Could a solid-waste consultant deduct management and operating services resold by a governmental authority as taxable garbage-collection services even though the services were not identical?

Plain-English summary

Southern Oasis could deduct $760,692.72 received for managing and operating a governmental solid-waste authority because those services were resold as part of taxable garbage collection. The service sold at the second stage did not have to be identical to the first-stage service.

Southern Oasis, also doing business as Operational Consultants, provided solid-waste consulting and management. It contracted for five years with the North Central Solid Waste Authority, serving Rio Arriba County, Española, Santa Clara Pueblo, and Ohkay Owingeh Pueblo.

The Department assessed $56,191.13 in tax, $11,238.26 in penalty, and $15,985.13 in interest after treating $769,742.72 of deducted receipts as taxable.

The Department later allowed $3,650 received from Souder, Miller and Associates. Southern Oasis conceded $9,050 from Premier Pellets. The remaining $760,692.72 came from the Authority.

The management work was part of the service ultimately sold

The Department argued that the Authority sold garbage collection, not the “management and administrative” services Southern Oasis supplied. The decision rejected an identical-services requirement.

Section 7-9-48 required that the buyer resell the service in its ordinary course of business and subject the resale to gross receipts or governmental gross receipts tax. Department examples allowed a repair company to resell welding and a computer maker to resell installation—different services incorporated into a broader final service.

Southern Oasis's work was integral to garbage collection. It:

• managed and could hire or discharge Authority employees;
• controlled day-to-day operations and implemented policy;
• prepared budgets and handled accounting, billing, and collections;
• recommended and purchased equipment;
• ensured environmental compliance;
• signed Authority checks and could file customer liens; and
• operated on-site through its staff and president.

The Authority had no employees before the governmental members transferred them and lacked the operational knowledge to function without Southern Oasis. Its customers bought the combined garbage-collection service, which necessarily included those management functions.

The taxable resale and NTTC supported the full deduction

On average, about 80% of the Authority's revenue was subject to governmental gross receipts tax. Southern Oasis suggested taxing the remaining percentage of its own receipts.

The hearing officer instead relied on the timely Type 5 NTTC that Southern Oasis accepted in good faith. Section 7-9-43(B) made that certificate conclusive evidence that all Authority receipts were deductible, and the Department offered no evidence of bad faith.

Result: protest granted in part and denied in part. The Authority's $760,692.72 receipts were deductible. Southern Oasis remained liable for tax, penalty, and interest on the conceded $9,050 Premier Pellets receipts. The decision did not calculate the final reduced assessment.

What this means for you

Management companies whose work becomes part of a final service

The first-stage and customer-facing services need not be identical. Document how your work is incorporated into and necessary for the buyer's taxable offering.

Contractors serving governmental entities

Confirm whether the buyer imposes governmental gross receipts tax on the resale and obtain the correct NTTC promptly.

Businesses with mixed disputed receipts

Separate conceded items from defensible ones. Southern Oasis preserved the large Authority deduction even though it admitted another customer's receipts were taxable.

Common questions

Q: Did Southern Oasis merely give advice?
A: No. It controlled daily operations, employees, finances, equipment, compliance, billing, and collection functions.

Q: Did the resale have to be the same named service?
A: No. The decision held that Section 7-9-48 did not require identical services at both stages.

Q: Was the Authority's customer service taxed?
A: Yes. The Authority imposed governmental gross receipts tax on its garbage-collection services.

Q: Why were all Authority receipts deductible if some Authority revenue was restricted and untaxed?
A: The timely Type 5 NTTC accepted in good faith was treated as conclusive evidence for the deduction.

Q: What remained taxable?
A: $9,050 of receipts from Premier Pellets, with related penalty and interest.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-17(C) — presumption of assessment correctness
• NMSA 1978, § 7-9-48 and Regulations 3.2.206.8(B) and 3.2.206.10(B) NMAC — service-for-resale deduction
• NMSA 1978, § 7-9-43(B) — good-faith NTTC conclusive evidence
• NMSA 1978, §§ 7-1-67 and 7-1-69 — interest and penalty on remaining taxable receipts

Cases cited:

• Leaco Rural Telephone Cooperative v. Bureau of Revenue, 86 N.M. 629 (Ct. App. 1974)
• Wing Pawn Shop v. Taxation and Revenue Department, 111 N.M. 735 (Ct. App. 1991)
• MPC Ltd. v. New Mexico Taxation and Revenue Department, 2003-NMCA-021

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Southern Oasis, Inc.
• Decision PDF: D&O 13-06

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
SOUTHERN OASIS, Inc. No. 13-06
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L #1060795968

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on September 4, 2012, before

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

represented by Peter Breen, Esq., attorney for the Department. Ms. Lizzy Vedamanikan,

manager of the protest office, appeared as a witness for the Department. Southern Oasis, Inc.

(“Taxpayer”) appeared at the appointed time and was represented by R. Tracy Sprouls, Esq. The

President of Southern Oasis, Joseph Lewandowski, appeared as a witness for Taxpayer.

Taxpayer introduced into the record as stipulated exhibits: Exhibit #1 – Management Services

Agreement dated August 19, 2004 (7 pages); Exhibit #2 – Organizational Chart; Exhibit #3 –

Total System Evaluation (7 pages); Exhibit #4 – Revenue Breakdown Spreadsheet; Exhibit #5 –

Management Services Agreement dated August 11, 2004 (18 pages); Exhibit #6 – Management

Services Agreement dated July 29, 2004 (17 pages); Addendum #1 – dated July 19, 2007; and

Addendum #2– dated July 15, 2007. The Department introduced into the record as a stipulated

exhibit: Exhibit #A – the Audit Narrative (multiple pages).

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 September 15, 2011, the Department assessed Taxpayer in the principal

amount of gross receipts tax of $56,191.13, $11,238.26 in penalty and $15,985.13 in interest for

tax period of January 1, 2005 through September 30, 2010. Letter Id No. #1060795968. (The

Department conceded that the Notice of Assessment states an incorrect start date.)

2. Taxpayer requested an extension of time to file a protest on October 11, 2011.

3. On October 18, 2011, the Department granted Taxpayer an extension of time to

file a protest. Letter Id No. #0281785920.

4. Taxpayer filed a protest in this matter on December 14, 2011.

5. On December 29, 2011, the Department acknowledged the protest filed by

Taxpayer.

6. The Department requested a hearing in this matter on April 30, 2012.

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

setting the hearing for September 4, 2012.

8. Taxpayer is in the business of providing consulting and management services for

the solid waste industry. Exhibit #A, page NMTRD #4.

9. Taxpayer is an “S” corporation and has been doing business since February 5,

10. Taxpayer also does business as Operational Consultants. Operational Consultants and

Taxpayer share the same taxpayer identification number. Audio File, Part I, 8:30-9:05.

Operational Consultants is also known as Taxpayer in the Decision and Order.

10. Taxpayer is listed as a corporation on the Public Regulation Commission website.

Taxpayer’s President and Vice President is listed as Joseph R. Lewandowski. The Director is

In the Matter of the Protest of Southern Oasis
Page 2 of 17
listed as Debra K. Lewandowski. See, PRC Corporation website, relevant page is incorporated

into the record. Debra and Joseph Lewandowski are the sole shareholders of Taxpayer.

11. Mr. Lewandowski has been in the business of providing solid waste disposal

services in New Mexico since 1980. Mr. Lewandowski is extremely knowledgeable in the

operation of solid waste management disposal.

12. For the tax period at issue, Taxpayer provided a unique start-up service for the

North Central Solid Waste Authority - to provide solid waste disposal services.

13. Taxpayer provides services primarily to governmental entities. Taxpayer has

provided some level of solid waste management disposal services to approximately 80

governmental entities in New Mexico. Audio File, Part I, 5:15-7:24.

13. The Department conducted an audit of Taxpayer beginning on October 27, 2010

and concluding on April 8, 2011. Exhibit #A, page NMTRD #4.

14. The audit period was from January 1, 2005 through September 2010. Exhibit #A,

page NMTRD #5.

15. On October 27, 2010, Taxpayer was issued a 60-day letter notifying Taxpayer that

it had 60 days or until December 26, 2010 to produce any nontaxable certificates (“NTTCs”).

Exhibit #A, page NMTRD #5.

16. Taxpayer provided two timely Type 5 NTTCs to the Department. Exhibit #A,

page NMTRD #28. The NTTCs were executed by North Central Solid Waste Authority

(“Authority”) and Souder, Miller and Associates (“Souder”).

17. Taxpayer accepted in good faith the Type 5 NTTCs from the Authority and

Souder for services provided. Exhibit #A, page NMTRD #5.

In the Matter of the Protest of Southern Oasis
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18. Souder is not a governmental entity, but a private contractor. Souder is an

engineering, environmental and surveying firm.

19. Taxpayer accepted the Type 5 NTTC in good faith from the Authority.

20. The Authority is a governmental entity and entered into contracts with Taxpayer

on August 19, 2004 through August 18, 2009. Exhibits #1, #7 and #8. The Authority was

created by NMSA 1978, Section 74-10-5 (1993) and had powers enumerated in NMSA 1978,

Section 74-10027 (1993). The Authority served the communities of Rio Arriba County, the City

of Espanola, Santa Clara Pueblo and Ohkay Owingeh Pueblo. The purpose of the Authority was

to consolidate and save resources for solid waste management disposal services (“garbage

collection”). Audio File, Part I, 10:36-10:45 and Exhibit #6. Each of these governmental

entities consolidated and relinquished control of all of its employees and equipment to the

Authority. Audio File, Part I, 11:45-12:14.

21. Prior to entering into the contracts with the Authority, Taxpayer contracted with

the Authority for consulting services. Audio File, Part I, 17:24-17:40. Taxpayer paid gross

receipts tax on these services.

22. The Authority did not have any employees prior to October 2004. Audio File,

part I, 1:00 – 1:01. Rio Arriba County and the City of Espanola transferred its employees to the

Authority.

23. Mr. Lewandowski testified that there are three components to garbage collection:

managing the day-to-day operation; collecting the trash; and operating the landfill. Audio File,

Part I, 17:58 – 18:08.

24. The Authority contracted with a private contractor for the operation of the

landfill. Audio File, Part I, 18:20 - 18:24 and Exhibit #3.

In the Matter of the Protest of Southern Oasis
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25. Without the services of Taxpayer, the Authority would not have been able to

operate because there was a lack of knowledge on how to operate a garbage collection service.

26. On April 8, 2011, the audit concluded that Taxpayer had underreported its gross

receipts in the amount of $825,933.85 or $769,742.72 net of gross receipts tax. Exhibit #A,

pages NMTRD #9 and #11. (The amount of underreported gross receipts amount listed on page

5 of the audit, top right hand corner is $778,158.54. Since the other audit pages list the

underreported amount as being $769,742.72 in gross receipts, the $769,742.72 must be the

correct number.)

27. Taxpayer filed gross receipts returns for the audit period but deducted the receipts

of $769,742.72. Exhibit #A, pages NMTRD #9 and #11.

28. The amount of gross receipts received from Souder is $3,650.00. The Department

allowed these receipts as a service for resale. Exhibit #A, page NMTRD #19 and Audio File,

Part I, 1:12 – 1:13.

29. The amount of underreported gross receipts received from Premier Pellets, Inc. is

$9,050.00. The Department listed these receipts as improperly deducted gross receipts. Exhibit

A, page NMTRD #19. Taxpayer conceded that it owed gross receipts tax on this amount.

Audio File, Part I, 1:11 – 1:12.

30. The amount of underreported gross receipts net of tax that is in dispute is

$760,692.72. These remaining receipts are for services performed for the Authority.

31. Mr. Lewandowski contracted with the Authority to provide operational services

which included, general administration of technical operations of the garbage collection; day-to-

day operations of the garbage collection; implementation of all policies and directives related to

garbage collection; general consulting services toward the development and continuation of

In the Matter of the Protest of Southern Oasis
Page 5 of 17
current technology and trends of solid waste systems and recycle centers; and submission of an

annual management plan. Taxpayer was required to use reasonable judgment in fulfilling its

duties to Authority. Audio File 22:46 – 23:12, Exhibit #1, page 1 and Exhibit #3.

32. Mr. Lewandowski was required to manage and direct the employees of the

Authority, including hiring, managing and discharging employees. Exhibits #1, page 1 and #3,

pages 1 and 6.

33. Taxpayer was required to adhere to the budget that was approved by the

Authority. Taxpayer was also required to submit a budget for approval to the Authority. The

budget was required to include all capital expenditures needed to make sure that the solid waste

system was operating in accordance with all the environmental federal, state and local laws.

Exhibits #1, page 2 and #3, pages 2-3.

34. All accounting, billing and collection functions were performed by Taxpayer.

Exhibits #1, page 2 and #3, pages 2-3. Taxpayer interfaced with the Department of Finance and

Authority and any other state agency related to revenues or expenditures of the Authority. Audio

File, Part I, 27:40 – 27-52. Taxpayer made recommendations and purchased any equipment

needed by the Authority. Exhibit #3, page 4 and Audio File, Part I, 28:06. Mr. Lewandowski

signed all checks of the Authority. Audio File, Part I, 28:52 – 29:00.

35. The Authority mailed its bills to its customers and the revenue was received

directly by the Authority, except for the City of Espanola. The Authority had its own bank

accounts. Audio File, Part I, 1:08 – 1:10.

36. The employees of Taxpayer, Will Lewandowski and Stacey Tidwell, who

performed the function of billing and accounting, performed their services predominately in

Alamogordo. Audio File, Part I, 1:06 – 1:08.

In the Matter of the Protest of Southern Oasis
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37. The other employees of Taxpayer, Debra Lewandowski, Ray Tapia, Cathy Tysen

Foster and Joseph Ellis, performed their services predominately in the City of Espanola. Audio

File, Part I, 1:06 – 1:08.

38. Taxpayer was responsible for making sure that the Authority was in full

compliance with environmental laws and regulations. Exhibit #3, page 4.

39. Taxpayer had authority to file liens on behalf of the Authority if any bills were

unpaid by customers of the Authority. Audio File, Part I, 28:32-35.

40. The organizational chart of the Authority indicates that Mr. Lewandowski

reported to the Board of Directors of the Authority. There were approximately 41 employees of

the Authority, and seven of which were employed by Taxpayer. Exhibit #2. All employees of

both Taxpayer and the Authority reported to Mr. Lewandowski. Audio File, Part I, 23:20 –

24:36 and Exhibit #2.

41. Mr. Lewandowski acted and had the authority of a general manager. He had

business cards printed that indicated that he was the manager of the Authority. Audio File, Part

I, 35:50 – 35:59. Mr. Lewandowski routinely sent memorandum out to the employees of the

Authority indicating that he was the manager of the Authority. Audio File, Part I, 35:50 – 37:00.

42. During the audit period, Mr. Lewandowski had an office in the City of Espanola.

Audio File, Part I, 59:06 – 59:40.

43. Taxpayer had full authority to control and manage the day-to-day operations of

the Authority. Exhibit #1. These functions were operational in nature.

44. During the tax period at issue, the Authority received, on average, 79.46% of its

revenue from garbage collection. Exhibit #4. The remaining percentage, on average, of 20.54%

revenue was received from non taxed restricted funds. Exhibit #4.

In the Matter of the Protest of Southern Oasis
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45. During the tax period at issue, on average, 80% of the Authority’s revenue was

subject to the governmental gross receipts tax.

46. The Authority imposed a governmental gross receipts tax on the services that it

performed for its customers.

47. There is no evidence to dispute that the Authority imposed a governmental gross

receipts tax on the services that it provided to its customers.

DISCUSSION

The issue to be determined is whether Taxpayer underreported its gross receipts in the

amount of $760,692.72. The issue in dispute is predominately a factual dispute. Both parties

agree that Taxpayer presently a timely NTTC. Taxpayer argued that its services were for resale

in the ordinary course of business and the resale was subject to the governmental gross receipts

tax and therefore deductible pursuant to NMSA 1978, Section 7-9-48 (2000). The Department

did not dispute that on the second transaction, the services were resold and subject to the

governmental gross receipts tax.

The Department contends that Taxpayer confuses the corporate income tax with the gross

receipts tax and what is considered a necessary expense. The Department contends that the

services provided by Taxpayer in the ordinary course of business were services that were not

resold in the ordinary course of business because the services provided were “management and

administrative” services and not garbage collection services. The Department argues that on the

second transaction, the services for resale must be identical to the services sold on the first

transaction. The Department, then, argues that Taxpayer does not qualify for the deduction

because the Authority does not resell management or administrative services but instead is in the

business of selling garbage collection services.

In the Matter of the Protest of Southern Oasis
Page 8 of 17
Burden of Proof and Standard of Review.

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

made by the Department is presumed to be correct. 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 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).

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).

Service for Resale.

There is no issue that the services provided were gross receipts. The only inquiry is

whether the receipts are deductible. The applicable deduction at issue, Section 7-9-48 provides

that:

(r)eceipts from selling a service for resale may be deducted from gross receipts or
from governmental 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 service in the ordinary course of business and
the resale must be subject to the gross receipts tax or governmental gross receipts
tax.

In the Matter of the Protest of Southern Oasis
Page 9 of 17
NMSA 1978, Section 7-9-48 (2000). There is no requirement under this statute that the services

sold on the second transaction be identical to the services sold on the first transaction.

The Department’s own regulations provide several examples of transactions where the

second service sold is distinct and not identical to the service in the first transaction or sale. The

regulations emphasize that the deduction applies if the seller in the second transaction imposes a

gross receipts tax on the second buyer of the services, and if the second seller provides a timely

NTTC to the first seller of services. There is no requirement in the regulation that provides that

the service must be identical. Both regulations allow the deduction of the first seller’s receipts,

so long as the subsequent seller imposes a tax on the second transaction.

In regulation 3.2.206.8(B) NMAC (2000), a repair service provider did not provide a type

of service that was needed to complete the repair work. The repair service provider contracted

with a welder to provide the necessary services. The repair service provider provided a properly

executed Type 5 NTTC to the welder. The welder’s services were, then, resold to the second

buyer who paid gross receipts tax on the transaction. Regulation 3.2.206.8(B) NMAC (2000).

In the Department’s second regulation, regulation 3.2.206.10(B) provides an example of

a company that manufactured computers but did not employ the proper personnel to install the

computers. It hired an independent contractor to install the computers. The manufacturer

provided a timely NTTC to the installer of the computer. The manufacturer imposed a gross

receipt tax for both the service and the sale of the computer to the ultimate customer. The

installer was able to deduct those receipts under this regulation. Under both of these examples,

there is no requirement that the type of service must be identical or the same. In fact, the

regulations contemplate the type of service sold between the buyers was different.

In the Matter of the Protest of Southern Oasis
Page 10 of 17
The only distinction between the Department’s regulations and Taxpayer’s situation is

that Taxpayer provided somewhat exclusive services to only one buyer, the Authority. This

distinction was not discussed at the hearing and it is unclear what impact it has on the analysis of

this case.

Taxpayer meets the requirements under Section 7-9-48 for a deduction of its receipts

from the Authority. Taxpayer provided a unique service to the Authority - to assist the Authority

for five years to become an operational solid waste disposal service. Taxpayer proved by a

preponderance of the evidence that there are three components to garbage collection: managing

the day-to-day operation; collecting the trash; and operating the landfill. Audio File, Part I,

17:58 – 18:08. Exhibits #1, #7 and #8. It is undisputed that without Taxpayer’s services, the

Authority would not have been able to collect garbage since Taxpayer’s services were integral to

the operations of the Authority and those services cannot be separated from the Authority’s

garbage collection services. Finally, it was Taxpayer’s services that were resold by the Authority

and a governmental gross receipts tax was imposed on the second transaction.

There are a myriad of facts to support the contention that Taxpayer’s services were resold

to the customers of the Authority. The contract between the Authority and Taxpayer illustrate

this. Pursuant to the terms of the contract, Taxpayer was required to provide operational services

which included, general administration of technical operations of the garbage collection; day-to-

day operations of the garbage collection; implementation of all policies and directives related to

garbage collection; general consulting services toward the development and continuation of

current technology and trends of solid waste systems and recycle centers; and submission of an

annual management plan. Taxpayer was required to use reasonable judgment in fulfilling its

duties to Authority. Audio File 22:46 – 23:12, Exhibit #1, page 1 and Exhibit #3.

In the Matter of the Protest of Southern Oasis
Page 11 of 17
In addition, Taxpayer had full control of the employees of the Authority. Prior to

October 2004, the Authority did not have employees. In October 2004, the Authority merged the

employees from the Rio Arriba County, City of Espanola, Santa Clara Pueblo and Ohkay

Owingeh Pueblo. Audio File, part I, 1:00 – 1:01.

Taxpayer was required to manage and direct the employees of the Authority, including

hiring, managing and discharging employees. Exhibits #1, page 1 and #3, pages 1 and 6. The

organizational chart of the Authority indicates that Mr. Lewandowski reported to the Board of

Directors of the Authority. There were approximately 41 employees of the Authority and seven

employees who were employed by Taxpayer. Exhibit #2. All employees of both Taxpayer and

the Authority reported to Mr. Lewandowski. Audio File, Part I, 23:20 – 24:36 and Exhibit #2.

The billing, budgeting and accounting of money are also indicators. Taxpayer was

required to adhere to the budget that the Authority approved. Taxpayer was also required to

submit a budget for approval to the Authority. The budget was required to include all capital

expenditures needed to make sure that the solid waste system was operating in accordance with

all the environmental federal, state and local laws. Exhibits #1, page 2 and #3, pages 2-3.

All accounting, billing and collection functions were performed by Taxpayer. Exhibits

1, page 2 and #3, pages 2-3. Taxpayer interfaced with the Department of Finance and

Authority and any other state agency regarding revenues or expenditures of the Authority.

Audio File, Part I, 27:40 – 27-52. Taxpayer made recommendations and purchased any

equipment needed by the Authority. Exhibit #3, page 4 and Audio File, Part I, 28:06. Mr.

Lewandowski signed all checks of the Authority. Audio File, Part I, 28:52 – 29:00. Taxpayer

also was required to mail the Authority’s bills to its customers and the revenue was received

directly by the Authority, except for the City of Espanola. Audio File, Part I, 43:20 – 43:50. All

In the Matter of the Protest of Southern Oasis
Page 12 of 17
checks were paid by the Authority and not by Taxpayer’s funds. The Authority had its own bank

accounts. Audio File, Part I, 1:08 – 1:10.

Taxpayer was physically located at the site. At least three of Taxpayer’s employees had

permanent offices in the City of Espanola. Audio File, Part I, 59:06 – 59:40. Will Lewandowski

and Stacey Tidwell, who performed the function of billing and accounting, performed their

services predominately in Alamogordo. Audio File, Part I, 1:06 – 1:08. The other employees of

Taxpayer, Debra Lewandowski, Ray Tapia, Cathy Tysen Foster and Joseph Ellis, performed

their services predominately in the City of Espanola. Audio File, Part I, 1:06 – 1:08.

In addition, Taxpayer was responsible for making sure that the Authority was in full

compliance with environmental laws and regulations. Exhibit #3, page 4. Taxpayer had

authority to file liens on behalf of the Authority if any bills were unpaid by customers of the

Authority. Audio File, Part I, 28:32-35.

Mr. Lewandowski had business cards printed that indicated that he was the manager of

the Authority. Audio File, Part I, 35:50 – 35:59. Mr. Lewandowski routinely sent memorandum

out to the employees of the Authority indicating that he was the manager of the Authority.

Audio File, Part I, 35:50 – 37:00.

Taxpayer provided these services which were, then, resold by the Authority to its

customers in Rio Arriba County, City of Espanola, Santa Clara Pueblo and Ohkay Owingeh

Pueblo. Audio File, Part I, 10:36-10:45 and Exhibit #6. The Authority did not resell only

collection services. It sold garbage collection services which encompasses the components

discussed above. The resale of the services to the Authority’s customers was a taxable event.

The Department’s own witness testified that this case is slightly unusual insofar as most

independent contractors do not provide services to just one buyer. Audio File, Part I, 1:17 –

In the Matter of the Protest of Southern Oasis
Page 13 of 17
1:26. It is exactly this uniqueness that allows Taxpayer’s receipts to be deductible. The services

were so integral to the garbage collection services provided by the Authority that the garbage

collection services had to include Taxpayer’s services otherwise; there would have been no

garbage collection. Compare and contrast Taxpayer’s services provided to the Authority from

October 2004-August 2009 with the consulting services that it provided to the Authority prior to

October 2004. Audio File, Part I, 17:24-17:40. Taxpayer imposed and paid gross receipts tax on

the gross receipts of the pre-October 2004 consulting services, mostly in part, because its

services were never resold to a second buyer.

In light of all of these facts and because there is no requirement that the services need to

be identical to the services sold on the second transaction, Taxpayer’s services to the Authority

are deductible and Taxpayer met its burden.

Second Transaction Subject to the Governmental Gross Receipts Tax.

Taxpayer presented unrebutted testimony that the majority of the revenues that the

Authority received was subject to the governmental gross receipts tax on its customers.

Taxpayer argued, in the alternative, that because some of the revenue that the Authority received

was not subject to the governmental gross receipts tax or 15% or so of the total revenue, that this

percentage could be applied to its receipts. Audio File, Part II, 9:39 – 10:59 and Exhibit #4.

Taxpayer argued that 15% or so of its receipts may be taxed since not all of the receipts of the

Authority were taxed on the second transaction. Again, the Department presented no evidence or

testimony disputing this calculation. Since there at five years at issue, the Hearing Officer

averaged the five years and determined that during the tax period at issue, on average, 80% of

the Authority’s revenue was subject to the governmental gross receipts tax. Therefore 20% of

In the Matter of the Protest of Southern Oasis
Page 14 of 17
the Authority’s revenue was not subject to the governmental gross receipts tax. The Hearing

Officer does not adopt this argument.

Mr. Lewandowski argued during the entire course of the hearing that he understood that

from the start of the contract with the Authority, that the receipts from the Authority would not

be taxable. For all the reasons set forth above, Taxpayer’s acceptance of the Type 5 NTTC from

the Authority was done in good faith. In addition there was no evidence or testimony presented

rebutting Taxpayer’s argument that it received the Type 5 NTTC in good faith.

Section 7-9-43(B) provides that “(w)hen the seller accepts these documents within the

required time and in good faith that the buyer will employ the property or service transferred in a

nontaxable manner, the properly executed documents shall be conclusive evidence, and the only

material evidence, that the proceeds from the transaction are deductible from the seller’s gross

receipts.” NMSA 1978, Section 7-9-43(B) (2011). If a taxpayer accepts a NTTC in good faith

and the NTTC is both timely and the right type, then the receipts are deductible. Leaco Rural

Tel. Co-op., Inc. v. Bureau of Revenue, 86 N.M. 629, 526 P.2d 426 (Ct. App. 1974). Since there

is no evidence to dispute that Taxpayer received and accepted the NTTC in good faith, all of the

receipts from the Authority are deductible.

CONCLUSIONS OF LAW

A. Southern Oasis, Inc. filed a timely written protest to the Department’s Assessment

issued under Letter Id No. #1060795968. The amount of assessed gross receipts tax is

$56,191.13 in principal, $11,238.26 in penalty and $15,985.13 in interest for tax period of

January 1, 2005 through September 30, 2010.

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

In the Matter of the Protest of Southern Oasis
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C. The services provided to the Authority by Southern Oasis, Inc., were an integral

component of the garbage collection services sold by the Authority.

D. The Authority would not have been able to function or to collect garbage if

Southern Oasis, Inc. had not provided services to the Authority.

E. For the receipts to be deductible pursuant to NMSA 1978, Section 7-9-48 (2000)

on the first transaction, the services resold on the second transaction do not need to be “identical”

to the services sold on the first transaction.

F. The services sold by Southern Oasis, Inc. to the Authority were sold in the

ordinary course of business.

G. The Authority imposed a governmental gross receipts tax on the services that it

sold to its customers.

H. Southern Oasis, Inc. proved by a preponderance of the evidence that it accepted

the Type 5 NTTC from the Authority in good faith.

I. Southern Oasis, Inc. proved by a preponderance of the evidence that it received a

timely Type 5 NTTC from the Authority.

J. Southern Oasis, Inc. does not owe gross receipts tax on the services it sold to the

Authority because they are deductible pursuant to NMSA 1978, Section 7-9-48 (2000).

K. Southern Oasis, Inc. conceded that it owed gross receipts tax on the underreported

amount of gross receipts received from Premier Pellets, Inc. of $9,050.00.

L. Southern Oasis, Inc. was able to rebut the presumption of correctness.

M. Penalty applies to the amounts due and owing on the gross receipts of $9,050.00

pursuant to NMSA 1978, Section 7-1-69 (2007).

In the Matter of the Protest of Southern Oasis
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N. Interest should be applied to the principal amount of tax due in accordance with

NMSA 1978, Section 7-1-67 (2007).

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

IN PART.

DATED: March 6, 2013

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 (1989), the Taxpayer 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. A party filing an appeal

shall file a courtesy copy of the appeal with the Hearings Bureau contemporaneously with the

filing of the Notice with the Court of Appeals so that the Hearings Bureau may prepare the

record proper.

CERTIFICATE OF SERVICE

On March 6, 2013, a copy of the foregoing Decision and Order was mailed via certified mail

7008 0500 0001 4688 4980 to R. Tracy Sprouls, Esq. located at P.O. Box 1888, Albuquerque, NM

87103-1888, and delivered through interoffice mail to Peter Breen, Esq. Taxation and Revenue
Department, Santa Fe, New Mexico.

John Griego

In the Matter of the Protest of Southern Oasis
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