On April 6, 2018, the Department assessed the Taxpayer in the amount of $618,186.58 in gross receipt tax, penalty, and interest. The Taxpayer then filed a formal protest of the assessment that was received by the Department on July 5, 2018. The Taxpayer did not dispute the amount of tax due, and later paid the tax principle, but argued that the penalty and interest portion of the assessment should be abated because it was not responsible for the late payment. The Taxpayer provides services to energy companies. The receipts in question were the result of services sold to one oil company located in Texas. When the Taxpayer billed its client for the services provided, the oil company said it was in possession of something called a “direct pay certificate” that would provide proof that it was making payment for the gross receipts tax directly to the Department. Though New Mexico does not use this certificate, the Taxpayer believed this explanation and then made a series of attempts to obtain the certificate from the oil company without success. The oil company was an extremely important client for the Taxpayer and eventually it simply accepted that oil company had been paying the tax without having received this document. There was also at this time no evidence to indicate that the Taxpayer ever sought independent advice from someone with knowledge of New Mexico tax law to better understand its tax obligations. Regulation 18.104.22.168 NMAC provides that “gross receipts tax is imposed on persons engaging in business in New Mexico. Such persons are solely liable for payment of the tax; they are not ‘collectors’ on behalf of the state.” The obligation to pay gross receipts taxes rests squarely with the entity engaging in business in New Mexico. The Hearing Officer determined that, though the Taxpayer might feel understandably misled by the oil company, it relied unreasonably on these assurances instead of taking responsibility for understanding its own tax consequences as the law requires. The resulting tax liability, the Hearing Officer decided, derived entirely from the passivity and a lack of due diligence of the Taxpayer which falls within the definition of negligence and makes the penalty assessed by the Department correct. This having been decided, the Hearing Officer ordered that the penalty and interest to be paid and the protest denied.
Apple Electrical Contractors Inc