Did Type 5 and Type 6 NTTCs protect retail-store installation receipts when one certificate omitted the seller name and the service provider lacked a contractor license?
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This page answers the general question as of 2016. Ezel answers yours, under current New Mexico tax law, with citations.
Plain-English summary
Capacity Builders proved deductions for receipts from three construction customers using timely Type 5 and Type 6 NTTCs, including one Type 5 certificate that omitted the seller's name. Receipts from seven customers without certificates remained taxable, and the separate withholding assessment remained due.
Capacity Builders was an out-of-state S corporation providing retail-store setup, remodeling, finish-outs, plant-equipment moves, fixture installation, carpentry, and mechanical work to construction contractors. It used skilled workers but did not hold a contractor license.
The Department assessed $11,690.25 gross receipts tax and $3,266.61 interest for 2004 through early 2008. A separate withholding assessment included $2,314.59 tax, $462.92 penalty, and $818.46 interest, which Capacity Builders did not protest.
After an audit notice, Capacity Builders timely supplied NTTCs from HJ Martin & Son, Southwest Fixture Installers, and Starnes & Oswald Construction. It could not obtain certificates from seven other contractors that had often gone out of business and conceded those receipts were taxable.
Complete Type 5 certificate supported resale receipts
At the hearing, the Department conceded that Type 5 was the correct certificate for services resold in the buyer's ordinary business. The Starnes & Oswald certificate was timely and complete, so those receipts were deductible under Section 7-9-48.
Good faith protected the incomplete Type 5 certificate
Southwest Fixture Installers' Type 5 certificate was the correct form and was submitted one day before the 60-day deadline, but it omitted Capacity Builders' seller information. A Department auditor marked the form with the taxpayer's name.
Capacity Builders had time to correct the form if told of the problem, but no one alerted it before the deadline expired, after which a replacement could no longer be accepted. Under those specific facts, the AHO found good-faith acceptance and allowed the deduction despite incomplete execution.
Type 6 covered construction-related services
The Department argued that Capacity Builders could not use Type 6 because it was not a licensed contractor. The AHO rejected that premise.
Section 7-9-52 required the buyer to be engaged in construction and the seller's work to be a construction or construction-related service. HJ Martin was a contractor authorized to issue Type 6 NTTCs, and Capacity Builders' retail setup and installation work was construction-related. The service provider itself did not have to hold a contractor license.
Interest remained due on any principal left after the Department recalculated the allowed deductions. The decision did not state the final adjusted gross receipts balance.
Result: protest GRANTED IN PART AND DENIED IN PART. Three customers' receipts were deductible; seven customers' receipts and the unprotested withholding assessment remained.
What this means for you
Construction-related service providers
Your own contractor license is not always the deciding factor for Type 6. Confirm that the buyer is a construction business authorized to issue the certificate and that your service is tied to a taxable construction project.
Businesses submitting certificates during audit
Submit early enough to correct defects and keep proof of transmission. Here a one-day-early submission and the Department's failure to flag the omitted seller name supported unusual good-faith relief.
Accountants and tax professionals
Match receipts customer by customer to certificate type, timeliness, execution, resale, and project taxability. Uncertificated receipts may remain taxable even when other portions of the same audit are abated.
Common questions
Q: Why was the incomplete Type 5 certificate accepted?
A: It was the correct form, arrived within 60 days, was accepted in good faith, and the Department did not alert Capacity Builders to the missing seller name while correction was still possible.
Q: Did Capacity Builders need its own contractor license for Type 6?
A: No. The AHO focused on the buyer being a contractor and the seller providing construction-related services.
Q: Were all assessed receipts deducted?
A: No. Capacity Builders conceded that receipts from seven customers without NTTCs were not deductible.
Q: What happened to the withholding assessment?
A: It was not protested and remained due with its tax, penalty, and interest.
Q: Did the decision state the final recalculated gross receipts amount?
A: No. It ordered the Department to adjust the assessment for the three allowed customer groups.
Citations and references
Statutes and regulations:
- NMSA 1978, §§ 7-9-3, 7-9-3.5, 7-9-4, and 7-9-5 — services and gross receipts
- NMSA 1978, §§ 7-9-43 and 7-9-48 — NTTC requirements and service-for-resale deduction
- NMSA 1978, § 7-9-52 — construction-related service deduction
- NMSA 1978, § 7-1-67 — interest
- Regulations 3.2.201.11(A) and 3.2.210.9-.15 NMAC — construction NTTC applicants and construction-related examples
Cases cited:
- Carlsberg Management Co. v. State Taxation and Revenue Department, 1993-NMCA-121 — assessment presumption and taxpayer burden
- Chavez v. Commissioner of Revenue, 1970-NMCA-116 — fair and reasonable construction of tax statutes
- Marbob Energy Corp. v. New Mexico Oil Conservation Commission, 2009-NMSC-013 — mandatory interest language
Source
- Listing: New Mexico Decisions & Orders
- Decision post: Capacity Builders, Inc.
- Decision PDF: D&O 16-31
Original ruling text
STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT
IN THE MATTER OF THE PROTEST OF
CAPACITY BUILDERS, INC. No. 16-31
TO ASSESSMENT ISSUED UNDER LETTER
NO. L0261743488
DECISION AND ORDER
A formal hearing on the above-referenced protest was held on June 14, 2016, before
Monica Ontiveros, Hearing Officer. The Taxation and Revenue Department (“Department”) was
represented by Peter Breen, Esq., attorney for the Department. Mr. Tom Dillon, protest
supervisor, appeared as a witness for the Department. Capacity Builders, Inc. (“Taxpayer”)
appeared through its owner, Wayne John Rausch, at the appointed time. The Department
introduced into the record Exhibits A-D.
This matter was originally scheduled for hearing on April 14, 2016. The Notice of
Administrative Hearing was mailed to Taxpayer at his last known address or at 1150 W. Littleton
Blvd., Littleton, CO 80120. Taxpayer did not receive the Notice because he had moved his
office during the seven years it took the Department to request a hearing. When the Hearing
Officer issued her Decision and Order, she mailed the Decision and Order to Taxpayer’s last
known address and his address listed on the internet. Taxpayer received the Decision and Order
finding against him and requested that the matter be rescheduled. The Hearing Officer granted
Taxpayer’s request. Prior to the commencement of this hearing, Taxpayer requested that the
hearing be rescheduled. The Department objected to the continuance and the Hearing Officer
denied Taxpayer’s request for a continuance.
Based on the aforementioned pleadings, the testimony and evidence introduced at the
hearing, and the arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:
FINDINGS OF FACT
- On September 14, 2009, the Department assessed Taxpayer for gross receipts tax:
in the amount of $11,690.25 in principal and $3,266.61 in interest for tax period March 31, 2004
through March 31, 2008. No penalty was assessed. Taxpayer was also assessed $2,314.59 in
withholding principal tax, $462.92 in penalty and $818.46 in interest. [Letter Id. No.
L0261743488].
- Taxpayer filed his protest on October 9, 2009. Taxpayer did not protest the
withholding tax assessment.
- On October 15, 2009, the Department acknowledged the protest. [Letter ID No.
L1290057600].
- On November 4, 2015, the Department requested a hearing in the protest of the
gross receipts tax assessment for the tax period at issue. A hearing cannot be set by the
Administrative Hearings Office until a hearing request is submitted by either a taxpayer or the
Department. There was no explanation offered by the Department as to why the matter was not
submitted to the Administrative Hearings Office in a more timely manner.
-
This matter was reassigned to this Hearing Officer on April 8, 2016.
-
A Decision and Order was issued denying Taxpayer’s protest on April 27, 2016.
-
The Hearing Officer granted Taxpayer’s request on May 27, 2016 for a new
hearing, and issued an Order setting the hearing for June 14, 2016.
In the Matter of the Protest of Capacity Builders, Inc.
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- Taxpayer did not file gross receipts returns for the periods at issue. [Exhibit B,
page AN1.1].
- The Department mailed Taxpayer a Notice of Limited Scope Audit
Commencement (“60 day letter”) which provided that Taxpayer was required to provide any
nontaxable transaction certificates within 60 days or by September 5, 2008. [Exhibit B, page
AN1.0].
- Taxpayer provided the Department with timely nontaxable transaction certificates
(NTTCs) from HJ Martin & Son Inc. (Type 6), Southwest Fixture Installers, Inc. (Type 5), and
Starnes & Oswald Construction Inc. (Type 5). [Exhibits D-3, D-4 and D-5].
- During the tax periods at issue, Taxpayer was a S corporation and out-of-state
business providing retail store setup, remodeling, finish outs, plant equipment moves, installation
services of fixtures, carpentry and mechanical work to construction contractors. [Exhibit B,
page AN1.0 and CD 06/14/16, 6:55-7:07; 7:32-8:05 and 9:35].
- Taxpayer was engaged in construction-related services to contractors. [CD
06/14/16, 5:40-5:50].
- Taxpayer employed skilled workers to complete the construction related services.
[Exhibit B, page AN1.4].
- The Department informed Taxpayer that he needed to obtain Type 5 (sale of a
service for resale in the ordinary course of business) and Type 6 (sale of a construction service to
be performed on a construction project that is subject to gross receipts tax upon completion)
NTTCs. [Exhibit B, page AN1.1].
- Taxpayer obtained as many Type 5 and Type 6 NTTCs as he could obtain.
In the Matter of the Protest of Capacity Builders, Inc.
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! - Taxpayer was not able to obtain NTTCs from all the contractors he did business
with because many had gone out of business. [CD 06/14/16, 22:16].
- Upon finalizing the audit, and after the 60 day period had elapsed, the Department
informed Taxpayer that the Type 5 and 6 NTTCs were the wrong type. [Exhibit B, page
AN1.0].
- The audit narrative does not explain why the auditor determined that the Type 5
and Type 6 NTTCs were the wrong type other than Taxpayer was a staffing company. [Exhibit
B, page AN1.3].
- Taxpayer testified that the services performed for HJ Martin & Son Inc. (Type 6),
Southwest Fixture Installers, Inc. (Type 5) and Starnes & Oswald Construction Inc. (Type 5)
(collectively known as “Companies”) were resold and the construction project was subject to
gross receipts tax upon completion or the final projects were subject to gross receipts tax or
-
Taxpayer is not a licensed contractor. [CD 06/14/16, 14:12].
-
At the hearing, the Department conceded that a properly executed Type 5 NTTC
was valid and should have been accepted by the auditor. [CD 06/14/16, 15:50-16:39].
- All receipts detailed in the audit from Starnes & Oswald Construction Inc. are
deductible because they were sold as a service for resale in the ordinary course of business and
Taxpayer had a timely Type 5 NTTC. [Exhibit D-3 and Exhibit B, page AN1.0-AN1.6].
- The Type 5 NTTC from Southwest Fixture Installers, Inc. was not properly
executed, although it was timely and the correct type of NTTC. The auditor marked the NTTC
with Taxpayer’s name. The NTTC was submitted one day prior to the 60th day or on September
4, 2008. [Exhibit D-4; CD 06/14/16, 26:00-26:59].
In the Matter of the Protest of Capacity Builders, Inc.
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-
Taxpayer received the NTTC from Southwest Fixture Installers, Inc. in good faith.
-
All receipts detailed in the audit from Southwest Fixture Installers, Inc. are
deductible even though the NTTC was not properly executed because Taxpayer received the
NTTC in good faith. [Exhibit D-4 and Exhibit B, page AN1.0-AN1.6].
- The Type 6 NTTC from HJ Martin & Son, Inc. was properly issued by the
Department to a construction contractor.
- The services provided to HJ Martin & Son, Inc. were construction-related services
performed on a construction project that was subject to gross receipts tax upon completion.
- All receipts detailed in the audit from HJ Martin & Son, Inc. are deductible and
the Type 6 NTTC was valid. [Exhibit D-5 and Exhibit B, page AN1.0-AN1.6].
- All other receipts from Structures, Inc., Quest Service Group, LLC, Allstate
Installations, The Bean Team, Inc., Wepco, Inc., Phoenix Retail Group and Timberwolff
Construction are not deductible because Taxpayer did not provide a NTTC to the Department.
- Taxpayer does not dispute that the receipts from Structures, Inc., Quest Service
Group, LLC, Allstate Installations, The Bean Team, Inc., Wepco, Inc., Phoenix Retail Group and
Timberwolff Construction are not deductible.
DISCUSSION
The two issues to be decided are whether the NTTC from Southwest Fixture Installers,
Inc. (Type 5) was valid since it was not properly executed and whether the NTTC from HJ
Martin & Son Inc. (Type 6) is valid for the transactions at issue. As for the Type 5 NTTC, the
Department argued that the Type 5 was not properly executed and it argued that Taxpayer was
not engaged in construction and therefore the Type 6 NTTC was not valid.
In the Matter of the Protest of Capacity Builders, Inc.
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Burden of Proof and Standard of Review
Section 7-1-17(C) provides that any assessment of taxes made by the Department is
presumed to be correct. NMSA 1978, §7-1-17(C) (2007). Accordingly, it is Taxpayer’s burden
to present evidence and legal argument to show that he is entitled to an abatement, in full or in
part, of the assessment issued against him. See, Carlsberg Management Co. v. State, Taxation
and Revenue Dep’t., 1993-NMCA-121, 116 N.M. 247, 861 P.2d 288. In addition, all receipts of a
person engaging in business are presumed to be subject to the gross receipts tax pursuant to
NMSA 1978, Section 7-9-5(A) (2002).
Gross Receipts
Generally speaking, goods sold or services performed within the State of New Mexico
are taxable. The term“gross receipts”is broadly defined in Section 7-9-3.5(A)(1):
(1) “gross receipts” means 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. In an
exchange in which the money or other consideration received does not
represent the value of the property or services exchanged, “gross
receipts” means the reasonable value of the property or services
exchanged;”
NMSA 1978, §7-9-3.5(A)(1) (2007). The Gross Receipts and Compensating Tax Act,
specifically Section 7-9-3(M), defines “service” as “all activities ... which activities involve
predominately the performance of a service as distinguished from selling or leasing property.”
In the Matter of the Protest of Capacity Builders, Inc.
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NMSA 1978, §7-9-3(M) (2007). The gross receipts tax is imposed on “any person engaging in
business in New Mexico.” NMSA 1978, §7-9-4 (2010).
Good Faith and the Type 5 NTTC
For the tax periods at issue, Taxpayer provided a service and was in the business of
construction related services to contractors; specifically Taxpayer provides services in retail store
setup, remodeling, finish outs, plant equipment moves, installation services of fixtures, carpentry
and mechanical work to construction contractors. Since the Department concedes that the Type 5
NTTC, a sale of service for resale1, was valid for the deduction, the only issue is whether the
Type 5 NTTC from Southwest Fixture Installers, Inc. was properly executed. There is no
question that the Type 5 NTTC from Southwest Fixture Installers, Inc. did not contain the name
of the seller or Taxpayer’s name.
An NTTC should be in executed properly. Section 7-9-43(A) provides that
All nontaxable transaction certificates of the appropriate series executed
by buyers or lessees 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. … The nontaxable transaction certificates shall contain the
information and be in a form prescribed by the department.
NMSA 1978, §7-9-43(A) (2011) (emphasis added). In this case, the Type 5 NTTC form was the
proper form, however, the buyer of the services failed to provide Taxpayer’s information as the
seller of the services.
However, under the “good faith” provision found within Section 7-9-43(B) (2011), it
provides that if a transaction is deductible, and if the NTTC is timely on a form prescribed by the
1 NMSA 1978, §7-9-48 (2000).
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Department, then the deduction is allowed. Tax statutes must “be given a fair, unbiased, and
reasonable construction without favor or prejudice to either the taxpayer or the [s]tate, to the end
that the legislative intent is effectuated and the public interests to be subserved thereby are
furthered.” Chavez v. Comm’r of Revenue, 1970-NMCA-116, 7, 82 N.M. 97, 476 P.2d 67. In
this case, Taxpayer had the right NTTC at the right time.
Normally, all of the information on an NTTC must be fully executed. What mitigates the
requirement in this case, that the NTTC be fully executed, is that Taxpayer faxed the NTTC to
the Department during the 60 day period. No one from the Department assisted Taxpayer in
letting him know that the NTTC needed to be fully executed. Taxpayer submitted the NTTC one
day prior to the expiration of the 60 days. He certainly had time to request a fully executed
NTTC from Southwest Fixture Installers, Inc. prior to the expiration of the 60 days. Once the
60 days expires, the Department cannot accept an NTTC. With all of these facts, Taxpayer
accepted the Type 5 NTTC from Southwest Fixture Installers, Inc. in good faith and the receipts
are deductible.
Type 6 NTTC and Construction-Related Services
Generally speaking, a Type 6 NTTC may be used to deduct receipts if the sale consists of
construction services to be performed on a construction project that is subject to gross receipts
tax upon completion. NMSA 1978, Section 7-9-52(A) (2012) provides that “(r)eceipts from
selling a construction service or a construction-related service may be deducted from gross
receipts if the sale is made to a person engaged in the construction business who delivers a
nontaxable transaction certificate to the person performing the construction service or a
construction-related service.” (emphasis added). In addition, to ensure that the construction-
In the Matter of the Protest of Capacity Builders, Inc.
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related service is related to construction, regulation 3.2.201.11(A) NMAC (11/30/05) requires
that “(a)ny person applying to execute nontaxable transaction certificates (nttcs) related to
construction … must indicate the applicant’s New Mexico contractor’s license number or furnish
proof that no contractor’s license is required…” By requiring the contractor’s license number of
the buyer, the Department is assured that the buyer of the services is a contractor. Otherwise, the
Department does not issue a Type 6 NTTC to the buyer, unless the buyer explains that that a
contractor’s license is not necessary. 3.2.201.11(A) NMAC (11/30/05).
In this case, the Type 6 NTTC from HJ Martin & Son Inc. was issued by the Department
to a contractor, HJ Martin & Son Inc. The services were provided to a contractor. The services
do not have to be provided by a contractor. The services only have to be construction-related
services under Section 7-9-52. This is evidenced in the regulations. For example, regulation
3.2.210.9 NMAC (05/31/01) allows well construction services to be deducted if the services are
provided to a contractor; regulation 3.2.210.10 NMAC (12/14/12) allows haulers to deduct their
services if the services are provided to a contractor; and regulation 3.2.210.15(A) NMAC
(05/31/01) allows cleaning of the construction site to be deducted if the services are provided to a
contractor.
In this case, the services provided by Taxpayer were construction-related and were
provided to a contractor. Thus, the receipts from HJ Martin & Son Inc. are deductible under
Section 7-9-52, and the Type 6 NTTC is proper.
Interest
On the subject of interest, New Mexico law is very clear on the imposition of interest
when the principal amount of tax is unpaid when due, even if the payment is received one day
In the Matter of the Protest of Capacity Builders, Inc.
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late. Section 7-1-67(A) (2013) states that 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) (2013). The word “shall” is
interpreted to mean that the Department does not have discretion and must assess interest if
principal tax is due and owing. Marbob Energy Corporation v. NM Oil Conservation
Commission, 2009-NMSC-013, ¶22, 146 N.M. 24, 206 P.3d 135. The assessment of interest is
not designed to punish taxpayers, but to compensate the state for the time value of unpaid
revenues. Because the principal amount of tax was not paid when it was due, interest was
properly assessed on the principal amount until the date it was paid. Therefore, Taxpayer owes
the interest amount calculated through date of payment of the principal.
CONCLUSIONS OF LAW
A. Taxpayer filed a timely written protest to the assessment issued under Letter ID No.
L0261743488 and jurisdiction lies over the parties and the subject matter of this protest.
B. Pursuant to NMSA 1978, Section 7-1-17(C) (2007), the Department’s assessment
is presumed to be correct, and it is Taxpayer’s burden to come forward with evidence and legal
argument to establish that it was entitled to an abatement.
C. Taxpayer rebutted the presumption that he owed some of the gross receipts tax
principal amount.
D. Taxpayer provided the Department with timely NTTCs from HJ Martin & Son
Inc. (Type 6), Southwest Fixture Installers, Inc. (Type 5), and Starnes & Oswald Construction
Inc. (Type 5).
E. The Department conceded that the Type 5 NTTCs, while disallowed in the audit,
were valid for the deduction claimed pursuant to NMSA 1978, Section 7-9-48(2000).
In the Matter of the Protest of Capacity Builders, Inc.
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F. All receipts detailed in the audit from Starnes & Oswald Construction Inc. are
deductible because they were sold as a service for resale in the ordinary course of business, a
Type 5 NTTC.
G. Taxpayer received the Type 5 NTTC from Southwest Fixture Installers, Inc. in
good faith, even though the Type 5 NTTC was not properly executed.
H. The receipts detailed in the Department’s audit from Southwest Fixture Installers,
Inc. are deductible.
I. The receipts from HJ Martin & Son Inc. are construction-related receipts and are
deductible under NMSA 1978, Section 7-9-52 (2012).
J. The Type 6 NTTC received from HJ Martin & Son Inc., a contractor, is valid for
the deduction claimed.
K. The services performed for HJ Martin & Son Inc. (Type 6), Southwest Fixture
Installers, Inc. (Type 5), and Starnes & Oswald Construction Inc. (Type 5), were resold and the
final projects were subject to gross receipts tax or the construction project was subject to gross
receipts tax upon completion.
L. Interest continues to accrue until the principal is paid in full and all payments
should be applied to the principal amount of tax due.
M. Taxpayer owes the withholding tax, penalty and interest as set out in the Notice of
Assessment.
N. The Department shall make the adjustments as noted above.
For the foregoing reasons, Taxpayer’s protest IS GRANTED IN PART AND DENIED IN
PART.
In the Matter of the Protest of Capacity Builders, Inc.
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DATED: June 28, 2016
Monica Ontiveros
MONICA ONTIVEROS
Hearing Officer
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502
NOTICE OF RIGHT TO APPEAL
Pursuant to NMSA 1978, Section 7-1-25 (2015), the Taxpayer has 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 NMRA, 12-601 of the Rules of Appellate Procedure. If an appeal is
not filed within 30 days, this Decision and Order will become final. A party filing an appeal
shall file a courtesy copy of the Notice of Appeal with the Administrative Hearings Office
contemporaneously with the filing of the Notice with the Court of Appeals so that the
Administrative Hearings Office may prepare the record proper. The Notice of Appeal should be
mailed to John Griego, Administrative Hearings Office at P.O. Box 6400, Santa Fe, New Mexico
- Mr. Griego may be contacted at 505-827-0466.
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