PST Services Inc

20-10

On December 27, 2017, the Department assessed the Taxpayer for $1,620,689 in gross receipts tax, penalty and interest. On March 27, 2018, the Department received the Taxpayer’s protest of the assessment. Among issues to be decided in the case were whether receipts from providing access to software provided by the Taxpayer were licenses and therefore gross receipts, whether services were performed in New Mexico, and whether receipts should be excluded or exempt from gross receipts because they were from services performed outside of New Mexico. The Taxpayer provides billing and accounts receivable services to physicians and physician groups. The receipts in question were generated by providing services to one client located in New Mexico. An important part of these services was the use of computer software provided by the Taxpayer. The Taxpayer initially argued that the protest should be dismissed because of the failure of the Department to have a timely hearing required by law, but the Hearing Officer found there was no statutory authority to do so, citing a long established decision that the tardiness of the Department does not make an assessment invalid. On the merits of the case, the Taxpayer argued that it was not providing licenses to its client, for it had paid the company that created the software for the licenses and was only recovering the cost by passing these amounts to its client. But the Hearing Officer determined that an individual only uses software lawfully by owning the software or by receiving a license to use the software, and the sale of a license or a license to use property in New Mexico is taxable. The Taxpayer also argued that not all of the services provided were performed in New Mexico but could provide no evidence to support this claim and only argued that a small percentage of its employees were working in the state. The Department by contrast brought the testimony of witnesses, employees of the taxpayer, describing the work being done in New Mexico. Though the Hearing Officer believed it was quite possible that a portion of the services in question could have been performed outside state, and therefore eligible for the exemption, the Taxpayer could not support this with evidence and establish accurately what percentage of services where performed outside the state as regulation requires. This having been decided, the Hearing Officer ordered that the assessment was correct and the protest was denied.