Could MANS Construction obtain a gross receipts tax refund after it mistakenly included separately stated tax in reported receipts?

Plain-English summary

MANS Construction was entitled to a partial refund because it proved that $66,407.66 of separately stated gross receipts tax was mistakenly included in its reported gross receipts. The AHO ordered the Department to calculate the tax corresponding to that reduction and issue a refund with any applicable interest.

MANS originally reported $92,949.54 of gross receipts tax liability for the period ending October 31, 2012. In 2015 it amended the return to $67,409.92 and requested a $25,539.62 refund, explaining that its accountant had failed to back collected tax out of gross receipts.

The White Sands billing proved the accounting error

An employee credibly testified that MANS had not backed out collected tax on a White Sands Missile Range project. A payment application supported that testimony: the $1,108,096.36 billing separately identified $63,814.05 and $2,593.61 of gross receipts tax, totaling $66,407.66.

Because New Mexico businesses may separately pass the tax cost to customers and remove that collected amount from reported gross receipts, the evidence proved an overstatement of receipts. The refund was based on the tax attributable to the $66,407.66 reduction—not a refund of $66,407.66 itself.

Other invoices did not support a larger refund

MANS also submitted records for a Walmart Rinconada project and a White Sands fence-restretching project. Those documents did not show that gross receipts tax was included in the billed amounts, and the employee had not testified about them.

The AHO therefore applied the statutory presumption that business receipts are taxable and denied any additional refund on those projects.

An NTTC was not the issue

The Department submitted evidence that it could not locate an NTTC. The AHO called that evidence non-responsive because MANS was not claiming a construction deduction. Its claim was that it had overreported receipts by failing to remove separately stated tax it collected from a customer.

Result: protest PARTIALLY GRANTED AND PARTIALLY DENIED. The Department had to calculate the refund resulting from the $66,407.66 reduction and pay it with applicable interest; no further refund was allowed on the record presented.

What this means for you

Businesses that separately state gross receipts tax

Reconcile customer invoices to CRS returns so separately stated tax is not included again in the gross-receipts base. Keep the invoices and payment applications that identify the tax amount.

Taxpayers filing refund claims

Tie each requested adjustment to transaction-level records. Testimony plus an invoice that separately identifies tax can prove an accounting error; invoices that show only a total price may not.

Construction businesses

Distinguish a claim to back collected tax out of receipts from a deduction claim. This decision did not grant an NTTC-based deduction and expressly found that an NTTC was irrelevant to the issue presented.

Common questions

Q: Did the AHO award the full $25,539.62 refund MANS requested?
A: Not expressly. It ordered the Department to calculate the refund corresponding to a $66,407.66 reduction in reported gross receipts and denied any further refund.

Q: Why did the White Sands evidence succeed?
A: The billing separately identified two gross receipts tax amounts totaling $66,407.66, and credible testimony connected the documents to the reporting error.

Q: Why did the other projects fail?
A: Their records did not show that tax was included in the billed amounts, and MANS offered no supporting testimony about those projects.

Q: Did MANS need an NTTC for this refund theory?
A: No. The claim involved removing separately stated collected tax from reported receipts, not deducting construction receipts.

Q: Was the refund amount itself $66,407.66?
A: No. That was the reduction in reported gross receipts. The Department was ordered to compute the corresponding tax refund and applicable interest.

Citations and references

Authorities cited:

• NMSA 1978, §§ 7-9-4 and 7-9-5 — gross-receipts tax and presumption that business receipts are taxable
• NMSA 1978, § 7-1-68 — applicable interest on the refund
• Regulation 3.1.8.10 NMAC — taxpayer's burden to establish entitlement to a refund
• Regulation 3.2.4.8 NMAC — incidence of New Mexico gross receipts tax
• Department publication FYI-105 — process for backing separately stated collected tax out of reported gross receipts

Source

• Listing: New Mexico Decisions & Orders
• Decision post: MANS Construction Company
• Decision PDF: D&O 16-24

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
MANS CONSTRUCTION COMPANY No. 16-24
TO REFUND DENIAL ISSUED UNDER LETTER
ID NO. L0989313072

DECISION AND ORDER

A protest hearing occurred on the above captioned matter on March 10, 2016 before

Brian VanDenzen, Esq., Chief Hearing Officer, in Santa Fe. At the hearing, Angela Torres and

Norma Salgado of MANS Construction Company (“Taxpayer”) appeared pro se. Staff Attorney

Elena Morgan appeared representing the State of New Mexico Taxation and Revenue

Department (“Department”). Protest Auditor Sonya Varela appeared as a witness for the

Department. Department Exhibits A-E were admitted into the record. Taxpayer Exhibit #1 was

admitted into the record at hearing. After conclusion of the hearing, and without objection,

Taxpayer submitted additional evidence into the record, which are admitted into the record as

Taxpayer Exhibits #2, #3, #4, and #5. All exhibits are more thoroughly described in the

Administrative Exhibit Coversheet. Based on the evidence and arguments presented, IT IS

DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On November 10, 2015, through letter id. no. L0989313072, the Department

denied Taxpayer’s claim for refund of $25,539.62 in CRS taxes for the reporting ending October

31, 2012.

2. On December 8, 2015, Taxpayer protested the Department’s denial of claim for

refund. As grounds for the protest, Taxpayer indicated that its accountant “had accidently forgot

to back out the tax amount before paying the CRS tax, so we double paid our taxes.”

3. On December 10, 2015, the Department’s protest office received the protest.

4. On December 15, 2015, the Department’s protest office acknowledged receipt of

a valid protest.

5. On January 22, 2016, the Department filed a request with the Administrative

Hearings Office, a separate agency, for a protest hearing.

6. On January 25, 2016, the Administrative Hearings Office issued a Notice of

Administrative Hearing, setting this matter for a merits protest hearing on March 7, 2016.

7. On February 25, 2016, Taxpayer moved to continue the scheduled March 7, 2016

hearing date and moved to appear telephonically at the hearing. The Department did not oppose

the request for continuance, but did oppose the request to appear telephonically.

8. On February 29, 2016, the Administrative Hearings Office issued an Amended

Notice of Administrative Hearing rescheduling the hearing to March 10, 2016 in Santa Fe. That

order also found that the Administrative Hearings Office had set the hearing to occur within 90-

days, and that any delay was attributable to Taxpayer’s continuance request.

9. On November 26, 2012, Taxpayer filed its CRS report indicating it had

$92,949.54 in gross receipts tax liability for the reporting period ending on October 31, 2012.

There is no dispute that Taxpayer timely paid that balance. [Dept. Ex. A].

10. On July 16, 2015, Taxpayer filed an amended CRS Return for the reporting

period ending on October 31, 2012, indicating only $67,409.92 in gross receipts tax liability for

that period. [Dept. Ex. B].

In the Matter of the Protest of MANS Construction Company, page 2 of 8

11. On August 3, 2015, Taxpayer requested a refund of $25,539.62 in its

overpayments of gross receipts tax for the CRS reporting period ending on October 31, 2012.

[Dept. Ex. C-1].

12. On August 17, 2015, the Department sent Taxpayer a letter requesting additional

information so that it could review Taxpayer’s claim for refund. [Dept. Ex. D].

13. On November 10, 2015, as cited in finding of fact #1, the Department denied

Taxpayer’s claim because it “failed to provide the requested documentation to support the refund

claim…” [Dept. Ex. E].

14. Consistent with the grounds cited in its protest letter, Taxpayer employee Angela

Torres credibly testified at hearing that Taxpayer had made a simple accounting error in failing

to back out the gross receipts tax from its total gross receipts for the CRS reporting period ending

on October 31, 2012, resulting in over-reporting its total receipts in that period and overpayment

of CRS tax in that period.

15. Taxpayer reported and paid gross receipts taxes for the October 31, 2012 CRS

reporting period on a project it had been working on in White Sands Missile Range. That project

was billed with gross receipts included, but Taxpayer did not back out that amount from its gross

receipts report.

16. Taxpayer filed a refund claim for another period for the same reason and the

Department granted and paid out that refund claim without delay.

17. At the hearing, without objection from the Department, the undersigned hearing

officer directed Taxpayer to submit additional documentation showing the accounting error to

support its refund claim within seven-days.

In the Matter of the Protest of MANS Construction Company, page 3 of 8

18. On March 10, 2016, after conclusion of the hearing, Taxpayer submitted a series

of documents via email to the Administrative Hearings Office and to protest auditor Sonya

Varela (which was the process discussed at hearing). Included with that submission were two

invoices related to a project on White Sands Missile Range, one invoice related to the

construction project noted as Walmart Rinconada, a contract related to Walmart Rinconada, and

an invoice related to a fence restretching project also at White Sands Missile Range.

a. On September 27, 2012, Taxpayer billed MICCMD for a project on White Sands

Missile Range for $1,108,096.36 on an “Application and Certification for

Payment.” Page 2, item 270 of that billing indicates that the bill included

$63,814.05 for gross receipts tax. Page 3, item 390 of that billing indicates that

the bill included an additional $2,593.61 in gross receipts tax. Thus, there was

$66,407.66 in gross receipts tax included in the $1,108,096.36 in billings for the

White Sands Missile Range project. [Taxpayer Ex. #2].

b. Taxpayer also submitted a contract and Application for Billing related to project

identified as “Walmart Rinconada.” The Application for Billing for that project

does not show that any gross receipts tax were included in $368,439.15 billed

amount. Further, the contract did not indicate that the total contracted payment

price included a specific amount of gross receipts tax. [Taxpayer Ex.’s #3 & #4].

c. Taxpayer also submitted a contract and Application for Billing related to project

identified as Fence Restretching. The Application for Billing for that project does

not show that any gross receipts tax were included in $1,891.93 billed amount.

[Taxpayer Ex. #5].

In the Matter of the Protest of MANS Construction Company, page 4 of 8

19. On March 22, 2016, the Department submitted a Motion to Close the Record,

indicating that it had not received a further submission from Taxpayer by the deadline. However,

this is contradicted by the email submission of the documents that clearly included Department

Auditor Sonya Varela, which was in compliance with the post-hearing submission procedures

discussed and agreed to on the record.

20. On March 22, 2016, the Department also submitted an affidavit of Sonya Varela,

indicating that Ms. Varela was unable to locate any information related to the issuance of a

NTTC. This affidavit is non-responsive to this protest. There was no indication in Taxpayer’s

protest letter or in argument at hearing that Taxpayer was claiming a deduction requiring a

NTTC. The question raised by Taxpayer’s protest letter and testimony at hearing was whether

Taxpayer made an accounting error in failing to back-out gross receipts tax from its reported

total gross receipts during the reporting period.

DISCUSSION

This case involves a simple question of whether Taxpayer is entitled to a refund when it

made an accounting error by including separately stated gross receipts tax payments it received

from a customer in its report of total gross receipts for the CRS reporting period ending on

October 31, 2012. Although no assessment was issued in this case, and thus the typical

presumption of correctness found under NMSA 1978, Section 7-1-17 (C) (2007) does not apply,

Taxpayer nevertheless carries the burden in the protest proceeding under Regulation 3.1.8.10

NMAC and must establish entitlement to the claimed refund.

Although taxpayers bear the incidence of the gross receipts tax in New Mexico, see

Regulation 3.2.4.8 NMAC, they may choose to pass on the cost of the gross receipts tax to their

customers. When a taxpayer choose to pass on the cost of the gross receipts tax to their customer

In the Matter of the Protest of MANS Construction Company, page 5 of 8
by separately stating the amount of tax, it is customary for that taxpayer to remove that collected

tax amount from its total reported gross receipts in order to avoid paying an additional tax on the

collected gross receipts tax. The Department describes this process of backing out collected gross

receipts tax from the total reported gross receipts in more detail in its published instruction FYI-

105 (specifically on pages 4, 5, and 47 of that publication).

The Department’s motion to close the record and attached affidavit were not responsive

to the narrow issue presented in the protest letter, the protest hearing, and Taxpayer’s submission

of the additional documents to the Administrative Hearings Office and Protest Auditor Varela.

Taxpayer argued in its protest letter and at hearing that it made an accounting error related to

failing to back out the gross receipts tax it had collected from its total gross receipts. At no point

did Taxpayer make an argument related to a claimed deduction that would make the possession

of a NTTC relevant in this matter. The only issue in this protest, as articulated in the protest

letter, is whether Taxpayer made an accounting error in failing to back out collected gross

receipts tax from its reported gross receipts. Thus, the Department’s pleading is not relevant to

resolution of this protest.

Angela Torres credibly testified that Taxpayer made an accounting error by not backing

out the amount of gross receipts tax it collected from its customer for the White Sands Missile

Range construction project when it reported its total gross receipts in the October 31, 2012

reporting period. Supporting the testimony of Ms. Torres, after the hearing Taxpayer submitted

an Application and Certification for Payment to the Administrative Hearings Office and

Department Auditor Varela, showing that $66,407.66 in a separately stated gross receipts tax

payment were included in the $1,108,096.36 billing for the White Sands Missile Range

Construction project. Based on the straightforward and credible testimony of Ms. Torres and the

In the Matter of the Protest of MANS Construction Company, page 6 of 8
presentation of the supporting documentation, the hearing officer finds by the preponderance that

Taxpayer inadvertently failed to back out $66,407.66 in collected gross receipts tax from its

calculation of total gross receipts in the reporting period ending on October 31, 2012 and thus

Taxpayer is due a refund of gross receipts tax in an amount corresponding to reduction of total

gross receipts tax in that period.

However, Taxpayer did not establish that made a similar accounting error in failing to

back out collected gross receipts in the other invoices submitted into the record, which was the

only cited grounds for Taxpayer’s protest. Taxpayer also submitted an Application and

Certification for Payment and contract related to a Walmart Rinconada project and a for a fence

restretching project at White Sands. However, neither the Walmart Application and Certification

nor the fence restretching project show that any gross receipts tax was included in the bill for

those projects and Ms. Torres provided no testimony about these projects at hearing. All receipts

of a person engaged in business are presumed subject to gross receipts tax until shown otherwise,

and as such it is presumed that these other invoices were subject to gross receipts tax for the fully

billed amount. See NMSA 1978, Section 7-9-4 (2010) and NMSA 1978, Section 7-9-5 (2002).

Taxpayer did not establish, at least with the evidence presented into this record, any basis to

grant a refund claim related to the receipts on these two projects.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely, written protest to the Department’s denial of the claim for

refund, 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 the Department’s

acknowledgment of receipt of a valid protest under NMSA 1978, Section 7-1B-8 (2015).

In the Matter of the Protest of MANS Construction Company, page 7 of 8
C. Taxpayer established by the preponderance that it made an accounting error in

failing to back out $66,407.66 in collected gross receipts tax from its gross receipts in the CRS

reporting period ending on October 31, 2012. As such, Taxpayer was entitled to reduce its total

reported gross receipts in that reporting period by that amount and was entitled to corresponding

refund of gross receipts tax for that reduction.

D. Taxpayer did not establish entitlement to any further refund with the evidence it

presented at hearing.

For the foregoing reasons, the Taxpayers’ protest IS PARTIALLY GRANTED AND

PARTIALLY DENIED. Taxpayer is entitled to receive a refund in amount corresponding to the

$66,407.66 reduction in its reported total gross receipts for the CRS reporting period ending on

October 31, 2012. Taxpayer did not establish it was entitled to any additional refund for the October

31, 2012 reporting period. IT IS ORDERED that the Department calculate the total refund do to

Taxpayer in light of that $66,407.66 reduction in its reported total gross receipts and promptly issue

Taxpayer a refund check in that amount plus any applicable interest as required under NMSA 1978,

Section 7-1-68 (2013).

DATED: June 6, 2016.

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

In the Matter of the Protest of MANS Construction Company, page 8 of 8