Could Denise Thomas deduct property-inspection receipts using a Type 2 NTTC received about two months after the Department's 60-day deadline?

Plain-English summary

Denise Thomas could not use an NTTC received after the Department's 60-day audit deadline to deduct her property-inspection receipts. The AHO upheld $551.76 of gross receipts tax, $110.36 of penalty, and $61.78 of interest for April through December 2011.

Thomas performed property inspections for a mortgage-services company on an as-needed basis. She did not realize that her services were subject to New Mexico gross receipts tax.

After an audit notice dated March 13, 2015, Thomas had until May 12 to obtain required nontaxable transaction certificates. She asked the company for one, but the company said its own audit prevented immediate issuance and promised to provide a certificate later.

Thomas finally received a Type 2 NTTC in August 2015, approximately two months after the deadline.

Possession by the deadline was mandatory

Section 7-9-48 allowed a service-for-resale deduction when the buyer delivered an NTTC and resold the service in the ordinary course of business in a transaction subject to gross receipts tax.

Section 7-9-43 required a seller claiming an NTTC-based deduction to possess the certificate when receipts were due or within the Department's permitted audit period. If the seller lacked the certificate after 60 days, the statute said the claimed deduction “shall” be disallowed.

Because Thomas did not have the NTTC by May 12, disallowance was mandatory. The AHO therefore did not need to decide whether the Type 2 certificate was the right type or whether the buyer had issued similar certificates successfully to others.

Good-faith acceptance could not cure lateness

The cited Leaco Rural Telephone decision protected a seller accepting an NTTC only when acceptance was timely, in good faith, and based on a properly executed certificate.

Thomas's August receipt failed the first requirement. The buyer's assurances about the certificate could not replace timely possession.

Ignorance did not remove penalty or interest

Thomas argued that she had not known she owed gross receipts tax and had not known about NTTCs until the audit.

Under the cited Tiffany Construction decision, lack of knowledge or an erroneous belief that tax was not due constituted negligence for penalty purposes. Interest was also mandatory because the tax was not paid by its due date.

Result: protest DENIED. The full assessment remained due.

What this means for you

Service providers using NTTC deductions

Obtain the certificate when the transaction occurs. Do not wait for an audit notice before documenting resale treatment.

Taxpayers receiving a 60-day notice

Treat the stated deadline as firm. Record delivery dates and keep proof that each certificate was in your possession before the period expired.

Sellers relying on buyer assurances

A buyer's promise to provide a certificate later does not preserve the deduction. Timeliness is a separate legal requirement from certificate type, execution, and good faith.

Common questions

Q: Were Thomas's property inspections generally taxable?
A: Yes. The parties did not dispute that the New Mexico services ordinarily were subject to gross receipts tax.

Q: When was the NTTC deadline?
A: May 12, 2015, 60 days after the Department mailed the audit notice.

Q: When did Thomas receive the certificate?
A: In August 2015, about two months after the deadline.

Q: Did the AHO decide whether Type 2 was the correct certificate?
A: No. The certificate was untimely, making disputes about its type moot.

Q: Why was penalty upheld?
A: Lack of knowledge about gross receipts tax and NTTC requirements did not establish nonnegligence.

Q: Could the AHO waive interest?
A: No. The decision treated interest as mandatory on tax not paid when due.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-9-43 — possession of NTTCs and mandatory disallowance after the 60-day audit period
• NMSA 1978, § 7-9-48 — service-for-resale deduction
• NMSA 1978, §§ 7-1-17 and 7-1-3 — assessment presumption and inclusion of penalty and interest in “tax”
• NMSA 1978, § 7-1-67(A) — mandatory interest on unpaid tax
• Regulation 3.2.1.18(A) NMAC — services performed within New Mexico

Cases cited:

• Proficient Food Co. v. New Mexico Taxation and Revenue Department, 1988-NMCA-042 — failure to obtain the required certificate within the deadline supports denial
• Leaco Rural Telephone Cooperative, Inc. v. Bureau of Revenue, 1974-NMCA-076 — timely, good-faith acceptance of a properly executed NTTC
• Tiffany Construction Co. v. Bureau of Revenue, 1976-NMCA-127 — lack of knowledge or erroneous belief can constitute negligence
• Marbob Energy Corp. v. New Mexico Oil Conservation Commission, 2009-NMSC-013 — mandatory meaning of “shall”

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Denise Thomas
• Decision PDF: D&O 15-34

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
DENISE THOMAS, No. 15-34
TO ASSESSMENT ISSUED UNDER
LETTER ID NO. L1451696176

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on October 23, 2015 before

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

represented by Ms. Gabrielle Dorian, Staff Attorney. Ms. Milagros Bernardo, Auditor, also appeared

on behalf of the Department. Ms. Denise Thomas (Taxpayer) appeared for the hearing by telephone.

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. On July 14, 2015, the Department assessed the Taxpayer for gross receipts tax, penalty, and

interest for the tax periods from April 1, 2011 through December 31, 2011. The assessment

was for $551.76 tax, $110.36 penalty, and $61.78 interest.

2. On July 28, 2015, the Taxpayer filed a formal protest letter.

3. On September 15, 2015, the Department filed a Request for Hearing asking that the

Taxpayer’s protest be scheduled for a formal administrative hearing.

4. On September 17, 2015, the Hearings Office issued a notice of hearing for October 23, 2015.

The hearing date was set within ninety days of the protest.

5. The Taxpayer was working for a mortgage services company (the Company) by doing

property inspections in 2011.

6. The Taxpayer did inspections for the Company at their request on an as-needed basis.
7. The Taxpayer did not realize that she should be paying gross receipts taxes on the services

she was providing.

8. On March 13, 2015, the Department issued an audit notice to the Taxpayer and gave her a

deadline of May 12, 2015 (the 60-day deadline) for obtaining nontaxable transaction

certificates (NTTCs).

9. The Taxpayer contacted the Company and asked for a NTTC.

10. The Company advised the Taxpayer that they were also being audited and were not able to

issue NTTCs at that time. The Company assured the Taxpayer that they would issue a NTTC

as soon as they were able to do so.

11. The Taxpayer was not in possession of the NTTC by the 60-day deadline of May 12, 2015.

12. In August 2015, approximately two months after the 60-day deadline, the Taxpayer received

a Type 2 NTTC from the Company. The Company assured the Taxpayer that this was a good

NTTC and that they have issued the same type of NTTC to others and those deductions were

allowed.

DISCUSSION

The issue to be decided is whether the Taxpayer is liable for the assessment.

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 Ctr. v. Taxation and Revenue Department, 1989-NMCA-070, 108 N.M.

795. 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 she is entitled to an

abatement. The burden is on the Taxpayer to prove that she is entitled to an exemption or deduction.

Denise Thomas
Letter ID No. L1451696176
page 2 of 6
See Public Services Co. v. N.M. Taxation and Revenue Dep’t., 2007-NMCA-050, ¶ 32, 141 N.M.

520. See also Till v. Jones, 1972-NMCA-046, 83 N.M. 743. “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.” Sec. Escrow Corp. v. State Taxation and Revenue

Dep’t., 1988-NMCA-068, ¶ 8, 107 N.M. 540. See also Wing Pawn Shop v. Taxation and Revenue

Dep’t., 1991-NMCA-024, ¶ 16, 111 N.M. 735. See also Chavez v. Commissioner of Revenue, 1970-

NMCA-116, ¶ 7, 82 N.M. 97.

Gross Receipts Tax.

Services performed within the State of New Mexico are subject to the gross receipts tax. See

3.2.1.18 (A) NMAC (2003). The Taxpayer admitted that she was engaged in providing the services

of property inspection. There was no dispute that the Taxpayer’s services would ordinarily be

subject to gross receipts tax. The Taxpayer argued that she was entitled to deduct her gross receipts

based on the NTTC.

NTTCs.

“Receipts from selling a service for resale may be deducted from 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[.]” NMSA 1978, § 7-9-48 (emphasis

added). A taxpayer may deduct certain gross receipts only when they are provided with NTTCs from

buyers. See NMSA 1978, § 7-9-43 (2011). A taxpayer should be in possession of NTTCs when the

receipts from the transaction are due, but may also produce NTTCs within a deadline set by the

Department. See id. The seller must accept the NTTC in good faith. See id.

Denise Thomas
Letter ID No. L1451696176
page 3 of 6
The Taxpayer was served with the 60-day letter by mailing on March 13, 2015, and the 60-

day deadline was May 12, 2015. The Taxpayer received a Type 2 NTTC from the Company in

August 2015. Therefore, the NTTC was not received timely. See NMSA 1978, § 7-9-43. When a

taxpayer “is not in possession of the required [NTTCs] within sixty days from the date that the

notice…is given…, deductions claimed by the seller or lessor that require delivery of these

nontaxable transaction certificates shall be disallowed”. NMSA 1978, § 7-9-43 (A) (emphasis

added). The word “shall” indicates that the denial of the deduction is mandatory, not discretionary.

See Marbob Energy Corp. v. N.M. Oil Conservation Comm’n, 2009-NMSC-013, ¶ 22, 146 N.M. 24.

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

the taxpayer to possess a NTTC 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., 1988-NMCA-

042, ¶ 22, 107 N.M. 392 (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).

A taxpayer can be protected from tax liability when the taxpayer accepts a NTTC in good

faith even though the transaction was not actually subject to deduction. See Leaco Rural Telephone

Coop., Inc. v. Bureau of Revenue, 1974-NMCA-076, 86 N.M. 629. However, that protection will be

conclusive only when three requirements are met; 1) the acceptance of the NTTC must be timely, 2)

must be in good faith, and 3) the NTTC must be properly executed. See id. at ¶ 15. The Taxpayer’s

receipt of the NTTC was not timely as it occurred after the 60-day deadline. When a taxpayer is not

“in possession” of a NTTC within the 60-day deadline, the deductions are disallowed. See NMSA

1978, § 7-9-43. Consequently, the parties’ arguments regarding the type of NTTC and issues related

to that are moot.

Assessment of Penalty.

Denise Thomas
Letter ID No. L1451696176
page 4 of 6
The Taxpayer argued that she should not have to pay penalty. The Taxpayer felt that her

mistake was due to ignorance and that she had no idea she should be paying gross receipts taxes and

did not know anything about NTTCs until she was audited. 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, 1976-NMCA-127, 90

N.M. 16. Therefore, penalty was properly assessed to the Taxpayer.

Assessment of Interest.

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). Again, the word “shall” indicates that the assessment of interest is

mandatory, not discretionary. See Marbob Energy Corp. v. N.M. Oil Conservation Comm’n., 2009-

NMSC-013, ¶ 22, 146 N.M. 24. The assessment of interest is not designed to punish taxpayers, but

to compensate the state for the time value of unpaid revenues. Because the tax was not paid when it

was due, interest was properly assessed.

CONCLUSIONS OF LAW

A. The Taxpayer filed a timely written protest to the Notice of Assessment of gross

receipts taxes, penalty, and interest issued under Letter ID number L1451696176, and jurisdiction lies

over the parties and the subject matter of this protest.

B. The Taxpayer was not in possession of the NTTC within the 60-day deadline; therefore,

the deductions were disallowed. See NMSA 1978, § 7-9-43.

C. The Taxpayer is liable for the assessment.

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

DATED: November 10, 2015.

Dee Dee Hoxie
DEE DEE HOXIE
Denise Thomas
Letter ID No. L1451696176
page 5 of 6
Hearing Officer
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502

Denise Thomas
Letter ID No. L1451696176
page 6 of 6