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Latest MeF Information:

Sept. 28, 2016
New Mexico’s MeF programs to leverage FTA’s Secure Exchange System for access to development resources for TY2016. 

Sept. 28, 2016‚Äč
A consolidated LOI for Forms and MeF is nearly complete and will be available on SES. Access instructions shall be provided in near future.

Orders are written statements to implement a decision after a Department administrative hearing. 

A taxpayer may file an appeal with the New Mexico Court of Appeals within 30 days after the date of the decision. Appeals are decided based on the evidence and arguments presented at the administrative hearing. 



09/28/2016

16-47

Sonja Foote

On April 11, 2016, the Department assessed the Taxpayer for personal income tax, penalty and interest for the tax periods from January 1, 2011 through December 31, 2013.  On May 2, 2016, the Taxpayer filed a protest.  The Taxpayer and her husband owned approximately 1300 acres of land in Quay County, which they purchased in 2009.  The Taxpayer’s husband earned a substantial income from work unrelated to the land and cattle.  The Taxpayer’s husband retired, became ill, and passed away prior to the assessment.  The Taxpayer made improvements to the land, which included fencing and drilling wells, and bought three cows to begin a cattle-breeding operation.  The Taxpayer’s herd now has 19 pairs of heifers and calves, and the Taxpayer intends to continue breeding until the herd is 50 head.  The Taxpayer’s cattle-breeding operation and land improvements have generated substantial losses, which the Taxpayer claimed against her income.  The Taxpayer did not provide any evidence to show that the operation has made a profit.  The issue to be decided at hearing is whether the Taxpayer is liable for the assessment.  The parties agree that the determination hinges on whether the Taxpayer’s cattle operation should be considered as a for-profit business or not under 26 USCS Section 183.  There is a federal deduction allowed for expenses occurred when engaging in any trade or business, but this deduction is disallowed when the activity is not for-profit.  The federal regulations list nine factors to aid in determining whether an activity is for-profit or not.  In examining each of these factors, the Hearing Officer found that some factors weighed against finding that the activity is for-profit, while others weighted for it, but in the end seven of the nine factors indicated that the activity engaged in by the Taxpayer was not for-profit and the deductions were correctly disallowed by the Department.  The Taxpayer’s protest was denied.


09/23/2016

16-46

Hector Martinez 

On April 1, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the CRS reporting periods from January 1, 2009 through December 31, 2013.  On April 12, 2016, the Taxpayer protested the Department’s assessment.  The Taxpayer is a sole-proprietor who provides tile-installation services.  During the relevant period, the Taxpayer worked with a bookkeeper to prepare his taxes.  The bookkeeper informed the Taxpayer that he needed to obtain nontaxable transaction certificates (NTTCs) for his work.  The company to whom the Taxpayer was providing his services during the relevant period issued a Type 2 NTTC on August 5, 2011, but did not properly complete that NTTC by failing to fill out any seller information and not completing the execution date.  The company also provided the Taxpayer with the buyer’s copy of the incomplete NTTC, rather than the seller’s copy that should have been provided.  Two years after the initial execution date, someone handwrote in the seller information on the buyer’s copy of the NTTC and added an execution date of April 23, 2013.  The Department’s internal database of issued NTTCs shows the Type 2 NTTC that the company attempted to execute to the Taxpayer as incomplete.  Through its Schedule C mismatch program with the IRS, the Department detected a discrepancy between the amount of gross receipts tax reported and paid to the Department and the amount of business income reported to the IRS by the Taxpayer.  On January 1, 2016, the Department mailed the Taxpayer a limited scope audit commencement notice, informing the Taxpayer that he had 60-days, until March 1, 2016, to present any required NTTCs.  The Taxpayer submitted all his documentation to the Department in January of 2016.  The Department informed the Taxpayer and his bookkeeper that the Type 2 NTTC was inadequate to support the claimed deduction.  The Taxpayer did not timely present a properly completed and executed NTTC by the deadline.  On March 1, 2016, the Department sent the Taxpayer a letter stating that there remained a discrepancy and the Department was preparing to issue an assessment.  On March 18, 2016, 17 days after the deadline, the Taxpayer presented an untimely but properly executed Type 5 NTTC from the company.  The Taxpayer is not allowed to claim and the Department is not allowed to grant the Taxpayer’s claimed deduction under Section 7-9-51 NMSA 1978 without a timely executed NTTC.  The hearing officer determined that the gross receipts tax and interest were properly assessed.  The hearing officer did order the penalty to be abated in this case because the Taxpayer’s bookkeeper failed to inform him that he had both the wrong type of NTTC and that the NTTC was not properly completed and executed.  The Taxpayer’s protest was granted in part and denied in part.


09/15/2016

16-45

SMPC, P.A. 

On December 1, 2014, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the CRS reporting periods from January 31, 2008 through December 31, 2013.  On December 15, 2014, the Taxpayer protested the assessment.  The Taxpayer provides architectural services as part of design-build construction contracts.  The Taxpayer’s services were resold by the general contractor and the contractor paid the gross receipts tax associated with the design-build contract.  The Taxpayer requested nontaxable transaction certificates (NTTCs) from the general contractors under the projects.  The Taxpayer timey possessed properly executed Type 6 NTTCs from the various contractors it provided architectural design services to as part of design-build contracts.  In 2014, the Department selected the Taxpayer for an audit of gross receipts tax, compensating tax, and withholding tax for the reporting periods from January 1, 2008 through December 31, 2013.  Upon audit, the Department disallowed the deductions where the Taxpayer possessed Type 6 NTTCs because a Type 5 NTTC would be the necessary certificate to support the deduction of receipts from the sale of a service for resale.  Because of a statutory change in 2012, architectural services now fall under the construction service for resale deduction, which is covered by a Type 6 NTTC.  The Taxpayer argued that it is entitled to claim the deduction because it timely accepted the Type 6 NTTCs in good faith.  The Department argued that the Taxpayer did not demonstrate that it accepted the Type 6 NTTC in good faith, and should have known that a Type 5 NTTC was required.  The hearing officer found that the Taxpayer’s acceptance of the Type 6 NTTC was in good faith as provided in Section 7-9-43(A) NMSA 1978.  The Taxpayer’s protest was granted.


09/12/2016

16-44

Market Scan Information Systems, Inc.

On March 4, 2013, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the periods from January 31, 2007 through September 30, 2011.  On April 24, 2013, the Taxpayer filed a formal protest letter.  The Taxpayer sells licenses to use software in New Mexico, mainly to car dealerships.  The Taxpayer admits that its sales in New Mexico are subject to gross receipts tax.  The Taxpayer contracts directly with its customers when it sells the software licenses.  The customers are required to make an initial down payment, and then frequently need to use financing options, either directly with the Taxpayer or with a lender to pay for the software licenses.  The Taxpayer has a separate agreement with the lenders it recommends to customers, but these lenders are free to decline to finance the customers and the Taxpayer cannot bind the lenders in any transaction.  With regard to the assessment, the Taxpayer argued that the lenders were responsible for the gross receipts taxes on its contracts with its customers, and that the lenders in fact paid the gross receipts tax.  The Taxpayer argued that the assessed amounts were incorrect, but did not provide any evidence.  The Department argued that the Taxpayer was required to pay gross receipts tax on all of its sales and if the lenders were paying gross receipts tax, that tax was their own, and they were not paying the Taxpayer’s gross receipts taxes.  The Taxpayer presented no evidence or argument regarding any specific exemption or deduction that it believed applied to its receipts, nor did the Taxpayer meet any of the necessary conditions for equitable recoupment.  The Taxpayer’s protest was denied.


09/09/2016

16-43

David M. Gonzales

On November 16, 2015, the Department assessed the Taxpayer for personal income tax, penalty and interest for the tax periods from January 1, 2011 through December 31, 2014.  On January 14, 2016, the Taxpayer filed a protest.  The Taxpayer is a full-time employee for the New Mexico Department of Transportation, and has been since approximately 1992.  Sometime in 2001, the Taxpayer began a cattle operation.  Over time, the Taxpayer’s cattle operation went from purchasing some cows to lease to roping and rodeo operators to breeding cattle and selling them for beef.  In the process of establishing the breeding operation, the Taxpayer determined what type of cattle would be most desirable for beef cattle, and that it might take up to ten years to breed that type and grow the herd large enough to be profitable.  At one point in 2010, the Taxpayer had 110 head of cattle, but had to sell most of them off because of various issues and sometime in 2012 or 2013, the herd was as low as 18 head.  The Taxpayer has never made a profit on his cattle operation and categorizes his best years as “breaking even.”  During all the tax years in question, the Taxpayer claimed significant losses on his personal income taxes in relation to his cattle operation.  The issue to be decided at hearing is whether the Taxpayer is liable for the assessment.  The parties agree that the determination hinges on whether the Taxpayer’s cattle operation should be considered as a for-profit business or not under 26 USCS Section 183.  The Taxpayer argues that the time and effort required to engage in the cattle business make it a for-profit activity, while the Department argues that the Taxpayer’s conduct was not sufficient to show that the activity was for-profit.  There is a federal deduction allowed for expenses occurred when engaging in any trade or business, but this deduction is disallowed when the activity is not for-profit.  The federal regulations list nine factors to aid in determining whether an activity is for-profit or not.  In examining each of these factors, the Hearing Officer found that some factors weighed against finding that the activity is for-profit, while others weighted for it, but in the end six of the nine factors indicated that the activity engaged in by the Taxpayer was not for-profit and the deductions were correctly disallowed by the Department.  The Hearing Officer did find that the Taxpayer reasonably relied on a tax professional, an enrolled agent, who prepared his tax returns and advised him to take the deductions.  Due to this, the penalty was ordered to be abated, but the assessed tax and interest were determined to be correct.  The Taxpayer’s protest was granted in part and denied in part.


08/17/2016

16-42

Weil Construction Inc.

On November 25, 2014, the Taxpayer filed an application for refund of gross receipts tax for the periods from October 1, 2012 through December 31, 2013.  The Department took no action on the request for refund within 120 days of its filing.  On June 15, 2015, the Taxpayer filed a protest.  The Taxpayer is engaged in the construction business in New Mexico.  During the period in question, the Taxpayer was involved in a construction project for Santa Fe County, building a new fire station for the city of Edgewood.  The Taxpayer issued Type 6 nontaxable transaction certificates (NTTCs) to its vendors for items that were included in the construction project.  The Taxpayer paid gross receipts tax on its receipts from the county for the construction of the fire station, including on items of tangible personal property that were incorporated into the fire station.  At the behest of the county, a firm was hired to perform a cost segregation study on the construction of the fire station.  They concluded that many items of tangible personal property that were incorporated into the station were items that could be classified as 3-year, 5-year, 7-year, 10-year, and 15-year property under Section 168 of the Internal Revenue Code (depreciable property).  The firm agreed to represent the Taxpayer to try and obtain tax refunds and reduce the county’s expenses.  The Taxpayer is seeking a refund on the gross receipts tax paid on the items of tangible personal property incorporated into the fire station that could be classified as depreciable property.  Since the protest was filed, the Department granted a partial refund, but the majority of the refund request remains outstanding.  The portion of the refund that was granted was for items easily removed from the fire station and not permanently affixed, such as window treatments, appliances and fire extinguishers, among other items.  The remaining items include cabinets and countertops, flooring, piping and ventilation, and other similar items.  The Department denies that these items are eligible for refund because they are permanent structural components of the building or permanently affixed.  The Taxpayer argues that the depreciable property is tangible personal property sold to a government agency and should be deductible.  The Department made several arguments, mainly that receipts from performing a construction project for a governmental agency are receipts derived from performing a service and are not deductible (Regulation 3.2.212.10 NMAC).  The Department acknowledged that depreciable property might be deducted in a sale to a government agency, but only when there is a bond project with a third party acting as an agent for the government, which was not the case here.  Receipts from the sale of construction materials to government agencies are not able to be deducted, and construction materials include any items incorporated into a construction project.  The Taxpayer was performing construction services for a government agency and the items they are attempting to claim a deduction for were items incorporated into the construction project.  The hearing officer found that the deductions were properly denied.  The Taxpayer’s protest was denied.


07/27/2016

16-41

Luis M. Fernandez

On February 23, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the tax period from January 1, 2008 through December 31, 2012.  On May 2, 2016, the Taxpayer filed a formal protest.  During the period in question, the Taxpayer worked as a painter for a particular company.  The Taxpayer was paid weekly and was issued 1099s as an independent contractor.  The Taxpayer believed he was an employee of the company, and was led to believe this by the company, his co-workers and his tax preparer.  The Taxpayer used a tax preparer who he trusted to handle his taxes appropriately.  The tax preparer never explained gross receipts tax to the Taxpayer.  The Department issued a notice of audit to the Taxpayer on November 21, 2015.  The notice advised the Taxpayer that he was responsible for obtaining any necessary nontaxable transaction certificates (NTTCs) within 60 days of the letter.  The deadline for NTTCs was January 20, 2016.  The Taxpayer contacted his tax preparer for assistance and she told him that she would take care of it and send documentation to the Department.  She did not do so and stopped responding to the Taxpayer.  The Taxpayer contacted the company directly and requested an NTTC.  The company was willing to execute an NTTC but was unable to do so because its own tax delinquencies made it ineligible for NTTCs at the time.  The company came into compliance and executed an NTTC to the Taxpayer on April 29, 2016, more than three months past the deadline.  The NTTC executed to the Taxpayer was also the wrong type, it was for the sale of tangible goods rather than services.  There was no indication that the Taxpayer was an employee instead of an independent contractor, as he believed.  Pursuant to Section 7-9-43(A) NMSA 1978, when a Taxpayer is not in possession of the required NTTCs by the deadline, the deduction requiring that NTTC shall be disallowed.  The Taxpayer also argued that he should not be subject to penalty because he was led to believe that he was an employee by the company and his co-workers, and that he relied on his tax preparer’s advice.  The hearing officer found that the Taxpayer was non-negligent and ordered penalty to be abated.  The assessment of tax and interest were found to be correct.  The Taxpayer’s protest was granted in part and denied in part.


07/27/2016

16-40

Gutierrez Aggregate Systems LLC

On February 23, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the tax period from January 1, 2012 through December 31, 2012.  On May 2, 2016, the Taxpayer filed a protest.  In 2012, the Taxpayer was engaged in business in New Mexico as a provider of construction services and materials.  The Taxpayer served as a subcontractor for another business during that time.  On November 21, 2015, the Department issued a notice of audit to the Taxpayer.  On that notice the Taxpayer was advised of its responsibility to obtain any necessary nontaxable transaction certificates (NTTCs) within 60 days of the letter.  The deadline for NTTCs was January 20, 2016.  The Taxpayer contacted the owner of the business for whom it was a subcontractor and requested an NTTC.  The owner assured the Taxpayer that it would give it an NTTC.  After repeated calls from the Taxpayer, the business executed the NTTC to the Taxpayer on March 15, 2016, almost two months after the deadline.  The Taxpayer argued that it was not at fault for the NTTC, and also that it was unfair to require it to pay taxes years later now that it is out of business.  The Department argued that the Taxpayer has the responsibility of obtaining NTTCs at the time of the transaction, but is then granted the 60 days by statute.  Section 7-9-43(A) NMSA 1978 also states that when a taxpayer is not in possession of the required NTTCs by the deadline then all claimed deductions requiring the NTTC shall be disallowed.  The Taxpayer also argued that it should not have to pay penalty, however it is the Taxpayer’s responsibility to obtain NTTCs at the time of the transaction and when this does not occur the deduction should not be taken.  The Taxpayer’s protest was denied.


07/27/2016

16-39

Sergio Martinez

Prior to September 28, 2014, the Taxpayer resided and had his domicile in New Mexico.  On September 28, 2014, the Taxpayer moved to Odessa, Texas to pursue a career in media.  The Taxpayer moved in with his sister and her husband in Texas, and continues to reside with them.  The Taxpayer never signed a lease with his sister or her husband, but pays them rent and pays a portion of the utility bills.  The Taxpayer has some mail sent to his sister’s house, but has most of it sent to his parent’s house in Las Cruces, New Mexico due to issues with mail delivery at his sister’s house.  The Taxpayer works for two companies in Texas, as has since October 2014.  The Taxpayer has his pay direct deposited to his bank account, which is with a bank in Odessa because he closed the bank account he previously had in Las Cruces.  The Taxpayer had New Mexico personal income tax withheld from pay he earned in Texas in 2014 because his address on file with his employer was the Las Cruces address.  The Taxpayer did not file a protest regarding 2014 New Mexico personal income tax.  The Taxpayer also had New Mexico personal income tax withheld from his pay in 2015 for the same reason.  All of the Taxpayer’s 2015 income was for work performed in Texas.  The Taxpayer has a New Mexico driver’s license, has registered his vehicles in New Mexico, and is registered to vote in New Mexico because he has no proof of a Texas address.  The Taxpayer visits his family in New Mexico for a weekend once every few months and spent approximately 12 to 15 days in New Mexico in 2015.  The Taxpayer filed a 2015 New Mexico personal income tax return to obtain a refund of state income taxes withheld from his pay.  On February 26, 2016, the Department issued a Return Adjustment Notice indicating that adjustments were made to the return.  On April 7, 2016, the Taxpayer protested the Department’s refund denial.  The Taxpayer argued that he has been a resident of Texas since the time he moved there in 2014, while the Department asserts that even though the Taxpayer was living in Texas during the period in question, he did not abandon his New Mexico domicile and was a resident for personal income tax purposes.  To make a determination, the Hearing Officer considered the thirteen domicile factors set forth in Regulation 3.3.1.9(C)(4).  Some of these factors weighed in favor of the Taxpayer’s position, some in favor of the Department’s position, while others did not weigh either direction.  After consideration of the factors and the Taxpayer’s testimony, the Hearing Officer was persuaded that the Taxpayer’s remaining ties to New Mexico were reasonable and that he did abandon his domicile in New Mexico and established a new domicile in Texas when he moved in 2014.  The Taxpayer’s protest was granted.


07/21/2016

16-38

Tiller Design

On November 3, 2015, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the CRS reporting periods between January 1, 2012 and December 31, 2012.  On January 29, 2016, the Taxpayer protested the assessment.  The Taxpayer is comprised of a married couple who have two homes in Albuquerque that they rented out to vacationers through Vacation Rental By Owner (VRBO.com)/HomeAway during the relevant period.  The advertisement for the homes included a rental fee, cleaning fee and tax rate of 7%.   The advertisement also included a list of accommodations and facilities provided.  The Taxpayer entered into rental agreements with the families renting the properties.  These agreements specified check-in and check-out dates and times, cancelation fees, additional charges for damages or extra required cleaning, guest occupancy limits, prohibitions on smoking and pets, and other pertinent information.  The rental agreements were silent on the Taxpayer’s rights to enter the premise during the rental period, inspect the premise, or to otherwise cancel or terminate the agreement or take possession of the property.  The renters were provided with a set of keys during the rental period, and the Taxpayers retained an additional set of keys.  The Taxpayers assisted the families that rented the property with any issues that arose during their stay, such as internet service issues or other maintenance issues.  The issue to be decided is whether the Taxpayer’s short-term rental of two homes through VRBO.com are subject to gross receipts tax.  The Taxpayer argued that Regulation 3.2.116.10 NMAC applies, which states that a person with three or fewer rental units is not subject to tax.  The Department argued that the Taxpayer was subject to gross receipts tax under Section 7-9-53(B) NMSA 1978 because rental of a vacation home is similar to hotels, motels and guest ranches and constitutes a license to use real property rather than a lease of real property.  The hearing officer found that, due to the nature of vacation rentals, and considering the advertisement and rental agreements, this arrangement is a short-term license, rather than a lease.  The regulation pointed to by the Taxpayer is not part of statute and has less legal standing than the statute which was determined to fit the situation at hand.  The hearing officer found that the assessments of gross receipts tax and interest, which is non-discretionary, were correct.  However, because the Taxpayer reasonably relied on Regulation 3.2.116.10 NMAC, penalty was ordered to be abated.  The Taxpayer’s protest was granted in part and denied in part.


07/15/2016

16-37

Kristin Ericksen

On November 18, 2015, the Department denied the Taxpayer’s request to transfer a portion of her sustainable building credit to another person.  On January 6, 2016, the Taxpayer filed a protest to the denial.  In 2009 and 2010, the Taxpayer engaged in construction that qualified for the sustainable building tax credit provided in Section 7-2-18.19.  The Taxpayer was issued the appropriate certificate and subsequent Department documentation for claiming the credit.  The Taxpayer’s credit was in excess of her income tax liability, and the remainder of the credit was eligible to be carried forward to up to seven years.  The Taxpayer claimed the credit for the next few years, but a substantial amount remained.  For the 2014 tax year, the Taxpayer requested that a portion of her available credit be transferred to her fiancé.  At that time, the Taxpayer spoke to a Department supervisor who indicated that partial assignment of the credit was permissible.  The Department granted the transfer of a portion of the credit for 2014.  Both the Taxpayer and her fiancé claimed a portion of the credit for 2014.  For the 2015 tax year, the Taxpayer again requested that a portion of the credit be transferred to her fiancé, and this time the Department denied the request.  The Taxpayer argued that the statute allows for the transfer of the credit and her request should have been granted as it was in 2014.  The Department argues that its previous position was erroneous and a more careful reading of the statute revealed that the document granting the credit is what may be transferred, and it may not be claimed in part by one person and then a remaining portion transferred to another.  The hearing officer found that the Department’s current interpretation of the statute was reasonable and the denial of the transfer was appropriate.  The Taxpayer’s protest was denied.


07/12/2016

16-36

Professional Services Company 

On February 5, 2013, the Department issued two assessments to the Taxpayer for gross receipts tax, penalty and interest for the CRS reporting periods ending December 31, 2008 and December 31, 2009.  These assessments were a result of a mismatch the Department detected between the Taxpayer’s filed CRS returns and the income reported on the federal Schedule C income tax return.  On February 22 and 26, 2013, the Taxpayer filed timely protests of the assessments.  The Taxpayer is a sole proprietorship whose owner is a civil engineer who performs surveying work and serves as a construction project superintendent.  The Taxpayer provided several arguments as to why the receipts at issue were exempt or otherwise not taxable.  One argument was that some of the receipts were from reimbursed expenditures received as a disclosed agent, and another was that other receipts were either employee wages or isolated and occasional sales.  Section 7-9-3.5(A)(3) NMSA 1978 provides that receipts received solely on behalf of another in a disclosed agency capacity are excluded from gross receipts.  The Taxpayer provided no evidence that would indicate the receipts were received in a disclosed agency capacity.  Pursuant to Section 7-9-17 NMSA 1978, wages of employees are exempt from gross receipts taxes, however, the Taxpayer did not establish that he was an employee of the other company under the factors listed there.  Finally, the Taxpayer argued that receipts received from renting surveying equipment to a company that he was performing services for was isolated and occasional, which would be exempt under Section 7-9-28 NMSA 1978.  The hearing office found that the rental occurred over a period of a year and was part of the Taxpayer’s performance of surveying services for the company.  The Taxpayer’s protest was denied.


07/06/2016

16-35

Yates Petroleum Corporation 

On March 17, 2016, the Department assessed the Taxpayer for oil and gas tax, penalty and interest for the return filed on February 24, 2016.  On April 8, 2016, the Taxpayer filed a protest of the assessment.  On May 23, 2016, the Taxpayer filed a withdrawal of the protest.  On June 1, 2016, the Taxpayer filed a request to have a hearing on the protest, but limited to the issued of the assessed penalty and interest.  The Taxpayer filed its tax return and submitted a payment electronically on February 24, 2016.  They inadvertently sent the payment to the New Mexico Land Office rather than the Department.  The Land Office initially applied the payment to the royalties account, but then realized the Taxpayer’s mistake and forwarded the payment to the Department.  After the protest was filed, the Department learned that the Taxpayer’s payment had been received only a few days late, and the amount of interest was reduced accordingly.  The Taxpayer argued that it should not have to pay penalty because the State of New Mexico had the payment on the due date, although the Taxpayer agreed that the payment should have been sent to the Department.  The hearing officer found that the penalty did apply because the Taxpayer failed to make the payment to the Department on the due date and was therefore negligent.  The imposition of interest is mandatory pursuant to Section 7-1-67 NMSA 1978.  The Taxpayer’s protest was denied.


06/30/2016

16-33

Yellowhouse Machinery Company 

On December 10, 2015, the Taxpayer applied for a refund of gross receipts tax for the tax period from January 1, 2012 through December 31, 2012.  On December 21, 2015, the Department denied the refund because the Taxpayer’s receipts were not deductible under Section 7-9-52.1 NMSA 1978, which provides a deduction from gross receipts for the lease of construction equipment to persons engaged in the construction business.  The Taxpayer protested the denial of the refund on January 22, 2016.  The Taxpayer is a John Deere franchise incorporated in the state of Texas, in business since 1958, who has six locations in Texas, four in Oklahoma and none in New Mexico.  The Taxpayer sells and leases tractors, sells parts and provides repair services on tractors.  The Taxpayer had receipts from payments from leases and sales to a pipeline company for the oil and gas industry who is located in Lovington, New Mexico and conducts business in the Permian Basin, which is located in portions of both New Mexico and Texas.  The Taxpayer is registered in New Mexico and reported and paid gross receipts tax on its sales to this company.  The company purchased some equipment from the Taxpayer and leased other equipment with an option to purchase.  The company did purchase some of the leased equipment, and returned the rest.  The equipment orders were called in, lease agreements and sale invoices were created in Lubbock, and the company picked up the equipment at the Taxpayer’s location in Lubbock.  In 2014, the state of Texas audited the Taxpayer and determined that all sales that had a destination or delivery point in Texas were Texas sales and all lease payments where delivery was in Texas were also taxable in Texas.  The Taxpayer was assessed by Texas for sales tax sales to and lease payments from the company in Lovington.  The Taxpayer paid the Texas sales tax and applied for a refund of New Mexico gross receipts tax.  At the hearing the Taxpayer argued that it is entitled to a refund because it cannot be charged tax by two different states on the same transaction under the Commerce Clause.  The Department indicated that the Texas audit was incorrect, and argued that the Taxpayer did owe gross receipts tax on the receipts at issue.  In light of the Texas audit, and that the purchases and lease agreements, along with the pick up of the equipment took place in Texas, the hearing officer ordered that the ruling request was improperly denied.  The Taxpayer’s protest was granted.


06/29/2016

16-32

General Design and Construct 

On January 14, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the CRS reporting periods between January 1, 2009 and December 31, 2012.  On February 12, 2016, the Taxpayer protested the Department’s assessment. In the protest letter, the Taxpayer made arguments related to the acceptance of nontaxable transaction certificates (NTTCs), but abandoned that argument at the hearing in favor of an argument related to bankruptcy, an issue not raised in the protest letter.  The Taxpayer was a sole proprietorship.  During the period at issue there is no evidence that the Taxpayer timely filed CRS-1 returns for any of the relevant periods.  At some unspecified point in 2013, the owner and his wife filed for bankruptcy.  On January 24, 2014, the United States Bankruptcy Court issued an order discharging debt under section 727 of title 11 of the United States Code.  The back of the order clearly states that the order generally did not discharge most tax debt.  Through its Schedule C mismatch program with the IRS, the Department detected that the Taxpayer had reported business income on its Federal Schedule C not reported as New Mexico gross receipts on a CRS-1 return.  As a result of this, the Department issued the assessment.  The Taxpayer’s only argument at hearing was that, in light of the bankruptcy, he was not liable for the assessed tax.  Under title 11 of the Unites States Code, several types of tax debt are listed as not dischargable.  Pertinent to this situation, those include tax debt related to tax “on or measured by income or gross receipts” as well as tax debt when no return was filed or was filed late.  The Taxpayer’s protest was denied.


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