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Randall & Judith Gilbert



On December 3, 2015 the Department assessed the Taxpayer for gross receipts tax, penalty, and interest for the Combined Reporting Systems reporting periods from January 1, 2008 through December 31, 2012. A timely protest was filed with the Department. Since 2008, the Taxpayer has been in the business of selling cabinetry to building contractors or individual customers in Texas and New Mexico from a business location in Farewell, Texas. The Taxpayer’s typical transaction for the period at issue involved an order being placed with the Taxpayer, the Taxpayer placing the order with the manufacturer, and the product being shipped directly from the manufacturer to the customer, where the customer would take possession of the item. If needed, other services were also provided including measurement at the install location and computer generated renderings in regards to the sale of the cabinetry. The Taxpayer specified that no the installation of the cabinetry was performed as part of his business. There was little to no proof provided in the hearing or to the Department that full transactions took place outside of New Mexico. The assessment was the result of a Federal Schedule C mismatch with gross receipts tax reported in the State of New Mexico. On May 22, 2015 the Taxpayer was provided with a Notice of Limited Scope Audit Commencement- 60 day notice. This notice informed the Taxpayer to obtain and submit nontaxable transaction certificates (NTTCs) to the Department on or before July 21, 2015. The figures from the limited scope audit were adjusted based on sales that were made out-of-state to out-of-state customers. Limiting the tax liability to gross receipts generated from sales of goods and associated services provided to New Mexico contractors and individual customers for the period at issue. The Taxpayer was represented by a CPA that indicated for the period at issue his only services to the Taxpayer included Federal and New Mexico Income Taxes. The CPA only started providing services concerning New Mexico gross receipts tax after the Taxpayer received the assessment from the Department. The CPA argued that most of the Taxpayers transactions were subject to deductions and that the Department gave the taxpayer information to make him believe he was not taxable. During the hearing an email was provided and read into the record from February of 2016. The hearing officer determined that the goods and services provided to customers in New Mexico was taxable per Section 7-9-5 NMSA 1978.However, possible deductions in accordance with the Gross Receipts and Compensating Tax Act, such as Section 7-9-51 NMSA 1978 for the sale of construction materials to persons engaged in the construction business which could have been claimed for some of the transactions for the period at issue but due to the Taxpayer not being unable to produce the appropriate NTTC’s per Section 7-9-43 NMSA 1978, the deductions could not be allowed. The hearing officer determined that without the NTTC’s there was no mechanism available to show that the construction businesses paid the gross receipts tax on the final transaction. During the hearing the Department explained that the first recorded communication with the Taxpayer was a phone call from the Taxpayer in January of 2016 inquiring about NTTC’s which was after the Taxpayer had received the 60 day notice from the Department. The letter from February 2016 was determined by the hearing officer to simply point to Section 7-9-55 NMSA 1978 but it did not attempt to instruct or advise the Taxpayer on how to assert the deduction under statute. The hearing officer also determined that the taxpayer did not present evidence in this case to support the deduction referenced in the email. No earlier communication with the Department could be provided in support of the Taxpayers claims. The hearing officer determined that there was no evidence to suggest affirmative misconduct by any employee of the department with whom the Taxpayer may have communicated. Under New Mexico self-reporting tax system, “every person is charged with the reasonable duty to ascertain the possible tax consequences” of his or her actions. There was no evidence provided to support that the Taxpayer consulted with a tax professional or made a through inquiry regarding his tax responsibilities prior to engaging in business. There was also no affirmative evidence provided to show that the Taxpayer was misled by a Department employee and that the Taxpayers failure to pay the tax was caused by reasonable advice of a competent tax counsel or accountant whom had full disclosure of all relevant facts. Based on the information above the hearing officer determined that the Taxpayer did not overcome the presumption of correctness and failed to establish an entitlement to an abatement of penalty in this matter. The hearing officer also determined that in concerns to interest based on Section 7-1-67 NMSA 1978 that the Department does not have legal authority to abate interest and the assessment of interest is mandatory despite the Taxpayer’s lack of bad faith. The Department is to assess the Taxpayer interest from the time the tax was due, but not paid, until the tax principal liability is satisfied. The hearing officer determined that the Taxpayer did not establish the right to the claimed deduction, or entitlement to an abatement of the assessed penalty or interest, the Taxpayer’s protest is denied.