Could a New Mexico construction contractor defeat gross receipts tax assessments based on Schedule C mismatches by presenting purchase receipts, offering no explanation for the federal-state differences, and producing no NTTCs?

Plain-English summary

Donald Coleman did not overcome gross receipts tax assessments based on discrepancies between the business receipts reported on his federal Schedule C and the lower receipts reported to New Mexico. His receipts were treated as taxable because he did not explain the mismatches or prove a deduction.

Coleman operated Building Trades, a construction or contracting business. A limited-scope audit found federal-state receipt differences of $4,781 for 2005 and $4,421 for 2006.

The Department assessed $251.92 tax, $50.38 penalty, and $93.48 interest for 2005 and $269.82 tax, $53.97 penalty, and $59.64 interest for 2006. Coleman had paid $137 toward the 2005 principal.

Purchase receipts did not explain customer receipts

Coleman believed the disputed amounts concerned goods he purchased and emphasized that he paid tax when buying those goods. But a Schedule C mismatch compared receipts from his business customers, not his costs of purchasing materials.

The receipts he offered at the hearing appeared to document purchases rather than property he sold or services he performed. He provided no evidence identifying the disputed customer receipts, explaining why the federal and New Mexico totals differed, or showing that the sales or services occurred outside New Mexico.

No deduction was established

New Mexico law broadly defined gross receipts and presumed that all receipts of a person engaging in business were subject to gross receipts tax.

The audit notice gave Coleman 60 days to provide NTTCs. He did not produce any during that period and testified that he had never received or applied for them. The record therefore did not establish any NTTC-supported deduction.

Because Coleman lived and conducted his construction business in New Mexico and offered no evidence to the contrary, the decision concluded that the receipts were from property sold or services performed in New Mexico.

The delayed hearing did not stop interest

The Department acknowledged the protest in December 2008 but did not request a hearing until April 2012. Coleman argued that the four-year interval was excessive and that he should not owe interest for it.

The decision noted that the Department's acknowledgement letter had warned that interest would continue while principal remained unpaid. Coleman's $137 partial payment stopped interest from accruing on that portion, but the delay did not abate interest on the remaining tax.

Result: protest denied.

What this means for you

Sole proprietors with Schedule C differences

Reconcile federal business receipts to New Mexico gross receipts reporting and retain records explaining every difference. Purchase records do not explain why customer receipts were omitted.

Contractors claiming deductible receipts

Identify the legal deduction and maintain the required supporting certificate or other evidence. Coleman did not show that any disputed receipt qualified for an exemption or deduction.

Taxpayers with a long-pending protest

A delay in reaching a hearing did not suspend statutory interest here. A principal payment reduced the amount on which interest continued to accrue.

Common questions

Q: What is a Schedule C mismatch case?
A: The decision described it as a discrepancy between receipts reported on federal Form 1040 Schedule C and gross receipts reported to New Mexico.

Q: Why did Coleman's purchase receipts not help?
A: The assessments concerned money received from selling goods or performing services, while the documents appeared to show goods he purchased.

Q: Could the receipts have been nontaxable?
A: Possibly in another factual record, but Coleman did not identify the transactions, show that they occurred outside New Mexico, or establish a deduction.

Q: Did Coleman provide NTTCs?
A: No. He did not provide any within the audit's 60-day period and testified that he had never received or applied for them.

Q: What happened to his $137 payment?
A: It was credited against the 2005 principal and reduced the amount on which interest accrued.

Citations and references

Statutes:

• NMSA 1978, § 7-1-17(C) — presumption that Department assessments are correct
• NMSA 1978, § 7-9-3 — definitions under the Gross Receipts and Compensating Tax Act
• NMSA 1978, § 7-9-3.5(A)(1) — definition of gross receipts
• NMSA 1978, § 7-9-5 — presumption that business receipts are taxable
• NMSA 1978, § 7-9-43 — NTTC-supported deductions

Cases:

• TPL, Inc. v. Taxation and Revenue Dep't, 2000-NMCA-083, 129 N.M. 539, 10 P.3d 863, rev'd on other grounds, 2003-NMSC-007, 133 N.M. 447, 64 P.3d 474
• MPC Ltd. v. N.M. Taxation and Revenue Dep't, 2003-NMCA-021, 133 N.M. 217, 62 P.3d 308
• Grogan v. New Mexico Taxation and Revenue Dep't, 133 N.M. 354, 62 P.3d 1236 (2002)
• Archuleta v. O'Cheskey, 84 N.M. 428, 504 P.2d 638 (N.M. Ct. App. 1972)
• Wing Pawn Shop v. Taxation and Revenue Department, 111 N.M. 735, 809 P.2d 649 (Ct. App. 1991)
• Comer v. State Tax Commission, 41 N.M. 403, 69 P.2d 936 (1937)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Donald Coleman dba Building Trades
• Decision PDF: D&O 13-02

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
DONALD COLEMAN, d/b/a, Building Trades No. 13-02
TO ASSESSMENT ISSUED UNDER LETTER
ID NOs. #L0430315904 and #L194289440

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on August 7, 2012, before

Monica Ontiveros, Hearing Officer. The Taxation and Revenue Department (“Department”) was

represented by Peter Breen, Esq., attorney for the Department. Ms. Sonya Varela, protest

auditor, appeared as a witness for the Department. Donald Coleman, d/b/a, Building Trades

(“Taxpayer”) appeared at the appointed time.

Based on the aforementioned pleadings, the testimony and evidence introduced at the

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

FINDINGS OF FACT

1. On October 3, 2008, the Department assessed Taxpayer in gross receipts tax

principal in the amount of $251.92, $50.38 in penalty and $93.48 in interest for tax year

December 31, 2005. Letter Id No. L0430315904.

2. The Department issued a second assessment to Taxpayer on October 3, 2008.

The Department assessed Taxpayer in gross receipts tax principal in the amount of $269.82,

$53.97 in penalty and $59.64 in interest for tax year ending December 31, 2006. Letter Id No.

L1942829440.

3. On September 14, 2008, Taxpayer paid $137.00 towards principal tax for the

“discrepancy” that he owed. This amount was offset against the 2005 tax liability.

4. Taxpayer filed a protest to the assessments on October 31, 2008.

5. On December 4, 2008, the Department acknowledged the protest.

6. On April 24, 2012, the Department requested a hearing in this matter.

7. On May 4, 2012, the Hearings Bureau mailed a Notice of Administrative Hearing

setting the hearing for August 7, 2012.

8. This matter is a Schedule C mismatch case. A Schedule C mismatch case

involves a discrepancy between what the taxpayer reports as receipts on his Federal 1040,

Schedule C and the gross receipts reported to New Mexico.

9. On July 2, 2008, the Department issued a Notice of Limited Scope Audit

indicating that the discrepancy between what Taxpayer reported to the Federal government and

the State government was $4,781.00 for tax year 2005. Exhibit #1.

10. On July 2, 2008, the Department issued a Notice of Limited Scope Audit

indicating that the discrepancy between what Taxpayer reported to the Federal government and

the State government was $4,421.00 for tax year 2006. Exhibit #2.

11. The Notice of Limited Scope Audit provided that Taxpayer had 60 days from the

date of the July 2, 2008 letter to provide any nontaxable transaction certificates (“NTTCs”) to the

Department. Exhibits #1 and 2.

12. Taxpayer is in the construction or contracting business.

13. Taxpayer testified that he provided his invoices and receipts for the tax years at

issue to the Department years ago. He does not have all of his receipts because the tax years at

issue were so long ago.

14. Taxpayer did not use NTTCs at the time of purchasing goods and he paid taxes on

all goods he purchased.

In the Matter of the Protest of Donald Coleman, d/b/a, Building Trades
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15. Taxpayer complained that from the time he filed his protest in 2008 to the date of

the request for hearing, four years had passed, which he considered excessive.

16. Taxpayer did not provide any NTTCs to the Department within the 60 day period

or before August 31, 2008.

DISCUSSION

The sole issue to be determined is whether the receipts Taxpayer reported to the Federal

government were gross receipts that were from the sales made or services performed in New

Mexico. There was no evidence or testimony on whether the receipts at issue are for services or

goods. There was no testimony or evidence as to whether the goods or services sold were sold or

performed in New Mexico. Taxpayer believed at the hearing that the receipts at issue were the

receipts for goods he purchased. Taxpayer paid taxes on the goods he purchased. It is unclear

whether the receipts for goods purchased relate to the receipts underreported by Taxpayer.

These may or may not be the receipts at issue.

The receipts at issue are for goods or services Taxpayer sold to customers. The

assessments issued by the Department are not for the goods that Taxpayer purchased, but instead

were issued based on Taxpayer’s goods he sold in New Mexico or the services he performed in

New Mexico.

Burden of Proof and Standard of Review.

NMSA 1978, Section 7-1-17(C) (2007) provides that any assessment of taxes made by

the Department is presumed to be correct. Accordingly, it is Taxpayer’s burden to present

evidence and legal argument to show that it is entitled to an abatement, in full or in part, of the

assessment issued against it. See, TPL, Inc. v. Taxation and Revenue Dep’t, 2000-NMCA-083,

¶8, 129 N.M. 539, 542, 10 P.2d 3d 863, 866, cert. granted, 129 N.M. 519, 10 P.3d 843, rev’d on

In the Matter of the Protest of Donald Coleman, d/b/a, Building Trades
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other grounds, 2003-NMSC-7, 133 N.M. 447, 64 P.3d, 474. When a taxpayer presents sufficient

evidence to rebut the presumption, the burden shifts to the Department to show that the

assessment is correct. See, MPC Ltd. v. N.M. Taxation and Revenue Dep’t., 2003-NMCA-021, ¶

13, 133 N.M. 217, 219-220, 62 P.3d 308, 310-311; Grogan v. New Mexico Taxation and

Revenue Dep’t, 133 N.M. 354, 357-58, 62 P.3d 1236, 1239-40 (2002). Under NMSA 1978,

Section 7-1-17(C) (2007), both assessments issued in this case are presumed to be correct.

Consequently, the Taxpayer has the burden to overcome the assessments and establish

that he was entitled to deductions for tax years 2005 and 2006. See Archuleta v. O'Cheskey, 84

N.M. 428, 431, 504 P.2d 638, 641 (NM Ct. App. 1972). To the extent that this case involves

Taxpayer’s protest over a claim of a deduction, “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).

Gross Receipts.

Generally speaking, goods sold or services performed within the State of New Mexico

are taxable. The term “gross receipts” is broadly defined in § 7-9-3.5(A)(1):

(1) “gross receipts” means the total amount of money or the value of other
consideration received from selling property in New Mexico, from leasing or
licensing property employed in New Mexico, from granting a right to use a franchise
employed in New Mexico, from selling services performed outside New Mexico, the
product of which is initially used in New Mexico, or from performing services in
New Mexico. In an exchange in which the money or other consideration received
does not represent the value of the property or services exchanged, “gross receipts”
means the reasonable value of the property or services exchanged;”

NMSA 1978, Section 7-9-3.5(A) (1) (2003). The Gross Receipts and Compensating Tax Act,

Sections 7-9-1 through 114, defines “service” as “which activities involve predominately the

In the Matter of the Protest of Donald Coleman, d/b/a, Building Trades
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performance of a service as distinguished from selling or leasing property. … In determining

what is a service, the intended use, principal objective or ultimate objective of the contracting

parties shall not controlling.” NMSA 1978, Section 7-9-3(M) (2003). The Supreme Court in

1937 decided Comer v. State Tax Comm'n, 41 N.M. 403, 412, 69 P.2d 936, 941 (1937) that gross

receipts shall include “all activities or acts engaged in (personal, professional and corporate) or

caused to be engaged in with the object of gain, benefit[,] or advantage either direct or indirect."

Selling property is defined as “a transfer of property for consideration…” NMSA 1978 Section

7-9-3(A) (2003). In addition thereto, it is presumed that “all receipts of a person engaging in

business are subject to the gross receipts tax.” NMSA 1978, Section 7-9-5 (2002).

Taxpayer was in the construction or contracting business. Taxpayer presented no

evidence or testimony that the goods or services were either sold or performed outside of New

Mexico. In reviewing, the Notice of Limited Scope Audit, Taxpayer’s residence is in New

Mexico. Therefore, more than likely the services were either performed in New Mexico or the

goods were sold in New Mexico. Taxpayer presented no evidence or testimony as to why there

was a discrepancy between the gross receipts he reported to the Federal government and the

gross receipts he reported to the State of New Mexico.

To the extent that NTTCs were mentioned by both parties, it is unclear whether the

Taxpayer was entitled to any deductions pursuant to NMSA 1978, Section 7-9-43 (2005).

Taxpayer testified that no seller had ever provided him with any NTTCs nor had he ever applied

for any NTTCs from the Department.

Taxpayer argued that it took the Department too long to request a hearing. He said that

he had forgotten about the matter and that he should not have to pay interest because it took the

Department so long to set the matter for hearing. The Hearing Officer pointed out to Taxpayer

In the Matter of the Protest of Donald Coleman, d/b/a, Building Trades
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that the letter from the Department dated December 4, 2008, Letter Id No. L 1621996672,

indicates that interest continues to accrue while the principal tax is outstanding. Taxpayer was

able to stop the accrual of some of the interest when he made a partial payment in the amount of

$137.00. Taxpayer said that he threw the Department’s letter dated December 4, 2008 away.

Taxpayer offered to have the Hearing Officer review his receipts. The receipts offered by

Taxpayer appeared to be receipts for goods he purchased and not goods he sold.

Therefore, since Taxpayer has not presented any testimony as to why he did not report

the same gross receipts to the State of New Mexico as he reported to the Federal government,

Taxpayer’s receipts are deemed to be taxable.

CONCLUSIONS OF LAW

A. Taxpayer filed timely written protest of the Notices of Assessment Letter ID No. #

L0430315904 and L1942829440 for gross receipts taxes, penalty, and interest for the period years

December 31, 2005 and December 31, 2006.

B. There was no evidence provided as to whether the receipts were for goods or

services. There was no evidence provided as to why there was a discrepancy between what

Taxpayer reported to the Federal government and the State of Ne w Mexico.

C. Taxpayer’s receipts were either performed or sold in New Mexico.

D. Taxpayer failed to present any evidence to rebut the presumption that the receipts

are taxable as set forth in NMSA 1978, Section 7-9-5 (2002) and rebut the presumption of

correctness of the assessment as set forth in NMSA 1978, Section 7-1-17(C) (2007).

For the foregoing reasons, the Taxpayer's protest IS DENIED.

DATED: February 15, 2013

In the Matter of the Protest of Donald Coleman, d/b/a, Building Trades
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Monica Ontiveros
Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630
NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, §7-1-25, the Taxpayers have the right to appeal this decision by

filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the date

shown above. See NMRA, 12-601 of the Rules of Appellate Procedure. If an appeal is not filed

within 30 days, this Decision and Order will become final.

CERTIFICATE OF SERVICE

On February 15, 2013, a copy of the foregoing Decision and Order was mailed via certified
mail # 7008 0500 0001 4688 5000 to Donald Coleman, d/b/a, Building Trades, located at 43
Skyland Blvd., Tijeras, New Mexico 87059 and delivered through interoffice mail to Staff Attorney
Peter Breen, Esq. Taxation and Revenue Department, Santa Fe, New Mexico.

John Griego

In the Matter of the Protest of Donald Coleman, d/b/a, Building Trades
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