On June 14, 2016, the Department issued an assessment in the amount of $82,069.74 for gross receipts tax, penalty, and interest. On September 7, 2016, the Taxpayer filed a formal protest of the assessment. The Department agreed later to abate a small portion of the tax when it determined that the receipts from these services were performed in Colorado. The Taxpayer provides the removal of hazardous materials under contracts with the Drug Enforcement Administration. The main issue presented in this protest was whether the Taxpayer provided services in New Mexico and, if it did, was it entitled to a deduction. The services in question were first requested by the federal agency in Virginia, performed in various sites around New Mexico, and then completed as the hazardous materials were disposed of by a third party out-of-state. The Taxpayer contended that since the service was only partially performed in New Mexico and that the most critical component of the service was done outside the state the receipts should not be taxable. The Taxpayer explained that it was contractually obligated to obtain a Certificate of Disposal verifying that the materials were properly disposed of in order to complete the service and this had to be obtained outside the state. The Hearing Officer, however, determined that this component of the service was not required by the contract to be performed outside the state, and still amounted to a service being performed in New Mexico. The Taxpayer also argued that it should be able to deduct the receipts under Section 7-9-57 NMSA 1978 as services sold to an out-of-state buyer. But the statute states the deduction is not available if the buyer “makes initial use of the product of the service in New Mexico.” The Hearing Officer determined that the primary product of the service, having the hazardous materials removed from the locations in New Mexico, was primarily received within the state, though some benefit was received partially by the agency outside the state. This having been established, the Hearing Officer ordered that the services took place in New Mexico and that the Taxpayer was not entitled to a deduction and the protest was denied.
Advanced Environmental Solutions Inc