Could a building-products wholesaler keep a gross receipts deduction when its buyer went out of business before providing the missing NTTC?

Plain-English summary

Apex New Mexico Distributer could not claim a wholesale gross receipts deduction without the required NTTC, even though its former buyer had gone out of business and would not cooperate. The seller bore the risk of failing to collect the certificate when the transactions occurred.

Apex wholesaled building products and concrete forms in New Mexico during 2009. A 2012 audit initially produced an assessment of $1,106.38 in tax, $221.28 in penalty, and $106.33 in interest.

The company later produced an NTTC covering part of the receipts. The Department gave credit for that certificate and reduced the assessment to:

• $698.32 in gross receipts tax;
• $139.66 in penalty; and
• $84.91 in interest.

The missing certificate made the remaining deduction unavailable

Apex could not obtain an NTTC for the rest of the assessment because the buyer had closed and was uncooperative. Its business manager had not collected the certificates when the sales occurred, and Apex did not discover the gap until the audit.

Section 7-9-43 said sellers should possess NTTCs when the receipts are due. If the seller still lacks them within 60 days after the Department's demand, deductions requiring the certificates “shall be disallowed.” The decision treated that language as mandatory.

The buyer's closure did not establish the deduction. Apex had neither the proper NTTC within the allowed time nor one at the hearing.

Penalty and interest also remained

The decision treated the manager's failure to obtain the certificates as negligence attributable to Apex. A lack of knowledge or mistaken belief that tax was not owed did not excuse the penalty.

Interest was mandatory because the underlying gross receipts tax had not been paid when due.

Result: protest denied. The reduced assessment remained in place, totaling $922.89 in tax, penalty, and interest at the amounts stated in the decision.

What this means for you

Wholesalers and sellers claiming NTTC-based deductions

Collect the correct certificate at the time of sale and validate its form and type. A buyer may later close, merge, or stop responding.

Businesses preparing for an audit

Produce every available NTTC promptly. Apex reduced its assessment for the receipts covered by the certificate it could supply, even though the unsupported balance remained taxable.

Owners delegating exemption paperwork

Assign responsibility and audit the files. An employee's failure to collect certificates was treated as the taxpayer's negligence.

Common questions

Q: Did Apex receive any reduction?
A: Yes. The Department partially abated the assessment after Apex produced an NTTC for some receipts.

Q: Why did the rest remain taxable?
A: Apex never possessed the proper NTTC for the remaining transactions within the statutory period.

Q: Did the buyer's closure excuse the missing certificate?
A: No. The deduction had to be established by the seller claiming it.

Q: Why was the penalty upheld?
A: Apex acknowledged that its business manager negligently failed to obtain NTTCs when the transactions occurred.

Q: What remained due?
A: $698.32 in tax, $139.66 in penalty, and $84.91 in interest.

Citations and references

Statutes and regulation:

• NMSA 1978, §§ 7-1-17 and 7-1-3 — assessment presumption and definition of tax
• NMSA 1978, § 7-9-43 and Regulation 3.2.201.8(D) NMAC — NTTC form and deadline
• NMSA 1978, § 7-1-67(A) — mandatory interest
• NMSA 1978, § 7-1-25 and Rule 12-601 NMRA — appeal procedure

Cases cited:

• Proficient Food Co. v. New Mexico Taxation and Revenue Department, 107 N.M. 392 (Ct. App. 1988)
• Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16 (Ct. App. 1976)
• El Centro Villa Nursing Center v. Taxation and Revenue Department, 108 N.M. 795 (Ct. App. 1989)
• State v. Lujan, 90 N.M. 103 (1977)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Apex New Mexico Distributer LLC
• Decision PDF: D&O 13-23

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
APEX NEW MEXICO DISTRIBUTER LLC, No. 13-23
TO ASSESSMENTS ISSUED UNDER
ID NO. L0183380288

DECISION AND ORDER

A formal hearing on the above-referenced protest was held August 23, 2013, before Dee

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

represented by Mr. Aaron Rodriguez, Staff Attorney and Mr. Nelson Goodin, Chief Legal Counsel.

Ms. Sonya Varela, Auditor, also appeared on behalf of the Department. Mr. James Montoya,

owner and President of Apex New Mexico Distributer LLC (Taxpayer), appeared for the hearing

and represented itself. The Hearing Officer took notice of all documents in the administrative

file. Based on the evidence and arguments presented, IT IS DECIDED AND ORDERED AS

FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer was engaged in business in New Mexico as a wholesaler of building

products and concrete forms in the 2009 tax year.

2. The Department began an audit of the Taxpayer in 2012.

3. On June 26, 2012, the Department assessed the Taxpayer for gross receipts tax, penalty,

and interest for the tax period ending on December 31, 2009. The assessment was for

$1,106.38 tax, $221.28 penalty, and $106.33 interest.

4. On July 20, 2012, the Taxpayer filed a formal protest letter.
5. The Taxpayer produced a non-taxable transaction certificate (NTTC) for part of the gross

receipts taxes that were assessed.

6. The Department partially abated the assessment based on the NTTC. The assessment has

been adjusted to $698.32 in gross receipts tax, $139.66 in penalty, and $84.91 in interest.

7. On May 21, 2013, the Department filed a Request for Hearing asking that the Taxpayer’s

protest be scheduled for a formal administrative hearing.

8. The Taxpayer was unable to obtain an NTTC for the remaining balance of the assessment

because the company that the Taxpayer dealt with has gone out of business and has been

uncooperative. The Taxpayer’s business manager was negligent in not obtaining NTTCs

at the time of the transactions, and the Taxpayer did not realize the NTTCs had not been

obtained until the audit began in 2012.

DISCUSSION

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

and interest for the tax period ending in December 2009, due to its failure to obtain an NTTC.

Burden of Proof.

Assessments by the Department are presumed to be correct. See NMSA 1978, § 7-1-17.

Tax includes, by definition, the amount of tax principal imposed and, unless the context

otherwise requires, “the amount of any interest or civil penalty relating thereto.” NMSA 1978, §

7-1-3. See also, El Centro Villa Nursing Center v. Taxation and Revenue Department, 108 N.M.

795, 779 P.2d 982 (Ct. App. 1989). Therefore, the assessment issued to the Taxpayer is

presumed to be correct, and it is the Taxpayer’s burden to present evidence and legal argument to

show that it is not liable for the tax and is entitled to an abatement of penalty and interest.

NTTCs.

Apex New Mexico Distributer LLC
Letter ID No. L0183380288
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A taxpayer engaged in business may be able to deduct certain gross receipts when they

are provided with NTTCs from buyers. See NMSA 1978, § 7-9-43 (2005). An NTTC must be

in the proper form and of the proper type to be valid. See 3.2.201.8 (D) NMAC (2001). A

taxpayer should be in possession of NTTCs when the receipts from the transaction are due. See

NMSA 1978, § 7-9-43. If the taxpayer is not in possession of NTTCs within sixty days of the

notice from the Department requiring possession of NTTCs, “deductions claimed by the seller or

lessor that require delivery of these nontaxable transaction certificates shall be disallowed.” Id.

(emphasis added). The word “shall” indicates that the disallowance of the deduction is mandatory,

not discretionary. See State v. Lujan, 90 N.M. 103, 105, 560 P.2d 167, 169 (1977).

A right to a deduction must be established by the taxpayer claiming the deduction, and

the failure of the taxpayer to possess an NTTC in the form and within the time prescribed by the

Department is a valid reason to deny the deduction. See Proficient Food Co. v. N.M. Taxation

and Revenue Dep’t., 107 N.M. 392, 397, 758 P.2d 806 (Ct. App. 1988) (holding that the

Department had properly denied the deduction when the taxpayer had not received the proper

form from the buyer within the time limit).

Because Taxpayer was not in possession of the proper NTTC within the time limits and is

still not in possession of the NTTC, the deduction was properly disallowed.

Assessment of Penalty.

A taxpayer’s lack of knowledge or erroneous belief that the taxpayer did not owe tax is

considered to be negligence for purposes of assessment of penalty. See Tiffany Const. Co., Inc.

v. Bureau of Revenue, 90 N.M. 16, 558 P.2d 1155 (Ct. App. 1976). Therefore, the penalty was

properly assessed.

Assessment of Interest.

Apex New Mexico Distributer LLC
Letter ID No. L0183380288
page 3 of 5
Interest “shall be paid” on taxes that are not paid on or before the date on which the tax is

due. NMSA 1978, § 7-1-67 (A). The word “shall” indicates that the assessment of interest is

mandatory, not discretionary. See State v. Lujan, 90 N.M. 103, 105, 560 P.2d 167, 169 (1977).

The assessment of interest is not designed to punish taxpayers, but to compensate the state for

the time value of unpaid revenues. Because the gross receipts tax was not paid when it was due,

interest was properly assessed.

CONCLUSIONS OF LAW

1. Taxpayer filed a timely written protest to the Notice of Assessment of 2009 gross

receipts taxes issued under Letter ID number L0183380288, and jurisdiction lies over the parties

and the subject matter of this protest.

2. Taxpayer was properly assessed for gross receipts tax, penalty, and interest for the

2009 tax year.

3. The Taxpayer failed to obtain an NTTC for the remaining gross receipts tax balance

of $698.32

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

DATED: September 12, 2013.

Dee Dee Hoxie
DEE DEE HOXIE
Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

NOTICE OF RIGHT TO APPEAL
Apex New Mexico Distributer LLC
Letter ID No. L0183380288
page 4 of 5
Pursuant to NMSA 1978, § 7-1-25, the parties 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 Rule 12-601 NMRA. If an appeal is not filed within 30 days, this Decision

and Order will become final. A copy of the Notice of Appeal should be mailed to John Griego,

P. O. Box 630, Santa Fe, New Mexico 87504-0630. Mr. Griego may be contacted at 505-827-

0466.

CERTIFICATE OF SERVICE

I hereby certify that I mailed the foregoing Order to the parties listed below this _ day of
___, 20__ in the following manner:

First Class Mail Interoffice Mail

James Montoya Aaron Rodriguez
Apex New Mexico Distributer LLC Taxation and Revenue Department, Legal
PO Box 2661 1100 S. St. Francis
Los Lunas, NM 87031-2661 Santa Fe, NM 87504

Apex New Mexico Distributer LLC
Letter ID No. L0183380288
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