Were Love Tree Builders' cash receipts from Minnesota storm cleanup subject to New Mexico gross receipts tax because they appeared on the owner's federal Schedule C?

Plain-English summary

Love Tree Builders did not owe New Mexico gross receipts tax on $24,201 earned from emergency cleanup and repair services performed in Minnesota. Credible testimony and disaster evidence overcame the assessment even though the work was cash-only and had no contracts or formal invoices.

A federal Schedule C matching audit found $24,201 of business income that did not appear on Love Tree's New Mexico CRS returns. Owner Delwin Nordman consistently explained that the difference came from a July 2012 storm response in north-central Minnesota.

The services occurred entirely outside New Mexico

After an 80-mile-per-hour windstorm damaged lake properties, Nordman drove equipment from New Mexico to Minnesota overnight. He first helped family, then went house to house using a tractor and backhoe for cleanup and repair work through early August.

New Mexico's gross receipts definition covered services performed in New Mexico and certain out-of-state services whose product was initially used in New Mexico. These Minnesota property services were performed and used outside New Mexico, so they were not taxable receipts under the cited definition.

Credible testimony overcame the missing-paperwork problem

Nordman worked 12-hour days, moved quickly between properties, accepted cash, and did not prepare contracts or formal invoices. The AHO acknowledged that documentary support would ordinarily be expected.

But this was a genuine emergency, supported by evidence of the storm and Minnesota disaster-relief legislation. Nordman's detailed explanation remained consistent throughout audit, protest, and hearing.

His decision to report the undocumented cash on his federal return also supported credibility: the federal reporting created the mismatch rather than concealing the income.

That evidence rebutted the assessment presumption. The burden then shifted to the Department, which could not reestablish that the receipts were New Mexico taxable.

Result: protest GRANTED. All assessed tax, penalty, and interest tied to the $24,201 discrepancy was abated.

What this means for you

Contractors performing emergency work out of state

Keep location evidence even when ordinary project paperwork is impractical: travel records, disaster notices, equipment logs, customer locations, photos, messages, and consistent income reporting can help establish where services occurred.

Cash-based businesses

Cash receipts are still income, but federal reporting does not automatically make them New Mexico gross receipts. Be prepared to reconcile Schedule C income to state filings by transaction location and tax treatment.

Taxpayers rebutting an assessment

Testimony is evidence when it is specific and credible. Still, this ruling emphasizes unique emergency facts; unsupported conclusory statements ordinarily do not overcome the assessment presumption.

Common questions

Q: Why did the Department assess Love Tree?
A: Its Schedule C showed $24,201 more business income than its New Mexico CRS returns.

Q: Where was the work performed?
A: At storm-damaged properties in north-central Minnesota.

Q: Were there invoices or contracts?
A: No. The work was cash-only during an emergency response.

Q: What corroborated the testimony?
A: Evidence of the severe storm and state disaster response, the consistent explanation, and the owner's voluntary federal reporting of the cash.

Q: What was abated?
A: All tax, penalty, and interest arising from the $24,201 mismatch.

Citations and references

Statutes and regulation:

• NMSA 1978, §§ 7-9-3.3, 7-9-3.5, 7-9-4, and 7-9-5 — engaging in business, gross receipts, tax, and taxable-receipts presumption
• NMSA 1978, § 7-1-17(C) — assessment presumption
• Regulation 3.1.6.12 NMAC — evidence required to overcome an assessment

Cases cited:

• Archuleta v. O'Cheskey, 1972-NMCA-165 — taxpayer's burden against an assessment
• MPC Ltd. v. New Mexico Taxation and Revenue Department, 2003-NMCA-021 — burden shifts after sufficient contrary evidence
• New Mexico Taxation and Revenue Department v. Casias Trucking, 2014-NMCA-099 — taxpayer must present evidence or legal argument for abatement

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Love Tree Builders
• Decision PDF: D&O 16-08

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
LOVE TREE BUILDERS No. 16-08
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L1017585712

DECISION AND ORDER

A protest hearing occurred on the above captioned matter December 14, 2015 before

Brian VanDenzen, Esq., Chief Hearing Officer, in Santa Fe. At the hearing, Delwin Nordman

appeared pro se for Love Tree Builders (“Taxpayer”). Staff Attorney Gabrielle Dorian appeared

representing the State of New Mexico Taxation and Revenue Department (“Department”).

Protest Auditor Nicholas Pacheco appeared as a witness for the Department. Department

Exhibits A-C and Taxpayer Exhibit #1 were admitted into the record. Based on the evidence and

arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On July 30, 2015, through letter id. no. L1017585712, the Department assessed

Taxpayer for $1,831.56 in gross receipts tax, $366.32 in penalty, and $150.81 in interest for a

total assessment of $2,344.86 for the CRS reporting periods from June 1, 2012 through

December 31, 2012.

2. On August 6, 2015, Taxpayer protested the Department’s assessment, asking for

abatement of all assessed tax principal, penalty, and interest.

3. On August 12, 2015, the Department’s protest office acknowledged receipt of a

valid protest.

4. On September 30, 2015, the Department filed a request for hearing in this matter

with the Administrative Hearings Office, a separate, independent agency from the Department.

5. On October 2, 2015, the Administrative Hearings Office sent Notice of

Administrative Hearing, setting this matter for a merits hearing on October 19, 2015.

6. On October 16, 2015, Taxpayer moved to continue the October 19, 2015 merits

hearing and requested a telephonic appearance. The Department opposed both requests.

7. On October 16, 2015, the Administrative Hearings Office issued an order and

Amended Notice of Administrative Hearing Setting Telephonic Scheduling Conference,

converting the October 19, 2015 merits hearing into a telephonic scheduling conference.

8. On October 19, 2015, a Scheduling Conference Hearing occurred. The parties did

not object that conducting the scheduling hearing satisfied the requirement that a hearing be set

within 90-days of protest.

9. On October 19, 2015, the Administrative Hearings Office issued a Second Notice

of Telephonic Scheduling Conference, setting this matter for another scheduling conference on

November 2, 2015.

10. On November 2, 2015, the Second Scheduling Conference Hearing occurred. The

parties agreed to conduct a merits hearing on December 14, 2015.

11. On November 2, 2015, the Administrative Hearings Office issued a Notice of

Administrative Hearing in this matter, setting the merits hearing for December 14, 2015.

12. At the relevant time, in the second half of 2012, Taxpayer was in the business of

performing construction services in New Mexico.

13. Delwin Nordman is the owner and operator of Taxpayer.

In the Matter of the Protest of Love Tree Builders, page 2 of 8

14. Taxpayer filed and paid New Mexico gross receipts tax during the relevant

period.

15. Mr. Nordman and his wife filed and paid New Mexico personal income tax in

2012.

16. As part of its Schedule C Tape Match program with the IRS, the Department

discovered a $24,201.00 discrepancy between Mr. Nordman’s business income reported on his

personal income tax federal Schedule C and Taxpayer’s gross receipts tax return.

17. Taxpayer was selected for a limited scope audit based on this discrepancy.

18. Taxpayer has consistently asserted during the limited scope audit, during the

protest, and at the protest hearing that the $24,201.00 discrepancy resulted from out-of-state

services Taxpayer performed during a weather emergency in Minnesota.

19. Mr. Nordman’s wife is from north-central Minnesota and her family still resides

there on tribal land on a lake.

20. On July 2-4, 2012, a severe weather storm struck north central Minnesota, with

sustained 80-m.p.h. winds, which resulted in extensive physical damage to property in the area.

As a result of the significant weather event, the State of Minnesota had a special legislative

session where a $167-million disaster relief bill was passed and signed into law by Minnesota’s

Governor. [Taxpayer Ex. #1].

21. July is one of the busiest times of the year in that area of the Minnesota, with

many thousands of people from the Twin Cities vacationing at the many lakes in the area over

the Fourth of July holiday weekend.

22. Mr. Nordman learned of the emergency weather event from his wife’s family,

who resides in the area, and requested any assistance Mr. Nordman could provide.

In the Matter of the Protest of Love Tree Builders, page 3 of 8

23. Mr. Nordman immediately packed up his equipment on a trailer (a small tractor

and a CAT backhoe) and in his two trucks. Mr. Nordman and his wife drove from New Mexico

to Minnesota overnight.

24. Upon arrival, in addition to assisting his immediate family that resided in that area

of Minnesota, Mr. Nordman went from house-to-house around the lake using his equipment to

perform clean-up and repair work at the many lake properties.

25. Because of the nature of the emergency, Taxpayer moved quickly from house-to-

house to perform work on a cash-only basis (Mr. Nordman did not want to deal with waiting for

insurance companies to approve claims or wait for checks to clear).

26. In order to expedite the clean-up process while working long 12-hour days around

the lake helping people clean up their property, Taxpayer did not prepare any contracts with the

customers or have any formal invoices.

27. Taxpayer remained in Minnesota doing clean-up work longer than anticipated,

staying through early August of 2012.

28. Mr. Nordman’s testimony was highly credible, particularly in light of the fact that

despite operating on a cash-only basis without a discernable paper trail, Mr. Nordman did the

proper thing in reporting all the cash income he had received during the emergency on his federal

income tax return.

29. As of the date of hearing, the Department alleged that Taxpayer owed $1,831.56

in gross receipts tax, $172.29 in interest, and $366.32 in penalty. [Dept. Ex. C].

In the Matter of the Protest of Love Tree Builders, page 4 of 8
DISCUSSION

The issue in this case is whether Taxpayer is liable for gross receipts tax on the

$24,201.00 discrepancy detected between Mr. Nordman’s federal Schedule C and Taxpayer’s

CRS filings in the second half of 2012.

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

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

Archuleta v. O'Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428. Accordingly, it is Taxpayer’s

burden to present some countervailing evidence or legal argument to show that it is entitled to an

abatement, in full or in part, of the assessment issued against it. See N.M. Taxation & Revenue

Dep't v. Casias Trucking, 2014-NMCA-099, ¶8. “Unsubstantiated statements that the assessment

is incorrect cannot overcome the presumption of correctness." See MPC Ltd. v. N.M. Taxation &

Revenue Dep't, 2003 NMCA 21, ¶13, 133 N.M. 217; See also Regulation 3.1.6.12 NMAC. When a

taxpayer presents sufficient evidence to rebut the presumption, the burden shifts to the

Department to show that the assessment is correct. See MPC Ltd., 2003 NMCA 21, ¶13.

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). Under NMSA

1978, Section 7-9-3.5 (A) (1) (2007), the term “gross receipts” is broadly defined to mean

the total amount of money or the value of other consideration received from
selling property in New Mexico, from leasing or licensing property employed in
New Mexico, from granting a right to use a franchise employed in New Mexico,
from selling services performed outside New Mexico, the product of which is
initially used in New Mexico, or from performing services in New Mexico.

“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). Gross receipts applies

to the performance of a service in New Mexico. See NMSA 1978, § 7-9-3.5 (2007). Under the

In the Matter of the Protest of Love Tree Builders, page 5 of 8
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). Taxpayer in this case was

engaged in the construction business services in New Mexico, and therefore any of his receipts were

presumed subject to gross receipts tax under Section 7-9-5. However, any service performed outside

of New Mexico and not initially used in New Mexico was not subject to gross receipts tax under the

definition contained in Section 7-9-3.5 (A)(1).

Taxpayer overcame the presumption of correctness in this case by credibly establishing

that the receipts in question were earned through the performance of services out-of-state during

a weather emergency. Taxpayer consistently argued during the audit, the protest, and at the

hearing that the out-of-state services were performed on a cash-only basis during the weather

emergency in Minnesota. Mr. Nordman’s family resides on tribal land in north-central

Minnesota, and he answered their call for assistance during the July Fourth storm that struck that

area in 2012. After bringing his equipment north and helping his family, Mr. Nordman continued

to help many of the thousands of private landowners around the many lakes in the area. In an

emergency situation, where there are many thousands of part-time residents seeking any help

they can get, Mr. Nordman credibly established he was more focused on helping as many people

as he could in a short period of time than on the niceties of completing thoroughly documented

business transactions. While the Department insistence on receiving more documentary evidence

to support Taxpayer’s claim is certainly reasonable (and would be absolutely required in most

circumstances), given the unique facts in this case related to the genuine weather emergency,

Taxpayer’s credible explanation as to why he did not have contracts or invoices is persuasive.

While MPC Ltd., ¶13, and Regulation 3.1.6.12(A) NMAC does not allow a taxpayer to

overcome the presumption simply by making conclusory statements that the assessment was

In the Matter of the Protest of Love Tree Builders, page 6 of 8
incorrect, that is not what Taxpayer did in this protest. Taxpayer’s credible testimony, which is

fully admissible evidence, established that he provided cash-only sales in Minnesota during the

weather emergency. Taxpayer provided documentation to establish that disaster had occurred at

the time of the sales in Minnesota, consistent with his testimony. In other words, Taxpayer was

simply not making conclusory statements that the assessment was wrong, but providing credible,

factual evidence showing why the assessment was factually and legally incorrect. Taxpayer took

steps to report the undocumented, cash-only income he received during the weather emergency

on his federal Schedule C, which speaks to Taxpayer’s credibility in this case, as someone trying

to avoid a tax liability on that amount would have likely behaved in a far less honest manner

given the undocumented, cash-only transactions. Given the credibility of Taxpayer in testifying

and reporting the cash-only receipts in the first place rather than trying to avoid all tax liability

on those amounts, as well as the weather emergency situation that Taxpayer was responding to in

this matter, Taxpayer’s protest is granted and the entire assessment is ordered abated.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely, written protest to the Department’s assessment, and

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

B. The hearing was timely set and held within 90-days of protest under NMSA 1978,

Section 7-1B-8 (2015).

C. Taxpayer overcame the presumption of correctness that attached to the assessment

under NMSA 1978, Section 7-1-17 (C) (2007) and Archuleta v. O'Cheskey, 1972-NMCA-165,

¶11, 84 N.M. 428 by showing through credible testimony given the unique weather emergency that

the $24,201.00 discrepancy from the federal Schedule C was attributable to services performed

out-of-state and not subject to New Mexico gross receipts tax.

In the Matter of the Protest of Love Tree Builders, page 7 of 8
D. Once Taxpayer overcame the presumption of correctness, the burden shifted to the

the Department to reestablish the correctness of its assessments, which the Department was unable

to do in this case. See MPC Ltd. v. N.M. Taxation & Revenue Dep't, 2003 NMCA 21, ¶13, 133

N.M. 217.

For the foregoing reasons, the Taxpayers’ protest IS GRANTED. IT IS ORDERED that

the Department abate all of the assessed tax, penalty, and interest.

DATED: March 15, 2016.

Brian VanDenzen
Chief Hearing Officer
Administrative Hearings Office
P.O. Box 6400
Santa Fe, NM 87502

NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, Section 7-1-25 (1989), 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. Either party filing an appeal shall file a courtesy copy of

the appeal with the Administrative Hearings Office contemporaneous with the Court of Appeals

filing so that the Administrative Hearings Office may being preparing the record proper.

In the Matter of the Protest of Love Tree Builders, page 8 of 8