Could an independent case manager use a timely Type 2 NTTC accepted in good faith to support a service-resale deduction that normally required a Type 5 NTTC?

Plain-English summary

Teresa Maestas's timely, completed Type 2 NTTC protected her 2008 service-resale deduction even though a Type 5 NTTC was the correct form. She accepted the buyer's certificate in good faith, and the underlying case-management services otherwise qualified for the deduction.

Maestas worked as an independent contractor for Visions Case Management, providing services to about 30 developmentally disabled clients across northern New Mexico. Visions resold her services to the New Mexico Department of Health and paid gross receipts tax on that resale.

An IRS tape match led the Department to audit Maestas's 2008 and 2009 receipts. The audit notice set an October 12, 2012 NTTC deadline.

The wrong form still met the safe-harbor test

Visions had completed and signed a Type 2 NTTC dated May 25, 2010. Maestas obtained a copy in October 2012 and believed in good faith that it was the documentation she needed.

The Department later said Type 2 covered tangible property and that a Type 5 NTTC was needed for resold services. Visions eventually issued the Type 5 form in March 2013, well after the deadline.

The late Type 5 did not control the outcome. Section 7-9-43(A)'s good-faith safe harbor made a timely, properly executed NTTC conclusive evidence when accepted in good faith.

Applying Leaco, the decision found:

• Timeliness: the Type 2 was executed well before the 60-day deadline, and the Department did not prove that Maestas lacked it by then; its own later letters focused on execution date and certificate type, not untimely possession.
• Proper execution: Visions completely filled out and signed a Department form.
• Good faith: Maestas honestly believed the form was correct, Visions later admitted its own error, and the Department alleged no dishonesty or intent to evade tax.

Because the services were actually resold in a taxable transaction, this was not an attempt to turn inherently taxable receipts into deductible ones. The wrong type was an issue between Visions and the Department.

The protest covered 2008 only

Maestas intended to challenge both years, but her written protest mentioned 2008 three times, stated only the 2008 amount, and never identified the 2009 period, assessment, or liability.

Every subsequent acknowledgement, auditor letter, hearing request, and notice also referenced only 2008. Maestas did not amend the protest or file a separate one for 2009.

Even reading the letter broadly, the hearing officer found no timely 2009 protest and had no jurisdiction over that assessment.

Result: the 2008 protest was granted. The Department had to abate $2,486.10 in tax, $497.22 in penalty, and $411.48 in interest, totaling $3,394.80 as of the hearing. The separate 2009 assessment was unaffected, and the decision did not state its amount.

What this means for you

Independent contractors receiving an NTTC

Check the certificate type, but preserve proof of when it was executed, when you received it, and why you believed it covered the transaction. Good-faith safe harbor may be fact-specific.

Buyers issuing certificates

Use the correct form. Visions' mistake forced years of audit and protest even though the seller ultimately won for 2008.

Taxpayers protesting multiple periods

List every tax year, assessment number, tax type, ground, and requested relief. An intention to challenge another year does not substitute for identifying it in writing.

Common questions

Q: Were Maestas's services actually resold?
A: Yes. Visions resold them to the Department of Health in its ordinary business and paid gross receipts tax.

Q: Which certificate was correct?
A: Type 5. Visions mistakenly issued Type 2.

Q: Why did the Type 2 still work?
A: It was timely executed, completed, and accepted in good faith for an otherwise deductible transaction, satisfying the safe-harbor analysis.

Q: What happened to the 2008 assessment?
A: It was abated in full—$3,394.80 as of the hearing.

Q: Did the decision resolve 2009?
A: No. The written protest did not identify 2009, so that assessment was not before the hearing officer.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-24(A) and Regulations 3.1.7.10 and 3.1.7.12 NMAC — substantive protest requirements
• NMSA 1978, §§ 7-9-4, 7-9-3.3, and 7-9-5 — gross receipts tax and taxable-receipts presumption
• NMSA 1978, § 7-9-48 — service-for-resale deduction
• NMSA 1978, § 7-9-43(A) and Regulation 3.2.201.15 NMAC — NTTC deadline and good-faith safe harbor

Cases cited:

• Leaco Rural Telephone Cooperative v. Bureau of Revenue, 86 N.M. 629 (Ct. App. 1974)
• Continental Inn v. New Mexico Taxation & Revenue Department, 113 N.M. 588 (Ct. App. 1992)
• Siemens Energy & Automation, Inc. v. New Mexico Taxation and Revenue Department, 119 N.M. 316 (Ct. App. 1994)
• Lopez v. New Mexico Department of Taxation & Revenue, 1997-NMCA-115

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Case Manager (Teresa Maestas)
• Decision PDF: D&O 13-12

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
CASE MANAGER No. 13-12
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L0767748416

DECISION AND ORDER

A protest hearing occurred on the above captioned matter on April 4, 2013 before Brian

VanDenzen, Esq., Tax Hearing Officer, in Santa Fe. Ms. Teresa Maestas, Case Manager,

(“Taxpayer”) appeared. Mr. David G. Zlotnick, C.P.A., appeared representing Taxpayer. Staff

Attorney Ida Luján appeared representing the State of New Mexico, Taxation and Revenue

Department (“Department”). Protest Auditor Thomas Dillon appeared as a witness for the

Department. Taxpayer Exhibits #1-3 were admitted into the record. Department Exhibits A-M

were admitted into the record. 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. Since October 2007, Taxpayer has worked as an independent contractor for

Visions Case Management, Inc., (“Visions”) providing case-management services to the

developmentally disabled across northern New Mexico. Taxpayer handles a caseload of

approximately 30-clients.

2. Visions resold Taxpayer’s subcontracting services in the regular course of its

business to the State of New Mexico, Department of Health.

3. Visions paid gross receipts tax on the resale of Taxpayer’s services. [Taxpayer

Ex. #3, Department Ex. J].

4. Through a tape mismatch between Taxpayer’s Schedule C’s, filed with the IRS,

and Taxpayer’s 2008 and 2009 CRS return, the Department detected possible gross receipts tax

liability.

5. On August 13, 2012, the Department mailed Taxpayer a “Notice of Limited

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

Nontaxable Transaction Certificates (“NTTC or NTTCs”) within 60-days—October 12, 2012.

[Department Ex. A].

6. In response to the Department’s Notice of Limited Scope Audit, Taxpayer

requested and received a Type 2 NTTC from Visions [Department Ex. B].

7. Visions completely filled out, signed, and executed a Type 2 NTTC to Taxpayer.

The Type 2 NTTC had an execution date of May 25, 2010. [Department Ex. B].

8. Taxpayer got a copy of the executed Type 2 NTTC at some unspecified point in

October of 2012 from Visions’ administrative assistant. [Compact Disc, April 4, 2013, counter

01:08:40-01:10:26].

9. Taxpayer accepted the Visions’ executed Type 2 NTTC in good faith that it was

the document she needed to send to the Department. [CD 4-4-13, 01:10:38-01:10:51].

10. In accordance with the contact information listed on the Department’s “Notice of

Limited Scope Audit Commencement-Gross Receipts,” Taxpayer called the Department’s Laura

Gage three times at unspecified points in October 2012 and left messages. Taxpayer did not hear

back from Ms. Gage. [CD 4-4-13, 23:02-23:37].

In the Matter of the Protest of Case Manager (Teresa Maestas), page 2 of 19

11. At an unspecified point in October 2012, Taxpayer went to a Department field

office off Zafarano Road in Santa Fe to inquire about what documentation she needed to provide

to Ms. Gage. Taxpayer spoke with two Department employees, who advised Taxpayer to submit

all her paperwork to Laura Gage. [CD 4-4-13, 36:24-38:18].

12. On October 22, 2012, Ms. Gage sent a letter to Taxpayer informing Taxpayer that

Taxpayer had insufficient documentation to make adjustments to Taxpayer’s gross receipts

liabilities. That letter further advised Taxpayer that she had until October 31, 2012 to present

supporting documentation, including NTTCs, or the Department would issue her assessments.

[Department Ex. C].

13. On or after October 22, 2012, in response to Ms. Gage’s October 22, 2012 letter,

Taxpayer attempted to contact Ms. Gage via telephone about what information was still needed.

Taxpayer did not hear from Ms. Gage. [CD 4-4-13, 45:15-45:42].

14. Taxpayer presented a copy of the executed Type 2 NTTC to the Department via

facsimile on October 31, 2012, after the October 12, 2012 60-day deadline but in accordance

with the deadline articulated in Ms. Gage’s October 22, 2012 letter. [Department Ex. B].

15. Taxpayer presented her 2008 federal Schedule C and her 2009 federal 1099-

MISC form to the Department via facsimile on October 31, 2012. [Department Ex. B].

16. On November 6, 2012, Ms. Gage sent Taxpayer a letter informing Taxpayer that

the Type 2 NTTC presented was not the correct type for the claimed deduction and that all

deadlines of the audit had expired. Ms. Gage did not allege that the Type 2 NTTC was untimely.

[Department Ex. D].

In the Matter of the Protest of Case Manager (Teresa Maestas), page 3 of 19

17. On November 13, 2012, under letter identification number L0767748416, the

Department assessed Taxpayer for $2,486.10 in gross receipts tax for the reporting period ending

December 31, 2008, $497.22 in penalty, and $381.06 in interest. [Department Ex. E].

18. On or about November 13, 2012, the Department also issued an assessment for

2009 gross receipts tax, penalty, and interest. [CD 4-4-13, 49:55-50:07].

19. On December 11, 2012, Taxpayer filed a protest to the Department’s 2008

assessment. In pertinent part, that letter stated

I am writing in protest in regards to the state review
completed on period ending Dec. 31, 2008. The review was
for Gross Receipts Tax for the period ending Dec. 31, 2008
for the amount of $3,364.38 which includes penalty and
interest. The agency I am contracted with has agreed to pay
all the gross receipts taxes for all who are contracted with
them. I do admit that I did not report for 2008…

[Department Ex. F].

20. Taxpayer’s protest letter did not mention the year 2009, the 2009 assessment, or

the assessed amounts of tax for reporting periods ending in 2009. [Department Ex. F].

21. On December 28, 2012, the Department acknowledged timely receipt of

Taxpayer’s protest, listing only the 2008 assessment as protested. [Department Ex. G].

22. On January 9, 2013, the Department’s Protest Auditor Tom Dillon sent Taxpayer

a letter requesting that Taxpayer present a Type 5 NTTC by January 25, 2013 that was either

“dated by the due date of the transaction or by the expiration of the 60 day period [.]” That letter

referenced only the 2008 assessment and the 2008 total assessed liability. [Department Ex. H].

23. On January 17, 2013, the Department’s Protest Auditor Tom Dillon sent Taxpayer

another letter informing Taxpayer that she had presented an incorrect Type 2 NTTC rather than

the required Type 5 NTTC. Mr. Dillon did not allege that the Type 2 NTTC was untimely. Mr.

In the Matter of the Protest of Case Manager (Teresa Maestas), page 4 of 19
Dillon further informed Taxpayer that the time had passed for Taxpayer to obtain the correct

Type 5 NTTC from Visions Case Management. That letter referenced only the 2008 assessment

and the 2008 total assessed liability. [Department Ex. I].

24. On February 6, 2013, the Department filed a request for hearing in this matter,

listing only the 2008 assessment and the 2008 total assessed liability.

25. On February 6, 2013, Chief Legal Counsel Nelson Goodin sent Taxpayer a copy

of the request for hearing, including a cover letter that referenced only the 2008 assessment and

the 2008 total assessed liability. [Department Ex. K].

26. On February 6, 2013, the Department’s Hearing Bureau sent Notice of

Administrative Hearing, scheduling this matter for April 4, 2013. This Notice only referenced the

2008 Assessment number.

27. On March 14, 2013, after the expiration of the October 12, 2012 60-day deadline,

Visions executed a Type 5 NTTC to Taxpayer. Taxpayer did not timely possess this Type 5

NTTC. [Taxpayer Ex. #2].

28. On April 2, 2013, Visions acknowledged that through inadvertent error, “an

incorrect NTTC” was issued to Taxpayer and “through no fault of [Taxpayer’s] own[,Taxpayer]

assumed it was correct.” [Taxpayer Ex. #3].

29. As of the April 4, 2013 hearing date, Taxpayer’s obligations under the 2008

assessment were $2,486.10 in 2008 gross receipts tax, $497.22 in penalty, and $411.48 in

accumulated interest, for a total outstanding balance of $3,394.80. [Department Ex. L].

DISCUSSION

There are two issues at protest. The first issue is whether Taxpayer’s protest encompassed

only the assessment of 2008 gross receipts tax, or as Taxpayer argued at hearing, also included

In the Matter of the Protest of Case Manager (Teresa Maestas), page 5 of 19
the assessment of 2009 gross receipts tax. The second issue is whether Taxpayer is entitled to a

deduction of gross receipts tax from her work as an independent contractor with Visions when

she possessed an incorrect Type 2 NTTC executed before the expiration of the October 12, 2012

60-day statutory deadline.

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); See also TPL, Inc. v. N.M.

Taxation & Revenue Dep't, 2003 NMSC 7, ¶9, 133 N.M. 447, 451, 64 P.3d 474, 478 (N.M. 2002).

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, 2003 NMCA 21, ¶13, 133 N.M. 217, 220, 62 P.3d 308, 311 (N.M. Ct. App. 2002).

Taxpayer’s Protest and the 2009 Assessment.

In opening statements at the hearing, the Department pointed out that Taxpayer’s protest

letter was limited solely to 2008. Taxpayer argued during the hearing that she intended to protest

both tax years 2008 and 2009. However, even giving Taxpayer every benefit in reading her

In the Matter of the Protest of Case Manager (Teresa Maestas), page 6 of 19
protest letter as broadly as possible, it is clear that Taxpayer only protested the assessment of

2008 gross receipts tax.

NMSA 1978, Section 7-1-24(A) (2003) lists the substantive requirements of a protest:

[a]ny taxpayer may dispute the assessment to the taxpayer of any amount
of tax…by filing with the secretary a written protest against the
assessment… Every protest shall identify the taxpayer and the tax
involved and state the grounds for the taxpayer's protest and the
affirmative relief requested. The statement of grounds for protest shall
specify individual grounds upon which the protest is based and a summary
statement of the evidence expected to be produced supporting each ground
asserted, if any; provided that the taxpayer may supplement the statement
at any time prior to ten before any hearing conducted on the protest…

See also Lopez v. New Mexico Dep't of Taxation & Revenue, 1997-NMCA-115, ¶9, 124 N.M.

270, 272, 949 P.2d 284, 286 (N.M. Ct. App. 1997) (on a deferential review standard, Court of

Appeals affirmed the hearing officer’s finding that the taxpayer in that matter had not timely

protested an audit because the letter that taxpayer submitted within 30-days did not identify the

tax protested, the grounds for protest, the relief requested, and suggested acquiescence to the

Department’s proposed audit).

Two regulations address what is substantively required of a protest. To be an effective

protest under Department Regulation 3.1.7.10 NMAC (01/15/01), the purported protest must be

in writing, filed with the secretary, identify the taxpayer and taxes at issue, state the grounds of

protest, and state the affirmative relief requested. Under Regulation 3.1.7.10 (C) NMAC

(01/15/01), while a document not complying with the statute is not considered a protest, the

Secretary may require more specificity from a taxpayer in those instances where a protest letter

lacks sufficient grounds for protest. The second regulation addressing the substantive

requirements of a protest is Regulation 3.1.7.12 NMAC (08/30/01). Regulation 3.1.7.12 (A)

NMAC (08/30/01) requires a statement of the grounds of protest, an explanation of the law and

In the Matter of the Protest of Case Manager (Teresa Maestas), page 7 of 19
facts supporting the protest, a legal basis to challenge the assessment, and a summary of the

evidence expected to be produced. Further, Regulation 3.1.7.12 (C) NMAC (08/30/01) provides

an example of an appropriate protest.

Before depriving a taxpayer a protest on the merits that a taxpayer is otherwise entitled

to, any timely filed letter should be given its broadest possible reading. However, even under this

broad reading, Taxpayer’s protest letter in this case narrowly focused only on the assessment of

2008 gross receipts tax. Taxpayer mentioned a tax period ending on December 31, 2008 twice in

her protest letter. Taxpayer also referenced 2008 a third time in her protest letter when she

admitted not reporting in that year. Taxpayer also listed the specific total amount of gross

receipts tax, penalty, and interest assessed in 2008. In contrast to the references to 2008 in the

protest letter, Taxpayer did not mention the year 2009, 2009 gross receipts taxes, any reporting

period ending in 2009, the 2009 assessment’s letter identification number, or the total amount of

assessed 2009 gross receipts tax in her protest letter. Taxpayer never protested the 2009

assessment.

Moreover, despite receiving numerous documents listing only the 2008 assessment at

issue in the protest, Taxpayer never amended her protest letter to include any reference to 2009

or attempted to file a new protest of the 2009 assessment. The Department’s acknowledgement

of protest letter listed only the assessment of $3,364.38 in tax for a reporting period ending on

December 31, 2008. Both of Mr. Dillon’s letters and General Counsel Nelson Goodin’s letter

only referenced the “2008 Project Assessment, Amount Assessed: $3,364.38.” The Department’s

February 6, 2013 Request for Hearing in this matter, a copy of which was sent to Taxpayer,

referenced only the 2008 Assessment’s letter id. # L0767748416 and listed only the 2008

assessment $3,364.38 as in controversy. That is not to say that any of these Department letters

In the Matter of the Protest of Case Manager (Teresa Maestas), page 8 of 19
control or limit a Taxpayer’s articulated grounds of protest. But these letters show that Taxpayer

had reasonable notice that the Department believed her protest was limited to the assessment of

2008 taxes and Taxpayer did nothing to challenge that view such as file a new protest or attempt

to amend her original protest to include the 2009 assessment.

Because even under a broad reading Taxpayer’s protest letter cannot be read to include a

protest of the 2009 assessment, the 2009 assessment is not before the hearing officer in this

matter.

Gross Receipts Tax, the Deduction, NTTCs, and Good Faith.

For the privilege of 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). “Engaging in

business” is defined as “carrying on or causing to be carried on any activity with the purpose of

direct or indirect benefit.” NMSA 1978, Section 7-9-3.3 (2003). 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 2008, Taxpayer was engaged

in business as a subcontractor for Visions in northern New Mexico. As such, any of Taxpayer’s

receipts during 2008 (unless otherwise exempted or deductable) were presumed subject to gross

receipts tax under NMSA 1978, Section 7-9-5 (2002).

The New Mexico Gross Receipts and Compensating Tax Act provides numerous deductions

and exemption of gross receipts tax. Taxpayer’s sale of her case management services to Visions is

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

§ 7-9-48 (2000) states 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 Case Manager (Teresa Maestas), page 9 of 19
The buyer delivering the nontaxable transaction certificate must
resell the service in the ordinary court of business and the resale must
be subject to the gross receipts tax....

There is no doubt on this record that Visions resold Taxpayer’s case management services in its

ordinary course of business and that this resale was subject to gross receipts tax. Consequently,

since the transaction at issue was otherwise nontaxable under NMSA 1978, § 7-9-48 (2000),

Taxpayer needed only to satisfy the NTTC requirement to claim that deduction.

There are two relevant requirements for obtaining NTTCs under NMSA 1978, § 7-9-43 (A)

(2011). First, under that that statute,

[a]ll 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…

(emphasis added). 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. However, 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 presented two executed NTTCs: a Type 2 NTTC executed before the

60-day deadline on May 25, 2010, and a Type 5 NTTC executed on March 14, 2013, after the 60-

day deadline. While Taxpayer presented a timely executed Type 2 NTTC, a Type 2 is not the

correct type of NTTC for her claimed deduction. Since Taxpayer was seeking a deduction for the

selling of a service for resale under NMSA 1978, § 7-9-48 (2000) rather than the selling or leasing
In the Matter of the Protest of Case Manager (Teresa Maestas), page 10 of 19
of tangible personal property covered by a Type 2 NTTC, Taxpayer needed to present a Type 5

NTTC. The Type 5 NTTC that Taxpayer eventually presented, while the correct type to support

Taxpayer’s claimed deduction under NMSA 1978, §7-9-48 (2000), was not timely executed or

possessed by the October 12, 2012 60-day deadline. Therefore, under NMSA 1978, §7-9-43 (A)

(2011), the Department cannot consider that Type 5 NTTC to support Taxpayer’s claimed

deduction.

However, because of the second relevant portion of NMSA 1978, §7-9-43(A) (2011), the

good-faith, conclusive evidence safe harbor portion, the analysis in this case does not end with the

untimely Type 5 NTTC. NMSA 1978, §7-9-43(A) (2011) grants taxpayers a good-faith acceptance,

conclusive evidence safe harbor in some circumstances:

[w]hen the seller or lessor accepts a nontaxable transaction certificate within
the required time and in good faith that the buyer or lessee will employ the
property or service transferred in a nontaxable manner, the properly executed
nontaxable transaction certificate shall be conclusive evidence, and the only
material evidence, that the proceeds from the transaction are deductible from
the seller's or lessor's gross receipts.

In other words, the statute grants the seller of the service safe harbor from taxation when the seller

timely accepts a properly executed NTTC in good faith from the buyer. Regulation 3.2.201.15

NMAC (05/31/01) discusses good faith acceptance of a NTTC:

Acceptance of [NTTCs] in good faith that the property or service sold
thereunder will be employed by the purchaser in a nontaxable manner is
determined at the time of each transaction. The taxpayer claiming the
protection of a certificate continues to be responsible that the goods
delivered or services performed thereafter are of the type covered by the
certificate.

The remaining question in this case then is whether Taxpayer’s presentation of a timely executed,

but improper Type 2 NTTC is conclusive evidence under NMSA 1978, §7-9-43 (A) (2011)

supporting her claimed deduction.

In the Matter of the Protest of Case Manager (Teresa Maestas), page 11 of 19
Turning to the case law for guidance on this remaining question, in Leaco Rural Tel. Coop.

v. Bureau of Revenue, 86 N.M. 629, 632, 526 P.2d 426, 429 (N.M. Ct. App. 1974), the New Mexico

Court of Appeals considered what requirements must be met “before an NTTC becomes conclusive

evidence that proceeds of a transaction are deductible.” While the Leaco Court of Appeals was

considering NMSA 1978, §7-9-43(A) (2011)’s predecessor statue, NMSA 1953, Section 72-16A-

13(A), the good faith, safe harbor provision of both statutes is substantially the same. In Leaco, a

buyer had executed a NTTC to a seller for a transaction held to be subject to tax. The Leaco court

found that a seller-taxpayer must satisfy three statutory requirements before good faith, conclusive

evidence safe harbor protection attaches to the transaction. See id. As the Leaco Court of Appeals

expounded, those three “requirements are timeliness of acceptance of the NTTC, good faith

acceptance of the NTTC and a properly executed NTTC.” id. By “properly executed” the Leaco

Court of Appeals—relying on the Black’s Law Dictionary—meant only that the NTTC forms were

filled out and signed. See id. If these three conditions are met, then the Leaco Court of Appeals

found that the NTTC becomes the only material and conclusive evidence establishing that the seller-

taxpayer is entitled to the claimed deduction even when the buyer improperly issued the NTTC to

the seller. See id; See also Rainbo Baking Co. v. Commissioner of Revenue, 84 N.M. 303, 305 502

P.2d 406, 408 (N.M. Ct. App. 1972) (absent a claim of bad faith, some other issue of good faith, or

a claim of improper execution of the NTTC, a taxpayer’s presentation of the NTTC established that

taxpayer’s claim with conclusive evidence). The Leaco Court of Appeals found no relevance to the

fact that the buyer had improperly issued a NTTC to the seller by stating that was an issue between

the Department and the buyer. See Leaco at 632, 429.

While Leaco found no relevance to whether the buyer improperly issued a NTTC to the

seller, the Court of Appeals modified that stance somewhat when it found in McKinley Ambulance

In the Matter of the Protest of Case Manager (Teresa Maestas), page 12 of 19
Serv. v. Bureau of Revenue, 92 N.M. 599, 601, 592 P.2d 515, 517 (N.M. Ct. App. 1979) that the

good-faith, conclusive evidence provision did not protect a seller from taxation “unless the

certificate covered the receipts in question.” That is, since there was “no certificate applicable” for

the type of services that taxpayer provided, the McKinley Ambulance Serv. Court of Appeals upheld

the Department’s denial of the deduction. id. at 602, 58. Similarly (although perhaps in dicta), the

Court of Appeals in Gas Co. v. O'Cheskey, 94 N.M. 630, 632, 614 P.2d 547, 549 (N.M. Ct. App.

1980) stated that “[t]he issuance of a ‘Nontaxable Transaction Certificate’ does not operate to

transform an otherwise taxable transaction into a nontaxable transaction.” However, the Gas Co.

Court of Appeals expressly noted that Leaco remained an exception1. See Gas Co. at 632, 549.

Since Gas Co. was decided after McKinley Ambulance Serv., Gas Co.’s subsequent reaffirmation of

Leaco meant that Leaco remained good law even after McKinley Ambulance Serv. In Arco

Materials v. Taxation & Revenue Dep't, 118 N.M. 12, 15-16, 878 P.2d 330, 333-334 (N.M. Ct. App.

1994), rev’d on other grounds, 118 N.M. 647, 884 P.2d 803 (1994), the Court of Appeals cited

Regulation 3.2.201.15 NMAC (05/31/01) favorably in finding that a taxpayer was not protected by

its acceptance of an executed NTTC when a change in law rendered the executed NTTC invalid for

the transaction in question. See also Proficient Food Co. v. New Mexico Taxation & Revenue Dep't,

107 N.M. 392, 397, 758 P.2d 806, 811 (N.M. Ct. App. 1988) (taxpayer not entitled to a deduction

when the nontaxable transaction form presented was not in the NTTC form proscribed by the

Department).

Leaco and not McKinley Ambulance Serv., Arco, Proficient Food Co., or Gas Co. control

the outcome of this protest both because those other cases are distinguishable from transaction at

issue in this protest and because NMSA 1978, §7-9-43(A) (2011) must be read to give full effect to

1
Although in practical effect, Leaco did exactly what Gas Co. sought later to prohibit: through its good faith
acceptance of an improperly executed NTTC, the seller in Leaco was able to convert a taxable transaction not
otherwise subject to any valid deduction into a nontaxable transaction.

In the Matter of the Protest of Case Manager (Teresa Maestas), page 13 of 19
that statute’s good-faith, safe harbor provision. The transaction at issue between Taxpayer and

Visions in this protest qualified for a deduction under NMSA 1978, § 7-9-48 (2000) because

Taxpayer sold Visions a service, which Visions resold in its regular course of business to the State,

the resale of which was subject to gross receipts tax that Visions in fact paid. McKinley Ambulance

Serv. is distinguishable from the facts of this protest. Unlike here, the Court of Appeals in McKinley

Ambulance Serv. found that transaction at issue in that case was taxable and not covered by the

claimed deduction. See McKinley Ambulance Serv. at 601, 517. The fact that no certificate could

have covered the transaction (because Taxpayer’s services did not qualify for a deduction) was an

important part of the Court of Appeals finding in McKinley Ambulance Serv. See id. at 602, 518.

This protest is not the McKinley Ambulance Serv. or Gas Co. scenario where Taxpayer is attempting

to convert a taxable transaction not covered by any relevant deduction into a nontaxable transaction

by virtue of NMSA 1978, §7-9-43(A) (2011)’s good faith, conclusive evidence safe harbor

provision. Nor is this the Arco case, where a statutory change rendered the executed NTTC invalid

for the underlying transaction. Moreover, this is also not the Proficient Food Company case because

all the NTTCs executed in this matter were on a form proscribed by the Department. In this case,

Taxpayer merely seeks to substantiate a deduction for a transaction that but for the procedural

NTTC issue would clearly qualify as a recognized and proper deduction under NMSA 1978, § 7-9-

48 (2000).

The other reason McKinley Ambulance Serv., Arco, and Regulation 3.2.201.15 NMAC

(05/31/01) do not control the outcome of this protest has to do with giving full effect to NMSA

1978, §7-9-43 (A) (2011)’s good faith, conclusive evidence safe harbor provision. Statutes are to be

interpreted in a manner to give the entire statute effect and not render portions of the statute

superfluous. See Regents of the Univ. of New Mexico v. New Mexico Fed'n of Teachers, 1998-

In the Matter of the Protest of Case Manager (Teresa Maestas), page 14 of 19
NMSC-20, ¶28, 125 N.M. 401, 411, 962 P.2d 1236, 1246 (N.M. 1998). If the answer to the

remaining issue in this protest is that Taxpayer is not entitled to the statute’s good-faith safe harbor

protection merely because Visions timely and properly executed an incorrect type of NTTC to

Taxpayer, then the safe-harbor protection of NMSA 1978, §7-9-43 (A) (2011) would be

superfluous. That is so because if the good faith safe harbor only applied to instances where the

buyer timely executed a proper type of NTTC to a seller-taxpayer for a legitimately deductable

transaction, a seller-taxpayer would have already qualified for the deduction under the first portion

of NMSA 1978, §7-9-43 (A) (2011) without ever having to consider that statute’s safe harbor

provision. In other words, there would be no purpose in creating a good faith, safe harbor exception

to the statute’s NTTC requirements if the only way a taxpayer could ever qualify for the exception

is by otherwise satisfying the statute’s primary NTTC requirements. In simplest form, there is no

meaningful exception to the rule if the exception itself requires full compliance with the rule.

Therefore, in order to give full effect to NMSA 1978, §7-9-43 (A) (2011), the good-faith safe harbor

provision must be considered for an otherwise nontaxable taxable transaction even though Visions

executed an improper type of NTTC to Taxpayer .

Under the three-part Leaco good-faith, conclusive evidence test, Taxpayer presented

conclusive evidence that she is entitled to her claimed deduction. The first prong is the timeliness of

acceptance of a NTTC. See Leaco at 632, 429. While it is unclear exactly when in October

Taxpayer received a copy of the Type 2 NTTC, the Type 2 NTTC had an execution date of May 25,

2010, well before the October 12, 2012 60-day statutory deadline. By presenting an NTTC with an

execution date before the 60-day deadline, Taxpayer met her initial burden and shifted the burden to

the Department to establish that she did not timely possess that document by the October 12, 2012

60-day deadline. See Siemens Energy & Automation, Inc. v. New Mexico Taxation and Revenue

In the Matter of the Protest of Case Manager (Teresa Maestas), page 15 of 19
Department, 119 N.M. 316, 318, 889 P.2d 1238, 1240 (Ct. App. 1994) (presentation of a

multistate nontaxable transaction certificate satisfied presumption of correctness and shifted

burden to Department to show certificate was invalid); See also MPC Ltd. at ¶13, 220, 311.

It is also worth noting that the Department’s own letters in this case indicate that the

Department’s main concern was the date of the execution of Taxpayer’s supporting NTTC, not

whether Taxpayer showed the Department that document by October 12, 2012. Ms. Gage gave

Taxpayer until October 31, 2012 to produce the documents, including NTTCs, supporting the

deduction, a deadline Taxpayer complied with in this matter. Since that date was after the statute’s

mandatory 60-day deadline, the purpose of allowing Taxpayer to submit a NTTC after the 60-day

deadline could only have been for Ms. Gage to check the execution date of the NTTC. Even clearer

is Mr. Dillon’s letter of January 9, 2013, where he asks Taxpayer to submit a Type 5 NTTC by

January 25, 2013 that “must have been dated… by the expiration of the 60-day period…” Although

Mr. Dillon was focused on a different type of NTTC, his interest was still on the execution date of

that NTTC. At no point did either Ms. Gage or Mr. Dillon allege that Taxpayer did not timely

possess the Type 2 NTTC, only that it was the incorrect type to cover the transaction at issue.

Another factor under Leaco is whether there was a properly executed NTTC. See Leaco at

632, 429. Again, by “proper execution”, the Leaco court meant that the NTTC was filled out,

signed, and completed. See id. In this case, the Type 2 NTTC was completed and signed by Visions

in a form developed by the Department. The fact that Visions Management, Inc. improperly

executed a Type 2 NTTC to Taxpayer rather than a Type 5 NTTC that covered the transaction is an

issue between the Department and Visions Management, Inc. See Leaco at 632, 429.

The final requirement under Leaco is good faith acceptance. See id. NMSA 1978, §7-9-43

(2011), Regulation 3.2.201.15 NMAC (05/31/01), and Leaco do not expressly define what is meant

In the Matter of the Protest of Case Manager (Teresa Maestas), page 16 of 19
by good faith acceptance of a NTTC. However, another recent Court of Appeals cases provided

some guidance on what is meant by good faith acceptance of a NTTC. In Cont'l Inn v. N.M.

Taxation & Revenue Dep't, 113 N.M. 588, 591-592, 829 P.2d 946, 949-950 (N.M. Ct. App. 1992),

the Court of Appeals rejected a claim of no good faith because “the timely delivery of a NTTC from

the buyer to the seller convey[ed] a message to the seller that the use of the NTTCs is such that the

seller is entitled to deductions…” id. at 592, 950. In other words, the message conveyed by a buyer

to a seller by the issuance of a NTTC is enough for the seller to have good faith (or at least not bad

faith) that it is entitled to a deduction for the transaction at issue.

Further, in other contexts, the New Mexico Court of Appeals has turned to Black’s Law

Dictionary to define good faith. In the case Erica, Inc. v. N.M. Regulation & Licensing Dep't, 2008

NMCA 65, ¶18, 144 N.M. 132, 140, 184 P.3d 444, 452 (N.M. Ct. App. 2008), the Court of Appeals

stated that

[g]ood faith is a broad term: "The phrase 'good faith' is used in a variety of
contexts, and its meaning varies somewhat with the context." Black's Law
Dictionary 701 (7th ed. 1999) (internal quotation marks and citation omitted)
(defining good faith as "A state of mind consisting in (1) honesty in belief or
purpose, (2) faithfulness to one's duty or obligation, (3) observance of
reasonable commercial standards of fair dealing in a given trade or business,
or (4) absence of intent to defraud or to seek unconscionable advantage").

Considering these conceptions of good faith in applying the final Leaco safe harbor

requirement, Taxpayer in good faith believed that the Type 2 NTTC Visions executed to her

allowed Taxpayer to deduct her Visions’ gross receipts. Visions indicated that through no fault of

Taxpayer, she assumed that the Type 2 NTTC executed to her allowed her to deduct the gross

receipts tax that Visions was responsible for paying. Like discussed in Cont'l Inn at 592, 950,

Taxpayer’s belief and acceptance of the executed Type 2 NTTC was not unreasonable or in bad

faith given the message that Visions Management, Inc’s conveyance of that NTTC sent to Taxpayer

In the Matter of the Protest of Case Manager (Teresa Maestas), page 17 of 19
(a message perhaps even stronger than in Cont’l Inn given Visions’ additional assurances that it was

responsible for the gross receipts tax). There is no evidence on this record that Taxpayer acted with

dishonesty, deceit, with intent to defraud, or in any other malevolent manner in accepting Visions’

executed Type 2 NTTC. The Department did not allege or prove that Taxpayer did not act in good

faith in accepting Visions’ executed Type 2 NTTC. The facts of this case fall under the Cont'l Inn

conception of good faith and meet the Black’s Law Dictionary definition of good faith cited

favorably by the Court of Appeals in Erica, Inc. at ¶18, 140.

In summary, all three Leaco requirements for the good faith, conclusive evidence protection

under the statute are met in this case. While McKinley Ambulance Serv. and Department Regulation

3.2.201.15 NMAC (05/31/01) still provide some hesitation given that the Type 2 NTTC was not the

correct type to cover the otherwise nontaxable transaction, it is difficult to conceive that the statute’s

good-faith, conclusive evidence protection could transform Leaco’s clearly taxable transaction

unsupported by any applicable deduction into a nontaxable transaction, yet not protect Taxpayer in

this circumstance when the transaction is covered by a deduction and all other NTTC safe harbor

requirements are met. Consequently, Leaco dictates in this circumstance that the timely executed

Type 2 NTTC Taxpayer accepted in good faith is conclusive evidence under NMSA 1978, §7-9-

43(A) (2011) that Taxpayer is entitled to the deduction under NMSA 1978, § 7-9-48. Taxpayer’s

protest to the 2008 assessment is granted.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely, written protest to the assessment of 2008 gross receipts tax.

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

B. Taxpayer protested the 2008 assessment in her protest letter. Taxpayer did not

protest the 2009 assessment.

In the Matter of the Protest of Case Manager (Teresa Maestas), page 18 of 19
C. In the regular course of its business, Visions resold the services of Taxpayer and

paid gross receipts tax on the receipts from that resale, making the transaction eligible for a

deduction under NMSA 1978, § 7-9-48 (2000).

D. Taxpayer timely accepted a completed and executed Type 2 NTTC from Visions in

good faith.

E. Taxpayer’s possession of a timely executed Type 2 NTTC that she accepted in good

faith is conclusive evidence under NMSA 1978, §7-9-43(A) (2011) that she was entitled to her

claimed deduction. See Leaco Rural Tel. Coop. v. Bureau of Revenue, 86 N.M. 629, 632, 526 P.2d

426, 429 (N.M. Ct. App. 1974).

For the foregoing reasons, the Taxpayer's protest of the 2008 Assessment IS GRANTED.

DATED: May 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 Case Manager (Teresa Maestas), page 19 of 19