CCA of Tennessee



On November 9, 2016, the Department assessed the Taxpayer for gross receipts tax, withholding tax, penalty, and interest for the periods starting January 31, 2010 through September 30, 2015. On December 7, 2016, the Taxpayer filed a formal protest with the Department. During the time at issue, the Taxpayer incarcerated, detained and housed inmates on behalf of Torrance County under a contract. In April of 2002, Torrance County entered into an intergovernmental service agreement with a Third Party that would allow for incarceration of federal inmates at the Taxpayer’s facility. However, the Taxpayer directly invoiced the Third Party and required that payment be submitted directly to the Taxpayer. The main issue to be determined during the protest is if the Taxpayer was eligible to claim the deduction under Section 7-9-47, NMSA 1978 (1994). The receipts in question are those between the Taxpayer and the Third Party which were based on the agreement between the Third Party and Torrance County. The Taxpayer argues that it is entitled to the deduction because it sold licenses to Torrance County and Torrance County resold them to the Third party. The Taxpayer also argues that based on an email between it and a Department employee that it reasonably relied on that email when deciding to claim the deduction and accept a Type 2 NTTC for the transactions in question. Lastly, the Taxpayer argues that when it took direct payment from the Third Party it was acting as an agent on behalf of Torrance County. However, the Department argues that the Taxpayer was selling services to Torrance County which does not qualify for the deduction in question. Secondly, the Taxpayer was invoicing the Third Party directly making it a direct sale of services. The Hearing Officer determined that the Taxpayer could not claim “safe harbor protection” for acceptance of the NTTC because there is not a deduction that applied to the transactions in question and that the Taxpayer was not acting as an agent when accepting direct payment. It was also decided that as the facts presented in the email with a Department employee did not match the facts in this protest and so the email could not be reasonably relied upon. The Department has no statute authority to abate interest and the Hearing Officer determined that penalty is due. For the foregoing reasons, the Taxpayer’s protest is denied.