Could a tile installer deduct resale-service receipts using an incomplete Type 2 NTTC and a correct Type 5 NTTC obtained after the 60-day audit deadline?

Plain-English summary

A tile installer lost his gross receipts tax deduction because the NTTC he held by the audit deadline was incomplete and the wrong type, while the correct Type 5 NTTC arrived too late. The AHO upheld $28,268.57 tax and $3,967.57 interest, but abated the $5,653.70 negligence penalty because his bookkeeper failed to advise him about the certificate defects.

Hector Martinez operated a sole proprietorship providing tile-installation services in New Mexico. He performed work for Five-Star Floor Covering and claimed that the receipts qualified for the sale-of-a-service-for-resale deduction.

Five Star attempted to issue a Type 2 NTTC in 2011, but left the seller information and execution date blank and gave Martinez the buyer's copy. Seller information was handwritten onto that copy in 2013, while the Department's electronic record still showed the certificate as incomplete.

The correct certificate missed the 60-day deadline

After a Schedule C mismatch triggered a limited audit, the Department sent Martinez a January 1, 2016 notice giving him until March 1 to provide the required NTTCs. He did not produce a properly completed certificate of the appropriate series by that deadline.

On March 18—17 days after the deadline—Martinez presented a properly completed Type 5 NTTC. Type 5 was the series generally used for the service-for-resale deduction, but Section 7-9-43 made the 60-day second-chance deadline mandatory. The Department therefore could not accept the late certificate to support the deduction.

The incomplete Type 2 certificate did not create a safe harbor

Section 7-9-43's good-faith safe harbor required timely acceptance, good faith, and a properly executed NTTC. The AHO explained that a wrong-series certificate can sometimes protect a seller if the underlying transaction qualifies and the certificate was timely, properly completed, and accepted in good faith.

Martinez's Type 2 certificate failed the properly-executed requirement. It was incomplete when issued, Martinez had the buyer's rather than seller's copy, and the Department's database lacked seller information and an execution date. The safe harbor therefore did not attach.

Bookkeeper reliance removed the penalty, not the tax

Interest remained mandatory from the original due dates until the tax principal was paid. But the AHO abated the negligence penalty under Section 7-1-69(B) and Regulation 3.1.11.11(D) NMAC because Martinez's bookkeeper had failed to tell him that he needed both a properly completed NTTC and the correct certificate type.

Result: protest PARTIALLY GRANTED AND PARTIALLY DENIED. Martinez owed $28,268.57 tax and $3,967.57 interest, with interest continuing to accrue, while the $5,653.70 penalty was abated.

What this means for you

Contractors and service providers

Do not rely on a customer's promise that a transaction is for resale. Verify that the customer delivers the correct NTTC series, that every required field is completed, and that you retain the seller's copy.

Businesses under audit

The 60-day NTTC notice is a hard deadline. A correct certificate obtained after the deadline may not rescue the deduction, even if the underlying transaction could otherwise qualify.

Accountants and bookkeepers

Review both certificate type and execution. Professional-reliance evidence may support penalty relief, but it does not create the missing statutory deduction or stop mandatory interest.

Common questions

Q: Was the Type 2 NTTC rejected only because it was the wrong series?
A: No. The AHO rested the safe-harbor denial on the narrower fact that the certificate was not properly executed because it was incomplete.

Q: Did Martinez eventually obtain the correct NTTC?
A: Yes. He presented a properly completed Type 5 NTTC on March 18, 2016, but the March 1 deadline had already passed.

Q: Why did the tax remain if the penalty was abated?
A: The deduction required a timely, proper NTTC. Bookkeeper reliance supported relief from negligence penalty but did not satisfy the deduction's certificate requirement.

Q: Did interest stop when the penalty was removed?
A: No. The AHO held that interest was mandatory and continued until the gross receipts tax principal was paid.

Q: What was the final amount upheld?
A: $28,268.57 in gross receipts tax and $3,967.57 in interest as of the hearing record, with continuing interest. The $5,653.70 penalty was abated.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-9-3.3, 7-9-3.5, 7-9-4, and 7-9-5 — business, gross receipts, and taxability presumption
• NMSA 1978, § 7-9-48 — service-for-resale deduction
• NMSA 1978, § 7-9-43 — NTTC timing and good-faith safe harbor
• NMSA 1978, §§ 7-1-67 and 7-1-69 — interest and civil negligence penalty
• Regulations 3.2.201.12(C), 3.2.201.15, and 3.1.11.11(D) NMAC — NTTC rules and professional reliance

Cases cited:

• Wing Pawn Shop v. Taxation and Revenue Department, 1991-NMCA-024 — strict proof of deductions
• Proficient Food Co. v. New Mexico Taxation and Revenue Department, 1988-NMCA-042 — untimely or improper NTTC supports denial
• Leaco Rural Telephone Cooperative v. Bureau of Revenue, 1974-NMCA-076 — safe harbor requires timely, good-faith acceptance of a properly executed NTTC
• Marbob Energy Corp. v. New Mexico Oil Conservation Commission, 2009-NMSC-013 — mandatory meaning of “shall”

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Hector Martinez
• Decision PDF: D&O 16-46

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
HECTOR MARTINEZ No. 16-46
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L1466178512

DECISION AND ORDER

A protest hearing occurred on the above captioned matter on June 21, 2016 before Brian

VanDenzen, Esq., Chief Hearing Officer, in Santa Fe. At the hearing, Hector Martinez

(“Taxpayer”) appeared pro se, along with interpreter Darlene Parra. Staff Attorney Elena Morgan

appeared representing the State of New Mexico Taxation and Revenue Department

(“Department”). Protest Auditor Milagros Bernardo appeared as a witness for the Department.

Taxpayer Exhibit #1-9 and Department Exhibits A-E were admitted into the record. 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 April 1, 2016, through letter id. no. L1881463344, the Department assessed

Taxpayer for $28,268.57 in gross receipts tax, $5,653.70 in penalty, and $3,757.52 in interest for

a total assessment of $37,679.79 for the CRS reporting periods from January 1, 2009 through

December 31, 2013.

2. On April 12, 2016, Taxpayer protested the Department’s assessment. The

Department received the protest on April 14, 2016.

3. On April 22, 2016, the Department’s protest office acknowledged receipt of a

valid protest in this matter.

4. On May 25, 2016, the Department filed a request for hearing in this matter with

the Administrative Hearings Office, an agency independent of the Department under the

Administrative Hearings Office Act.

5. On May 27, 2016, the Administrative Hearings Office sent Notice of

Administrative Hearing, scheduling this matter for the merits hearing on June 21, 2016.

6. Taxpayer is a sole-proprietor that provides tile-installation services in New

Mexico.

7. During the relevant period, Taxpayer worked with a bookkeeper on preparing his

taxes.

8. The bookkeeper informed Taxpayer that he needed to obtain NTTCs for his work.

9. During the relevant period, Taxpayer provided tile-installation services for Five-

Star Floor Covering.

10. Five-Star Floor Covering (“Five Star”) issued a Type 2 NTTC on August 5, 2011.

However, Five-Star Floor Covering did not properly complete that Type 2 NTTC by failing to

fill out any seller information on the seller’s copy and did not complete the execution date.

[Dept. Ex. B-2].

11. Five Star provided seller-Taxpayer with the buyer’s copy of the incomplete Type

2 NTTC rather than the seller’s copy that should have been provided. [Dept. Ex. B-1].

12. Some two-years after the initial listed execution date on the seller’s copy,

someone handwrote in the seller information, listing Taxpayer, on the buyer’s copy of the

NTTC, and noted an execution date of April 23, 2013. [Dept. Ex. B-1].

In the Matter of the Protest of Hector Martinez, page 2 of 14

13. The Department’s internal electronic database of issued NTTCs still shows that

the Type 2 NTTC Five Star attempted to execute to Taxpayer as incomplete without seller

identification information or an execution date. [Dept. Ex. B-3].

14. Through its Schedule C mismatch program with the IRS, the Department detected

a variance between the amount of gross receipts tax reported and paid to the Department and the

amount of business income reported to the IRS on Taxpayer’s Schedule C. [Dept. Ex. D-1].

15. Based on this mismatch, the Department selected Taxpayer for a limited scope

audit. [Dept. Ex. D-1].

16. On January 1, 2016, the Department mailed Taxpayer a limited scope audit

commencement notice, informing Taxpayer that he had 60-days, until March 1, 2016, to present

any required NTTCs. [Dept. Ex. D-1 & Dept. Ex. D-5, showing printing/mailing info].

17. Taxpayer submitted all his documentation to the Department in January of 2016.

The Department informed Taxpayer and Taxpayer’s bookkeeper that the Type 2 NTTC was

inadequate to support the claimed deduction.

18. Taxpayer did not timely present any properly completed and executed NTTC by

the March 1, 2016 60-day deadline.

19. On March 1, 2016, the Department sent Taxpayer a letter stating that there

remained a discrepancy and that the Department was preparing to issue an assessment to

Taxpayer.

20. On March 18, 2016, 17-days after the 60-day deadline, Taxpayer presented an

untimely but properly executed and completed Type 5 NTTC from Five Star.

In the Matter of the Protest of Hector Martinez, page 3 of 14

21. As of the date of hearing, Taxpayer owed $28,268.57 in gross receipts tax,

$5,653.70 in penalty, and $3,967.57 in interest for a total outstanding liability of $37,889.84.

[Dept. Ex. E].

DISCUSSION

The main issues in this case involve whether Taxpayer had a requisite, timely, and

properly completed NTTC to support the claimed deduction and whether Taxpayer could

otherwise accept an inappropriate series of NTTC in good faith to support the NTTC. A second

issue is whether Taxpayer’s reliance on a bookkeeper may be a basis for abatement of penalty.

Presumption of Correctness.

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. Unless otherwise specified, for the

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

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. See Chevron U.S.A., Inc. v. State ex rel. Dep't of Taxation & Revenue, 2006-NMCA-50,

¶16, 139 N.M. 498, 503 (agency regulations interpreting a statute are presumed proper and are to be

given substantial weight).

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-

In the Matter of the Protest of Hector Martinez, page 4 of 14
NMSC-7, ¶9, 133 N.M. 447. Because Taxpayer is claiming a deduction from gross receipts tax,

Taxpayer must establish its right to claim the deduction.

Gross Receipts Tax, Deduction, and the Requirement of 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). 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 tax

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

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). Unless

otherwise deductible, Taxpayer’s receipts from performing tile installation services were subject to

gross receipts tax.

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

of gross receipts tax. The deduction potentially at issue in this case the sale of a service for resale

deduction under NMSA 1978, Section 7-9-48 (2000), which states that:

Receipts from selling a service for resale may be deducted from
gross receipts or 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 service in the ordinary course of business and the resale
must be subject to the gross receipts tax....

In the Matter of the Protest of Hector Martinez, page 5 of 14
The deduction is premised on the sale of a service for resale when the resale occurs in the regular

course of business and the resale is subject to New Mexico gross receipts tax. Taxpayer did not

establish that Five Star was reselling the tile installation services in its regular course of business,

although even if it did, this case still turns on the NTTC issue. This deduction is generally covered

by a Type 5 NTTC. Simply selling the service for resale, as the Taxpayer did in this instance, is not

enough to satisfy the requirements of the deduction under Section 7-9-48. The statute clearly and

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

In pertinent part, NMSA 1978, Section 7-9-43 (A) (2011) articulates the requirements for

obtaining NTTCs:

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. 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 except as provided in Subsection E of this section....

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 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

In the Matter of the Protest of Hector Martinez, page 6 of 14
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. 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 did possess a Type 2 NTTC, an inappropriate series for the deduction

at issue, by the 60-day deadline. Since the Type 2 NTTC was of the inappropriate series for the

deduction at issue, that NTTC does not satisfy the statutory language Section 7-9-43 (A), which

requires a NTTC of the appropriate series. Taxpayer did not timely possess the appropriate series

Type 5 NTTC by the March 1, 2016, 60-day deadline. In fact, the Type 5 NTTC was executed some

18-days after the 60-deadline. Thus, the Department was required to disallow the sale of a service

for resale deduction under Section 7-9-48. The Department lacked authority to accept Taxpayer’s

untimely presentation of the Type 5 NTTC, executed on March 18, 2016, after the 60-day second

chance deadline had already passed.

Nevertheless, despite not possessing the correct type of NTTC to support the deduction,

the question remains whether the inappropriate series Type 2 NTTC that Taxpayer did timely

present before expiration of the 60-day deadline entitles Taxpayer to relief from the assessment

under the good-faith, safe harbor protection articulated by Section 7-9-43 (A).

In the Matter of the Protest of Hector Martinez, page 7 of 14
Section 7-9-43 (A) grants taxpayers a good-faith acceptance, safe harbor from taxation

protection in some circumstances:

[w]hen the seller or lessor accepts a nontaxable transaction certificate within
the required time and in good faith that the buyer or lessee will employ the
property or service transferred in a nontaxable manner, the properly executed
nontaxable transaction certificate shall be conclusive evidence, and the only
material evidence, that the proceeds from the transaction are deductible from
the seller's or lessor's gross receipts.

In other words, the statute grants the seller of the service safe harbor from taxation when the seller

timely accepts a properly executed NTTC in good faith from the buyer. Regulation 3.2.201.15

NMAC (05/31/01) discusses good faith acceptance of a NTTC:

Acceptance of [NTTCs] in good faith that the property or service sold
thereunder will be employed by the purchaser in a nontaxable manner is
determined at the time of each transaction. The taxpayer claiming the
protection of a certificate continues to be responsible that the goods
delivered or services performed thereafter are of the type covered by the
certificate.

The Administrative Hearings Office, and its predecessor the Hearings Bureau, have

employed a broader view of the good-faith, safe harbor protection since the 2013 issuance of the

decision and order In the Matter of the Protest of Case Manager, No. 13-12 (non-precedential) and

In the Matter of the Protest of Rio Grande Electric Co., Inc, No. 13-16 (non-precedential).

Essentially this interpretation is that so long as the transaction at issue otherwise would qualify for a

statutory deduction, a timely and properly executed but inappropriate series NTTC accepted in

good-faith by a taxpayer may still entitle a taxpayer to the deduction under the good-faith, safe

harbor statutory provision. In an unpublished decision, the New Mexico Court of Appeals affirmed

the ruling in the Case Manager decision and order narrowly under a right for any reason standard.

See New Mexico Taxation and Revenue Dep’t. v. Case Manager, No. 32,940 (N.M. Ct. App.

April 29, 2015) (non-precedential). On July 25, 2016, the Court of Appeals looked favorably

In the Matter of the Protest of Hector Martinez, page 8 of 14
upon the good-faith, safe harbor provision as previously applied by the Administrative Hearings

Office/Hearings Bureau In the Matter of the Protest of Case Manager, No. 13-12 (non-

precedential). See Southwest Mobile Service and Richard Cameron v. New Mexico Taxation and

Revenue Department, No. 34,551 (N.M. Ct. App. July 25, 2016) (non-precedential) (although the

Court of Appeals overturned the hearing officer on whether the good faith analysis applies on a

MTC rather than a NTTC, it relied extensively on the Case Manager analysis in reaching its

conclusion). A recent Decision and Order of the Administrative Hearings Office continued with that

interpretation. See Decision and Order in the Matter of the Protest of SPMC, Inc., No. 16-45 (non-

precedential).

However, unlike those other cases, this case does not turn on whether Taxpayer

substantively accepted the Type 2 NTTC in good faith, but rather on a much narrower basis

discussed in the first case addressing the safe harbor protection, Leaco Rural Tel. Coop. v. Bureau of

Revenue, 1974-NMCA-076, ¶15, 86 N.M. 629. In Leaco, the New Mexico Court of Appeals

considered what requirements must be met “before an NTTC becomes conclusive evidence that

proceeds of a transaction are deductible.” While the Leaco Court of Appeals was considering

NMSA 1978, §7-9-43(A) (2011)’s predecessor statue, NMSA 1953, Section 72-16A-13(A), the

good faith, safe harbor provision of both statutes is substantially the same. In Leaco, a buyer had

executed a NTTC to a seller for a transaction held to be subject to tax. The Leaco court found that a

seller-taxpayer must satisfy three statutory requirements before the good faith, safe harbor

protection attaches to the transaction. See id. As the Leaco Court of Appeals expounded those three

“requirements are timeliness of acceptance of the NTTC, good faith acceptance of the NTTC and a

properly executed NTTC.” id. By “properly executed” the Leaco Court of Appeals—relying on the

Black’s Law Dictionary—meant only that the NTTC forms were filled out and signed. See id, ¶14.

In the Matter of the Protest of Hector Martinez, page 9 of 14
If these three conditions are met, then the Leaco Court of Appeals found that the NTTC becomes

the only material and conclusive evidence establishing that the seller-taxpayer is entitled to the

claimed deduction even when the buyer improperly issued the NTTC to the seller. See id, ¶15; See

also Rainbo Baking Co. v. Commissioner of Revenue, 84 N.M. 303, 305 502 P.2d 406, 408 (N.M.

Ct. App. 1972) (absent a claim of bad faith, some other issue of good faith, or a claim of improper

execution of the NTTC, a taxpayer’s presentation of the NTTC established that taxpayer’s claim

with conclusive evidence). The Leaco Court of Appeals found no relevance to the fact that the buyer

had improperly issued a NTTC to the seller by stating that was an issue between the Department

and the buyer. See Leaco at ¶20.

In this case, the Type 2 NTTC that Taxpayer presented was not “properly executed” under

the Leaco requirement because it was incomplete. At the time of initial execution, August 5, 2011,

Five Star did not list or provide the Seller information on either the seller’s copy or buyer’s copy of

the NTTC form, making the form incomplete, not filled out, and not properly signed. On April 23,

2013, some two years later, someone handwrote the seller’s information on the buyer’s copy of the

Type 2 NTTC. However, in this case Taxpayer was the seller, and needed the seller’s copy to

establish that the NTTC form was properly executed. While admittedly this is a form over substance

issue, proper completion of the NTTC form allows the Department to track both the buyer and a

seller engaged in the transaction subject to a NTTC, which gives the Department the means

necessary to pursue the buyer for improperly issuing the NTTC, the Department’s exact remedy

described by the Court of Appeals in Leaco. The Department’s internal electronic database still

shows that the Type 2 NTTC at issue was incomplete, without any seller information or an

execution date. Since the form was not properly completed, Taxpayer did not establish it was

entitled to the good-faith, safe harbor provision of Section 7-9-43 (A) under the three-requirements

In the Matter of the Protest of Hector Martinez, page 10 of 14
articulated in Leaco, ¶14. See also Proficient Food Co. v. New Mexico Taxation & Revenue Dep't,

1988-NMCA-042, 107 N.M. 392 (taxpayer not entitled to a deduction when the nontaxable

transaction form presented was not in the NTTC form proscribed by the Department).

Consequently, the Department properly denied Taxpayer’s claim for the deduction.

Penalty and Interest.

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

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., ¶22. 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 until

Taxpayer satisfies the gross receipts tax principal.

However, there are grounds 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.”

Nevertheless, because Taxpayer’s bookkeeper failed to advise Taxpayer of the necessity of

getting a properly completed NTTC (an obvious error) or a NTTC of the correct type for the

In the Matter of the Protest of Hector Martinez, page 11 of 14
transaction at issue, penalty is abated under Section 7-1-69 (B) and Regulation 3.1.11.11 (D)

NMAC.

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 did not overcome the presumption of correctness that attached to the

assessed tax principal and interest under NMSA 1978, Section 7-1-17 (C) (2007) and Archuleta v.

O'Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428.

D. Taxpayer was engaged in business in New Mexico selling tile installation services

and therefore all of Taxpayer’s receipts during the audit period are presumed subject to gross

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

E. Taxpayer did not present timely executed NTTCs to support the claimed deduction

for the sale of a service for resale under NMSA 1978, Section 7-9-48 (2000). The Type 5 NTTC

Taxpayer presented was executed after the 60-day deadline. 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 60-days of notice of audit, the Department is not allowed to grant and

Taxpayer is not entitled to the claimed deduction under Section 7-9-51. 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

In the Matter of the Protest of Hector Martinez, page 12 of 14
found it valid for the Department to deny a claimed deduction when taxpayer did not timely present

a requisite NTTC).

F. The Type 2 NTTC that Taxpayer presented with an execution date before the

expiration of the 60-day deadline was not properly executed because it was incomplete, thereby

failing one of the Leaco Rural Tel. Coop. v. Bureau of Revenue, 1974-NMCA-076, ¶14, 86 N.M.

629 requirements for the good-faith, safe harbor provision to apply.

G. 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.

H. Because Taxpayer’s bookkeeper failed to inform Taxpayer that Taxpayer had

both the wrong type of NTTC and that the NTTC was not properly completed and executed,

penalty is abated in this matter pursuant to NMSA 1978, Section 7-1-69 (B) (2007) and

Regulation 3.1.11.11 (D) NMAC.

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

PARTIALLY DENIED. Taxpayer is liable for the $28,268.57 in gross receipts tax and $3,967.57

in interest. Under Section 7-1-67, interest continues to accrue until tax principal is satisfied. The

civil negligence penalty totaling $5,653.70 is abated.

DATED: September 23, 2016.

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

In the Matter of the Protest of Hector Martinez, page 13 of 14
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 Hector Martinez, page 14 of 14