Could an education consultant deduct services sold for resale to a Colorado contractor without an NTTC, and could penalty be removed when a Department employee had said the certificate was unnecessary?

Plain-English summary

William Wanker owed gross receipts tax and interest on education-consulting receipts because he never obtained the NTTC required for a service-for-resale deduction. But the $2,089.03 negligence penalty was abated because a Department employee had affirmatively misled him about whether the certificate was necessary.

Wanker worked in Santa Fe as an independent education consultant. Celero Partners, a Colorado corporation, hired him for work under its contract with the New Mexico Public Education Department. His work included research, reports, strategic guidance, and advice on developing an educational database.

Celero paid Wanker base compensation plus percentages of gross profits on education contracts. Neither Celero nor Wanker arranged for NTTCs when the work was performed or when the 2007 returns were due.

Celero's own tax did not eliminate Wanker's liability

Wanker argued that the Public Education Department had agreed to pay gross receipts tax on its transaction with Celero and that taxing his receipts would charge tax twice on the same money.

The decision explained that New Mexico gross receipts tax applied to the receipts of each person engaged in business, not once per sales transaction. Celero had receipts from its government contract; Wanker, as a separate independent-contractor business, had receipts from Celero. Each set of receipts was potentially taxable.

Wanker did not establish that he was Celero's employee or acted as a disclosed agent. His independent-contractor receipts were therefore presumed taxable unless a deduction applied.

Service for resale still required an NTTC

The decision found that Wanker's services could potentially fit Section 7-9-48 because Celero resold them to the Public Education Department. But the statute conditioned that deduction on the buyer delivering an NTTC to the seller.

Wanker had no certificate when the transactions occurred or the returns were due. He later made repeated good-faith efforts to get one from Celero. After the Department's July 2011 audit notice, he had until September 27, 2011, to produce it, but Celero never supplied one.

The 60-day rule made disallowance mandatory regardless of why the certificate was unavailable. Contract terms between Wanker and Celero could not change the statutory documentation requirement.

Department misinformation removed the penalty, not the tax

During the Department's temporary amnesty process, Wanker reported receiving conflicting advice. One employee told him the out-of-state-company receipts were not taxable. Another employee told him an NTTC would be nice to have but was not necessary. A Department auditor later told him the receipts were taxable.

The hearing officer found credible evidence that Wanker was affirmatively misled at a time when he could still have pursued the certificate before the audit deadline. Regulation 3.1.11.11(A) treated that as nonnegligence, so the $2,089.03 civil penalty was abated.

The misinformation did not authorize abatement of tax. An administrative hearing officer lacked power to grant equitable relief, and estoppel could not override the statute's explicit NTTC requirement. Interest also remained mandatory.

Result: protest granted in part and denied in part. Wanker owed $10,445.13 tax and $2,642.59 interest as of the hearing; interest continued to accrue until payment.

What this means for you

Independent contractors selling services through another company

If your customer will resell your service, obtain the required NTTC when the transaction occurs. A potential resale deduction did not survive without the certificate.

Businesses concerned about tax pyramiding

The decision recognized that deductions can reduce pyramiding, but each separate business's receipts remain taxable unless that business satisfies its own exemption or deduction requirements.

Taxpayers relying on Department advice

Document the exact advice and timing. Here, affirmative misinformation proved nonnegligence and removed penalty, but it did not erase tax principal or statutory interest.

Common questions

Q: Were Wanker's services actually resold?
A: The decision said they potentially fit the service-for-resale deduction, but that was not enough without an NTTC delivered by Celero.

Q: Did his repeated attempts to obtain the certificate excuse the deadline?
A: No. The statute required disallowance when he still lacked the NTTC after the 60-day audit period, regardless of the reason.

Q: Why was the penalty abated?
A: A Department employee affirmatively told him the certificate was unnecessary while he still had a meaningful opportunity to obtain one. The decision treated that reliance as nonnegligent.

Q: Why did tax and interest remain due despite the bad advice?
A: The certificate was a statutory condition for the deduction, administrative equitable relief was unavailable, and interest was mandatory on unpaid tax.

Q: Could an MTC certificate substitute for the missing NTTC?
A: Not for this service-for-resale deduction. The decision also noted that Wanker had not produced an MTC certificate.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-9-4 and 7-9-5 — gross receipts tax and presumption that business receipts are taxable
• NMSA 1978, §§ 7-9-3.5(A)(3)(f) and 7-9-17 — disclosed agency and employee-wage provisions considered and rejected
• NMSA 1978, § 7-9-48 — service-for-resale deduction requiring an NTTC
• NMSA 1978, § 7-9-43 — NTTC possession and 60-day second-chance deadline
• NMSA 1978, §§ 7-1-67 and 7-1-69 — interest and civil negligence penalty
• 3.2.105.7 NMAC — employee criteria
• 3.1.11.10 and 3.1.11.11(A) NMAC — negligence and affirmative Department misinformation
• 3.2.201.13 NMAC — MTC certificates

Cases:

• 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)
• MPC Ltd. v. N.M. Taxation & Revenue Dep't, 133 N.M. 217, 2003 NMCA 21, 62 P.3d 308
• Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16, 558 P.2d 1155 (Ct. App. 1976), cert. denied, 90 N.M. 255, 561 P.2d 1348 (1977)
• AA Oilfield Service v. New Mexico State Corporation Commission, 118 N.M. 273, 881 P.2d 18 (1994)
• Kerr-McGee Nuclear Corp. v. Property Tax Division, 95 N.M. 685, 625 P.2d 1202 (Ct. App. 1980)
• Taxation and Revenue Department v. Bien Mur Indian Market, 108 N.M. 228, 770 P.2d 873 (1989)
• Kilmer v. Goodwin, 2004-NMCA-122, 136 N.M. 440, 99 P.3d 690
• Rainaldi v. Public Employees Retirement Board, 115 N.M. 650, 857 P.2d 761 (1993)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: William Wanker
• Decision PDF: D&O 13-03

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
WILLIAM WANKER No. 13-3
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L0000564800

DECISION AND ORDER

A protest hearing occurred on the above captioned matter on December 6, 2012 before

Brian VanDenzen, Esq., Tax Hearing Officer, in Santa Fe. Mr. William Wanker (“Taxpayer”)

appeared pro se. Staff Attorney Peter Breen appeared representing the Taxation and Revenue

Department of the State of New Mexico (“Department”). Protest Auditor Thomas Dillon

appeared as a witness for the Department. Taxpayer Exhibits #1-5 were admitted into the record.

The Department did not tender any exhibits. All exhibits are more thoroughly described in the

Administrative Exhibit Log. Based on the evidence and arguments presented, IT IS DECIDED

AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. Taxpayer is a sole proprietorship registered as a New Mexico business using a

Santa Fe address.

2. Taxpayer performs consulting and research services related to public education

trends, practices, systems, funding, and technology systems.

3. Taxpayer is an expert in the field of public education. Taxpayer has a master’s

degree from St. John’s College, a PhD from the London School of Economics, and has taught

courses at the University of Denver. Taxpayer has worked as a researcher for the State of Oregon
Legislature, built a database for the United States Department of Education, and advised the

White House, the United States Congress, New Mexico Governor’s Office, and the Secretary of

the New Mexico Department of Education on education issues.

4. In 2007, during the relevant period, Taxpayer worked in Santa Fe, New Mexico.

5. Taxpayer reached an agreement with Celero Partners (“Celero”), a Colorado

corporation, to work as an independent contractor with Celero on a request for proposal (“RFP”)

that Celero submitted to the New Mexico Public Education Department. [Taxpayer Exhibit #4-

3].

6. Celero won the RFP with the New Mexico Public Education Department.

7. As part of his independent contractor work with Celero, Taxpayer conducted

research, directed research, prepared consultant reports, and provided advice to the New Mexico

Public Education Department on the development of an educational database. Taxpayer provided

broad strategic guidance to Celero, while Celero hired numerous support staff, subcontractors,

and programmers to perform administrative services under the RFP with the New Mexico Public

Education Department.

8. Under the New Mexico Public Education Department-Celero RFP, the New

Mexico Public Education Department agreed to pay gross receipts taxes on its transaction with

Celero.

9. Under the Celero-Taxpayer independent contractor agreement, Celero agreed to

pay Taxpayer $150,000.00 per year base compensation. [Taxpayer Exhibit #4-3].

10. Additionally, under the Celero-Taxpayer independent contractor agreement,

Celero agreed to compensate Taxpayer 45% of the gross profits received from the New Mexico

Public Education Department, less only Taxpayer’s and Celero Director of Services Mitch

In the Matter of the Protest of William Wanker, page 2 of 18
Johnson’s compensation. Gross profits were defined under the Celero-Taxpayer agreement as the

entire amount billed to the New Mexico Public Education Department, which included gross

receipts tax. [Taxpayer Exhibit #4-3].

11. Celero did not provide, and Taxpayer did not demand, executed nontaxable

transaction certificates (“NTTC or NTTCs”) for either the $150,000.00 per year in base

compensation or the additional 45% gross profits under the Celero-Taxpayer independent

contractor agreement.

12. Taxpayer and Celero reached a similar independent contractor agreement on a

Celero-Education Commission of the States contract. In addition to receiving an hourly wage for

hours worked, Celero agreed to compensate Taxpayer with 35% of the gross profits received on

all contracts with the Education Commission of the States. [Taxpayer Exhibit #4-4].

13. Celero did not provide, and Taxpayer did not demand, executed NTTCs for either

Taxpayer’s hourly wage or the additional 35% gross profits received on all contracts with the

Education Commission of the States under the Celero-Taxpayer independent contractor

agreement.

14. Through a tape mismatch between Mr. Wanker’s Schedule C, filed with the IRS,

and Taxpayer’s 2007 CRS return, the Department detected additional possible gross receipts tax

liability.

15. On June 4, 2010, the Department sent Taxpayer a Notice of Amnesty Offer,

informing Taxpayer that a “review of information provided to the [Department] had indicated”

that Taxpayer may be selected for a gross receipts tax audit. The Department asked Taxpayer to

fill out an application for the temporary amnesty program within 30-days. [Taxpayer Exhibit #2-

1].

In the Matter of the Protest of William Wanker, page 3 of 18

16. On July 1, 2010, Taxpayer applied for the Department’s temporary amnesty

program. [Taxpayer Exhibit #2-2].

17. On July 1, 2010, Taxpayer and the Department provisionally entered into an

Amnesty Agreement, [Taxpayer Exhibit #4-17], which was modified further by changes on

December 21, 2010. [Taxpayer Exhibit #4-15 and Taxpayer Exhibit #4-26].

18. While in the amnesty program, Taxpayer discussed in a series of emails between

February 23, 2011 and March 3, 2011 whether any gross receipts taxes were due for the

independent contractor receipts from the Colorado corporation Celero with Jacquelin Kohlasch, a

Tax Account Auditor with the Department. [Taxpayer Exhibits #’s 3.10-3.13].

19. In Taxpayer’s email conversation with the Department’s Ms. Kohlasch, Taxpayer

reported receiving conflicting advice from Department employees. [Taxpayer Exhibits #’s 3.10-

3.13].

a. First, an unidentified male Department employee called Taxpayer and told

him that he should not list his receipts from an out-of-state company on his CRS-1

returns because no tax was owing on those receipts and such unnecessary

reporting made it difficult for the computer system to reconcile Taxpayer’s return.

[Taxpayer Exhibit #’s 3.10-3.11].

b. Later, a Department employee named Reva spoke with Taxpayer over the

telephone and informed him that no gross receipts tax was owing on the receipts

from the out-of-state company as those receipts were deductable. Reva further

advised Taxpayer that it would be nice to obtain a NTTC from Celero to support

the deduction, but that a NTTC was not necessary. [Taxpayer Exhibit #3.10].

In the Matter of the Protest of William Wanker, page 4 of 18

20. After consulting with her supervisor twice, the Department’s Ms. Kohlasch

informed Taxpayer via email on March 3, 2011 that Taxpayer’s gross receipts from Celero were

taxable. [Taxpayer Exhibit #’s 3.10-3.11].

21. At some unspecified point before May 19, 2011, the Department cancelled

Taxpayer’s Amnesty Agreement with the Department because the Department alleged Taxpayer

had not provided all requested information and documentation. [Taxpayer Exhibit #4-21].

22. On May 19, 2011, Taxpayer protested the Department’s cancellation of the

amnesty agreement, citing his communications with the Department’s Ms. Kohlasch. [Taxpayer

Exhibit #4-21].

23. On July 29, 2011, the Department sent Taxpayer a “Notice of Limited Scope

Audit Commencement-Gross Receipts,” requesting that Taxpayer present all executed NTTCs

within 60-days on September 27, 2011. [Taxpayer Exhibit #4-23].

24. Taxpayer attempted to get NTTCs from Celero in the following manner:

a. On July 7, 2010, Taxpayer emailed Mitch Johnson at Celero to ask for

applicable executed NTTCs. [Taxpayer Exhibit 4-27].

b. On February 23, 2011, Taxpayer again emailed Mitch Johnson at Celero

to follow up on the earlier email request for NTTCs. [Taxpayer Exhibit 4-28].

c. Mitch Johnson at Celero emailed back Taxpayer on March 3, 2011

indicating he was working on obtaining the NTTC form, but was having difficulty

providing it because of troubles with the Department. [Taxpayer Exhibit 4-28].

d. On March 4, 2011, Taxpayer responded via email to Mitch Johnson at

Celero about having never received a NTTC originally. [Taxpayer Exhibit 4-29].

In the Matter of the Protest of William Wanker, page 5 of 18
e. On March 5, 2011, Mitch Johnson of Celero emailed back Taxpayer and

told Taxpayer that the issue was Taxpayer never asked for a NTTC at the time so

Celero never prepared a NTTC and therefore does not have a copy to provide to

Taxpayer. [Taxpayer Exhibit 4-29].

f. On August 22, 2011, Taxpayer emailed Mitch Johnson of Celero an

invoice for the gross receipts tax in absence of a NTTC.

25. On August 22, 2011, Taxpayer again wrote the Department protesting the

cancellation of the Amnesty Agreement. [Taxpayer Exhibit #3-4].

26. At some unspecified point between August 22, 2011 and November 17, 2011, the

Department reopened its Amnesty Agreement with Taxpayer. [Taxpayer Exhibit #3-1].

27. Taxpayer did not provide the Department with any executed NTTCs by the 60-

day deadline, September 27, 2011.

28. On January 9, 2012, under letter identification number L0000564800, the

Department assessed Taxpayer for $10,445.13 in gross receipts tax for a reporting period ending

December 31, 2007, $2,089.03 in penalty, and $2,354.55 in interest.

29. On June 31, 2012, Taxpayer filed a protest to the Department’s assessment.

30. Because of Taxpayer’s filing a formal protest to the assessment, the Department

again cancelled the Amnesty Agreement with Taxpayer.

31. On February 27, 2012, the Department acknowledged timely receipt of

Taxpayer’s protest.

32. On September 13, 2012, the Department filed a request for hearing in this matter.

33. On October 4, 2012, the Department’s Hearing Bureau sent notice of

administrative hearing, scheduling this matter for December 6, 2012.

In the Matter of the Protest of William Wanker, page 6 of 18

34. As of the December 6, 2012 hearing date, Taxpayer’s obligations under the

assessment were $10,445.13 in gross receipts tax, $2,089.03 in penalty, and $2,642.59 in

accumulated interest, for a total outstanding balance of $15,159.25.

DISCUSSION

The primary issue at protest is whether Taxpayer is entitled to a deduction of gross

receipts from his work as an independent contractor with Celero in the absence of a supporting

NTTC. Taxpayer also raises numerous other arguments that can broadly be categorized as a

request for equitable relief. In brief summary, Taxpayer is responsible for the assessed gross

receipts tax and any accumulated interest because Taxpayer did not timely possess a NTTC.

However, Taxpayer is not liable for penalty because Taxpayer demonstrated “nonnegligence.”

Presumption of Correctness and Burden of Proof.

Under NMSA 1978, Section 7-1-17(C) (2007), the assessment issued in this case is

presumed to be correct. Consequently, the Taxpayer has the burden to overcome the assessment

and establish that it was entitled to the claimed deduction. See Archuleta v. O'Cheskey, 84 N.M.

428, 431, 504 P.2d 638, 641 (NM Ct. App. 1972). Moreover, “[w]here 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). However, once a taxpayer

rebuts the presumption of correctness, the burden shifts to the Department to show the correctness

of the assessed tax. See MPC Ltd. v. N.M. Taxation & Revenue Dep't, 133 N.M. 217, 220, 2003

NMCA 21, ¶13, 62 P.3d 308, 311 (N.M. Ct. App. 2002).

In the Matter of the Protest of William Wanker, page 7 of 18
Gross Receipts Tax, the Deduction, and NTTCs.

For the privilege in engaging in business, New Mexico imposes a gross receipts tax on the

receipts of any person engaged in business. See NMSA 1978, Section 7-9-4 (2002).

Under the Gross Receipts and Compensating Tax Act, there is a statutory presumption that all

receipts of a person engaged in business are taxable. See NMSA 1978, Section 7-9-5 (2002).

During 2007, Taxpayer was engaged in business as an education consultant in Santa Fe,

New Mexico. As such, any of Taxpayer’s receipts during 2007 (unless otherwise exempted or

deductable) were subject to gross receipts tax under NMSA 1978, Section 7-9-4 (2002). In 2007,

Taxpayer had receipts from working as an independent contractor with Celero. There is statutory

presumption that Taxpayer’s Celero receipts were taxable under NMSA 1978, Section 7-9-5 (2002).

The evidence overwhelmingly established that Taxpayer was an independent contractor with

Celero, with receipts subject to gross receipts under NMSA 1978, § 7-9-5 (2002). Taxpayer did not

establish that he was working in a disclosed agency capacity under NMSA 1978, Section 7-9-

3.5(A)(3)(f) (2006). Taxpayer further did not establish that he was an employee of Celero who’s

wages were exempted from gross receipts tax under NMSA 1978, Section 7-9-17, using the criteria

articulated under Regulation 3.2.105.7 NMAC (5/15/01).

Taxpayer argues that since the New Mexico Public Education Department agreed to pay

gross receipts tax under its agreement with Celero, the gross receipts tax has already been paid to

the State by Celero, still unduly in Celero’s possession (in which Taxpayer argues that the State

should assess Celero and not him), or is still in the treasury in the event that the New Mexico Public

Education Department failed to comply with the terms of the RFP (in which case Taxpayer argues

that the State suffered no economic loss by failing to receive the gross receipts tax). In any event,

Taxpayer argues that to impose gross receipts tax on him would force him unfairly to pay a gross

In the Matter of the Protest of William Wanker, page 8 of 18
receipts tax already accounted for by either the New Mexico Public Education Department or

Celero.

Taxpayer’s argument is premised on a misunderstanding of what is taxed under the New

Mexico Gross Receipts Tax Act. The fact that Celero may have paid gross receipts tax on the

monies it received from the New Mexico Public Education Department does not necessarily alter

the analysis of Taxpayer’s own gross receipts tax obligations. Unlike a sale tax system, the New

Mexico Gross Receipts and Compensating Tax Act imposes a tax on all receipts of a business. The

focal point under the New Mexico Gross Receipts and Compensating Tax Act is not any one

transaction, but the receipts of all persons and companies engaged in business in the State. Here,

there are two separate businesses possibly liable for gross receipts tax: Celero had receipts from its

contract with the New Mexico Public Education Department and Taxpayer, as a separate business

entity from Celero, had receipts for his services performed as an independent contractor with

Celero. Both Celero and Taxpayer, two separate businesses, had receipts potentially subject to gross

receipts tax liability, even if the money itself ultimately came from the same sales transaction

between Celero and the New Mexico Public Education Department.

The New Mexico Gross Receipts and Compensating Tax Act does provide numerous

deductions and exemption of gross receipts tax, some of which the Legislature put in place

specifically to reduce the possible gross receipts tax pyramiding that Taxpayer complains of in this

case. Taxpayer’s sale of a service to Celero for resale to the New Mexico Department of Public

Education is potentially deductable from gross receipts under NMSA 1978, Section 7-9-48 (2000).

NMSA 1978, § 7-9-48 (2000) states in pertinent part that:

Receipts from selling a service for resale may be deducted from
gross receipts or governmental gross receipts if the sale is made to a
person who delivers a nontaxable transaction certificate to the
seller....

In the Matter of the Protest of William Wanker, page 9 of 18
Simply performing a service for resale, as the Taxpayer did in this instance as an independent

contractor for Celero, is not enough to satisfy the requirements of the deduction under NMSA 1978,

§ 7-9-48 (2000). In order to qualify for that statutory deduction, the statute clearly and

unambiguously conditions the deduction on a sale made to a person who delivers a NTTC.

NMSA 1978, § 7-9-43 (2011) articulates the requirements for obtaining NTTCs:

All nontaxable transaction certificates...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.

Under NMSA 1978, Section 7-9-43 (2011), Taxpayer had a statutory obligation at the time

he performed the services to Celero for resale and filed his corresponding CRS returns in 2007 to

obtain the relevant NTTC supporting his claim for a deduction. Perhaps the Legislature made this

initial requirement under NMSA 1978, §7-9-43 (2011) precisely because the Legislature recognized

the potential challenges of obtaining an NTTC after the transaction between the buyer of the

services and the seller had grown stale. The Legislature certainly knew that with time, records of

transactions can accidently be lost, institutional memory of transactions can be forgotten, paperwork

can be misfiled, the motivating initiative to exchange services for a sum of money can be lost after

completion of the transaction, and disputes can develop between buyer and seller that preclude easy

cooperation.

While taxpayers “should” have possession of required NTTCs at the time of the return is

due from the receipts at issue, the statute gives taxpayers audited by the Department a second

chance to obtain these NTTCs. Taxpayers who rely on this provision run the risk of having their

In the Matter of the Protest of William Wanker, page 10 of 18
deductions disallowed if they are unable to meet the 60-day deadline set by the legislature. The

reason why a taxpayer cannot obtain a NTTC is irrelevant. The language of the statute is 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). id.

In this case, Taxpayer did not possess a NTTC from Celero at the time of the initial

transaction or when the initial tax return was due for the 2007 gross receipts, as required under

NMSA 1978, §7-9-43 (2011). Consequently, by not obtaining the NTTC at the time of the

transaction or when the tax returns were due, Taxpayer subjected himself to myriad risks that some

three-to-four-years after the transaction in question, Celero would not be able to provide an NTTC

to Taxpayer by the expiration of the 60-day second chance provision under NMSA 1978, §7-9-43

(2005).

On July 29, 2011, the Department sent Taxpayer notice of limited scope audit, including

explicit notice that Taxpayer had 60-days, until September 27, 2011, to obtain any necessary

NTTCs necessary to support claimed deductions. This Department notice requesting supporting

NTTCs within 60-days is in accord with the second chance provision under NMSA 1978, §7-9-43

(2005). Taxpayer made repeated and consistent efforts to obtain a NTTC from Mitch Johnson at

Celero. However, Celero never provided Taxpayer with a NTTC. Consequently, Taxpayer did not

present a NTTC to the Department by September 27, 2011. Regardless of the reason for non-

possession of a required NTTC, NMSA 1978, §7-9-43 (2011), with its mandatory “shall be

disallowed” language, does not allow the Department any leniency to grant Taxpayer a deduction

not supported by a NTTC.

In the Matter of the Protest of William Wanker, page 11 of 18
While Celero clearly failed to provide Taxpayer with a NTTC despite Taxpayer’s persistent,

good-faith efforts to obtain a NTTC, Taxpayer and not Celero had the obligation under the statute

to document his gross receipts tax deductions. Under New Mexico's self-reporting tax system,

every person is charged with the reasonable duty to ascertain the possible tax consequences of his

or her actions. See Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16, 558 P.2d 1155 (Ct.

App. 1976), cert. denied, 90 N.M. 255, 561 P.2d 1348 (1977). The incidence of the gross receipts

tax is on the seller of the service—in this case Taxpayer—and it was the responsibility of Taxpayer

not Celero to determine whether he had the documentation needed to support his claimed

deductions. As Protest Auditor Tom Dillon explained at the hearing, Taxpayer could have insisted

on receipt of a NTTC before performing any work for Celero, or threatened to charge Celero gross

receipts tax unless Celero provided an NTTC, or in fact charged a gross receipts tax to Celero in

order to protect Taxpayer’s financial interests and tax obligations for the otherwise deductable

receipts from Celero. While Taxpayer repeatedly pointed to the contractual provisions between

Taxpayer and Celero as evidence that Taxpayer should not be liable for gross receipts tax, the

Taxpayer-Celero contractual obligations do not alter the legal requirements of the Tax

Administration Act for Taxpayer to possess a supporting NTTC (though it may provide a breach of

contract action between the parties to the contract in another forum). The Taxpayer's failure to

obtain a NTTC within the 60-day period provided in NMSA 1978, §7-9-43 (2011) leaves the

Department no choice but to disallow the claimed deductions. Therefore, the Department properly

assessed Taxpayer for 2007 gross receipts received from the Celero.

Interest.

When a taxpayer fails to make timely payment of taxes due to the state, “interest shall be

paid to the state on that amount from the first day following the day on which the tax becomes

In the Matter of the Protest of William Wanker, page 12 of 18
due...until it is paid.” NMSA 1978, Section 7-1-67 (2007). Under the statute, the Department has

no discretion in the imposition of interest, as the statutory use of the word “shall” makes the

imposition of interest mandatory regardless of the explanation or justification provided by a

taxpayer. See State v. Lujan, 90 N.M. 103, 105, 560 P.2d 167, 169 (1977). Therefore, in addition

to the gross receipts principal in this case, Taxpayer is liable for accruing interest until such time

as the tax principal is satisfied.

Penalty.

When a taxpayer fails to pay taxes due to the State as a result of negligence or disregard

of rules and regulations, NMSA 1978, Section 7-1-69(A) (2007) imposes a penalty of two

percent per month “from the date the tax was due,” not to exceed twenty percent of the

outstanding tax liability. The term “negligence” is defined in Regulation §3.1.11.10 NMAC

(1/15/01) to include “inadvertence, indifference, thoughtlessness, carelessness, erroneous belief or

inattention.” In instances where a taxpayer might otherwise fall under the definition of civil

negligence generally subject to penalty, NMSA 1978, § 7-1-69 (B) (2007) provides a limited

exception: “No penalty shall be assessed against a taxpayer if the failure to pay an amount of tax

when due results from a mistake of law made in good faith and on reasonable grounds.”

Regulation §3.1.11.11 NMAC (1/15/01) provides instances of nonnegligence where no

penalty should be assessed against a taxpayer under the civil penalty statute. Relevant to this

protest, under Regulation §3.1.11.11(A) (1/15/01) a taxpayer is nonnegligent when “the taxpayer

proves the taxpayer was affirmatively misled by a department employee.” Here, Taxpayer

credibly established that a Department employee told him that a NTTC, while helpful, was not

necessary to claim the deduction. This statement is contrary to the requirements of NMSA 1978,

§7-9-48 (2000) and NMSA 1978, §7-9-43(2011). Moreover, the Department employee’s

statement was given at a time when Taxpayer meaningful could have still acted to obtain the

In the Matter of the Protest of William Wanker, page 13 of 18
NTTC from Celero before even being audited by the Department and before the expiration of the

60-day second chance provision. Because Taxpayer nonnegligently relied on the Department

employee’s statement, civil penalty under NMSA 1978, § 7-1-69(A) (2007) is not warranted

under this assessment and penalty must be abated.

Taxpayer’s Other Arguments Related to Equitable Relief.

In Taxpayer’s protest letter, and in Taxpayer’s exhibit #1, Taxpayer makes numerous

arguments against the assessment in this case that fall under the category of requests for

equitable relief. Some of Taxpayer’s arguments have largely been addressed above and will only

be briefly summarized again in this section.

Taxpayer argues that it is unfair for him to now have to pay the tax he did not collect for

serving as an independent contractor when the New Mexico Public Education Department

already paid the gross receipts tax to Celero, and Celero in turn already paid the tax to New

Mexico. As discussed above, Taxpayer’s argument is incorrectly premised on a belief that the

gross receipts tax resembles a sales tax, with each transaction subject to only one imposition of

tax, rather than a tax on the gross receipts of any person/company engaged in business in this

State. Taxpayer had receipts for his work as an independent contractor for Celero that, unless

otherwise subject to exemption or deduction, were subject to tax under the New Mexico Gross

Receipts and Compensating Tax Act.

Taxpayer argues that he never deliberately misled the Department in this situation. It is

true that Taxpayer was diligent and genuine in his efforts to resolve this situation with the

Department. There is no evidence that Taxpayer intentionally erred or did anything improper in

this case. Further, Taxpayer argues that he complied with Department employee instructions, and

that he should not be held liable for the conflicting and incomplete nature of their instructions.

In the Matter of the Protest of William Wanker, page 14 of 18
Taxpayer’s argument is partially persuasive, as discussed above as it relates to abatement of

penalty. However, to the extent that Taxpayer seeks abatement of the gross receipts principal,

Taxpayer’s argument does not persuade.

Essentially, Taxpayer’s argument is advocating for equitable estoppel. However,

equitable estoppel does not appear to be a possible remedy in an administrative protest hearing

before the Department. The adjudicative functions of an administrative agency like the

Department are considered by New Mexico courts to be “quasi-judicial” powers. According to

the New Mexico Supreme Court, the quasi-judicial powers of an administrative agency do not

include the authority to grant equitable relief to a party before the agency. See AA Oilfield

Service v. New Mexico State Corporation Commission, 118 N.M. 273, 279, 881 P.2d 18, 24

(1994). Under AA Oilfield Service, it appears that only the judiciary may rule on the Taxpayer’s

broader claim for equitable relief.

Even if equitable estoppel was a remedy available to Taxpayer, it does not appear to

apply to the facts of this case. 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. See 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, 770 P.2d 873 (1989). Equitable estoppel generally does

not apply against the State when a taxpayer relied on the oral advice of a Department employee.

See Bien Mur Indian Market at 231, 876; See also, Kilmer v. Goodwin, 2004-NMCA-122, ¶ 28,

136 N.M. 440, 447, 99 P.3d 690, 697 (N.M. Ct. App. 2004). Finally, estoppel cannot lie against

the state when the act sought would be contrary to the requirements expressed by statute. See

In the Matter of the Protest of William Wanker, page 15 of 18
Rainaldi v. Public Employees Retirement Board, 115 N.M. 650, 658-59, 857 P.2d 761, 769-70

(1993). Here, because the deduction and NTTC statutes required Taxpayer to timely possess a

NTTC, to grant equitable estoppel would be contrary to the requirements expressed by statute

and contrary to Rainaldi holding.

Taxpayer argues that he should have been informed of alternative methods to obtain a

substitute for a NTTC in light of Celero’s inability to provide a NTTC. However, the

undersigned hearing officer is only aware of two possible NTTC substitutes, neither of which is

applicable under the facts of this case. First, a taxpayer may present a non-taxable transaction

certificate from the multistate tax commission (“MTC”) in lieu of a NTTC. See NMSA 1978, §7-

9-43 (A) (2011). Taxpayer did not present a MTC certificate in this case, so this provision is not

applicable. Even if applicable, a MTC certificate may not be used in lieu of a NTTC for the sale

of a service for resale deduction at issue in this protest. See Regulation 3.2.201.13 NMAC

(3/15/10). The second scenario is under NMSA 1978, §7-9-43 (E) (2011), when a taxpayer

claiming a deduction under NMSA 1978, Section 7-9-47 (1994) for the sale of tangible personal

property may present alternative evidence other than a NTTC, such other evidence described

under Regulation 3.2.201.10 (F) NMAC (8/15/11). Again, this provision is not applicable

because Taxpayer is not seeking a deduction under NMSA 1978, § 7-9-47 (1994).

Finally, Taxpayer argues that it is unfair to hold him accountable for Celero’s failure to

provide a NTTC, which Taxpayer believed Celero was required to provide without Taxpayer

even having to request a NTTC from Celero. Celero was unable to execute a NTTC because,

according to the email of Celero Director of Services Mitch Johnson, difficulties with the

Department. But this illustrates exactly the point noted above: the NTTC statute requires a

taxpayer to possess the NTTC at the time the tax is due because the Legislature anticipated that

In the Matter of the Protest of William Wanker, page 16 of 18
with the passage of time, numerous obstacles would interfere with a taxpayer’s ability to obtain a

NTTC. As addressed above, despite Celero’s failure to provide a NTTC, at the end of the

analysis Taxpayer was responsible to determine and accurately report his own tax obligations.

See Tiffany Construction Co. v. Bureau of Revenue, 17, 1156. When claiming a deduction, as

Taxpayer does here, it is ultimately Taxpayer who carries the burden to show that he was entitled

to the deduction. See Wing Pawn Shop 740, 654. Taxpayer had an obligation to obtain the NTTC

from Celero at the time he originally filed his 2007 gross receipts tax. At that time, perhaps

Celero would have been in a better position to provide the NTTC to Taxpayer. But since

Taxpayer did not have the necessary NTTC from Celero at the time of the original tax filing or by

the expiration of the statute’s 60-day second chance provision to establish he was entitled to the

deduction, the Department properly assessed Taxpayer for the 2007 gross receipts tax principal.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely, written protest to the assessment L0000564800. Jurisdiction

lies over the parties and the subject matter of this protest.

B. Taxpayer did not possess the requisite NTTC at the time he filed his 2007 CRS

returns and did not possess the requisite NTTC for 2007 within 60-days of the Department’s Notice

of Audit, as required under NMSA 1978, §7-9-43 (2011).

C. Under NMSA 1978, §7-9-43 (2011), the Department is not allowed to grant and

Taxpayer is not entitled to a gross receipts tax deduction for receipts for services rendered for

Celero during tax year 2007.

D. Under NMSA 1978, § 7-1-67 (2007), Taxpayer is liable for accrued interest under

the assessment. Interest continues to accrue until the tax principal is satisfied.

In the Matter of the Protest of William Wanker, page 17 of 18
E. Under Regulation §3.1.11.11(A) NMAC (1/15/01), Taxpayer was nonnegligent.

Therefore, Taxpayer is not subject to civil penalty under NMSA 1978, § 7-1-69 (2007).

For the foregoing reasons, the Taxpayer's protest IS PARTIALLY GRANTED AND

PARTIALLY DENIED. The $2,089.03 in assessed penalty is abated. For tax year 2007,

Taxpayer owes $10,445.13 in gross receipts tax and $2,642.59 in interest (as calculated as of the

date of hearing). Pursuant to NMSA 1978, Section 7-1-67 (2007), interest continues to accrue

until tax principal is paid.

DATED: February 15, 2013.

Brian VanDenzen, Esq.
Tax Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

In the Matter of the Protest of William Wanker, page 18 of 18