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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. 



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.


06/28/2016

16-31

Capacity Builders, Inc. 

On September 14, 2009, the Department assessed the Taxpayer for gross receipts tax and interest for the tax periods from March 31, 2004 through March 31, 2008.  The Taxpayer was also assessed for withholding tax, penalty and interest.  The Taxpayer filed a protest to the assessment of gross receipts tax and penalty on October 9, 2009.  The Taxpayer did not protest anything regarding the withholding assessment.  The Taxpayer did not file gross receipts returns for the periods at issue.  The Department mailed the Taxpayer a Notice of Limited Scope Audit Commencement which provided that the Taxpayer was required to provide any nontaxable transaction certificates (NTTCs) within 60 days or by September 5, 2008.  The Taxpayer provided the Department with 3 timely NTTCs, two Type 5 certificates, and one Type 6.  During the period at issue, the Taxpayer was an S corporation and out of state business providing retail store setup, remodeling, installation of fixtures, and other related construction-related services for construction contractors.  The Taxpayer was not able to obtain NTTCs from all the contractors he did business with in the allotted time frame, and did not dispute at hearing that the receipts from transactions with those contractors are not deductible and therefore subject to tax.  Upon finalizing the audit, after the 60 day period had elapsed, the Department informed the Taxpayer that the Type 5 and Type 6 NTTCs were the wrong type because the Taxpayer was a staffing company.  The Taxpayer testified that the services performed for the contractors who provided the NTTCs at issue were resold and the construction project was subject to gross receipts tax upon completion.  At the hearing, the Department conceded that a properly executed Type 5 NTTC is valid, but argued that one of the Type 5 certificates presented by the Taxpayer was not properly executed because the contractor did not put the Taxpayer’s information on the certificate.  The hearing officer found that, because the Taxpayer accepted the certificate in good faith and was not told of the error when he faxed it to the Department in the 60 day period, the NTTC would be allowed to support the deduction.  The Department also argued that a Type 6 did not apply because the Taxpayer was not a licensed contractor, but the hearing officer found that a Type 6 was allowable in this situation because the services were performed for a contractor.  The hearing officer ordered that the part of the assessment related to the NTTCs presented be abated.  The Taxpayer’s protest was granted in part and denied in part.


06/27/2016

16-30

Kinsey Construction 

On January 20, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the CRS reporting periods between January 1, 2011 and December 31, 2012.  On February 1, 2016, the Taxpayer protested the Department’s assessment.  The Taxpayer began its business, providing construction services in New Mexico, in 2002.  On September 26, 2011, the Department informed the Taxpayer via letter that it would have to switch from quarterly reporting to monthly reporting because its monthly income was over the allowed threshold.  The Taxpayer was also required to switch from paper to electronic filing.  The Taxpayer indicated that, as a result of these changes, it struggled to accurately report and pay gross receipts taxes, although it did continue to file.  Through its Schedule C mismatch program with the IRS, the Department detected that significantly more business income was reported on the Taxpayer’s schedule C than was reported on CRS returns in New Mexico for the relevant period.  The Taxpayer challenged the assessment of penalty and interest, mainly given what the Taxpayer believed was a lengthy delay in the Department’s assessment.  The only issues at protest are the timeliness of the assessment, and the assessment of interest and penalty.  Section 7-1-18 NMSA 1978 sets limits on the Department’s ability to assess, and generally the Department has three years from the end of the calendar year in which the tax was due to assess.  However, if a Taxpayer underreports a tax liability by more than 25%, as was the case here, the Department has six years from the end of the calendar year in which the tax was due to issue an assessment.  The assessment was timely based on this provision.  As for the interest and penalty, interest is mandatory pursuant to Section 7-1-67 NMSA 1978, and pursuant to Section 7-1-69 NMSA 1978, the Taxpayer is subject to penalty due to negligence as none of the indicators of nonnegligence were present.  The Taxpayer’s protest was denied.


06/24/2016

16-29

Tuscon Electric Power Company 

On December 19, 2014, the Taxpayer applied for a refund of compensating tax for the period July 1, 2011 through December 31, 2011.  On June 17, 2015, the Department denied the claim for refund, initially because a managed audit was performed for that time frame, but the reason was later clarified to be that no deduction applied.  The Taxpayer protested the denial of refund on July 29, 2015.  The Taxpayer paid compensating tax on the purchase of natural gas during the period in question.  The natural gas was purchased and delivered via pipeline to a facility owned by the Taxpayer and others that used natural gas to produce a chemical reaction to convert natural gas into electricity.  The Taxpayer purchased the natural gas from several out of state companies that do not have nexus in New Mexico.  The Taxpayer argues that it is not subject to compensating tax on the use of the natural gas because if the seller was subject to the gross receipts tax, the transactions would have been deductible under Section 7-9-65 or 7-9-46 NMSA 1978.  The Taxpayer argued that Section 7-9-65 NMSA 1978 applies because it purchased chemicals or reagents in lots in excess of eighteen tons, for which the Section provides a deduction.  The hearing officer found that the Taxpayer failed to present sufficient evidence that the natural gas or chemicals or reagents it purchased was purchased in lots.  The Taxpayer then argued that Section 7-9-46, which provides a deduction for the receipts from the sale of tangible personal property to a manufacturer would apply.  The hearing officer found that the Taxpayer is in the business of processing natural gas to produce electricity and is not in the business of manufacturing.  The Taxpayer’s protest was denied.


06/21/2016

16-28

Vidia Wesenlund

On January 31, 2015, the Department mailed the Taxpayer a Notice of Limited Scope Audit commencement for tax years 2008 through 2011.  The Taxpayer was audited through the Department’s Schedule C mismatch program with the Internal Revenue Service.  It was found that the Taxpayer reported business income for the years in question, yet failed to register or file gross receipts tax for the years in question.  During the taxable years at issue, the Taxpayer was an associate for a “down the line” sales organization.  The Taxpayer received commissions from the company when customers purchased products, and commissions are subject to the gross receipts tax.  The Taxpayer recruited customers in New Mexico who would make purchases from the company’s website using a code specific to the Taxpayer, and the company would ship the products to the customers from its headquarters in Utah.  The Taxpayer also recruited distributors in New Mexico, who would then recruit customers.  The Taxpayer also received a commission when the customers of the distributors she recruited made a purchase.  On July 23, 2015, the Department issued four gross receipts tax assessments for principal, penalty and interest for the tax years 2008 through 2011.  On October 21, 2015, the Taxpayer protested the assessments.  For the tax years at issue, the Taxpayer received 1099s from the company.  The company entered into a TS-22 agreement with the Department beginning in 2011, which was retroactively applied to the 2009 tax year.  This agreement allows a taxpayer to pay gross receipts tax on behalf of another taxpayer.  Per this agreement, the company charged and collected gross receipts taxes on the resale of its products by a New Mexico distributor on behalf of that distributor.  In February 2011, the company stopped collecting gross receipts tax on the sale of its products to New Mexico customers because of advice from multiple Department employees that the company did not have sufficient nexus with New Mexico.  The company has no employees in New Mexico, no offices, no ownership of inventory, and uses outside shipping companies to deliver products into New Mexico.  The company did have independent contractors working in New Mexico to establish and maintain a market in New Mexico by recruiting and shepherding customers to purchase products through the company’s website.  The Taxpayer believed that her commissions were not taxable pursuant to Section 7-9-66 NMSA 1978, because the underlying sales were not taxable.  The hearing officer found that, due to its use of independent contractors in New Mexico, the company did have nexus and the underlying transactions were taxable, despite the incorrect information previously received from a few Department employees.  As a result, the Taxpayer’s commissions received from the company were taxable as well.  The hearing officer did order the penalty to be abated as the Taxpayer had reasonable grounds to believe that her commissions where not taxable because of statements made to her by the company as a result of their communications with the Department.  The gross receipts tax principal and interest were correctly assessed.  The Taxpayer’s protest was granted in part and denied in part.


06/17/2016

16-27

Luscous Music

On December 9, 2015, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the CRS reporting periods between January 1, 2009 and December 31, 2011.  On January 12, 2016, the Taxpayer prepared a letter of protest, which the Department received on January 14, 2016.  The Taxpayer is a sole proprietor who performs music and sells his music on compact discs.  The Taxpayer is registered with the Department, has a business license with the City of Santa Fe, and has a business website and business cards.  The Taxpayer occasionally performed paid gigs, and performed as a street musician on the Santa Fe Plaza three times a week for two hours at a time.  While performing there, the Taxpayer sold compact discs and collection money in a tip jar from passersby.  The Taxpayer maintained a ledger where he would note his compact disc sales separately from the money in his tip jar.  The Taxpayer reported and paid gross receipts tax on the sales of compact discs, but not on the money received in his tip jar because he believed tips were not subject to gross receipts tax from his previous experience as a waiter.  The Taxpayer did report the money received in his tip jar on his federal income tax returns.  Through its Schedule C tape match program with the IRS, the Department detected that the Taxpayer reported business income on his Schedule C that did not match his filed CRS returns.  Regulation 3.2.1.18 (R) states that a gratuity offered to service personnel to acknowledge a service given is not gross receipts.  The tips received by the Taxpayer were voluntary amounts placed in the tip jar by satisfied members of the public, not because of any charge imposed by the Taxpayer, and meet the definition of a gratuity. The Taxpayer’s protest was granted.


06/14/2016

16-26

Mobile Blood Services 

On March 10, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the tax periods from January 31, 2009 through May 31, 2015.  The Taxpayer was also assessed for withholding tax, penalty and interest.  The Taxpayer filed a protest on April 11, 2016.  The Taxpayer has been in business since January 1996, and was registered with the state of New Mexico and filed and paid gross receipts tax during the period at issue.  The Taxpayer’s primary business is to conduct laboratory testing, including DNA testing and drug screening.  All of the receipts at issue are from the New Mexico Children, Youth and Families Department (CYFD).  The Taxpayer began providing services to CYFD in 1999.  In 1999, an employee of CYFD told the Taxpayer that he should not charge them gross receipts tax.  On September 16, 1999, CYFD executed a Type 9 NTTC to the Taxpayer.  A Type 9 NTTC is for the purchase of tangible personal property, as is stated on the back of the document.  The Taxpayer did not charge or collect gross receipts taxes on its receipts from CYFD.  Sometime in July 2015, a different CYFD employee notified the Taxpayer that he should be charging CYFD gross receipts tax.  The Taxpayer began to charge and remit gross receipts taxes for his services to CYFD at that time.  During the audit period in question, an accountant prepared the Taxpayer’s gross receipts tax returns, and at no time informed the Taxpayer that a Type 9 was not valid for his transactions with CYFD.  Services sold to a government agency are taxable pursuant to Regulation 3.2.212.9 NMAC.  The Taxpayer was misinformed by a CYFD employee that his services were not taxable, but a Taxpayer is responsible for understanding the tax laws and paying taxes accordingly.  Penalty is imposed when a Taxpayer is negligent in not filing a return or paying tax when it is due, but Regulation 3.1.11.11 NMAC provides some exceptions and indicators of nonnegligence.  The Taxpayer was able to meet this by showing that it reasonably relied on its accountant to file and pay gross receipts tax returns.  The hearing officer ordered the penalty on the gross receipts tax to be abated.  The Taxpayer’s protest was granted in part and denied in part.


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