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Bogle Management Co. Inc. v. New Mexico Taxation and Revenue Department

Court of Appeals of New Mexico

December 5, 2017

BOGLE MANAGEMENT CO., INC., Protestant-Appellant,

         APPEAL FROM TAXATION & REVENUE DEPARTMENT Dee Dee Hoxie, Hearing Officer

          Betzer, Roybal & Eisenberg, P.C. Gary D. Eisenberg Albuquerque, NM for Protestant

          Hector H. Balderas, Attorney General Elena M. Morgan, Special Assistant Attorney General Santa Fe, NM for Respondent


          M. MONICA ZAMORA, Judge

         {1} Bogle Management Co., Inc. (Taxpayer) appeals the New Mexico Taxation and Revenue Department's (the Department) decision to assess gross receipts tax on reimbursement payments and management fees it received, pursuant to the New Mexico Gross Receipts and Compensating Tax Act (the Act). NMSA 1978, §§ 7-9-1 to -115 (1966, as amended through 2017). On appeal, Taxpayer contends that the Department's decision was erroneous because Taxpayer was acting as a disclosed agent under the Act; it is located in another state and did not perform any services in New Mexico; and therefore, its reimbursements and management fees are exempt from New Mexico gross receipts tax.

         {2} For the reasons set forth in this opinion, we hold that the hearing officer's decision was not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law, and that the decision and order were supported by substantial evidence in the record. Specifically, the hearing officer determined that Taxpayer did not meet the requirements for the disclosed agent exemption and was engaged in business in New Mexico. As a result, Taxpayer's reimbursements and management fees are subject to New Mexico gross receipts tax. Accordingly, we affirm the hearing officer's decision and order.


         {3} Taxpayer is an Arizona corporation whose owners reside and conduct all of Taxpayer's business in Georgia. Taxpayer provides agricultural management services to farms located in New Mexico. While Taxpayer does not have a physical office in New Mexico, it did have a physical presence in the State through its managers.

         {4} Taxpayer's original owner owned multiple farms located in New Mexico, known as Bogle Ltd Co. and Bill Bogle Farm (the Farms). Taxpayer was established as a separate entity from the Farms for the purpose of providing farm managers with employment benefits, which the Farms did not want to provide to general farm employees, including retirement plans and medical reimbursement plans. In 1977 Taxpayer registered in New Mexico for tax purposes. In 1998 and under new ownership, Taxpayer entered into two written management agreements (the Agreements) with the Farms, whereby Taxpayer would supply the Farms with agricultural managers (the managers) in exchange for a management fee equal to 10 percent of the agricultural managers' gross salaries. Under the Agreements, Taxpayer was an independent contractor, and was a joint venturer with the Farms. Taxpayer provided payroll services for the Farms. Taxpayer, as the employer of the managers, was responsible for all calculations and physical activities related to the payroll services, including issuing paychecks, withholding taxes, managing the benefits programs, and issuing year-end Internal Revenue Service Form W-2 (W-2) to each of the managers.

         {5} The Agreements required the Farms to "reimburse" Taxpayer for all payments Taxpayer issued to the managers, "including salary, the cost of worker's compensation insurance, payroll taxes, pension benefits, group insurance[, ] medical benefits[, ] and all other normal and reasonable costs required for the employment of [the m]anagers" (collectively, the reimbursement payments). Taxpayer sent monthly invoices to the Farms detailing the amount of reimbursements and management fees owed, and the Farms, as required under the Agreements, made all payments to Taxpayer. The Agreements also placed the ultimate responsibility including an obligation to indemnity Taxpayer for any indemnification on the Farms for all costs associated with payroll and taxes on the Farms.

         {6} "Taxpayer did not recruit, interview, hire, promote, or fire any of the managers at the Farms. There were no formal agreements between . . . Taxpayer and the managers." The only direct communications Taxpayer had with the managers were when it sent them notices of eligibility for medical reimbursement plans, a pension plan enrollment form, and their W-2s. The Farms had complete control over hiring, promoting and firing the managers; determination of salary and salary increases; as well as providing supervision and control of all work performed by the managers.

         {7} In December 2007 the Department assessed Taxpayer for gross receipts tax "principal of $338, 079.42; penalty in the amount of $33, 807.97; and [interest in the amount] of $194, 142.58" for the tax period of January 31, 2000 through June 30, 2006. In January 2008 Taxpayer filed a formal protest letter with the Department. Approximately eight years later in February 2016 the parties participated in an administrative hearing before a hearing officer. In May 2016 the hearing officer issued her decision and order, granting Taxpayer's protest in part and denying it in part.

         {8} In relevant part, the hearing officer concluded: (1) "Taxpayer was engaged in business in New Mexico by supplying managers to the Farms"; (2) "Taxpayer was not a disclosed agent of the Farms, and all of its receipts were subject to the gross receipts tax"; and (3) because Taxpayer's failure to pay taxes was based on a "mistake of law made in good faith[, ]" and the penalty fee was abated.

         {9} On appeal, Taxpayer broadly argues that the hearing officer erred in finding that the management fees and reimbursement payments were subject to gross receipts tax under the Act. More specifically, Taxpayer argues that pursuant to the Agreements it maintained with the Farms, it was acting as the Farms' disclosed agent and, therefore, the reimbursement payments should not be subject to gross receipts tax. Taxpayer further maintains that it was not "engaging in business" in New Mexico under the Act and was deriving no benefit from its receipt of the management fees and the reimbursement payments. In response, the Department argues that the hearing officer did not abuse her discretion in finding the management fees and reimbursement payments were subject to gross ...

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