From January 1994 through December 1999, the Taxpayer had receipts from a federal contract for the storage of jet fuel in two tanks at the Taxpayer’s storage terminal in Alamogordo, New Mexico. After conducting a field audit, the Department concluded that these were receipts from performing services in New Mexico and issued a gross receipts tax assessment against the Taxpayer. The Taxpayer protested, arguing that its receipts were from the lease of real property, deductible under Section 7-9-53 NMSA 1978. The Taxpayer claimed that the two storage tanks were real property because they were constructed on a permanent foundation and the government maintained strict control over the fuel and access to the tanks. Further, it argued that any services performed were incidental to the government’s use of the storage facilities and represented only a small part of the contract price. The Department argued that the Hearing Officer cannot look beyond the parties’ own characterization of the contract: if the solicitation document refers to “services” sought by the government, the inquiry on the nature of the contract can go no further. The Department also claimed that the contract was a license to use the property because governmental control over the facility was insufficient to render it a lease of real property. Held: The character of a contract is not controlled by form, but by intent. The evidence presented supported the Taxpayer’s position that the primary objective of the contract was the use of the storage tanks and not the performance of services. The contract qualified as a lease, rather than a license, because the Taxpayer could not revoke the government’s use of the tanks during the contract term, and the government retained exclusive control and possession of the storage tanks and the terminal where they were located. Protest granted.
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