all the assets of a business, is	10
solely liable for its debts and employs in the business no person other than himself”	11
(internal quotation marks and citation omitted)). However, on January 17, 2012,	12
Taxpayer converted New Mexico Depo into an LLC.	13
{4} 	However, Taxpayer did not update New Mexico Depo’s registration, and New	14
Mexico Depo continued to operate under the original CRS number assigned to the	15
sole proprietorship. Following the 2012 conversion, Taxpayer held out New Mexico	16
Depo, LLC as an LLC to the general public. New Mexico Depo’s business records,	17
profit and loss statements, bank statements, and its Federal Employee Identification	18
Number reflect that it was operating as an LLC during this period.	19

3
{5} 	At some point prior to May 2014, the Department’s computerized auditing	1
system detected a mismatch between the information Taxpayer reported to the	2
Internal Revenue Service and the information Taxpayer reported to the Department.	3
When such a mismatch is detected, the computerized auditing system automatically	4
assigns an auditor to review the discrepancy. In this case, auditor Laura Gage was	5
assigned to review New Mexico Depo’s records. During the course of her review,	6
Gage discovered that New Mexico Depo had registered with the Secretary of State	7
as an LLC, even though the Department’s records continued to reflect that New	8
Mexico Depo was a sole proprietorship. After conferring with her supervisor	9
regarding the discrepancy, Gage updated the Department’s computerized records to	10
reflect that New Mexico Depo was operating as an LLC as of May 9, 2014, but Gage	11
did not issue a new CRS number to the LLC, and New Mexico Depo continued to	12
operate under the previously assigned CRS number. 1
13
{6} 	On October 12, 2017, the Department issued a Notice of Assessment of Taxes	14
and Demand for Payment for gross receipts tax against Taxpayer as the sole	15
proprietor of New Mexico Depo for the 2012 tax year. Taxpayer protested the tax	16
assessment, and a hearing officer was assigned to hear the protest. During the protest,	17
1 It is unclear from the record whether or when the Department notified
Taxpayer of this change.

4
Taxpayer argued, among other things, that the Department had no legal authority to	1
assign tax liability generated by an LLC to a sole proprietorship.	2
{7} 	The hearing officer denied the protest. Because Taxpayer did not submit an	3
updated registration alerting the Department that New Mexico Depo had converted	4
to an LLC, the hearing officer found that, at the time the tax liability was incurred,	5
the CRS number on file with the Department was assigned to Taxpayer, as the sole	6
proprietor of New Mexico Depo, rather than New Mexico Depo, LLC. The hearing	7
officer concluded that “New Mexico Depo, the sole proprietorship, is obligated for	8
the liability subject of the assessment . . . since that was the identity of the taxpayer	9
engaging in business in New Mexico.” This appeal followed.	10
DISCUSSION	11
{8} 	We presume that an “assessment of taxes or demand for payment made by the	12
[D]epartment is . . . correct.” NMSA 1978, § 7-1-17(C) (2007); see Corr. Corp. of	13
Am. v. State, 2007-NMCA-148, ¶ 17, 142 N.M. 779, 170 P.3d 1017. The burden is	14
on the taxpayer to overcome the presumed correctness of the Department’s	15
assessment. See Archuleta v. O’Cheskey, 1972-NMCA-165, ¶ 11, 84 N.M. 428, 504	16
P.2d 638. On appeal, a decision and order issued by a hearing officer for an	17
administrative agency will only be set aside if it is “(1) arbitrary, capricious or an	18
abuse of discretion; (2) not supported by substantial evidence in the record; or (3)	19
otherwise not in accordance with the law.” Team Specialty Prods., Inc. v. N.M. Tax’n	20

5
& Revenue Dep’t, 2005-NMCA-020, ¶ 8, 137 N.M. 50, 107 P.3d 4 (internal	1
quotation marks and citation omitted). “An agency abuses its discretion [if] its	2
decision is not in accord with legal procedure or supported by its findings, or when	3
the evidence does not support its findings[ or] . . . when its decision is contrary to	4
logic and reason.” Oil Transp. Co. v. N.M. State Corp. Comm’n, 1990-NMSC-072,	5
¶ 25, 110 N.M. 568, 798 P.2d 169 (citation omitted).	6
{9} 	On appeal, Taxpayer argues that Section 7-9-4 of the GRCTA imposes tax	7
liability only on a “person” who is “engaging in business in New Mexico.” Taxpayer	8
contends that she cannot be held individually liable for taxes assessed against New	9
Mexico Depo because Taxpayer was not engaged in business during the taxable	10
period as a sole proprietor. While Taxpayer raises other issues, we need not address	11
them because we conclude the Department lacked the authority to impose tax	12
liability against Taxpayer and this conclusion is dispositive of the other issues raised	13
on appeal. See Schneider Nat’l, Inc. v. N.M. Tax’n & Revenue Dep’t, 2006-NMCA-	14
128, ¶ 9, 140 N.M. 561, 144 P.3d 120 (explaining that a court need not reach all	15
arguments presented on appeal if the court’s conclusion regarding the meaning and	16
effect of a statute is dispositive).	17
I. 	Only a Person Engaging in Business May Be Liable for Gross Receipts	18
Tax	19
{10} 	We begin by addressing Taxpayer’s argument that the GRCTA imposes tax	20
liability only on the entity that was engaged in business. An appellate court reviews	21

6
matters of statutory interpretation de novo. See Chevron U.S.A., Inc. v. State ex rel.	1
Tax’n & Revenue Dep’t, 2006-NMCA-050, ¶ 13, 139 N.M. 498, 134 P.3d 785.	2
Although we give some deference to a hearing officer’s reasonable interpretation	3
and application of a statute, this Court is not bound by the hearing officer or agency’s	4
interpretation of the law, and we may substitute our own independent judgment.	5
GEA Integrated Cooling Tech. v. N.M. Tax’n & Revenue Dep’t, 2012-NMCA-010,	6
¶ 5, 268 P.3d 48. When presented with a question of statutory construction, we	7
observe the following general principles: (1) “the plain language of a statute is the	8
primary indicator of legislative intent[,]” and we “give the words used in the statute	9
their ordinary meaning unless the Legislature indicates a different intent”; (2) we	10
“will not read into a statute or ordinance language which is not there, particularly if	11
it makes sense as written”; (3) we will “give persuasive weight to long-standing	12
administrative constructions of statutes by the agency charged with administering	13
them”; and (4) when “several sections of a statute are involved, they must be read	14
together so that all parts are given effect.” High Ridge Hinkle Joint Venture v. City	15
of Albuquerque, 1998-NMSC-050, ¶ 5, 126 N.M. 413, 970 P.2d 599 (alteration,	16
internal quotation marks, and citations omitted).	17
{11} 	The provision of the GRCTA at the heart of this appeal provides, in relevant	18
part, that “an excise tax equal to five and one-eighth percent of gross receipts is	19
imposed an any person engaging in business in New Mexico.” Section 7-9-4(A)	20

7
(emphasis added). “Person” encompasses individuals, sole proprietorships, and	1
LLCs. See § 7-9-3(L)(1) (listing the legal entities that are considered persons for	2
gross receipt tax liability). “[E]ngaging in business” is defined as “carrying on or	3
causing to be carried on any activity with the purpose of direct or indirect benefit.”	4
Section 7-9-3.3. There is nothing vague or ambiguous about the language of these	5
statutes. As Taxpayer points out, the Department did not respond to Taxpayer’s	6
argument that the GRCTA only imposes tax liability on the entity that was engaged	7
in business, and the Department did not cite any authority allowing the Department	8
to assess tax liability against a person who was not engaged in business. We note	9
that neither the registration statute nor the Department’s registration regulations	10
permit the Department to impose liability against a taxpayer based solely on its	11
failure to update its registration. See NMSA 1978, § 7-1-12(A) (2000); 3.1.1.15(A)	12
NMAC. Although the Department may impose penalties against persons who fail to	13
meet various requirements, the penalty provisions do not allow the Department to	14
assess gross receipts tax liability against a person who was not engaging in business	15
during the applicable period. See NMSA 1978, § 7-1-69 (2007). In short, because	16
the Legislature has not granted the Department the authority to tax persons who were	17
not engaging in business during the taxable period, we agree with Taxpayer that the	18
inquiry of consequence in this matter is not whether Taxpayer met the Department’s	19
registration requirements. In light of the plain language of Section 7-9-4, we hold	20

8
that the Department may only impose gross receipts tax upon persons who were	1
engaging in business during the time period at issue.	2
II. 	Taxpayer Was Not Engaged in Business During the Time Period at Issue	3
{12} 	We now consider Taxpayer’s specific contention in this case: that the hearing	4
officer’s decision was arbitrary, capricious, and not supported by substantial	5
evidence because the hearing officer made “no finding that [Taxpayer] conducted	6
her business as a sole proprietorship after the [LLC] was formed.” Taxpayer	7
maintains that the hearing officer erred in focusing on whether Taxpayer had	8
complied with the Department’s registration requirement rather than determining	9
whether Taxpayer was in fact the person engaging in business, and therefore subject	10
to the Department’s taxation power under Section 7-9-4.	11
{13} 	Relying on an unpublished, non-precedential proposed summary disposition,	12
the hearing officer focused on Taxpayer’s failure to register with the Department in	13
upholding the Department’s assessment of tax liability to Taxpayer.2 The hearing	14
2The hearing officer cited Louie Casias v. New Mexico Taxation & Revenue
Department, No. A-1-CA-36489 mem. op. (N.M. Ct. App. Oct. 29, 2018) (non-
precedential). We have previously held that “unpublished orders, decisions, or
memorandum opinions are not meant to be cited as controlling authority because
such opinions are written solely for the benefit of the parties.” State v. Gonzales,
1990-NMCA-040, ¶ 48, 110 N.M. 218, 794 P.2d 361, aff’d sub nom. Gonzales v.
State, 1991-NMSC-015, ¶ 12, 111 N.M. 363, 805 P.2d 630. We further clarified that
“[i]t is even less appropriate to cite a . . . proposed disposition signed by one judge.
It is a preliminary and tentative indication of how a panel might resolve the issues
on appeal, but it is no more than that.” Id. ¶ 49. We therefore decline to address this
case further.

9
officer described the primary issue as a question of whether Taxpayer “is personally	1
liable for gross receipts tax liabilities incurred during the time she operated as a sole	2
proprietorship, and after organizing a[n LLC] because she failed to update her	3
business tax registration with the Department.” We have already clarified that	4
Section 7-9-4’s plain language permits tax liability to be “imposed” only upon the	5
“person engaging in business in New Mexico.” Accordingly, we agree with	6
Taxpayer that the inquiry of consequence in this matter is not whether Taxpayer met	7
the Department’s registration requirements. Instead, the critical inquiry is whether	8
Taxpayer was a “person engaging in business,” such that the Department had the	9
authority to tax her.	10
{14} 	The hearing officer’s ultimate finding that “New Mexico Depo, the sole	11
proprietorship, is obligated for the liability subject of the assessment . . . since that	12
was the identity of the taxpayer engaging in business in New Mexico” does not	13
clearly explain what legal framework the hearing officer was using to reach his	14
decision. The hearing officer did not make any findings setting forth which entity,	15
the sole proprietorship or the LLC, was engaged in business. Having clarified that	16
the Department may only impose gross receipts tax upon persons who were engaging	17
in business during the time period at issue, see § 7-9-4(A), we review the hearing	18
officer’s decision to determine whether substantial evidence exists to support a	19
finding that Taxpayer was the “person” engaging in business. We conclude it does	20

10
not. To the contrary, the evidence shows that, during the relevant time period, New	1
Mexico Depo was an LLC, and only New Mexico Depo, LLC was engaging in	2
business. The hearing officer found (and the Department admits) that New Mexico	3
Depo established itself as an LLC by registering and filing its articles of organization	4
with the Secretary of State. This fact is of particular importance because registering	5
an LLC with the Secretary of State and filing articles of organization causes an LLC	6
to exist as a legal entity under New Mexico law. NMSA 1978, § 53-19-10(A) (1993).	7
Finally, while Taxpayer failed to notify the Department that New Mexico Depo had	8
converted to an LLC, Taxpayer produced substantial evidence, including business	9
and employment records, statements of service, reported profits and losses, a bank	10
statement, and federal tax documentation demonstrating that New Mexico Depo was	11
operating as an LLC. Based on these records, the hearing officer unambiguously and	12
unequivocally stated that “[f]rom January 17, 2012, [Taxpayer] . . . held her business	13
out publicly as New Mexico Depo, LLC.” While we agree that New Mexico Depo’s	14
failure to update its business registration is one fact that supports finding that New	15
Mexico Depo was operating as a sole proprietorship rather than an LLC, the	16
remaining facts in the record overwhelmingly demonstrate that New Mexico Depo	17
was engaging in business as an LLC during the taxable period.	18
{15} 	The Department also relies on the unpublished opinion Richard Casias v. New	19
Mexico Taxation & Revenue Department, No. A-1-CA-36316, mem. op. (N.M. Ct.	20

11
App. Mar. 25, 2019) (non-precedential), to support its argument that Taxpayer is	1
personally liable for gross receipts taxes because she failed to update her registration	2
with the Department. The Department argues, in relevant part, that Richard Casias	3
stands for the proposition that a sole proprietor who fails to update the business	4
registration fails to shift responsibility for paying gross receipts tax from the sole	5
proprietorship to the LLC. We disagree. In Richard Casias, we upheld the hearing	6
officer’s assessment of tax liability against a taxpayer in his individual capacity	7
because the taxpayer “failed to prove that [the business] was an LLC.” Id. ¶ 17. In	8
contrast to Richard Casias, in which a number of facts established that the sole	9
proprietorship rather than the LLC was the entity engaging in business, see id., the	10
facts in this case compel the opposite conclusion—that New Mexico Depo, LLC was	11
the entity engaging in business, and the gross receipts tax liability properly rests with	12
the LLC and not with Taxpayer.	13
{16} 	We will reverse an administrative hearing officer’s decision if it is not	14
supported by substantial evidence in the record or otherwise not in accordance with	15
the law. NMSA 1978, § 7-1-25(C) (2015). To the extent the hearing officer’s	16
decision 	imposed 	liability 	against 	Taxpayer 	for 	failing 	to 	register 	with 	the	17
Department, it is not in accordance with Section 7-9-4, which permits only the	18
person engaging in business to be taxed. Alternatively, to the extent the hearing	19
officer’s decision can be interpreted as finding that Taxpayer was the entity engaging	20

12
in business for purposes of the GRCTA, this finding is not supported by substantial	1
evidence in the record. Because we reverse the hearing officer’s decision, Taxpayer	2
is not personally liable for the taxes assessed.	3
CONCLUSION	4
{17} 	For the forgoing reasons, we reverse the hearing officer’s decision to uphold	5
the Department’s assessment of tax liability against Taxpayer as the sole proprietor	6
of New Mexico Depo.	7
{18} 	IT IS SO ORDERED.	8
_________________________________	9
BRIANA H. ZAMORA, Judge	10
WE CONCUR:	11
_________________________________	12
JENNIFER L. ATTREP, Judge	13
_________________________________	14
ZACHARY A. IVES, Judge	15