On December 10, 2015, the Taxpayer applied for a refund of gross receipts tax for the tax period from January 1, 2012 through December 31, 2012. On December 21, 2015, the Department denied the refund because the Taxpayer’s receipts were not deductible under Section 7-9-52.1 NMSA 1978, which provides a deduction from gross receipts for the lease of construction equipment to persons engaged in the construction business. The Taxpayer protested the denial of the refund on January 22, 2016. The Taxpayer is a John Deere franchise incorporated in the state of Texas, in business since 1958, who has six locations in Texas, four in Oklahoma and none in New Mexico. The Taxpayer sells and leases tractors, sells parts and provides repair services on tractors. The Taxpayer had receipts from payments from leases and sales to a pipeline company for the oil and gas industry who is located in Lovington, New Mexico and conducts business in the Permian Basin, which is located in portions of both New Mexico and Texas. The Taxpayer is registered in New Mexico and reported and paid gross receipts tax on its sales to this company. The company purchased some equipment from the Taxpayer and leased other equipment with an option to purchase. The company did purchase some of the leased equipment, and returned the rest. The equipment orders were called in, lease agreements and sale invoices were created in Lubbock, and the company picked up the equipment at the Taxpayer’s location in Lubbock. In 2014, the state of Texas audited the Taxpayer and determined that all sales that had a destination or delivery point in Texas were Texas sales and all lease payments where delivery was in Texas were also taxable in Texas. The Taxpayer was assessed by Texas for sales tax sales to and lease payments from the company in Lovington. The Taxpayer paid the Texas sales tax and applied for a refund of New Mexico gross receipts tax. At the hearing the Taxpayer argued that it is entitled to a refund because it cannot be charged tax by two different states on the same transaction under the Commerce Clause. The Department indicated that the Texas audit was incorrect, and argued that the Taxpayer did owe gross receipts tax on the receipts at issue. In light of the Texas audit, and that the purchases and lease agreements, along with the pick up of the equipment took place in Texas, the hearing officer ordered that the ruling request was improperly denied. The Taxpayer’s protest was granted.
Yellowhouse Machinery Company