Can I deduct my New Mexico sales for resale using invoices instead of nontaxable transaction certificates?

Plain-English summary

A wholesaler who did not collect nontaxable transaction certificates (NTTCs) from his New Mexico resale buyers could not deduct those sales, and neither a half-read instruction booklet nor an oral tip from a state employee could estop the Department. But because he had reasonably relied on his accountant, the negligence penalty was thrown out — the tax and interest stood. Protest GRANTED IN PART and DENIED IN PART.

Layton Talbott sold artwork, gift items, and home furnishings — mostly at wholesale (for resale), with some retail. His wholesale orders came from manufacturers' reps soliciting buyers in and out of New Mexico, and he shipped directly. When he registered in 1990, he received a CRS Filer's Kit. He read the part saying substantiation "can be one or a combination of" an NTTC or "other documents including invoices," and concluded he could support his resale deduction with invoices — ignoring the next sentence: "The NTTC is the only acceptable substantiation for certain deductions." He later understood a Department employee to say his wholesale receipts were exempt and need not be reported at all, so he stopped reporting them. The Department assessed gross receipts tax, penalty, and interest for 1994 ($6,753.62), 1995 ($4,943.11), and 1996 ($4,448.70).

The 1995 protest was too late — jurisdiction

An assessment is effective when mailed to the taxpayer's last address of record (Sections 7-1-17(B)(2) and 7-1-9(A)), and a protest must be filed within 30 days (Section 7-1-24(B)). The 1995 assessment was mailed in October 1998 to Talbott's Santa Fe address — the only one on file, since he did not notify the Department of his Arizona address until December 1998. His December 7, 1998 protest was therefore untimely, and the hearing officer had no jurisdiction to consider that assessment.

No NTTC, no resale deduction

Everyone agreed out-of-state sales are not New Mexico gross receipts (Section 7-9-3(F)), and the Department abated tax on the out-of-state sales Talbott could document. But the resale deduction under Section 7-9-47 requires the buyer to deliver an NTTC to the seller; it is not enough that a sale was in fact for resale. A taxpayer who fails to follow the statutory method waives the deduction (Proficient Food). Because Talbott held no timely NTTCs for his in-state resale sales, those receipts were taxable.

Estoppel failed on both theories

• Statutory estoppel (Section 7-1-60) applies only when a taxpayer follows a regulation or a ruling addressed to him. The regulations (e.g., Regulation 3 NMAC 2.47.8.1) plainly require an NTTC, so there was no statutory basis.
• "Right and justice" estoppel requires lack of knowledge of the true facts, detrimental reliance, and reasonable reliance (Johnson & Johnson). Talbott's reliance on a single convenient passage of the Filer's Kit — ignoring the statements that an NTTC is required, including a page that expressly listed a "Type 2 NTTC" for the resale deduction — was not reasonable. And his claimed reliance on the employee's oral remark was not reasonable either: the hearing officer did not find it credible that an employee told him not to report in-state sales (more likely the remark was about out-of-state sales, which Talbott over-read), and in any event the oral advice conflicted with the written Filer's Kit instructions, which he knew — his own letters showed a casual "it didn't matter to me" attitude. Unquestioning reliance on oral advice that contradicts written instructions is not reasonable (Bien Mur).

The penalty was abated — reasonable reliance on an accountant

The negligence penalty (Section 7-1-69) does not apply where a taxpayer reasonably relies on the advice of a competent accountant after full disclosure of the relevant facts (Regulation 3 NMAC 1.11.11). Talbott had discussed the resale deduction with his Arizona accountant in 1991 or 1992, and the accountant agreed that invoices and purchase orders should suffice — a position consistent with the accountant's later protest letters. The hearing officer found this was reasonable reliance and abated the negligence penalty.

Result: GRANTED IN PART, DENIED IN PART — the negligence penalty was abated; the gross receipts tax and interest (as adjusted for documented out-of-state sales) were upheld, and the 1995 protest was dismissed for lack of jurisdiction.

What this means for you

The resale deduction requires an NTTC — invoices are not a substitute

If you sell tangible personal property for resale in New Mexico, you can deduct those receipts only if you timely obtain a nontaxable transaction certificate from your buyer (Section 7-9-47). The fact that a sale genuinely was for resale is not enough; without the NTTC, the receipts are taxable. Collect the certificates as you make the sales, not after an audit.

In-state and out-of-state wholesale sales are treated differently

Out-of-state sales are simply not New Mexico gross receipts, so they are not reported. In-state resale sales are reported and then deducted — but only with an NTTC. Do not assume "wholesale" means "not taxable"; the location of the sale and the NTTC both matter, and you must report the in-state deduction rather than omitting the receipts entirely.

Don't rely on part of the instructions — or on oral advice that contradicts the writing

Reading only the convenient passage of a tax booklet, or acting on an oral comment from an employee that conflicts with the written rules, will not estop the Department. If oral advice conflicts with written instructions, get written confirmation before you rely on it. Estoppel against the state is rare and requires reasonable reliance.

Protest within 30 days — and keep your address current

An assessment is effective when mailed to your last address of record, and you have 30 days to protest. If the Department does not have your new address, a validly mailed assessment can run out the clock even if you never see it. Update your registered address promptly and calendar the 30-day deadline.

Documented reliance on a competent accountant can defeat the penalty

Even when you lose on the tax, a negligence penalty can be abated if you reasonably relied on a competent accountant after fully disclosing the facts. That is what saved Talbott the penalty here — a reminder to consult a professional about the specific issue, in advance, and to keep a record of the advice.

Common questions

Q: My sales really were for resale. Can I prove it with invoices instead of NTTCs?
A: No. Section 7-9-47 requires the buyer to deliver a nontaxable transaction certificate. Invoices and purchase orders do not substitute for the NTTC, and without a timely NTTC the receipts are taxable even if the sale was genuinely for resale.

Q: A state employee told me my wholesale receipts were exempt. Doesn't that protect me?
A: Not here. The hearing officer found the taxpayer likely misunderstood advice that was about out-of-state sales, and reliance on an oral remark that conflicts with the written instructions is not reasonable. If oral guidance contradicts the written rules, get written confirmation.

Q: I missed the 30-day protest window because the assessment went to my old address. Can I still protest?
A: Generally no. An assessment is effective when mailed to your last address of record, and the 30-day clock runs from there. Keep your registered address current so validly mailed notices actually reach you.

Q: I lost on the tax. Why was the penalty removed?
A: Because the taxpayer reasonably relied on his accountant's advice (given after full disclosure) that invoices would suffice. Reasonable reliance on a competent accountant negates negligence, so the penalty was abated even though the underlying tax and interest remained due.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-9-47 — receipts from selling tangible personal property for resale may be deducted only if the buyer delivers a nontaxable transaction certificate
• NMSA 1978, § 7-9-5 — all receipts of a person engaging in business are presumed subject to gross receipts tax
• NMSA 1978, § 7-9-3(F) — sales of property outside New Mexico are not "gross receipts"
• NMSA 1978, § 7-1-17(B)(2) — an assessment is effective when the notice is mailed or delivered to the taxpayer
• NMSA 1978, § 7-1-9(A) — mailed notice is effective if sent to the last address shown on the Department's records
• NMSA 1978, § 7-1-24(B) — a protest must be filed within 30 days of the assessment
• NMSA 1978, § 7-1-60 — the Department is estopped only when the taxpayer acted per a regulation or a ruling addressed to that taxpayer
• NMSA 1978, § 7-1-69 — negligence penalty
• Regulation 3 NMAC 2.47.8.1 — an NTTC is required to qualify for the Section 7-9-47 deduction
• Regulation 3 NMAC 1.11.11 — reasonable reliance on a competent accountant after full disclosure indicates the taxpayer was not negligent

Cases cited:

• Proficient Food Co. v. New Mexico Taxation & Revenue Dep't, 107 N.M. 392, 758 P.2d 806 (Ct. App. 1988) — a taxpayer who fails to follow the statutory method for claiming a deduction waives it
• Taxation and Revenue Dep't v. Bien Mur Indian Market, 108 N.M. 228, 770 P.2d 873 (1989) — estoppel against the state applies only by statute or when right and justice demand it; unreasonable reliance defeats it
• Kerr-McGee Nuclear Corp. v. Property Tax Division, 95 N.M. 685, 625 P.2d 1202 (Ct. App. 1980) — reluctance to estop the state is heightened in tax cases
• Johnson & Johnson v. Taxation and Revenue Dep't, 1997-NMCA-030, 123 N.M. 190, 936 P.2d 872 (Ct. App. 1997) — estoppel requires lack of knowledge, detrimental reliance, and reasonable reliance
• Wing Pawn Shop v. Taxation and Revenue Dep't, 111 N.M. 735, 809 P.2d 649 (Ct. App. 1991) — deductions are construed strictly against the taxpayer, who must clearly establish the right
• Archuleta v. O'Cheskey, 84 N.M. 428, 504 P.2d 638 (Ct. App. 1972) — an assessment is presumed correct
• AA Oilfield Service v. New Mexico State Corporation Comm'n, 118 N.M. 273, 881 P.2d 18 (1994) — a hearing officer has no authority to grant an equitable remedy not authorized by statute

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Layton Talbott d/b/a Silk & Stones
• Decision PDF: D&O 00-25

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
LAYTON TALBOTT, also d/b/a SILK & STONE No. 00-25
ID NO. 02-143347-00-0
ASSESSMENT NOS. 2216424, 2309959 & 2460279

DECISION AND ORDER

A formal hearing on the above-referenced protest was held July 19, 2000, before Margaret B.

Alcock, Hearing Officer. Layton Talbott (“Taxpayer”) represented himself. The Taxation and

Revenue Department ("Department") was represented by Bridget A. Jacober, Special Assistant

Attorney General. At the request of the parties, the hearing on the issue of out-of-state sales was

continued to August 30, 2000. On August 15, 2000, the Taxpayer provided additional information to

the Department to substantiate certain of his out-of-state sales and requested the hearing officer to

vacate the hearing scheduled for August 30, 2000. Based on the evidence and arguments presented, IT

IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer is in the business of selling artwork, gift items and home furnishings.

Most of the Taxpayer’s business is from sales for resale, although some portion of his business

comes from retail sales to the final consumer.

2. The Taxpayer’s wholesale business is generated by manufacturer’s representatives in

the field, who solicit orders from businesses located both within New Mexico and out-of-state. The

representatives forward orders to the Taxpayer by mail, phone or fax. The Taxpayer then fills the

orders and ships them directly to the wholesale customers.

3. In 1990, the Taxpayer moved to New Mexico from Arizona and registered with the

Department for payment of gross receipts, compensating and withholding taxes, which are reported

under New Mexico's Combined Reporting System (CRS).

4. At the time he registered, the Taxpayer was given a CRS Filer’s Kit, which contains

forms and instructions explaining the application of the gross receipts tax.

5. The Taxpayer read on page 4 of the Filer’s Kit (Taxpayer’s Exhibit 1) that deductions

could be substantiated by “one or a combination of the following: 1. Nontaxable transaction

certificate (see description) ... 4. Other documents including invoices, purchase orders, contracts,

etc.” The section of the Filer’s Kit immediately following this language went on to state: “The

NTTC is the only acceptable substantiation for certain deductions.... When claiming a deduction you

should have the necessary NTTC in your possession. Otherwise the Department will disallow the

deduction and assess tax, penalty and interest.”

6. The Taxpayer ignored the statement in the Filer’s Kit that the NTTC is the only

acceptable substantiation for certain deductions. Relying solely on the section immediately

preceding this statement, the Taxpayer determined that he did not need to obtain NTTCs, but could

use invoices and other documents to substantiate his deduction of receipts from selling tangible

personal property for resale.

7. Sometime during 1991 or 1992, the Taxpayer discussed the gross receipts tax with

his accountant in Arizona, who agreed with him that invoices, purchase orders and other similar

documents should be sufficient to establish the Taxpayer’s deduction of receipts from selling

tangible personal property for resale.

8. The Taxpayer also discussed the gross receipts tax with an employee of the

Department. The Taxpayer understood the employee to say that the Taxpayer’s receipts from sales

2
for resale were exempt and did not have to be reported on his CRS-1 returns. Although this

conflicted with information concerning deductions in the Filer’s Kit, the Taxpayer did not ask for

clarification, but simply stopped reporting all of his wholesale receipts.

9. The Taxpayer’s Arizona accountant prepared the Taxpayer’s federal income tax

returns for 1994, 1995 and 1996. Schedule C to the federal returns listed all the Taxpayer’s business

receipts, including the receipts he had excluded from his New Mexico gross receipts tax returns.

10. In November 1997, the Department sent the Taxpayer a notice asking him to explain

why the receipts reported on his 1994 gross receipts tax returns were lower than the receipts reported

as business income on his 1994 federal income tax return.

11. The Taxpayer responded with a letter explaining that the discrepancy was attributable

to receipts from selling tangible personal property for resale and that a Department employee had

told him these receipts were exempt.

12. On February 8, 1998, the Department issued Assessment No. 2216424 to the

Taxpayer in the total amount of $6,753.62, representing gross receipts tax, penalty and interest for

the period January-December 1994.

13. On February 24, 1998, the Taxpayer filed a written protest to the assessment.

14. On October 31, 1998, the Department issued Assessment No. 2309959 to the

Taxpayer in the total amount of $4,943.11, representing gross receipts tax, penalty and interest for

the period January-December 1995.

15. On December 7, 1998, the Taxpayer filed a written protest to the assessment. The

protest was not accepted by the Department’s protest office because it was not filed within 30 days

of the date of the assessment as required by Section 7-1-24 NMSA 1978.

3

16. In December 1998, the Taxpayer also sent the Department written notice of his new

address in Arizona.

17. On December 13, 1999, the Department issued Assessment No. 2460279 to the

Taxpayer at his Arizona address in the total amount of $4,448.70, representing gross receipts tax,

penalty and interest for the period January-December 1996.

18. On December 20, 1999, the Taxpayer filed a written protest to the assessment.

19. After the Taxpayer’s protests were filed, the Taxpayer provided the Department with

some invoices and shipping documents to establish that a portion of his receipts were from out-of-

state sales and were not subject to New Mexico gross receipts tax. Based on these documents, the

Department agreed to make certain adjustments.

20. At the hearing held July 19, 2000, the parties agreed to continue the hearing to August

30, 2000 to give the Taxpayer time to provide additional information to the Department on the issue of

out-of-state sales.

21. On August 15, 2000, the Taxpayer sent the Department additional documents

supporting his out-of-state sales and requested the hearing officer to vacate the hearing scheduled for

August 30, 2000.

22. On August 23, 2000, the Department filed a worksheet showing the adjustments made

from the information provided by the Taxpayer. The worksheet, attached to this decision as Appendix

A, also shows the outstanding balances remaining in dispute.

DISCUSSION

The Taxpayer’s protest raises the following issues: (1) whether the hearing officer has

jurisdiction to consider the Taxpayer’s protest of Assessment No. 2309959; (2) whether the

Taxpayer’s receipts from New Mexico sales of tangible personal property for resale are either

4
deductible or exempt from gross receipts tax, even though the Taxpayer did not have NTTCs from

his buyers; (3) whether the Department is estopped—by the information contained in the CRS Filer’s

Kit or by the advice given to the Taxpayer by an employee of the Department—from enforcing

collection of the tax, penalty and interest assessed against the Taxpayer; (4) whether the Taxpayer is

liable for the negligence penalty imposed by Section 7-1-69 NMSA 1978 (1992 & 1996).

Section 7-1-17(C) NMSA 1978 (1992) states that any assessment of taxes made by the

Department is presumed to be correct, and it is the taxpayer's burden to overcome this presumption.

Archuleta v. O'Cheskey, 84 N.M. 428, 431, 504 P.2d 638, 641 (Ct. App. 1972). Further, Section 7-9-5

NMSA 1978 creates a statutory presumption "that all receipts of a person engaging in business are

subject to the gross receipts tax." 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). Accordingly, it is the Taxpayer’s burden to come forward with evidence and legal

arguments to show that he is entitled to the deductions and exemptions claimed and that the

Department's assessment is incorrect.

Jurisdiction. On October 31, 1998, the Department issued Assessment No. 2309959 to the

Taxpayer in the total amount of $4,943.11, representing gross receipts tax, penalty and interest for

the period January-December 1995. On December 7, 1998, the Taxpayer’s accountant filed a

written protest on the Taxpayer’s behalf. The protest was not accepted by the Department’s protest

office because it was not filed within 30 days of the date of the assessment as required by Section 7-

1-24(B) NMSA 1978 (1993). At the hearing held July 19, 2000, the Taxpayer maintained the

assessment was sent to the wrong address and he should have been given additional time to protest.

5
Section 7-1-17(B)(2) NMSA 1978 (1992) states that assessments of tax are effective “when a

document denominated ‘notice of assessment of taxes’, issued in the name of the secretary, is mailed

or delivered in person to the taxpayer against whom the liability for tax is asserted....” Section 7-1-

9(A) NMSA 1978 (1997), states that “any notice required or authorized by the Tax Administration

Act to be given by mail is effective if mailed ... to the taxpayer or person at the last address shown on

his registration certificate or other record of the department.” In this case, the Department mailed

Assessment No. 2309959 to the Taxpayer at Box 22387, Santa Fe, NM 87502, the last address

shown on the Department’s records. The Taxpayer maintained the Department knew he had moved

to Arizona and testified that prior to the assessment he faxed several letters to the Department that

listed his Arizona telephone number at the top. The Taxpayer acknowledged, however, that he does

not have any record of notifying the Department of his Arizona address or asking the Department to

change his registration until early December 1998, well over a month after the assessment was

mailed.

In the absence of any evidence that the Department had the Taxpayer’s Arizona address at

the time Assessment No. 2309959 was issued in October 1998, the assessment was effective when

mailed to the Santa Fe address shown on the Department’s records. Pursuant to Section 7-1-24(B)

NMSA 1978 (1993), the protest filed December 7, 1998 was not timely, and the hearing officer has

no jurisdiction to consider the Taxpayer’s arguments concerning Assessment No. 2309959.

Sales for Resale. Most of the Taxpayer’s business during the years at issue involved the sale

of tangible personal property for resale. Some sales were made to customers in New Mexico and

some sales were made to customers located out-of-state. There is no dispute that out-of-state sales

are not subject to the New Mexico gross receipts tax, and the Department abated the gross receipts

tax, penalty and interest assessed on receipts the Taxpayer was able to trace to sales made outside

6
New Mexico. What remains in dispute is whether the Taxpayer is entitled to deduct receipts from

New Mexico sales of tangible personal property for resale when the Taxpayer did not have timely

possession of NTTCs from his buyers.

The Gross Receipts and Compensating Tax Act provides several deductions from gross receipts

for taxpayers who meet the statutory requirements set by the legislature. The Taxpayer claims the

deduction provided in Section 7-9-47 NMSA 1978 (1994):

Receipts from selling tangible personal property or licenses may be deducted
from gross receipts ... if the sale is made to a person who delivers a nontaxable
transaction certificate to the seller. The buyer delivering the nontaxable
transaction certificate must resell the tangible personal property or license
either by itself or in combination with other tangible personal property in the
ordinary course of business. (emphasis added) ....

The fact that a particular transaction was a sale of tangible personal property for resale is not sufficient

to support a deduction under Section 7-9-47. The requirements of the statute are very specific. The

buyer of tangible personal property must deliver an NTTC to the seller before the seller is entitled to

claim a deduction from gross receipts. 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.), cert. denied, 107 N.M. 308, 756 P.2d 1203 (1988). Because the Taxpayer did not have timely

NTTCs from his buyers, he is foreclosed from claiming a deduction under Section 7-9-47.

Estoppel. The Taxpayer asserts that the instructions in the CRS Filer’s Kit misled him into

believing he did not need to obtain NTTCs to support his deduction of receipts from selling tangible

personal property for resale. He also asserts that a Department employee told him his receipts from

wholesale transactions were exempt from gross receipts tax and did not have to be reported on his

7
CRS-1 returns. Based on these allegations, the Taxpayer argues that the Department is estopped

from denying him the deduction provided in Section 7-9-47.

As a general rule, courts are reluctant to apply the doctrine of 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.” Taxation

and Revenue Department v. Bien Mur Indian Market, 108 N.M. 228, 231, 770 P.2d 873, 876 (1989).

Estoppel Based on Statute. Section 7-1-60 NMSA 1978 (1993) provides for estoppel against

the Department in two circumstances: when the taxpayer acted according to a regulation or when the

taxpayer acted according to a revenue ruling specifically addressed to the taxpayer. In this case, the

Taxpayer’s failure to obtain NTTCs was not in accordance with any Department regulation or ruling.

To the contrary, had the Taxpayer read the Department’s regulations, he would have realized that he

was required to obtain NTTCs to support the deduction provided in Section 7-9-47. See, for example,

Regulation 3 NMAC 2.47.8.1 which states:

8.1 In order for a taxpayer to qualify for the deduction provided in Section 7-9-
47 the taxpayer must meet the requirements of Section 7-9-47, which include being the
recipient of a nontaxable transaction certificate (NTTC) of the type specified and
furnished by the Department to be delivered by a buyer who resells tangible personal
property in the ordinary course of business.

There is no statutory basis to estop the Department from enforcing its assessment of gross receipts tax

against the Taxpayer.

Estoppel Based “Right and Justice”. Case law provides for estoppel against the state where

right and justice demand its application. For estoppel to apply, the party seeking it must show: (1) lack

of knowledge of the true facts in question; (2) detrimental reliance on the other party’s conduct; and (3)

that its own reliance was reasonable. Johnson & Johnson v. Taxation and Revenue Department, 1997-

8
NMCA-030, 123 N.M. 190, 195, 936 N.M. 872, 877 (Ct. App.), cert. denied, 123 N.M. 167, 936 P.2d

337 (1997). The facts of this case do not establish a basis for applying equitable estoppel against the

Department.1

Filer’s Kit. The Taxpayer claims he was misled by the instructions contained in the CRS

Filer’s Kit. At issue is the following language found on page 4 of the 1994 Filer’s Kit (Taxpayer’s

Exhibit 1):

Substantiation Required to Support a Deduction

The Department requires taxpayers to retain substantiation in their records when
claiming a deduction from gross receipts. That substantiation can be one or a
combination of the following:

1. Nontaxable transaction certificate (see description)
   ...
2. Other documents including invoices, purchase orders, contracts, etc.

Nontaxable Transaction Certificate (NTTC)

The NTTC is the only acceptable substantiation for certain deductions. The buyer
obtains an NTTC from the Department to give to a seller, which entitles the seller to
deduct those receipts when determining taxable gross receipts....

When claiming a deduction you should have the necessary NTTC in your possession.
Otherwise the Department will disallow the deduction and assess tax, penalty and
interest.

Reading only the first section of the language quoted above, the Taxpayer determined that he could

substantiate a deduction of receipts from selling tangible personal property for resale with invoices,

purchase orders and similar documents. The Taxpayer ignored the subsequent statement that the

NTTC “is the only acceptable substantiation for certain deductions.” The Taxpayer also ignored the

1
It should be noted that the hearing officer’s powers do not include authority to grant an equitable remedy not
authorized by statute. See, AA Oilfield Service v. New Mexico State Corporation Commission, 118 N.M. 273, 881
P.2d 18 (1994). Even if the hearing officer determined that equitable estoppel were appropriate in a particular case,
the taxpayer would have to appeal to the New Mexico Court of Appeals to obtain such relief.

9
discussion of specific deductions set out on pages 5-7 of the Filer’s Kit. The discussion begins on

page 5 with the following statement:

List of Deductions

A list of deductions from gross receipts is presented below along with any special
requirements for claiming the deduction and specific substantiation required to
support the deduction (e.g. an NTTC)....

And continues at the top of page 7:

Property Resale Deduction

Receipts from sales of tangible personal property for resale (7-9-47)
• Requirement: Type 2 NTTC

The Taxpayer’s reliance on a single section of the Filer’s Kit—to the exclusion of other sections

bearing directly on the specific deduction covering his transactions—was not reasonable. Had the

Taxpayer read the entire Filer’s Kit, he would have known that possession of an NTTC is a

requirement for taking the deduction provided in Section 7-9-47. At a minimum, the Taxpayer

would have been alerted to the need to clarify the documentation needed to support his deductions.

His decision to rely on only that portion of the instructions he found most convenient to follow does

not establish a basis for estopping the Department from enforcing the law as written.

Advice of Department Employee. The Taxpayer originally reported all of his receipts on his

CRS-1, deducted his wholesale receipts and paid tax on the balance. He maintains he was

subsequently misled by a Department employee who advised him that wholesale receipts were

exempt from tax and did not have to be reported at all. Based on the evidence in the record, it is my

conclusion that the Taxpayer misunderstood the advice he received from the Department.

It is true the Taxpayer was not required to report wholesale receipts from sales made to

customers located out-of-state. This is because receipts from selling property outside New Mexico do

10
not come within the statutory definition of “gross receipts.” See, Section 7-9-3(F) NMSA 1978. The

Taxpayer was required, however, to report wholesale receipts from sales made to customers in New

Mexico. Those receipts could then be deducted if the Taxpayer obtained a timely NTTC from the

buyer.

Although there is a clear distinction between the taxability of receipts from in-state and out-of-

state sales, the Taxpayer has consistently refused to recognize this distinction. In his correspondence

with the Department, the Taxpayer insisted that all his receipts should be treated in the same way,

regardless of whether the sale was to a New Mexico customer or an out-of-state customer. In response

to the protest auditor’s February 8, 2000 letter attempting to explain the difference between these sales,

the Taxpayer stated: “I have not enclosed shipping documents for out of state sales because to do so

would indicate that I agree with your assessment that I owe tax on in state sales. I do not owe tax on

any sales, neither in state nor out of state.” The Taxpayer reiterated this position at the hearing, and it

was only at the hearing officer’s insistence that he agreed to provide additional information to establish

his out-of-state sales, which would then give the Department a basis to abate the tax assessed on those

sales.

After reviewing the testimony and other evidence submitted at the hearing, I do not find it

credible that an employee of the Department told the Taxpayer he did not have to report receipts from

New Mexico sales on his CRS-1 returns. Based on the Taxpayer’s misunderstanding of the law

applicable to in-state and out-of-state sales, I find it more likely that the employee told the Taxpayer he

did not have to report wholesale receipts from out-of-state sales and the Taxpayer interpreted this to

apply to all of his wholesale receipts.

Even if the Department employee had given the Taxpayer erroneous advice, this would not

satisfy the requirements for equitable estoppel because the Taxpayer has failed to show that his reliance

11
on that advice was reasonable. Prior to his conversation with the employee, the Taxpayer was reporting

all of his receipts on the CRS-1, deducting his wholesale receipts and paying tax on the balance. This

method of reporting conformed to the instructions on page 4 of the CRS Filer’s Kit:

A deduction from gross receipts, like an exemption, is a nontaxable amount but
unlike an exemption, A DEDUCTION MUST BE REPORTED ON THE CRS-1
FORM AS “GROSS RECEIPTS” IN COLUMN C AND THEN DEDUCTED IN
COLUMN D, “TOTAL DEDUCTIONS.” (emphasis in the original)

The information the Taxpayer says he received from the Department employee was in direct conflict

with the instructions in the Filer’s Kit. The Taxpayer was aware of this, but stated in his May 27, 1999

letter to the protest auditor (Department Exhibit 1): “It didn’t matter to me if I included wholesale

income then deducted all of it leaving only retail or if I excluded it entirely.” Taxpayers are not entitled

to take such a casual approach to their tax reporting obligations. Knowing the advice given to him by

the employee was contrary to the instructions in the Filer’s Kit, the Taxpayer had an obligation to

clarify the basis for the employee’s advice or obtain written confirmation from the Department

concerning the proper method of reporting his gross receipts taxes. The Taxpayer’s unquestioning

reliance on the oral representations of a Department employee was not reasonable, particularly when

the information received conflicted with the Department’s written instructions. See, Taxation and

Revenue Department v. Bien Mur Indian Market, 108 N.M. 228, 231, 770 P.2d 873, 876 (1989).

Penalty. Section 7-1-69 NMSA 1978 (1992 & 1996) imposes a penalty of two percent per

month, up to a maximum of ten percent, “in the case of failure, due to negligence or disregard of rules

and regulations” to pay tax in a timely manner. Department Regulation 3 NMAC 1.11.11 sets out

several situations that may indicate a taxpayer has not been negligent, including “reasonable reliance on

the advice of competent tax counsel or accountant as to the taxpayer’s liability after full disclosure of

all relevant facts....” In this case, the Taxpayer testified that sometime during 1991 or 1992, he

12
discussed the gross receipts tax with his accountant in Arizona, who agreed with him that invoices,

purchase orders and similar documents were sufficient to establish the Taxpayer’s deduction of

receipts from selling tangible personal property for resale. This testimony is consistent with the

position taken in the protest letters the Taxpayer’s accountant filed on his behalf. I find the Taxpayer

reasonably relied on the advice of his accountant and the negligence penalty should be abated.

CONCLUSIONS OF LAW

1. The Taxpayer filed timely, written protests to Assessment Nos. 2216424 and 2460279,

and jurisdiction lies over the parties and the subject matter of the protests to these assessments.

2. The Taxpayer’s written protest to Assessment No. 2309959 was not timely, and the

hearing officer does not have jurisdiction to consider the Taxpayer’s protest to this assessment.

3. The Taxpayer is not entitled to a deduction or exemption of his receipts from New

Mexico sales of tangible personal property for resale because the Taxpayer did not have timely

possession of required NTTCs.

4. Estoppel does not apply to prevent the Department from enforcing its assessments of

gross receipts tax, interest and penalty.

5. The Taxpayer reasonably relied on the advice of his accountant, and the negligence

penalty imposed by Section 7-1-69 NMSA 1978 should be abated.

For the foregoing reasons, the Taxpayer's protest is partially granted and partially denied. The

Department is ordered to abate the negligence penalty assessed against the Taxpayer. In all other

respects, the Department’s assessments of gross receipts tax and interest, adjusted pursuant to the

worksheet attached as Appendix A, are upheld.

DATED August 31, 2000.

13