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United Parcel Service



On September 30, 2013, after an audit by the Multistate Tax Commission, the Department issued the Taxpayer an assessment for $4,083,886.63 for corporate income tax, penalty, and interest. On December 23, 2013, the Taxpayer filed a formal protest of the assessment. After multiple continuances the hearing for the protest was conducted in June of 2018. At issue in the protest was the method the Taxpayer used to apportion its income to New Mexico. The Department argued that the Taxpayer was required to follow the special trucking apportionment method found in regulation which relies on mileage to determine New Mexico sales. The Taxpayer contended that the special method of apportionment for trucking companies was not applicable to its business and did not reflect its true New Mexico business activities. The definition found in the regulation of a trucking company includes an express carrier which primarily transports tangible property by motor vehicle for compensation. The Taxpayer contended its activities only partially involved transporting the property by motor vehicle, but the Hearing Officer disagreed, determining that its other processing activities were ancillary to its need to transport packages and so it met the definition in regulation. Alternative methods of apportionment are allowed by statute, however, when the apportionment required would distort the Taxpayer’s true business activities. The Taxpayer argued that the state-to-state volume method more accurately reflected its business activities and had a history of being accepted by the Department as a reasonable method. Evidence it presented showed the use of the mileage method resulted in a disproportionately high allocation to New Mexico due to its being a large geographic state with a small population. Comparing New Mexico to states with similar allocations showed all had significantly higher sales. The Taxpayer maintained it had establish an alternative method that was reasonable given its history of using the state-to-state volume method and the Department’s previous acceptance of it in prior audits. The evidence, the Hearing Officer determined, clearly supported that the state-to-state volume method was a reasonable reflection of the Taxpayer’s actual business activity. The method resulted in an estimated revenue that was still much higher than the actual revenue in the state. This fact strongly supported that the method was a reasonable approximation allowed by law, where the mileage method resulted in a distortion of the Taxpayer’s business activity. This having been decided, the Hearing Officer ordered the assessment abated and the protest was granted.