A. In an administrative proceeding or court proceeding brought by or against a taxpayer and conducted in connection with the determination, collection or refund of a tax or the interest or penalty for a tax governed by the Tax Administration Act, the taxpayer shall be awarded a judgment or a settlement for reasonable administrative costs and reasonable litigation costs and attorney fees incurred in connection with the proceeding if the taxpayer is the prevailing party.

B. As used in this section:

(1) "administrative proceeding" means any procedure or other action before the department or the administrative hearings office;

(2) "court proceeding" means any civil action brought in state district court;

(3) "reasonable administrative costs" means:

(a) any administrative fees or similar charges imposed by the department or the administrative hearings office; and

(b) actual charges for: 1) filing fees, court reporter fees, service of process fees and similar expenses; 2) the services of expert witnesses; 3) any study, analysis, report, test or project reasonably necessary for the preparation of the party's case; and 4) fees and costs paid or incurred for the services in connection with the proceeding of attorneys, certified public accountants, employees of a New Mexico licensed certified public accounting firm or enrolled agents who are authorized to practice in the context of an administrative proceeding; and

(4) "reasonable litigation costs and attorney fees" means:

(a) reasonable court costs; and

(b) actual charges for: 1) filing fees, court reporter fees, service of process fees and similar expenses; 2) the services of expert witnesses; 3) any study, analysis, report, test or project reasonably necessary for the preparation of the party's case; and 4) fees and costs paid or incurred for the services of attorneys in connection with the proceeding.

C. For purposes of this section:

(1) the taxpayer is the prevailing party if the taxpayer has:

(a) substantially prevailed with respect to the amount in controversy; or

(b) substantially prevailed with respect to most of the issues involved in the case or the most significant issue or set of issues involved in the case;

(2) the taxpayer is not the prevailing party if the administrative hearings office finds that the position of the department in the proceeding was based upon a reasonable application of the law to the facts of the case. For purposes of this paragraph, the position of the department shall be presumed not to be based upon a reasonable application of the law to the facts of the case if:

(a) the department did not follow applicable published guidance in the proceeding; or

(b) the assessment giving rise to the proceeding is not supported by substantial evidence determined at the time of the issuance of the assessment;

(3) as used in Subparagraph (a) of Paragraph (2) of this subsection, "applicable published guidance" means:

(a) department or administrative hearings office regulations, information releases, instructions, notices, technical advice memoranda and announcements; and

(b) private letter rulings and letters issued by the department to the taxpayer; and

(4) the determination of whether the taxpayer is the prevailing party and the amount of reasonable litigation costs or reasonable administrative costs shall be made by agreement of the parties or:

(a) in the case of an administrative proceeding, by the hearing officer; or

(b) in the case of a court proceeding, by the court.

D. An order granting or denying in whole or in part an award for:

(1) reasonable litigation costs and attorney fees pursuant to Subsection A of this section in a court proceeding may be incorporated as a part of the court's decision or judgment and are subject to appeal in the same manner as the decision or judgment; and

(2) reasonable administrative costs pursuant to Subsection A of this section in an administrative proceeding are reviewable in the same manner as a decision of the administrative hearings office.

E. An agreement for or award of reasonable administrative costs or reasonable litigation costs in any administrative proceeding or court proceeding pursuant to Subsection A of this section shall not exceed the lesser of twenty percent of the amount of the settlement or judgment or seventy-five thousand dollars ($75,000).

F. The department shall annually report to the legislative finance committee and the revenue stabilization and tax policy committee on the costs it incurs pursuant to this section.

History: 1978 Comp., § 7-1-29.1, enacted by Laws 2003, ch. 398, § 12; 2015, ch. 73, § 18; 2019, ch. 157, § 5.

The 2019 amendment, effective June 14, 2019, added additional costs and fees that a taxpayer may be awarded if the taxpayer is the prevailing party in a tax dispute, increased the limit on the amount of administrative costs or litigation costs that may be awarded, and required the taxation and revenue department to make annual reports to the legislative finance committee and the revenue stabilization and tax policy committee on the costs it incurs pursuant to this section; in Subsection A, after "against a taxpayer", deleted "on or after July 1, 2003" and added "and conducted", after "reasonable administrative costs", added "and reasonable litigation costs and attorney fees", and after "in connection with the proceedings", deleted "with the department or the administrative hearing office or reasonable litigation costs incurred in connection with a court proceeding"; in Subsection B, Subparagraph B(3)(b), after "with the proceeding of attorneys", deleted "or of certified public accountants" and added "certified public accountants, employees of a New Mexico licensed certified public accounting firm or enrolled agents", and in Paragraph B(4), after "litigation costs", added "and attorney fees"; in Subsection C, Paragraph C(2), after "prevailing party if", deleted "prior to July 1, 2015, the department establishes or, on or after July 1, 2015", after the next occurrence of "the", deleted "hearing officer" and added "administrative hearings office", in Subparagraph C(4)(a), after "in the case", deleted "where the final determination with respect to the tax, interest or penalty is made in" and added "of", in Subparagraph C(4)(b), after "in the case", deleted "where the final determination is made by the" and added "of a", and after "court", added "proceeding, by"; in Subsection D, Paragraph D(1), after "reasonable litigation costs", added "and attorney fees", and after "decision or judgment", deleted "A decision or order granting or denying in whole or in part an award for", in Paragraph D(2), after "this section", deleted "by a hearing officer shall be" and added "in an administrative proceeding are", and after "manner as a decision of", deleted "hearing officer" and added "the administrative hearings office"; in Subsection E, deleted "fifty thousand dollars ($50,000). A taxpayer awarded administrative litigation costs pursuant to this section may not receive an award of attorney fees pursuant to Subsection D of Section 7-1-25 NMSA 1978" and added "seventy-five thousand dollars ($75,000)."; and added Subsection F.

The 2015 amendment, effective July 1, 2015, amended the Tax Administration Act to include the administrative hearings office in provisions related to awarding administrative costs and fees; in Subsection A, after "proceeding with the department", added "or the administrative hearings office"; in Subsection B, Paragraph (1), after "department", added "or the administrative hearings office"; in Subsection B, Paragraph (3)(a), after "department", added "or the administrative hearings office"; in Subsection B, Paragraph (3)(b), after "authorized to practice", deleted "before the department" and added "in the context of an administrative proceeding"; in Subsection C, Paragraph (1)(a), after "amount", added "in"; in Subsection C, Paragraph (2), after "prevailing party if," added "prior to July 1, 2015", after "establishes", added "or, on or after July 1, 2015, the hearing officer finds"; in Subsection C, Paragraph (3)(a), after "department", added "or administrative hearings office"; in Subsection C, Paragraph (4)(a), after "proceeding, by the", deleted "department"; and in Subsection D, after "this section by", deleted "the department" and added "a", and after "decision of", deleted "the department" and added "a".

Prevailing taxpayer entitled to an award of fees and costs. — If a taxpayer is the prevailing party in any administrative proceeding brought by or against a taxpayer, the taxpayer is entitled to an award of reasonable administrative costs. Helmerich Payne Int'l Drilling Co. v. N.M. Taxation & Revenue Dep't, 2019-NMCA-054.

Abatement of tax assessment does not deprive the administrative hearings office of jurisdiction. — Where the New Mexico taxation and revenue department (department) audited and assessed nearly $500,000 in tax, penalty and interest against taxpayer, and where the department, after taxpayer filed a formal protest which included a request for an award of fees and costs, abated the entire assessment without explanation, the department did not deprive the administrative hearings office (AHO) of jurisdiction by abating the assessment, and the AHO's assertion of jurisdiction to resolve the prevailing-party issue was proper. Helmerich Payne Int'l Drilling Co. v. N.M. Taxation & Revenue Dep't, 2019-NMCA-054.

Prevailing party. — Where the New Mexico taxation and revenue department (department) audited and assessed nearly $500,000 in tax, penalty and interest against taxpayer, and where the department, after taxpayer filed a formal protest which included a request for an award of fees and costs, abated the entire assessment without explanation, the administrative hearings office did not abuse its discretion in designating taxpayer the prevailing party, thereby entitling taxpayer to an award of costs and fees, where taxpayer prevailed as to the entire amount in controversy when the assessment was abated and where the department failed to respond to taxpayer's motion for summary judgment, failed to respond to taxpayer's renewed request for an award after the abatement, failed to file a written argument on the prevailing-party issue, and failed to present testimony or evidence at the prevailing-party hearing. Helmerich Payne Int'l Drilling Co. v. N.M. Taxation & Revenue Dep't, 2019-NMCA-054.