A photographer's work was resold to realtors by a magazine. Does she owe New Mexico gross receipts tax, and does bad advice from a Department auditor get her off the hook?

Subject

Nyle and Elaine Tack (D&O 00-02)

Plain-English summary

Elaine Tack worked in 1995 as an independent contractor for Homes Illustrated, an advertising publication for realtors. Realtors bought space, gave the magazine a list of houses, and Mrs. Tack drove to each site and photographed the house. The magazine paid her per photo and resold the photos to the realtors as a separately stated charge. Neither she nor her husband realized her contractor receipts were subject to New Mexico gross receipts tax, so she did not register or file. After the IRS flagged the income, the Department assessed the tax, penalty, and interest in January 1999.

The Hearing Officer denied the protest except for the penalty the Department conceded:

• Selling services for resale is still taxable without the certificate. Under Section 7-9-4, gross receipts tax applies to receipts from performing services, and the statute draws no line between selling to a reseller and selling to a final consumer. The "sale of services for resale" deduction (Section 7-9-48) could have applied — the magazine did resell her photos, separately stated, subject to tax — but only if she held an NTTC from the buyer. She never obtained one.
• The 60-day deadline had already expired. Section 7-9-43 required her to possess the NTTC within 60 days of the Department's October 14, 1998 notice — by December 13, 1998. When she asked the auditor about a certificate on January 13, 1999, the window had already closed a month earlier.
• The auditor's wrong advice did not cause her loss (no estoppel). The auditor was wrong to tell Mr. Tack that no NTTC applied. But because the 60-day period had already expired before that call, the bad advice could not have caused the failure. Courts rarely apply estoppel against the state in tax cases; under Section 7-1-60 it takes a ruling addressed to the taxpayer or a regulation the taxpayer followed (Bien Mur), and a Hearing Officer has no power to grant an equitable remedy anyway. The erroneous advice did, however, justify abating the penalty, which the Department conceded.
• No double taxation. Mrs. Tack and Homes Illustrated are separate taxpayers, each taxed once on its own receipts. New Mexico courts have repeatedly held double taxation is not unconstitutional, and there is none where the two taxes fall on different taxpayers.

(The decision also notes that even if her work were recharacterized as selling tangible property rather than services, the missing-NTTC problem would still bar a resale deduction under Section 7-9-47.)

What this means for you

• Independent contractors owe gross receipts tax on their receipts — reseller or not. New Mexico taxes receipts from performing services whether your customer is the end user or resells your work. The tax does not skip you just because someone downstream also pays.
• The resale deduction lives or dies on a timely NTTC. If your customer resells your services and you want the Section 7-9-48 deduction, get the buyer's nontaxable transaction certificate — and hold it within 60 days of any Department notice (Section 7-9-43). Miss the window and the deduction is gone, however valid in substance.
• Bad advice from a state employee rarely rescues you. Estoppel against the Department is narrow: it generally takes a written ruling to you or a regulation you followed. Even clearly wrong oral advice may only get you a penalty waiver, not the tax — and especially not if the deadline had already passed when you got the advice.
• "We're being taxed twice on the same job" is not a defense. You and your customer are separate taxpayers. Double taxation is not illegal, and there is no double tax where each party is taxed once on its own receipts.

Key questions answered

Her photos were resold to the realtors — why isn't that automatically deductible?
Because the "sale of services for resale" deduction (Section 7-9-48) requires the seller to hold the buyer's NTTC. Mrs. Tack's arrangement met the other conditions, but she never obtained the certificate, so the deduction was unavailable.

The auditor gave her wrong information — doesn't that excuse the missing certificate?
No. The 60-day period to obtain the NTTC (Section 7-9-43) had already expired on December 13, 1998, before the auditor's January 13, 1999 call. Since the bad advice could not have caused her failure, estoppel did not apply — though it did support waiving the penalty, which the Department conceded.

Isn't it double taxation to tax both her and the magazine?
No. She and Homes Illustrated are separate taxpayers, each taxed once on its own receipts. New Mexico courts hold double taxation is not unconstitutional and find none where two taxes fall on different taxpayers.

Would it have mattered if she were selling photographs (property) instead of services?
No. The Hearing Officer noted the magazine was buying her services, not ready-made photos. But even a tangible-property resale deduction (Section 7-9-47) requires a timely NTTC, so the missing certificate would still have barred the deduction.

Verbatim citations

The tax reaches services sold for resale:

The statute makes no distinction between persons selling services for resale and persons selling services to the final consumer. Accordingly, unless a specific statutory exemption or deduction applies, Mrs. Tack is liable for gross receipts tax on her receipts from performing photography services for Homes Illustrated.

Why the auditor's error did not create estoppel:

Although this information was incorrect, the 60-day period within which the Tacks could have obtained an NTTC had expired one month earlier on December 13, 1998. Accordingly, the auditor's advice could not have adversely affected the Tacks' ability to substantiate the resale deduction provided in Section 7-9-48 NMSA 1978.

No double taxation:

Mrs. Tack and Homes Illustrated are separate taxpayers, each of which is engaged in business in New Mexico. The gross receipts tax is imposed—once—on Mrs. Tack's receipts from selling services to Homes Illustrated.... Under the facts of this case, there is no double taxation.

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Nyle and Elaine Tack
• Decision PDF: D&O 00-02

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST
OF NYLE AND ELAINE TACK 00-02
ID. NO. 02-376786-00-3
ASSESSMENT NO. 2331970

DECISION AND ORDER

This matter came on for formal hearing on January 11, 2000, before Margaret B. Alcock,

Hearing Officer. Nyle and Elaine Tack appeared on their own behalf. The Taxation and Revenue

Department ("Department") was represented by Monica M. Ontiveros, Special Assistant Attorney

General. Based on the evidence and the arguments presented, IT IS DECIDED AND ORDERED AS

FOLLOWS:

FINDINGS OF FACT

1. During 1995, Elaine Tack worked as an independent contractor for Homes Illustrated,

an advertising publication for realtors.

2. Realtors who purchased space in Homes Illustrated’s publication provided a list of the

houses to be included in the advertisement. Homes Illustrated then gave the list of houses to Mrs. Tack,

who went to each site and photographed the house.

3. Homes Illustrated paid Mrs. Tack on a per photo basis and resold the photographs to

the realtor, listing the photographs as a separate charge on the invoice.

4. Neither Mrs. Tack nor her husband, who handled the couple’s tax filing, was aware that

the New Mexico gross receipts tax applied to her receipts from working as an independent contractor

taking photographs for Homes Illustrated. Accordingly, Mrs. Tack did not register with the Department

for payment of gross receipts tax and did not file gross receipts tax returns during 1995.

5. Mrs. Tack never requested a New Mexico nontaxable transaction certificate (“NTTC”)

from Homes Illustrated, nor did the magazine provide her with one.

6. The Tacks filed a joint 1995 federal income tax return, Form 1040, reporting the

income Mrs. Tack was paid by Homes Illustrated on Schedule C (Profit or Loss From Business).

7. On October 14, 1998, as a result of information obtained from the IRS, the Department

mailed the Tacks a notice of limited scope audit concerning the discrepancy between business

income reported to the IRS on Schedule C of the Tacks’ 1995 federal income tax return and business

income reported to the Department for gross receipts tax purposes.

8. The October 14, 1998 notice asked the Tacks to state whether they were registered

for payment of gross receipts tax and to provide information to substantiate any gross receipts tax

exemptions or deductions taken during 1995. The notice advised the Tacks that, pursuant to Section

7-9-43 NMSA 1978, they must be in possession of all required NTTCs within 60 days from the date

of the notice or deductions claimed relating to the NTTCs would be disallowed.

9. Mr. Tack does not remember receiving the October 14, 1998 notice, but

acknowledges receiving some notice or other correspondence from the Department asking for

information concerning the business income reported on the Tacks’ 1995 federal income tax return.

10. Neither Mr. Tack nor the Department could produce any notice or correspondence

sent to the Tacks by the Department during 1998, other than the October 14, 1998 notice maintained

in the Department’s files and introduced as Exhibit TRD #C.

11. On November 20, 1998, Mr. Tack sent a letter to the Department explaining that

Mrs. Tack was a wholesaler for Homes Illustrated and objecting to the fact that the Department was

trying “to collect sales tax from Homes Illustrated and myself for the same item.”

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12. Because Mr. Tack sent his November 20, 1998 letter to the Department’s Santa Fe

office, rather than to the Albuquerque office handling the audit, the letter did not reach the auditor

until January 4, 1999.

13. On January 4, 1999, the auditor attempted to reach the Tacks by telephone, but

discovered she had the wrong telephone number. She then sent the Tacks a notice asking them to

call her at their convenience to discuss their tax situation.

14. On January 13, 1999, Mr. Tack called the auditor and explained his position that his

wife was selling services to Homes Illustrated for resale and should not be subject to tax on her

receipts. Mr. Tack asked the auditor whether he could obtain an NTTC from Homes Illustrated to

establish the resale transaction.

15. The auditor told Mr. Tack that Homes Illustrated was selling advertising, not

photographs, and that no NTTC applied to give his wife a deduction.

16. On January 14, 1999, the Department issued Assessment No. 2331970 to Mr. and

Mrs. Tack for tax periods January through December 1995 in the amount of $964.08 gross receipts

tax, $96.36 penalty and $500.12 interest.

17. On February 9, 1999, Mr. Tack filed a written protest to the Department’s

assessment.

18. At the conclusion of the January 11, 2000 hearing, Department counsel stated that the

Department would concede the penalty assessed against the Tacks because it appeared they had been

misled by a Department employee concerning the applicability of NTTCs.

DISCUSSION

The Tacks raise the following arguments in support of their protest to the Department’s

assessment: (1) Mrs. Tack was a wholesaler for Homes Illustrated and should not be subject to gross

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receipts tax; (2) collecting gross receipts tax from both Homes Illustrated and Mrs. Tack results in

double taxation; (3) the Tacks should not be penalized for not having an NTTC that the Department’s

auditor told them was inapplicable to their situation.

I LIABILITY FOR PAYMENT OF GROSS RECEIPTS TAX.

The Tacks maintain that Mrs. Tack should not be liable for tax on her receipts from selling

services which were resold by Homes Illustrated. The Tacks believe that only Homes Illustrated

should be required to pay tax on its sale to the final consumer. This argument is based on a

misunderstanding of New Mexico’s tax system.

Section 7-9-4 NMSA 1978 imposes an excise tax on the gross receipts of any person

engaging in business in New Mexico. “Engaging in business” is defined in Section 7-9-3(E) NMSA

1978 to mean carrying on or causing to be carried on any activity with the purpose of direct or

indirect benefit. The term “gross receipts” is defined in Section 7-9-3(F) NMSA 1978 to include the

total amount of money or the value of other consideration received from performing services in New

Mexico. The statute makes no distinction between persons selling services for resale and persons

selling services to the final consumer. Accordingly, unless a specific statutory exemption or

deduction applies, Mrs. Tack is liable for gross receipts tax on her receipts from performing

photography services for Homes Illustrated.

Section 7-9-48 NMSA 1978 provides a deduction for receipts from selling services for resale

when certain conditions are met. In order for a seller of services to qualify for the resale deduction, the

buyer must: (1) provide the seller with an NTTC; (2) resell the service in the ordinary course of

business; (3) separately state the value of the service at the time it is resold; and (4) be subject to

gross receipts tax on the subsequent sale. Although it appears that Mrs. Tack met conditions 2, 3,

and 4, she did not meet the first condition requiring possession of an NTTC.

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There is a statutory presumption that the Department’s assessment of gross receipts tax is

correct. Section 7-1-17(C) NMSA 1978. Where an exemption or deduction from tax is claimed, the

statute must be construed strictly in favor of the taxing authority, the right to the exemption or

deduction must be clearly and unambiguously expressed in the statute, and the right must be clearly

established by the taxpayer. Wing Pawn Shop v. Taxation and Revenue Department, 111 N.M. 735,

740, 809 P.2d 649, 654 (Ct. App. 1991). Where a party claiming a right to a tax exemption or

deduction fails to follow the method prescribed by statute or regulation, he waives his right thereto.

Proficient Food v. New Mexico Taxation & Revenue Department, 107 N.M. 392, 397, 758 P.2d 806,

811 (Ct. App. 1988).

In this case, Mrs. Tack has not met her burden of showing that she is entitled to an exemption

or deduction from gross receipts tax. As discussed above, Mrs. Tack does not qualify for the resale

deduction provided in Section 7-9-48 NMSA 1978 because she did not obtain an NTTC from the buyer

of her services. She has not provided information to support a claim to any other exemption or

deduction.1 Mrs. Tack is therefore liable for gross receipts tax on her receipts from performing services

for Homes Illustrated.

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At the hearing, Mr. Tack suggested that Mrs. Tack was engaged in selling tangible personal property rather than
services. Homes Illustrated was not buying ready-made photographs that Mrs. Tack was in the business of selling.
Rather, Homes Illustrated was buying Mrs. Tack’s services to go out to a designated site and take photographs of a
specific house. This constitutes the sale of services. In any event, the failure to obtain a timely NTTC would bar
Mrs. Tack from claiming a resale deduction for receipts from selling tangible personal property as well as receipts
from selling services. See, requirements set out in Section 7-9-47 NMSA 1978.

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II. DOUBLE TAXATION.

The Tacks argue that payment of gross receipts tax by both Homes Illustrated and the Tacks

results in double taxation. It is a popular misconception that there is something inherently illegal or

unconstitutional with double taxation. New Mexico courts have held, on numerous occasions, that

there is no constitutional prohibition against double taxation. New Mexico State Board of Public

Accountancy v. Grant, 61 N.M. 287, 299 P.2d 464 (1956); Amarillo-Pecos Valley Truck Line, Inc. v.

Gallegos, 44 N.M. 120, 99 P.2d 447 (1940); State ex rel. Attorney General v. Tittmann, 42 N.M. 76, 75

P.2d 701 (1938). See also, Ft. Smith Lumber Co. v. Arkansas, 251 U.S. 532 (1920).

In construing the New Mexico Gross Receipts and Compensating Tax Act, the New Mexico

courts have also held that there is no double taxation where the two taxes complained of are imposed

on the receipts of different taxpayers. See, e.g., House of Carpets, Inc. v. Bureau of Revenue, 87 N.M.

747, 507 P.2d 1078 (Ct. App. 1973); New Mexico Sheriffs & Police Association v. Bureau of Revenue,

85 N.M. 565, 514 P.2d 616 (Ct. App. 1973). That is the case here. Mrs. Tack and Homes Illustrated

are separate taxpayers, each of which is engaged in business in New Mexico. The gross receipts tax is

imposed—once—on Mrs. Tack’s receipts from selling services to Homes Illustrated. As the seller,

only Mrs. Tack is liable for this tax. The gross receipts tax is also imposed—once—on Homes

Illustrated’s resale of Mrs. Tack’s photography services to its customers. Only Homes Illustrated is

liable for this tax. Under the facts of this case, there is no double taxation.

III ERRONEOUS ADVICE FROM DEPARTMENT EMPLOYEE.

Mr. Tack maintains that Mrs. Tack’s failure to obtain an NTTC to support a deduction under

Section 7-9-48 NMSA 1978 was attributable to the erroneous advice he received from the

Department’s auditor. It is true that the auditor was incorrect when she concluded that Mrs. Tack’s

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services did not qualify as a sale of services for resale. It is not clear, however, that this advice was the

cause of Mrs. Tack’s failure to obtain the NTTC needed to claim the deduction.

The requirements for obtaining NTTCs to support deductions from gross receipts are set out in

Section 7-9-43 NMSA 1978. During 1995, the year at issue in this case, the statute provided:

All nontaxable transaction certificates of the appropriate series executed by
buyers or lessees shall be in the possession of the seller or lessor for nontaxable
transactions at the time the return is due for receipts from the transactions....
(emphasis added).

The word "shall" indicates that the provisions of a statute are mandatory and not discretionary. State v.

Lujan, 90 N.M. 103, 105, 560 P.2d 167, 169 (1977). Mrs. Tack did not have an NTTC from Homes

Illustrated in her possession at the time her 1995 gross receipts tax returns were due. She did not meet

the statutory requirements of Section 7-9-43 then in effect and was not entitled to claim a deduction.

In 1997, the legislature amended Section 7-9-43 to allow taxpayers additional time within

which to obtain required NTTCs. Laws 1997, Chapter 72, Section 1. This version of the statute,

effective July 1, 1997, provides:

All nontaxable transaction certificates of the appropriate series executed by
buyers or lessees should be in the possession of the seller or lessor for
nontaxable transactions at the time the return is due for receipts from the
transactions. If the seller or lessor is not in possession of the required
nontaxable transaction certificates within sixty days from the date that the
notice requiring possession of these nontaxable transaction certificates is given
the seller or lessor by the department, deductions claimed by the seller or lessor
that require delivery of these nontaxable transaction certificates shall be
disallowed.

The amendment gave taxpayers audited after its effective date a second chance to obtain NTTCs that

should have been in their possession at the time their deductions from gross receipts tax were taken.

Taxpayers who rely on this provision must recognize, however, that they run the risk of having their

deductions disallowed if they fail to obtain required NTTCs within the 60-day period provided by the

legislature. The reason a taxpayer does not obtain an NTTC is irrelevant. The language of the statute is

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mandatory: if a seller is not in possession of required NTTCs within 60 days from the date of the

Department's notice, "deductions claimed by the seller...that require delivery of these nontaxable

transaction certificates shall be disallowed." (emphasis added).

In this case, the Department mailed a notice to the Tacks on October 14, 1998, advising them

they had to be in possession of required NTTCs on or before December 13, 1998 or any deductions

claimed in reliance on NTTCs would be disallowed. The notice was mailed to the correct address

and there is no evidence it was ever returned to the Department by the Post Office. Although Mr.

Tack does not remember receiving the October 14, 1998 notice, he acknowledges receiving some

notice or correspondence that resulted in his November 20, 1998 letter to the Department explaining

his position on the Tacks’ gross receipts tax liability. Neither Mr. Tack nor the Department

produced a copy of any notice or correspondence sent to the Tacks during 1998, other than the

October 14, 1998 notice. Based on the evidence presented, I can only conclude that Mr. Tack did

receive the October 14, 1998 notice and simply does not recall the details of the 60-day provision.

On January 13, 1999, Mr. Tack called the Department’s auditor to discuss his tax situation.

During that call, the auditor informed Mr. Tack that no NTTC was applicable to his wife’s sale of

services to Homes Illustrated. Although this information was incorrect, the 60-day period within

which the Tacks could have obtained an NTTC had expired one month earlier on December 13,

1998. Accordingly, the auditor’s advice could not have adversely affected the Tacks’ ability to

substantiate the resale deduction provided in Section 7-9-48 NMSA 1978.

As a general rule, courts are reluctant to apply the doctrine of equitable estoppel against the

state. This general rule is given even greater weight in cases involving the assessment and collection of

taxes. Kerr-McGee Nuclear Corp. v. Property Tax Division, 95 N.M. 685, 625 P.2d 1202 (Ct. App.

1980). In such cases, estoppel applies only pursuant to statute or when “right and justice demand it.”

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Taxation and Revenue Department v. Bien Mur Indian Market, 108 N.M. 228, 231, 770 P.2d 873, 876

(1989). Under Section 7-1-60 NMSA 1978, the Department is estopped from collecting tax due

when a taxpayer has acted in accordance with a revenue ruling addressed to the taxpayer or when a

taxpayer has acted in accordance with a Department regulation. Neither of those circumstances applies

here. Nor does “right and justice” demand application of equitable estoppel because, even if the

auditor’s advice to Mr. Tack was misleading, the 60-day period within which the Tacks could have

obtained an NTTC from Homes Illustrated had already expired.2

The receipt of erroneous advice may affect a taxpayer’s liability for penalty. Regulation 3

NMAC 1.11.11 gives the Department discretion to waive penalty when a taxpayer can show that he

was affirmatively misled by a Department employee. In this case, the Department has already agreed to

abate penalty based on the conflicting information given to the taxpayers. No additional relief is

available.

CONCLUSIONS OF LAW

1. The Tacks filed a timely written protest to Assessment No 2331970 pursuant to Section

7-1-24 NMSA 1978, and jurisdiction lies over the parties and the subject matter of this protest.

2. When Mrs. Tack performed services for Homes Illustrated during 1995, she was

engaging in business as defined in Section 7-9-3(E) NMSA 1978 and was subject to gross receipts tax

on her receipts.

3. The Tacks did not meet their burden of establishing that Mrs. Tack was entitled to an

exemption or deduction in connection with her receipts from performing services for Homes Illustrated.

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It should also be noted that the hearing officer’s powers do not include authority to grant an equitable remedy.
See, AA Oilfield Service v. New Mexico State Corporation Commission, 118 N.M. 273, 881 P.2d 18 (1994). Even if

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4. The Department is not estopped from enforcing collection of the gross receipts tax and

interest due under Assessment No. 2331970.

For the foregoing reasons, the Taxpayers’ protest is denied, except to the extent of the penalty

waived by the Department.

DATED January 14, 2000.

the hearing officer determined that equitable estoppel was appropriate in a particular case, the taxpayer would have
to appeal to the New Mexico Court of Appeals to obtain such relief.

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