Did an antique seller avoid gross receipts tax because the antique-mall owner collected tax at checkout and later issued an NTTC?

Plain-English summary

Classic Cobwebs owed gross receipts tax on antique sales made through its rented mall booths because it had no timely NTTC and no approved agreement shifting the tax to the mall owner. The AHO upheld $6,649.53 of tax, penalty, and interest outstanding at the hearing.

Classic Cobwebs bought antiques at auctions, estate sales, and garage sales, then displayed them in rented antique-mall space. It priced the items but did not staff the booth. Mall employees completed sales at a central counter, and the mall owner collected the money before remitting all sale proceeds to Classic Cobwebs. The owner kept no sales commission; the mall was paid through monthly booth rent.

Classic Cobwebs believed the mall owner paid gross receipts tax on its sales. But their contract did not address the tax, and the business filed combined-system returns for 2010 and 2011 without making gross receipts tax payments.

The sales were Classic Cobwebs' taxable receipts

New Mexico presumed that receipts of a person engaged in business were taxable. Classic Cobwebs acknowledged that it acquired and sold antiques as a business.

The business did not identify a specific deduction. The closest possible deduction was Section 7-9-47 for tangible personal property sold for resale, but the facts did not show a resale to the mall. Classic Cobwebs sold directly to the final consumers; mall staff merely handled checkout.

The NTTC arrived after the mandatory deadline

Even if a resale deduction had fit the transactions, it required a nontaxable transaction certificate. Section 7-9-43 said the seller should possess the NTTC when the relevant return was due and gave an audited seller a second chance to obtain it within 60 days after Department notice.

The Department's June 27, 2014 limited-scope audit notice gave Classic Cobwebs until August 26. The mall owner was delinquent with the Department and did not execute a Type 2 NTTC until December 3—after the deadline.

The AHO held that the statutory deadline was mandatory. The reason for delay did not matter, and the Department had no authority to allow an NTTC-dependent deduction after the 60 days expired.

No approved TS-22 shifted the liability

The mall owner twice submitted a Form TS-22, Agreement to Collect and Pay over Taxes, in 2014 and asked that it apply retroactively to March 2010. The Department did not sign or approve either request.

Section 7-1-21.1 gave the Department discretion whether to enter the agreement. The decision found it reasonable to decline a retroactive shift to a mall owner who was already delinquent. Without an approved TS-22, the gross receipts tax remained Classic Cobwebs' obligation.

Tax collection alone did not establish equitable recoupment

Classic Cobwebs argued that it should not pay tax that the mall owner had already collected from customers. Equitable recoupment could reduce an assessment when another person had paid tax on the taxpayer's behalf on the same transaction.

But the evidence showed only that the mall owner collected the tax. Her letter indicated that she did not submit CRS returns or payments to the Department, and she did not testify. Without proof that another person had actually paid the tax, Classic Cobwebs did not establish equitable recoupment.

Penalty and interest remained due

Interest was mandatory from the original due date until the tax principal was paid. The AHO also upheld civil-negligence penalty because Classic Cobwebs did not pay the tax or secure an executed TS-22 during 2010 and 2011.

The decision credited the business's history of tax compliance and good intentions, but those facts did not fit a statutory or regulatory basis for penalty abatement.

Result: protest DENIED. At the hearing, Classic Cobwebs owed:

• 2010: $1,248.89 tax, $249.78 penalty, and $168.01 interest, totaling $1,666.68; and
• 2011: $3,841.82 tax, $768.36 penalty, and $372.67 interest, totaling $4,982.85.

The combined outstanding liability was $6,649.53.

What this means for you

Antique and consignment sellers

Do not assume that a mall, marketplace, or checkout operator is paying tax on your behalf. Put tax responsibility in the contract and verify whether an approved agreement actually shifts the legal obligation.

Businesses claiming NTTC-supported deductions

Obtain the correct certificate when the transaction occurs. If an audit notice gives you 60 days, a certificate executed after that deadline cannot support the deduction under the rule applied here.

Marketplace and mall operators

Collecting tax from a customer is not the same as remitting it to the Department or formally assuming another seller's liability. The TS-22 in this case was ineffective because the Department never approved it.

Common questions

Q: Did the antique mall own or resell Classic Cobwebs' merchandise?
A: No. Classic Cobwebs sold directly to consumers; mall employees only completed checkout and passed all sale proceeds to the seller.

Q: Was the late NTTC accepted?
A: No. It was executed December 3, 2014, after the August 26 audit deadline.

Q: Did the mall owner's promise to handle the audit shift the tax?
A: No. There was no tax provision in the contract and no Department-approved TS-22.

Q: Why didn't equitable recoupment apply?
A: Classic Cobwebs did not prove that the mall owner paid the tax to the Department. Evidence that the owner collected it from customers was not enough.

Q: Were penalty and interest abated because the business acted in good faith?
A: No. The AHO found civil negligence and no applicable basis for penalty relief; interest was mandatory.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-9-3.3, 7-9-4, and 7-9-5 — engaging in business and gross receipts tax
• NMSA 1978, §§ 7-9-47 and 7-9-43 — resale deduction and NTTC deadline
• NMSA 1978, § 7-1-21.1 — agreement to collect and pay over tax
• NMSA 1978, §§ 7-1-28(F) and 7-1-29(H) — equitable recoupment
• NMSA 1978, §§ 7-1-67 and 7-1-69 — interest and civil-negligence penalty
• Regulations 3.2.201.12(C), 3.2.4.8, and 3.2.6.9 NMAC — untimely NTTC and incidence of gross receipts tax
• Regulations 3.1.11.10 and 3.1.11.11(D) NMAC — negligence and penalty-relief indicators

Cases cited:

• Proficient Food Co. v. New Mexico Taxation & Revenue Department, 1988-NMCA-042 — untimely NTTC as a valid basis to deny a deduction
• Teco Investments v. Taxation & Revenue Department, 1998-NMCA-055 — equitable-recoupment elements
• Vivigen, Inc. v. Minzner, 1994-NMCA-027 — limited application of equitable recoupment
• Tiffany Construction Co. v. Bureau of Revenue, 1976-NMCA-127 — duty to determine tax consequences

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Classic Cobwebs
• Decision PDF: D&O 15-05

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
CLASSIC COBWEBS 15-05
TO ASSESSMENT ISSUED UNDER LETTER
ID NO.’s L0135326672 and L1209068496

DECISION AND ORDER

A protest hearing occurred on the above captioned matter on January 7, 2015 before

Chief Hearing Officer Brian VanDenzen, Esq., in Santa Fe. Kathy Karas and Roger Bauer

appeared for Classic Cobwebs (“Taxpayer”). Accountant Ray Scott also appeared to testify on

Taxpayer’s behalf. Deputy Chief Legal Counsel Julia Belles appeared representing the State of

New Mexico, Taxation and Revenue Department (“Department”). Protest Auditor Milagros

Bernardo appeared as a witness for the Department. Taxpayer Exhibits #1-3 and Department

Exhibits A-F were admitted into the record, as more thoroughly described in the Exhibit Log.

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

FOLLOWS:

FINDINGS OF FACT

1. On September 22, 2014, under letter id. no. L0135326672, the Department

assessed Taxpayer for $1,263.89 in gross receipts tax, $252.78 in penalty, and $156.32 in interest

for a total assessment of $1,672.99 for the combined reporting periods between January 1, 2010

through December 31, 2010. [Department Ex. B-1].

2. On September 22, 2014, under letter id. no. L1209068496, the Department

assessed Taxpayer for $3,841.82 in gross receipts tax, $768.36 in penalty, and $336.99 in interest
for a total assessment of $4,947.17 for the combined reporting periods between January 1, 2011

through December 31, 2011. [Department Ex. B-2].

3. On October 9, 2014, the Department received Taxpayer’s protest of the

Department’s assessments. [Department Ex. C-1].

4. The Hearings Bureau first learned of this matter when the Department requested a

hearing on December 11, 2014.

5. On December 12, 2014, the Hearings Bureau sent Notice of Administrative

Hearing to Taxpayer and the Department, setting this matter for a hearing on January 7, 2015.

6. Kathy Karras and Roger Bauer are the proprietors of Taxpayer, Classic Cobwebs.

7. Taxpayer, Classic Cobwebs, is in the business of selling antiques in antique malls.

8. Taxpayer purchases antiques at auctions, estate sales, and garage sales.

9. Taxpayer rents booths/space by the square foot at an antiques mall1 on a monthly

basis.

10. Taxpayer does not staff the booth/space in the antique mall. Taxpayer pre-prices

its displayed antiques for sale at the space it rents from the antique mall. Any sales of Taxpayer’s

merchandise are completed at the mall’s sale counter, staffed by mall employees.

11. The mall owner collects the money for the sale of Taxpayer’s items. The mall

owner does not keep any portion of the sale. Instead, the mall is compensated in the form of

Taxpayer’s monthly rent.

12. Taxpayer receives all of its receipts from the sale of its items from the antiques

mall owner.

1
The record reveals the specific name and owner of the antique mall at issue. However, it is not necessary to specify
that information for the purposes of this decision, other than to note it is one specific mall owner/business.

In the Matter of the Protest of Classic Cobwebs, page 2 of 14

13. Taxpayer understood that the mall owners paid the gross receipts tax on the sales

of their items purchased in the antique mall.

14. Taxpayer and the mall owner did not have a provision in their contract addressing

gross receipts tax.

15. Taxpayer filed combined system returns during the relevant periods but did not

make any gross receipts tax payments.

16. On June 27, 2014, Taxpayer was sent notice of Limited Scope Audit. The Notice

of Limited Scope Audit gave Taxpayer 60-days, until August 26, 2014, to present any

nontaxable transaction certificates (“NTTC’s”) supporting any claimed deductions. [Department

Ex. A-1].

17. Taxpayer asked the mall owner for assistance in resolving the Department audit.

The mall owner assured Taxpayer that she would take care of it.

18. The antique mall owner was in a delinquent status with the Department.

[Department Ex. C-2].

19. On July 18, 2014, the mall owner submitted to the Department form TS-22, an

Agreement to Collect and Pay over Taxes and asked that it be retroactive to March 2010.

[Taxpayer Ex. #3-2].

20. On July 29, 2014, Laura Gage of the Department informed Taxpayer that the mall

owner’s requested T-22 agreement had been denied. [Taxpayer Ex. #3-1].

21. On August 7, 2014, the mall owner again submitted to the Department form TS-

22, an Agreement to Collect and Pay over Taxes and asked that it be retroactive to March 2010.

[Taxpayer Ex. #2].

In the Matter of the Protest of Classic Cobwebs, page 3 of 14

22. The Department did not sign or approve the antique mall owner’s proposed Form

TS-22.

23. Taxpayer did not present a NTTC executed by the August 26, 2014 60-day

deadline.

24. On December 3, 2014, after the expiration of the 60-day period, the antique mall

executed a type 2 NTTC to Taxpayer. [Taxpayer Ex. #1].

25. As of the date of hearing, for the reporting period ending on December 31, 2010,

Taxpayer owed $1,248.89 in gross receipts tax, $249.78 in penalty, and $168.01 in interest for a

total year liability of $1,666.68. For the reporting period ending on December 31, 2011,

Taxpayer owed $3,841.82 in gross receipts tax, $768.36 in penalty, and $372.67 in interest for a

total year liability of $4,982.85. The combined outstanding liability as of the date of hearing was

$6,649.53. [Department Ex. F].

DISCUSSION

The main issue in this case is whether Taxpayer was liable for gross receipts when it did

not possess a timely-executed NTTC from the mall owner or a valid TS-22 in place with the

antiques mall owner. Another issue is whether Taxpayer is entitled to any abatement of tax under

an equitable recoupment basis. And the final issue is whether interest and penalty can be abated

in this matter.

Presumption of Correctness.

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

presumed correct. Consequently, Taxpayer has the burden to overcome the assessments. See

Archuleta v. O'Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428. Unless otherwise specified, for the

purposes of the Tax Administration Act, “tax” is defined to include interest and civil penalty. See

In the Matter of the Protest of Classic Cobwebs, page 4 of 14
NMSA 1978, §7-1-3 (X) (2013). Under Regulation 3.1.6.13 NMAC, the presumption of

correctness under Section 7-1-17 (C) extends to the Department’s assessment of penalty and

interest.

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, 1991-NMCA-024, ¶16, 111

N.M. 735 (internal citation omitted); See also TPL, Inc. v. N.M. Taxation & Revenue Dep't, 2003-

NMSC-7, ¶9, 133 N.M. 447.

Gross Receipts Tax, Deductions, and the Requirements for a Timely NTTC.

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, § 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, § 7-9-3.3 (2003). Taxpayer acknowledged being a

business engaged in the acquisition and sales of antiques, satisfying the engaging in business

definition of Section 7-9-3.3. 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,

§ 7-9-5 (2002).

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

of gross receipts tax. Taxpayer never specified which particular deduction from gross receipts tax it

was claiming in this matter. Nor is it immediately clear which deduction would be potentially

relevant. Taxpayer made clear that it was not selling the antiques to the mall for resale; rather,

Taxpayer sold its products directly to the consumer, with the mall staff simply handling the

In the Matter of the Protest of Classic Cobwebs, page 5 of 14
transaction. Considering that Taxpayer carries that burden to establish it was entitled to a deduction

and to overcome the presumption of correctness, absence of specificity about which deduction may

be at issue undercuts Taxpayer’s case.

Although it does not appear directly applicable to the facts of this case, the closest deduction

potentially at issue is the sale of tangible personal property for resale found under NMSA 1978,

Section 7-9-47 (1994). Section 7-9-47 states that:

Receipts from selling tangible personal property or licenses 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 tangible personal property or
license either by itself or in combination with other tangible personal
property or licenses in the ordinary course of business.

Again, Taxpayer was clear that no resale occurred in its arrangement with the antiques mall owner.

However, even if a resale had occurred as required under the deduction, the statute clearly and

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

NMSA 1978, Section 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 Section 7-9-43, Taxpayer had a statutory obligation to possess a NTTC at the time the tax

returns were due for the receipts in 2010 and 2011. There is no evidence that Taxpayer possessed a

NTTC at those times.

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

from the receipts at issue, Section 7-9-43 gives taxpayers audited by the Department a second
In the Matter of the Protest of Classic Cobwebs, page 6 of 14
chance to obtain these NTTCs: within 60-days of when the Department gives notice, taxpayers must

possess a NTTC in order to claim a deduction. Taxpayers who rely on this second chance provision

run the risk of having their 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

Section 7-9-43 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). See Marbob

Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, ¶22, 146 N.M. 24 (use of the

word “shall” in a statute indicates provision is mandatory absent clear indication to the contrary).

Consistent with the statutory language, under Regulation 3.2.201.12 (C), a taxpayer “is not

entitled to the deduction” when the NTTC is untimely. See Chevron U.S.A., Inc. v. State ex rel.

Dep't of Taxation & Revenue, 2006-NMCA-50, ¶16, 139 N.M. 498 (agency regulations interpreting

a statute are presumed proper and are to be given substantial weight). The New Mexico Court of

Appeals has held that despite its general reluctance to place “form over substance,” the failure to

timely and properly present a requisite NTTC is a “valid basis” for the Department to deny a

claimed deduction. Proficient Food Co. v. New Mexico Taxation & Revenue Dep't, 1988-NMCA-

042, ¶22, 107 N.M. 392.

In this case, Taxpayer received a NTTC from the antique mall that was executed on

December 3, 2014, after the August 26, 2014 60-day deadline. Taxpayer alluded to the fact that the

antique mall owner was delinquent and unable to execute NTTCs as a reason for the delay.

However, under Section 7-9-43 (D), the Department may refuse to allow a delinquent taxpayer to

issue NTTCs. By waiting to attempt to obtain a NTTC until the second chance provision as opposed

to the time of the transaction, taxpayers run the risk of changes in business status, business closure,

In the Matter of the Protest of Classic Cobwebs, page 7 of 14
or delinquencies. Moreover, the reasons for Taxpayer’s non-compliance with the 60-day statutory

deadline are not material to the analysis under Section 7-9-43. Under Section 7-9-43 and Regulation

3.2.201.12 (C), the Department has no authority to allow a deduction after the expiration of the

second chance, 60-day deadline, even if a taxpayer has a reasonable explanation for the delay. By

not presenting the NTTCs in a timely manner, as required by Section 7-9-43 and Regulation

3.2.201.12 (C), Taxpayer waived its right to a claimed deduction that required a supporting NTTC.

See Proficient Food Co., ¶22 (internal citations omitted) (“Where a party claiming a right to an

exemption or deduction fails to follow the method prescribed by statute or regulation, he waives his

right thereto.”).

Taxpayer argued that the antique mall owner in this case agreed to pay Taxpayer’s gross

receipts tax, and thus Taxpayer should not be liable for the assessed tax. That assertion is supported

by the antique mall owner’s letter attached to Taxpayer’s protest letter, Department Ex. C-2. In New

Mexico, the incidence of gross receipts tax falls on the person engaged in business. See Regulation

3.2.4.8 NMAC & Regulation 3.2.6.9 NMAC. Here, Taxpayer was engaged in business and thus

subject to gross receipts tax. Taxpayer acknowledged at hearing that there was no provision in the

contract with the antiques mall owner that shifted Taxpayer’s gross receipts tax burden to the

antiques mall owner.

The antiques mall owner did not submit a Form TS-22, “Agreement to Collect and Pay Over

Taxes,” in 2010 and 2011. Only in 2014 did the antiques mall owner attempt to submit a Form TS-

22 and asked that it be accepted retroactively to the previous reporting periods. The Department did

not sign or approve of the Form TS-22 and therefore there was no valid TS-22 in place in this case.

While there was no specific statutory provision in place in 2010 or 2011, the Department has had a

long standing practice of requiring a TS-22 in order for someone to assume another taxpayer’s

In the Matter of the Protest of Classic Cobwebs, page 8 of 14
liability. See the Decision and Order in the Matter of the Protest of M. Kory and Lucia Rowberry,

No. 98-59, non-precedential (discussing the requirements of a TS-22 in 1998, some 12-years before

this controversy). In 2013, the TS-22 agreement was codified by the Legislature into statute, NMSA

1978, Section 7-1-21.1 (2013). Since the antiques mall owner did not attempt to enter into a TS-22

with the Department until 2014, the provisions of Section 7-1-21.1 would apply. Section 7-1-21.1

gives the Department discretion in whether to enter into a TS-22 agreement. Respectfully, it is

reasonable for the Department to use that discretion to decline to enter into a TS-22 that shifts the

gross receipts tax obligations from Taxpayer to a person whom is already delinquent with gross

receipts obligations. Moreover, without deciding the question, it is unclear whether the Department

has the authority under the statute to enter into a TS -22 retroactively, as the antiques mall owner

requested in this matter. Without a valid TS-22, the incidence of gross receipts tax did not shift from

Taxpayer to the antiques mall owner.

Equitable Recoupment.

Taxpayer’s protest letter indicated that since the antiques mall owner collected the gross

receipts tax, Taxpayer should not also have to pay the tax. Taxpayer also asked about its ability to

claim a refund of taxes once the mall owner paid the collected gross receipts tax. These arguments

potentially raise the issue of equitable recoupment.

Under NMSA 1978, Section 7-1-28 (F) (2013), an assessment can be abated by the

“amount of tax previously paid by another person on behalf of the taxpayer on the same

transaction; provided that the requirements of equitable recoupment are met.” Similarly,

NMSA 1978, Section 7-1-29 (H) (2013) allows for a claim for refund premised on equitable

recoupment2. Equitable recoupment in tax matters is a doctrine developed largely by federal

2
This case does not involve a claim for refund, but an assessment, making Section 7-1-28 (F) the pertinent
provision.

In the Matter of the Protest of Classic Cobwebs, page 9 of 14
courts and is given a limited application in tax litigation. See Vivigen, Inc. v. Minzner, 1994-

NMCA-027, ¶20, 117 N.M. 224. New Mexico has adopted equitable recoupment with the same

limitations set forth by federal courts. See Vivigen, Inc., ¶23. The elements of equitable

recoupment are: “1) a single taxable event, 2) taxes assessed on that event on inconsistent

theories, and 3) a strict identity of interest.” Teco Invs. v. Taxation & Revenue Dep't, 1998-

NMCA-55, ¶8, 125 N.M. 103. However, under the presumption of correctness that attached to

Department’s assessments pursuant to Section 7-1-17 (C), Taxpayer has the burden of

establishing that it is entitled to an abatement of assessed taxes under Section 7-1-28 (F)’s

equitable recoupment basis.

In this case, there is insufficient evidence that the antiques mall owner actually paid the

gross receipts tax. In fact, a careful reading of the antiques mall owner’s letter indicates that

while she collected gross receipts tax from customers purchasing Taxpayer’s products, she did

not submit CRS returns or make payments to the Department. As such, there is no proof that the

taxes at issue were paid by another, as required by the plain language of Section 7-1-28 (F) to

support a claim for equitable recoupment. Moreover, the antiques mall owner did not appear to

testify at the hearing, leaving only hearsay and incomplete information about the status of the

gross receipts tax in dispute. While hearsay evidence is admissible evidence in an administrative

proceeding, without more in this case it is of insufficient persuasive weight for Taxpayer to

establish the elements of equitable recoupment. Therefore, Section 7-1-28 (F) does not provide

grounds for the abatement of assessed taxes.

Interest and Penalty.

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 Classic Cobwebs, page 10 of 14
due...until it is paid.” NMSA 1978, § 7-1-67 (2007) (italics for emphasis). Under the statute,

regardless of the reason for non-payment of the tax, the Department has no discretion in the

imposition of interest, as the statutory use of the word “shall” makes the imposition of interest

mandatory. See Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, ¶22,

146 N.M. 24 (use of the word “shall” in a statute indicates provision is mandatory absent clear

indication to the contrary). The language of Section 7-1-67 also makes it clear that interest begins to

run from the original due date of the tax until the tax principal is paid in full. The Department has no

discretion under Section 7-1-67 and must assess interest against Taxpayer from the time the 2010

and 2011 gross receipts tax was due but not paid until Taxpayer satisfies the gross receipts tax

principal.

Further, the Department has no basis to abate civil negligence penalty under NMSA 1978,

Section 7-1-69 (2007) in this case. When a taxpayer fails to pay taxes due to the State because of

negligence or disregard of rules and regulations, but without intent to evade or defeat a tax, by its

use of the word “shall”, Section 7-1-69 requires that civil penalty be added to the assessment. As

discussed above, the statute’s use of the word “shall” makes the imposition of penalty mandatory

in all instances where a taxpayer’s actions or inactions meets the legal definition of “negligence.”

Regulation 3.1.11.10 NMAC defines negligence in three separate ways: (A) “failure to

exercise that degree of ordinary business care and prudence which reasonable taxpayers would

exercise under like circumstances;” (B) “inaction by taxpayer where action is required”; or (C)

“inadvertence, indifference, thoughtlessness, carelessness, erroneous belief or inattention.” 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. Tiffany Construction Co. v. Bureau

of Revenue, 1976-NMCA-127, ¶5, 90 N.M. 16.

In the Matter of the Protest of Classic Cobwebs, page 11 of 14
To be clear, Taxpayer credibly testified to its history of tax compliance and its positive

intentions to always meet its tax obligations. It is clear that Taxpayer had no intention in this

situation to avoid its tax liability. But, despite the best of intentions, Taxpayer’s inaction in not

paying gross receipts tax or securing a fully executed Form TS-22 in 2010 and 2011 constitutes

civil negligence under Regulation 3.1.11.10 NMAC. There is no evidence supporting abatement

of penalty under either Section 7-1-69 (B) or the multiple scenarios listed under Regulation

3.1.11.11 (D) NMAC. Therefore, the Department properly assessed penalty and interest.

Taxpayer’s protest is denied.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely, written protest to the assessments. Jurisdiction lies over the

parties and the subject matter of this protest. The hearing was held within 90-days of receipt of the

protest.

B. Taxpayer did not overcome the presumption of correctness that attached to the

assessments under NMSA 1978, Section 7-1-17 (C) (2007) and Archuleta v. O'Cheskey, 1972-

NMCA-165, ¶11, 84 N.M. 428.

C. Taxpayer was engaged in business under NMSA 1978, Section 7-9-4 (2002), and

therefore all of Taxpayer’s receipts in 2010 and 2011 are presumed subject to gross receipts tax

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

D. Taxpayer did not carry its burden to establish that any deduction applied to

Taxpayer’s receipts in 2010 and 2011.

E. Even if there was an applicable deduction, Taxpayer did not present timely executed

NTTCs to support a claimed deduction. Under NMSA 1978, Section 7-9-43 (2011) and Regulation

3.2.201.12 (C), without a timely executed NTTC at either the time of the filing of returns or within

In the Matter of the Protest of Classic Cobwebs, page 12 of 14
60-days of notice of audit, the Department is not allowed to grant and Taxpayer is not entitled to a

claimed deduction requiring a NTTC. See Marbob Energy Corp. v. N.M. Oil Conservation Comm'n,

2009-NMSC-013, ¶22, 146 N.M. 24 (use of the word “shall” in a statute indicates provision is

mandatory absent clear indication to the contrary). See also Proficient Food Co. v. New Mexico

Taxation & Revenue Dep't, 1988-NMCA-042, ¶22, 107 N.M. 392 (Court found it valid for the

Department to deny a claimed deduction when taxpayer did not timely present a requisite NTTC).

F. Taxpayer is liable for incidence of gross receipts tax under Regulation 3.2.4.8

NMAC & Regulation 3.2.6.9 NMAC.

G. The Department did not enter into a TS-22 agreement with the antiques mall owner

to shift Taxpayer’s gross receipts tax obligations to the antiques mall owner.

H. Taxpayer did not establish the elements of equitable recoupment and therefore was

not entitled to an abatement of tax under NMSA 1978, Section 7-1-28 (F).

I. Under NMSA 1978, Section 7-1-67 (2007), Taxpayer is liable for accrued interest

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

J. Under NMSA 1978, Section 7-1-69 (2007), Taxpayer is liable for civil negligence

penalty because Taxpayer’s inaction met the definition of civil negligence under Regulation

3.1.11.10 NMAC.

For the foregoing reasons, Taxpayer’ protest IS DENIED. As of the date of hearing, for the

reporting period ending on December 31, 2010, Taxpayer owed $1,248.89 in gross receipts tax,

$249.78 in penalty, and $168.01 in interest for a total year liability of $1,666.68. For the reporting

period ending on December 31, 2011, Taxpayer owed $3,841.82 in gross receipts tax, $768.36 in

In the Matter of the Protest of Classic Cobwebs, page 13 of 14
penalty, and $372.67 in interest for a total year liability of $4,982.85. The combined outstanding

liability as of the date of hearing was $6,649.53.

DATED: February 6, 2015.

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

In the Matter of the Protest of Classic Cobwebs, page 14 of 14