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Flat Landers Taxidermy



On April 23, 2015, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the CRS reporting periods from January 1, 2008 through December 31, 2008.  On May 19, 2015, the Taxpayer protested the assessment.  The Taxpayer is a registered hunting guide, who is required to work under the supervision of a registered outfitter.  In 2008, the Taxpayer provided hunting guide services as an independent contractor for Business X, who paid him on a per day basis, did not withhold from his check, and provided him with a 1099 at the end of the year.  Through its tape match program with the IRS, the Department detected that the Taxpayer had reported Schedule C business income on his 2008, 2010 and 2011 personal income tax returns, but did not have a corresponding CRS filing in those years.  On January 31, 2015, the Department sent the Taxpayers a Notice of Limited Scope Audit Commencement.  The notice informed the Taxpayer that he had 60-days to possess the appropriate executed nontaxable transaction certificate (NTTC) to support any claimed deductions.  A CPA called the Department on behalf of the Taxpayers around February 4, 2015, and informed the Taxpayers that an NTTC was needed.  On March 11, 2015, the Department sent the Taxpayers a reminder.  On March 16, 2015, the Taxpayers submitted a series of documents to a Department employee via email, believing that this might be a sufficient substitute for an NTTC.  The employee indicated that he would review the documents and respond as soon as possible if anything additional was needed.  The Department employee did not contact the Taxpayers again.  The Taxpayers did not present an executed NTTC by the deadline.  The Taxpayer did present sufficient documentation to support that no gross receipts tax was due for the 2010 and 2011 years, so no assessments were issued for those years.  Two weeks after the 60-day deadline, Business X executed a Type 2 NTTC to the Taxpayer.  This NTTC covers the sale of tangible personal property for resale, rather than the sale of services for resale, which is covered by a Type 5 NTTC.  On April 23, 2015, the Department issued its assessment for the 2008 gross receipts tax.  There are three main issues in the protest.  First, can the Department  allow a deduction when an NTTC is executed after the deadline, even when a Department employee did not timely inform the Taxpayer that the documents provided were insufficient?  Second, does equitable recoupment provide grounds to abate the assessment? The third issue is whether penalty and interest were appropriately assessed.  Regarding the first issue, the deadline for NTTCs to be presented is set by statute, and the Department does not have discretion to allow a deduction when the NTTC is not timely executed.  As to the second issue, the Department was unable to determine if Business X paid gross receipts tax on the hunting trips where the Taxpayer served as a guide and the Taxpayer was unable to establish the elements of equitable recoupment.  As to the final issue, interest is mandatory under Section 7-1-67 NMSA 1978.  The Hearing Officer found that the Taxpayer was not negligent, as is required for penalty to be imposed, because the lack of response by the Department employee.  The penalty was ordered to be abated.   The Taxpayers’ protest was granted in part and denied in part.