Could Behr Trucking deduct 2006 construction-hauling receipts without obtaining the buyer's NTTC within the 60-day deadline?

Plain-English summary

Behr Trucking could not deduct 2006 construction-hauling receipts because it failed to obtain the required nontaxable transaction certificate (NTTC) within the statutory 60-day period. The buyer's refusal to cooperate did not excuse the deadline. Tax and interest remained due, but the penalty had to be reduced from the Department's 20% calculation to the 10% cap in force for 2006.

Behr provided hauling services for a construction project and filed no gross receipts reports for 2006. The Department matched federal Form 1099-MISC nonemployee compensation against its reporting records and assessed $2,887.62 of tax, $577.52 of penalty, and $822.35 of interest.

Behr said it tried to obtain the correct NTTC from the business that issued the 1099, but that business had closed and its former owner would not cooperate. Behr also argued that the other business had already paid gross receipts tax on the transactions.

Missing the 60-day deadline required disallowance

Section 7-9-43 required the seller to possess an NTTC in the proper form and type. If the seller did not obtain it within 60 days after the Department's notice, deductions requiring the certificate had to be disallowed.

Construction hauling could be deductible or taxable depending on the circumstances, but the decision did not reach that substantive question. Both parties agreed that Behr lacked the NTTC when the 60 days expired. That documentation failure alone required denial.

The buyer's refusal and closure did not shift the seller's statutory burden. Nor did the buyer's alleged gross receipts tax payment create prohibited double taxation: the decision treated taxes on two separate entities' own transactions as distinct.

Negligence penalty applied, but the 20% cap did not

Behr's erroneous belief that it did not owe tax supported civil-negligence penalty. The Department, however, calculated $577.52, equal to 20% of the tax, under the penalty statute effective in 2008.

The 2006 semiannual liabilities were due in July 2006 and January 2007. Under the version then in force, penalty accrued at 2% per month only to a 10% maximum. That maximum had been exhausted before the 2008 amendment took effect, and no evidence showed legislative intent to apply the higher cap retroactively.

Penalty was therefore limited to approximately $288.76, with the amount above 10% abated.

Interest remained mandatory

Section 7-1-67(A) required interest when tax was not paid by its due date. It compensated the state for the time value of unpaid revenue and was properly assessed at $822.35.

Result: tax and interest were upheld, the deduction was denied, and penalty above the 10% cap was abated.

What this means for you

Construction haulers and subcontractors

Secure the applicable NTTC before the reporting deadline when possible, and treat a Department 60-day notice as a final opportunity. The substantive deductibility of the hauling work did not matter after the certificate deadline was missed.

Sellers depending on buyer paperwork

The seller bears the risk that a buyer may close, disappear, or refuse to sign. Follow up early and retain the proper certificate in your own records.

Businesses concerned about tax at multiple levels

Another company paying tax on its transaction does not necessarily eliminate your liability on a separate transaction. The order rejected Behr's double-tax argument on that basis.

Common questions

Q: Did the decision determine whether Behr's hauling was a deductible construction service?
A: No. It held that the missing timely NTTC made that question irrelevant.

Q: Did the buyer's refusal excuse Behr?
A: No. Behr, as the taxpayer claiming the deduction, had to possess the required certificate on time.

Q: How much tax and interest were upheld?
A: $2,887.62 of tax and $822.35 of assessed interest.

Q: Why was penalty still appropriate?
A: The decision treated Behr's erroneous belief that tax was not due as civil negligence.

Q: Why was the penalty reduced?
A: The 2006 statute capped it at 10%, and the later 20% maximum could not be applied retroactively.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-9-43 (2005) and Regulation 3.2.201.8(D) NMAC — proper NTTC and 60-day possession deadline
• NMSA 1978, § 7-9-52 and Regulation 3.2.210.10(A), (C) NMAC — construction-service and hauling rules
• 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, § 7-1-67(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: Behr Trucking
• Decision PDF: D&O 11-11

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
BEHR TRUCKING, No. 11-11
TO ASSESSMENTS ISSUED UNDER
ID NO. L0783269952

DECISION AND ORDER

A formal hearing on the above-referenced protest was held May 5, 2011, before Dee Dee

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

by Mr. Peter Breen, Special Assistant Attorney General. Ms. Andrea Umpleby, Auditor, also

appeared on behalf of the Department. Mr. Richard Behrendsen, owner, appeared on behalf of

Behr Trucking (“Taxpayer”) and represented himself. 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 2006.

2. Taxpayer was providing hauling services for a construction project.

3. Taxpayer did not file gross receipts reports or pay gross receipts tax for the 2006 tax

period.

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

reports and its federal Schedule C for the 2006 tax period.

5. On February 23, 2010, the Department assessed the Taxpayer for gross receipts tax of

$2,887.62, penalty of $577.52, and interest of $822.35 for the tax period ending on

December 31, 2006.

6. The Department determined the amount of gross receipts tax from the amount listed as

non-employment compensation on Taxpayer’s 1099-MISC form that is contained in the

administrative file.

7. The Department determined that the Taxpayer should have been filing gross receipts tax

semi-annually, meaning that its gross receipts tax for 2006 would have been due in July

2006 and in January 2007.

8. On March 24, 2010, Taxpayer filed a formal protest letter regarding the assessment.

9. On February 14, 2011, the Department filed a Request for Hearing asking that the

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

10. Taxpayer argues that it attempted to obtain the correct non-taxable transaction certificates

(NTTC) from the business that issued the 1099-MISC, but was unable to do so because

the other business was no longer operating and the former owner was not cooperative in

delivering an NTTC. Taxpayer argues that the other business already paid the gross

receipts tax on the transactions.

DISCUSSION

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

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

timely NTTC 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.

In the Matter of Behr Trucking, page 2 of 6
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). Deductions

are allowed on construction services in some instances. See NMSA 1978, § 7-9-52. Hauling for

construction may or may not be deductible. See 3.2.210.10 (A) and (C) NMAC (2005). Whether

the Taxpayer’s hauling would have been deductible was not at issue because it was 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 other business was at fault because the other business refused to

provide an NTTC within the 60 days. Taxpayer also argued that it was unduly difficult to get the

NTTC from the other business because they were no longer operating. Taxpayer also argued that

the other business 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

In the Matter of Behr Trucking, page 3 of 6
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.

On the assessment issued 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 taxes due in July 2006

and January 2007 for the 2006 tax period. The applicable penalty statute in effect for the 2006 tax

period was capped at a maximum penalty “not to exceed” 10%. See NMSA 1978, § 7-1-69 (2003).

See also NMSA 1978, § 66-8-112 (C) (indicating that postponements on implied consent hearings

are “not to exceed” ninety days). See also State v. Bargas, 2000-NMCA-103, 129 N.M. 800

(holding that the ninety days is jurisdictional and cannot be waived). At a maximum penalty “not to

exceed” 10% at a rate of 2% per month from the time the tax was due, the penalty provision had

In the Matter of Behr Trucking, page 4 of 6
been exhausted for the 2006 tax period before the January 1, 2008 effective date of NMSA 1978,

Section 7-1-69 (2008). Ms. Umpleby testified that the Department had assessed a 20% cap because

of the 2008 amendment. Without 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 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 2006 gross

receipts taxes issued under respective Letter ID number L0783269952, and jurisdiction lies over the

parties and the subject matter of this protest.

2. Taxpayer failed to obtain an NTTC for the gross receipts from the 2006 tax period

within the 60-day deadline. See NMSA 1978, § 7-9-43.

3. Taxpayer was properly assessed for gross receipts tax of $2,887.62 and interest for

the 2006 tax period.

In the Matter of Behr Trucking, page 5 of 6

4. 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%. 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: June 3, 2011.

In the Matter of Behr Trucking, page 6 of 6