Could Loranger deduct resold installation services when the buyer supplied the correct NTTC only a few days after the 60-day deadline?

Plain-English summary

Loranger Construction lost the deduction for part of its 2006 installation-service receipts because the correct nontaxable transaction certificate (NTTC) arrived after the statutory 60-day deadline. Timely certificates eliminated the entire 2005 assessment and part of 2006, but $5,320.86 of 2006 gross receipts tax remained.

Loranger performed installations for companies that resold those services to their customers. It did not report the proceeds as gross receipts, and the Department found a mismatch between its state reports and federal Schedule C income.

The original assessments were:

• 2005: $2,319 tax, $463.80 penalty, and $886.22 interest; and
• 2006: $6,988.88 tax, $1,397.78 penalty, and $1,622.71 interest.

Loranger obtained valid NTTCs within 60 days for all 2005 transactions, so that assessment was abated in full. Timely certificates also covered part of 2006. The dispute concerned the remaining transactions with one buyer.

A correct certificate supplied days late was still late

Section 7-9-43 required the seller to possess the proper form and type of NTTC. When the seller did not have it within 60 days after the Department's notice, the deduction had to be disallowed.

The buyer initially supplied the wrong certificate. Loranger said it actively pursued the correction and received the right NTTC only a few days after the deadline. It also pointed to the difficulty of dealing with the buyer's out-of-state business office.

The decision treated the deadline as mandatory, with no discretion for a short delay or buyer-caused mistake. Loranger, as the seller claiming the deduction, bore the risk of not possessing the correct document on time.

The buyer's alleged gross receipts tax payment did not change the outcome. Taxing separate entities on their own transactions was not treated as prohibited double taxation.

Tax and interest remained due on the uncovered receipts

After the timely NTTC abatements, $5,320.86 of principal remained for 2006. Interest was mandatory under Section 7-1-67(A) because that tax had not been paid when due.

Penalty applied but was capped at $532.08

Loranger's erroneous belief that the remaining receipts were not taxable supported civil-negligence penalty. The Department had calculated the original 2006 penalty at 20% under the version effective in 2008.

The liability arose in 2006, when the prior statute capped penalty at 10%. That cap had already been exhausted before the amendment took effect, and the record showed no legislative intent to apply the higher maximum retroactively.

On the remaining tax, penalty was limited to $532.08, with any excess abated.

Result: 2005 was fully abated, part of 2006 was abated, and $5,320.86 of 2006 tax, related interest, and a maximum $532.08 penalty remained.

What this means for you

Contractors selling services for resale

Confirm that the buyer supplies the right NTTC type, not merely some certificate. A wrong form does not preserve the deduction if the correction arrives after the deadline.

Sellers pursuing late buyer paperwork

Document follow-up efforts, but do not expect buyer delay or an out-of-state office to extend the statutory 60 days. This order applied the deadline strictly even when the correct certificate was only a few days late.

Businesses with certificates covering only some transactions

Match each certificate to the receipts it covers. Loranger won full and partial abatements where timely documents existed, while uncovered transactions remained taxable.

Common questions

Q: What happened to the 2005 assessment?
A: It was fully abated because Loranger obtained valid NTTCs within the 60-day period.

Q: Why did part of 2006 remain taxable?
A: The correct NTTC for those transactions arrived after the deadline.

Q: Did a short delay matter?
A: No. The decision treated the statutory disallowance as mandatory even though Loranger said the certificate was only a few days late.

Q: How much 2006 tax remained?
A: $5,320.86 after the Department credited the timely NTTCs.

Q: What was the maximum remaining penalty?
A: $532.08, equal to the applicable 10% cap.

Citations and references

Statutes and regulation:

• NMSA 1978, § 7-9-43 (2005) and Regulation 3.2.201.8(D) NMAC — correct NTTC and 60-day possession deadline
• NMSA 1978, § 7-1-17 — presumption that assessments are correct
• NMSA 1978, § 7-1-69 (2003 and 2008 versions) — negligence penalty and maximums
• NMSA 1978, § 7-1-4.2 (2003) — right not to pay an incorrect, erroneous, or illegal assessment
• NMSA 1978, § 7-1-67(A) — mandatory interest

Cases cited:

• Proficient Food Co. v. New Mexico Taxation and Revenue Department, 107 N.M. 392, 758 P.2d 806 (Ct. App. 1988)
• New Mexico Sheriffs and Police Association v. Bureau of Revenue, 85 N.M. 565, 514 P.2d 616 (Ct. App. 1973)
• Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16, 558 P.2d 1155 (Ct. App. 1976)
• Kewanee Industries, Inc. v. Reese, 114 N.M. 784, 845 P.2d 1238 (1993)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Loranger Construction
• Decision PDF: D&O 11-07

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
LORANGER CONSTRUCTION, No. 11-07
TO ASSESSMENTS ISSUED UNDER
ID NOS. L0596200832 and L0809774464

DECISION AND ORDER

A formal hearing on the above-referenced protest was held February 10, 2011, before Dee

Dee Hoxie, Hearing Officer. The Taxation and Revenue Department ("Department") was

represented by Mr. Peter Breen, Special Assistant Attorney General. Mr. Tom Dillon, Auditor,

also appeared on behalf of the Department. Ms. Lewana Clark and Ms. Cathleen Rooney

appeared as translators for Mr. Dillon. Mr. Camille Loranger and Mr. Rene Loranger appeared

on behalf of Loranger Construction (“Taxpayer”). The Hearing Officer took notice of all

documents in the administrative file. Taxpayer #1 was admitted at the hearing. Based on the

evidence and arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. Taxpayer was engaged in business in New Mexico in 2005 and 2006.

2. Taxpayer was providing services on installations to other companies, which resold those

services to its customers.

3. Taxpayer was not reporting the proceeds of those services as part of its gross receipts.

4. The Department determined that there was a mismatch between Taxpayer’s gross receipts

reports and its federal Schedule C for the 2005 and 2006 tax periods, which was

discovered through the tape match program.

5. On December 9, 2008, the Department assessed the Taxpayer for gross receipts tax in the

amount of $2,319.00 in principal, $463.80 in penalty, and $886.22 in interest for the tax

period ending on December 31, 2005.

6. On December 9, 2008, the Department assessed the Taxpayer for gross receipts tax in the

amount of $6,988.88 in principal, $1,397.78 in penalty, and $1,622.71 in interest for the

tax period ending on December 31, 2006.

7. On January 6, 2009, Taxpayer filed a formal protest letter regarding both assessments.

8. On October 4, 2010, the Department filed a Request for Hearing asking that the

Taxpayer’s protests be scheduled for a formal administrative hearing.

9. The Department acknowledged that Taxpayer obtained valid non-taxable transaction

certificates (NTTCs) for the tax period ending December 2005 within the 60-day

deadline. Therefore, the assessment issued under L0596200832 was abated in full.

10. The Department acknowledged that Taxpayer obtained some valid NTTCs for the tax

period ending December 2006 within the 60-day deadline. The NTTCs obtained for the

2006 period only covered part of the transactions that were assessed. Therefore, the

assessment issued under L0809774464 was abated in part, with $5,320.86 of gross

receipts tax still outstanding from transactions with another business.

11. Taxpayer argues that he attempted to obtain the correct NTTC from the other business

within the deadline, and that he did obtain the correct NTTC just a few days after the

deadline.

In the Matter of Loranger Construction, page 2 of 7
DISCUSSION

The issue to be decided is whether the Taxpayer is liable for the remaining gross receipts

tax, penalty, and interest for the tax period ending in December 2006, due to the failure to obtain

timely NTTCs related to the transactions.

Burden of Proof.

Assessments by the Department are presumed to be correct. See NMSA 1978, § 7-1-17.

Tax includes, by definition, the amount of tax principal imposed and, unless the context

otherwise requires, “the amount of any interest or civil penalty relating thereto.” NMSA 1978, §

7-1-3. See also, El Centro Villa Nursing Center v. Taxation and Revenue Department, 108 N.M.

795, 779 P.2d 982 (Ct. App. 1989). Therefore, the assessment issued to the Taxpayer is presumed

to be correct, and it is the Taxpayer’s burden to present evidence and legal argument to show that

it is not liable for the tax and is entitled to an abatement of penalty and interest.

NTTCs.

A taxpayer engaged in business may be able to deduct certain gross receipts when they

are provided with NTTCs from buyers. See NMSA 1978, § 7-9-43 (2005). An NTTC must be in

the proper form and of the proper type to be valid. See 3.2.201.8 (D) NMAC (2001). A taxpayer

should be in possession of NTTCs when the receipts from the transaction are due. See NMSA

1978, § 7-9-43. If the taxpayer is not in possession of NTTCs within sixty days of the notice

from the Department requiring possession of NTTCs, “deductions claimed by the seller or lessor

that require delivery of these nontaxable transaction certificates shall be disallowed.” Id.

(emphasis added). The word “shall” indicates that the disallowance of the deduction is mandatory,

not discretionary. See State v. Lujan, 90 N.M. 103, 105, 560 P.2d 167, 169 (1977). It was

In the Matter of Loranger Construction, page 3 of 7
undisputed that Taxpayer was not in possession of the NTTC relating to the outstanding gross

receipts tax assessment within the 60 days.

Taxpayer argued that the buyer was at fault because the buyer provided the wrong type of

NTTC and did not provide the correct type until after the 60 days. Taxpayer also argued that it

was unduly difficult to get the NTTC from the buyer because the buyer’s business office is out of

state. Taxpayer also argued that the buyer paid gross receipts on the transactions and that it was

double taxation. Double taxation is not necessarily prohibited, and it is not considered double

taxation when two separate entities are taxed on their own transactions. See N.M. Sheriffs and

Police Ass’n. v. Bureau of Revenue, 85 N.M. 565, 567, 514 P.2d 616 (Ct. App. 1973). A right to

a deduction must be established by the taxpayer claiming the deduction, and the failure of the

taxpayer to possess an NTTC in the form and within the time prescribed by the Department is a

valid reason to deny the deduction. See Proficient Food Co. v. N.M. Taxation and Revenue

Dep’t., 107 N.M. 392, 397, 758 P.2d 806 (Ct. App. 1988) (holding that the Department had

properly denied the deduction when the taxpayer had not received the proper form from the buyer

within the time limit).

Because Taxpayer was not in possession of the proper NTTC within the time limits, the

deduction was properly disallowed.

Assessment of Penalty.

A taxpayer’s lack of knowledge or erroneous belief that the taxpayer did not owe tax is

considered to be negligence for purposes of assessment of penalty. See Tiffany Const. Co., Inc. v.

Bureau of Revenue, 90 N.M. 16, 558 P.2d 1155 (Ct. App. 1976). Therefore, the penalty was

properly assessed.

Computation of Penalty.

In the Matter of Loranger Construction, page 4 of 7
On the assessment at issue in this matter, the Department seeks to impose a penalty of up

to 20% under NMSA 1978, § 7-1-69 (2008). The assessment issued was for the 2006 tax period.

The applicable penalty statute in effect for the 2006 tax period was capped at a maximum penalty of

10%. See NMSA 1978, § 7-1-69 (2003). Since the Taxpayer protested the imposition of any

penalty, and because the Taxpayer’s Bill of Rights requires that an assessment not be incorrect,

erroneous, or illegal, the accuracy of the computation of total penalty amount assessed is an issue

for consideration in this protest. See NMSA 1978, Section 7-1-4.2 (2003). Even though a taxpayer

may be liable for penalty, the taxpayer is not required to pay a miscalculated or an incorrect amount

of penalty. See id.

At a maximum penalty not to exceed 10%, the penalty provision had been exhausted for the

2006 tax period before the January 1, 2008 effective date of NMSA 1978, Section 7-1-69 (2008).

Mr. Dillon testified that the Department had assessed a 20% cap because of the 2008 amendment.

Since the amended penalty provision would apply a new disability against a past transaction, a

transaction that had already reached its maximum disability under the previous penalty provision, to

apply the amended penalty provision in this situation would be a retroactive application. See Wood

v. State Educ. Ret. Bd., 2010 N.M. App. LEXIS 134 (N.M. Ct. App. Nov. 10, 2010), citing

Coleman v. United Eng'rs & Constructors, Inc., 118 N.M. 47, 52, 878 P.2d 996, 1001 (1994)

(indicating that a statute or regulation is considered retroactive if it applies new disabilities to past

transactions). A statute may only be applied retroactively if there is a clear, unambiguous

legislative intent to do so. See Psomas v. Psomas, 99 N.M. 606, 609, 661 P.2d 884, 887 (1982).

Absent such clear intent for a retroactive application, a statute only applies prospectively. See id.

As there was no evidence of legislative intent for retroactive application of NMSA 1978, Section 7-

1-69 (2008), the outstanding tax due for the 2006 tax period was subject to a penalty “not to

In the Matter of Loranger Construction, page 5 of 7
exceed” 10% pursuant to NMSA 1978, Section 7-1-69 (2003) because that was the provision in

effect at the time the tax was due. See Kewanee Industries, Inc. v. Reese, 114 N.M. 784, 845 P.2d

1238 (1993) (holding that a modified penalty regulation would not apply retroactively when the

regulation was enacted after the applicable tax year).

Assessment of Interest.

Interest “shall be paid” on taxes that are not paid on or before the date on which the tax is

due. NMSA 1978, § 7-1-67 (A). Again, the word “shall” indicates that the provision is

mandatory, not discretionary. See State v. Lujan, 90 N.M. 103. The assessment of interest is not

designed to punish taxpayers, but to compensate the state for the time value of unpaid revenues.

Because the gross receipts tax was not paid when it was due, interest was properly assessed.

CONCLUSIONS OF LAW

1. Taxpayer filed a timely written protest to the Notice of Assessment of 2005 and

2006 gross receipts taxes issued under respective Letter ID numbers L0596200832 and

L0809774464, and jurisdiction lies over the parties and the subject matter of this protest.

2. Taxpayer obtained timely NTTCs for the 2005 tax period, and the Department

abated assessment under L0596200832 in full.

3. Taxpayer obtained timely NTTCs for a portion of the gross receipts from the 2006

tax period, and the tax from those transactions was abated.

4. Taxpayer failed to obtain NTTCs for the remaining portion of the gross receipts

from the 2006 tax period within the 60-day deadline. See NMSA 1978, § 7-9-43.

5. Taxpayer was properly assessed for gross receipts principal of $5,320.86 and

interest for the outstanding portion of the 2006 tax period.

In the Matter of Loranger Construction, page 6 of 7

6. The assessment of penalty for the 2006 tax period was appropriate. However, the

computation of penalty was incorrect. Penalty is capped at an amount not to exceed 10% or

$532.08. The amount of any penalty assessed in excess of the 10% cap is hereby abated.

For the foregoing reasons, the Taxpayer's protest is GRANTED IN PART AND DENIED

IN PART.

DATED: March 14, 2011.

In the Matter of Loranger Construction, page 7 of 7