Did a construction NTTC protect crane-and-operator receipts when the project manager, rather than the subcontractor that issued the NTTC, paid the invoice?

Plain-English summary

A timely, properly executed construction NTTC protected a crane contractor's wind-project receipts even though the overall project manager, rather than the subcontractor that issued the certificate, paid the invoice. Because the transaction was deductible, the AHO held that no tax was due and abated $6,335.74 interest.

US Field Service performed construction, maintenance, and equipment-rental work. A wind-power company hired it to provide a crane and operator for construction of several windmills in New Mexico. US Field Service invoiced the wind company and initially included gross receipts tax.

The wind company issued a construction NTTC on January 12, 2005. US Field Service then accepted payment from the overall project manager for the exact invoice amount, did not collect the billed tax because of the NTTC, and deducted the receipts on its return.

Years later, the Department assessed $13,058.10 tax and $6,335.74 interest for 2004 through 2006. No penalty was assessed. US Field Service paid the tax principal but protested the interest and continued to maintain that the underlying tax was not owed.

Good-faith acceptance triggered the safe harbor

Section 7-9-43 made a timely, properly executed NTTC accepted in good faith conclusive evidence that the transaction was deductible. The AHO credited US Field Service's evidence that it relied on the wind company, the project manager, and its prior dealings with the Department when accepting the certificate.

The Department argued that a construction NTTC was the wrong type because US Field Service was really renting equipment with an operator. The decision rejected that argument under the statutory safe harbor and cases holding that proper issuance is generally a matter between the buyer and the Department once the seller timely accepts a properly executed certificate in good faith.

Third-party payment did not invalidate the certificate

The Department also argued that the NTTC was defective because the wind company issued it while the project manager paid the bill. But NTTC execution rules required completion of the prescribed information and a proper signature; they did not require the buyer that issued the certificate to be the party that transmitted payment.

The payment itself referenced the wind company and exactly matched the amount it owed. The AHO found US Field Service's decade-long account credible and rejected the Department's suggestion that the payment could have been for something else as speculation.

No tax meant no interest

Interest under Section 7-1-67 was mandatory only when tax was unpaid. Because the NTTC conclusively established the deduction, the tax was not due and there was no basis for interest.

The decision separately noted that the Department waited almost six years to refer the 2010 protest for hearing. Because the protest predated the later 90-day hearing requirement and the earlier law supplied no administrative remedy for the delay, that issue did not itself produce relief.

Result: protest GRANTED. The assessed interest was abated.

What this means for you

Construction contractors and equipment providers

Retain the complete NTTC, invoice, and payment records. A certificate may protect the seller even when the Department later disputes the certificate type, if it was timely, properly executed, and accepted in good faith.

Businesses paid by a general contractor or project manager

Payment from a third party does not automatically break the NTTC chain. Here the certificate came from the buyer of the services, while the project manager's payment clearly identified that buyer and matched its invoice.

Accountants and tax professionals

Interest depends on the underlying tax. If an NTTC safe harbor defeats the tax assessment, mandatory-interest language does not preserve interest by itself.

Common questions

Q: What services did US Field Service provide?
A: It supplied a crane and crane operator to help construct windmills for a wind-power subcontractor.

Q: Did the AHO decide the construction NTTC was the perfect certificate type?
A: It did not need to. The decision held that the timely, properly executed certificate accepted in good faith triggered the seller safe harbor despite the Department's wrong-type argument.

Q: Why did payment by the project manager not matter?
A: The execution rules did not require payment by the NTTC issuer, and the payment evidence tied the exact amount to the wind company's invoice.

Q: Was a negligence penalty involved?
A: No. The Department assessed tax and interest but no penalty.

Q: Did the six-year referral delay automatically dismiss the assessment?
A: No. The protest was filed before the 90-day hearing statute, and the AHO found no administrative remedy for the delayed referral under the governing law.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-9-43 and 7-9-52 — NTTC safe harbor and construction-services deduction
• NMSA 1978, § 7-1-67 — interest on unpaid tax
• NMSA 1978, §§ 7-1-3 and 7-1-17 — tax definition and assessment presumption
• NMSA 1978, §§ 7-1-24 and 7-1B-8 — protest and hearing timing
• Regulations 3.2.201.8, 3.2.201.9, and 3.2.201.16 NMAC — NTTC validity and execution

Cases cited:

• Leaco Rural Telephone Cooperative v. Bureau of Revenue, 1974-NMCA-076 — safe harbor for timely, good-faith acceptance of a properly executed NTTC
• Proficient Food Co. v. New Mexico Taxation and Revenue Department, 1988-NMCA-042 — properly executed NTTC as conclusive evidence
• Continental Inn v. New Mexico Taxation and Revenue Department, 1992-NMCA-030 — proper issuance is between the buyer and Department
• Gas Co. v. O'Cheskey, 1980-NMCA-085 — good-faith acceptance shifts responsibility to the buyer
• Ranchers-Tufco Limestone Project Joint Venture v. Revenue Division, 1983-NMCA-126 — public-officer delay without a statutory consequence

Source

• Listing: New Mexico Decisions & Orders
• Decision post: US Field Service Inc.
• Decision PDF: D&O 16-56

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
US FIELD SERVICE INC. No. 16-56
TO THE ASSESSMENT ISSUED UNDER
LETTER ID NO. L1903815744

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on November 3, 2016 before

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

represented by Ms. Cordelia Friedman, Staff Attorney. Ms. Veronica Galewaler, Auditor, also

appeared on behalf of the Department. Mr. Ray Conover, Vice-President, and Ms. Sue Conover,

President, for US Field Service Inc. (Taxpayer) appeared for the hearing. The Taxpayer’s exhibits 1

through 10 and 14 through 16, and the Department’s exhibit “A” were admitted. A more detailed

description of exhibits submitted at the hearing is included on the Administrative Exhibit Coversheet.

The Department objected to most of the Taxpayer’s exhibits based on relevance. The objections

were overruled. The Hearing Officer took notice of all documents in the administrative file. Based

on the evidence and arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On June 16, 2010, the Department assessed the Taxpayer for gross receipts tax and interest

for the tax periods from December 31, 2004 through December 31, 2006. The assessment

was for $13,058.10 tax and $6,335.74 interest. No penalty was assessed.

2. On August 6, 2010, the Taxpayer filed a formal protest letter. The Taxpayer paid the tax

principal, but protested the assessment of interest.

3. On July 1, 2016, the Department filed a Request for Hearing with the Administrative

Hearings Office (AHO) asking that the Taxpayer’s protest be scheduled for a formal

administrative hearing.

4. On July 6, 2016, the AHO issued a notice of hearing.

5. The hearing date was not set within ninety days of the protest as the AHO was unaware of the

Taxpayer’s protest until the Request for Hearing was filed. However, the Taxpayer’s protest

was filed prior to the statutory change that now requires a hearing be held within 90 days of

the protest.

6. On July 26, 2016, the Taxpayer filed a request for continuance of the hearing set on July 28,

2016.

7. On July 27, 2016, the request was granted and amended notices of hearing were sent.

8. During the tax years, the Taxpayer was engaged in business doing construction, maintenance,

and equipment rental.

9. The Taxpayer was hired to do some work in New Mexico by a wind power company (the

wind power company). The wind power company was a subcontractor for the overall project

managing company (the project manager).

10. The Taxpayer provided a crane and a crane-operator to the wind power company and assisted

in the construction of several windmills.

11. The Taxpayer invoiced the wind power company for the services it provided. The Taxpayer

included a charge for gross receipts tax on its invoice.

12. The wind power company then executed a nontaxable transaction certificate (NTTC) to the

Taxpayer on January 12, 2005. The type of NTTC was for construction.

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Letter ID No. L1903815744
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13. The Taxpayer accepted payment from the project manager on behalf of the wind power

company in the amount of the invoice for the services, but the gross receipts tax was not

collected due to the Taxpayer’s reliance on the NTTC.

14. The Taxpayer relied in good faith on the NTTC and deducted its sales to the wind power

company from its gross receipts tax return, which resulted in zero tax liability.

15. Several years later, the Department issued a notice of audit to the Taxpayer.

16. On February 26, 2010, the Department issued a letter to the Taxpayer that informed the

Taxpayer of the deadline to obtain any NTTCs (the 60-day letter).

17. The Taxpayer responded to the audit and provided documentation, including the NTTC,

invoice, and payment information.

18. The Taxpayer did not protest the tax principal assessed, but still does not believe that the tax

was owed. The Taxpayer protested the assessed interest.

DISCUSSION

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

that it should not have to pay interest because it relied on the NTTC in good faith. The Department

argued that the Taxpayer conceded the tax was owed by paying it and that interest is therefore due.

The Department argued that the Taxpayer’s reliance on the NTTC was not reasonable because it was

the wrong type of NTTC for equipment rental. The Department also argued that the NTTC could not

be used to deduct the gross receipts from the wind power company when the project manager was the

one that actually made the payment.

Burden of Proof.

Assessments by the Department are presumed to be correct. See NMSA 1978, § 7-1-17. Tax

includes, by definition, the amount of tax principal imposed and, unless the context otherwise

requires, “the amount of any interest or civil penalty relating thereto.” NMSA 1978, § 7-1-3. See

US Field Service Inc.
Letter ID No. L1903815744
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also El Centro Villa Nursing Ctr. v. Taxation and Revenue Department, 1989-NMCA-070, 108 N.M.

795. Therefore, the assessment issued to the Taxpayer is presumed to be correct, and it is the

Taxpayer’s burden to present evidence and legal argument to show that it is entitled to an abatement.

Gross Receipts Tax and Interest.

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

3.2.1.18 (A) NMAC (2003). The Taxpayer admitted that it was engaged in a service business doing

construction, maintenance, and rentals. There was no dispute that the Taxpayer’s services would

ordinarily be subject to gross receipts tax. The Taxpayer argued that it did not pay tax because it

relied on the NTTC. The Taxpayer argued that since it was entitled to rely on the NTTC, it should

not have to pay interest.

Interest “shall be paid” on taxes that are not paid on or before the date on which the tax is due.

NMSA 1978, § 7-1-67 (A). The word “shall” indicates that the assessment of interest is mandatory, not

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

146 N.M. 24. The assessment of interest is not designed to punish taxpayers, but to compensate the

state for the time value of unpaid revenues. Ordinarily, interest is not subject to abatement; however,

interest is only due if the tax was due. See NMSA 1978, § 7-1-67.

NTTCs.

A taxpayer engaged in business may be able to deduct certain gross receipts when they are

provided with NTTCs from buyers. See NMSA 1978, § 7-9-43 (2011). Receipts from selling

construction services or construction-related services can be deducted if a NTTC is issued. See

NMSA 1978, § 7-9-52. A taxpayer should be in possession of NTTCs when the receipts from the

transaction are due, but may also produce NTTCs within a deadline set by the Department. See

NMSA 1978, § 7-9-43. The seller must accept the NTTC in good faith. See id. The Taxpayer

accepted a timely NTTC from the wind power company. The Taxpayer’s understanding from the

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Letter ID No. L1903815744
page 4 of 10
wind power company, from the project manager, and from its own dealings with the Department

regarding NTTCs led the Taxpayer to rely on the NTTC and caused it to believe that it did not owe

gross receipts tax on its services performed for the wind power company. Therefore, the Taxpayer

accepted the NTTC in good faith. A properly executed NTTC “shall be conclusive evidence, and the

only material evidence, that the proceeds from the transaction are deductible[.]” NMSA 1978, § 7-9-

43 (A) (emphasis added). Again, the word “shall” indicates that the provision is mandatory, not

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

146 N.M. 24. Consequently, the Taxpayer has overcome the presumption and has provided

conclusive evidence that the transaction was deductible. As the transaction was deductible, the tax

was not due and interest does not apply.

Burden shifted.

The burden is on the Taxpayer to prove that it is entitled to an exemption or deduction. See

Public Services Co. v. N.M. Taxation and Revenue Dep’t., 2007-NMCA-050, ¶ 32, 141 N.M. 520.

See also Till v. Jones, 1972-NMCA-046, 83 N.M. 743. “Where an exemption or deduction from tax

is claimed, the statute must be construed strictly in favor of the taxing authority, the right to the

exemption or deduction must be clearly and unambiguously expressed in the statute, and the right

must be clearly established by the taxpayer.” Sec. Escrow Corp. v. State Taxation and Revenue

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

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

NMCA-116, ¶ 7, 82 N.M. 97. A properly executed NTTC is conclusive proof that the seller is

entitled to the deductions. See NMSA 1978, § 7-9-43. When a taxpayer presents evidence sufficient

to rebut the presumption, the burden shifts to the Department to show that the assessment is correct.

See MPC Ltd. v. N.M. Taxation and Revenue Dep’t., 2003-NMCA-021, ¶ 13, 133 N.M. 217 (filed

October 2, 2002).

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Letter ID No. L1903815744
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The Department argued that the NTTC was not the correct type to be valid because it was for

construction services. The Department argued that the Taxpayer was really leasing equipment and an

operator, which is excluded from construction services by regulation. See 3.2.210.22 NMAC. The

safe harbor protection will be conclusive when three requirements are met; the acceptance of the

NTTC must be timely, must be in good faith, and the NTTC must be properly executed. See Leaco

Rural Telephone Coop., Inc. v. Bureau of Revenue, 1974-NMCA-076, ¶ 15, 86 N.M. 629. Several

cases also indicate that a properly executed NTTC delivered to the seller is conclusive proof that the

seller is entitled to the deductions, regardless of whether the NTTC was the correct type for the

transaction or whether the transaction would have been eligible for a NTTC. See Proficient Food

Co. v. N.M. Taxation and Revenue Dep’t., 1988-NMCA-042, 107 N.M. 392, 396 (holding that a

properly executed NTTC is conclusive evidence that the transaction is deductible). See also Leaco

Rural Tel. Coop. v. Bureau of Revenue, 1974-NMCA-076, 86 N.M. 269 (holding that proper issuance

of an NTTC is the responsibility of the buyer and that an accepted NTTC is conclusive evidence that

the deduction is allowed even when the transaction would not have been eligible for a NTTC). See

also Continental Inn v. N.M. Taxation and Revenue Dep’t., 1992-NMCA-030, ¶ 12-13, 113 N.M.

588 (holding that proper issuance of an NTTC is a matter between the buyer who issued it and the

Department, and that a timely delivery of an NTTC by a buyer conveys that the seller is entitled to

deduction). See also Gas Co. v. O’Cheskey, 1980-NMCA-085, ¶ 12, 94 N.M. 630 (indicating that

when a seller accepts a NTTC in good faith, the burden of the tax shifts to the buyer who issued the

NTTC, even if it was wrongfully issued). See also New Mexico Taxation and Revenue Dep’t. v. Case

Manager, No. 32,940 mem. op. at ¶ 20 (N.M. Ct. App. April 29, 2015) (non-precedential) (holding

that a timely but flawed NTTC followed by an untimely but correct NTTC did not entitle the

Department to collect the same gross receipts tax on the same transaction twice). See also In Re

Southwest Mobile Service, No. 34,551 mem. op. at ¶ 15-16 (N.M. Ct. App. July 25, 2016) (non-

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Letter ID No. L1903815744
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precedential) (discussing the good faith harbor in light of improperly issued certificates). Therefore,

the Department’s position that the NTTC was the wrong type or prohibited by regulation cannot

prevail.

The Department argued that the NTTC was not properly executed because the wind power

company issued the NTTC, but the project manager paid the invoice. None of the cases cited above

deal with proper execution of a NTTC. The statute is likewise silent on what “properly executed”

means. See NMSA 1978, § 7-9-43. Execution of a NTTC is defined by regulation, and says that a

NTTC is executed when “a taxpayer, having already obtained the requisite forms from the

department, completes an nttc form by entering the required information about the vendor to whom

the nttc is to be delivered.” 3.2.201.16 NMAC (2001). “An nttc is not valid if it does not contain the

information or is not in a form prescribed by the department.” 3.2.201.8 (C) NMAC (2012). Forms

are issued to taxpayers by the department in the appropriate type and are serially numbered. See

3.2.201.9 NMAC (2001). Again, NTTCs are executed “[a]fter completion of the information

required on the nttc and after proper signature”. 3.2.201.9 (D) NMAC. Nothing in the regulations

prohibit the use of a NTTC by a buyer when the buyer is subcontracting for an overall project. See

id. There is likewise no requirement that the payment come from the buyer who issues the NTTC.

See id. In fact, the statute clearly contemplates that a buyer engaged in construction services might

issue a NTTC to a subcontractor. See NMSA 1978, § 7-9-52 (allowing for buyers to issue NTTCs

for construction services when those services are performed as part of and charged to an overall

construction project). It is the buyer of the services who issues the NTTC, not the overall

construction project. See id.

The Department argues that the payment from the project manager could have been for

something other than the services performed for the wind power company. This is speculation at

best, and it does not withstand the evidence presented by the Taxpayer. The Taxpayer has

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Letter ID No. L1903815744
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maintained for more than a decade, throughout the course of the work, audit, and protest, that it was

performing services for the wind power company and that the project manager made the payment on

the wind power company’s behalf. At the hearing, the Taxpayer pointed out the payment itself

indicated that it was in reference to the wind power company and that it was in the exact amount

owed by the wind power company. I found the Taxpayer’s evidence to be credible. On its face, the

NTTC was properly executed as required by the regulation. The Taxpayer accepted the timely,

properly executed NTTC in good faith and is entitled to the safe harbor protection of the statute. See

NMSA 1978, § 7-9-43. Therefore, no tax was due, and interest does not apply.

Timeliness of hearing.

The Taxpayer expressed its concern that the Department waited several years to conduct the

audit, and then waited almost another six years to refer the protest for hearing. The Taxpayer filed its

protest on August 6, 2010. The Administrative Hearings Office first learned of the Taxpayer’s

protest when the Department filed a request for hearing on July 1, 2016, almost six years later. The

Administrative Hearings Office promptly set the matter for hearing.

In 2010, there was not a strict statutory deadline or time frame within which a hearing must

be held. See NMSA 1978, § 7-1-24 (2003). Currently, a hearing must be set within ninety days of

the protest. See NMSA 1978, § 7-1B-8 (2015). However, there is no statutory or regulatory

authority for the Hearing Officer to dismiss a previously filed protest for unreasonable and

unjustified delays. See id. See also 3.1.8.8 and 3.1.8.9 NMAC. Another taxpayer previously argued

that the Department denied it the statutory right to a prompt hearing on its protest. See Ranchers-

Tufco Limestone Project Joint Venture v. Revenue Div., 1983-NMCA-126, ¶ 12, 100 N.M. 632. That

argument ultimately failed. See id. at ¶ 13. The court found that the general rule is that the tardiness

of public officer’s is not a defense to an action by the state. See id. The court noted that the statute

did not provide a consequence for failure to comply with the requirements of a prompt hearing. See

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Letter ID No. L1903815744
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id. Therefore, “[t]he general rule is applicable in these cases unless [the statute] makes it

inapplicable.” Id. Another taxpayer argued that the failure of the hearing officer to render a decision

in 30 days, as required by statute, divested the hearing officer of jurisdiction. See also Kmart

Properties, Inc. v. Taxation and Revenue Dep’t., 2006-NMCA-026, ¶ 53, 139 N.M. 177. The court

found that the tax statutory deadline was not jurisdictional because of the general tardiness rule and

the heavy statutory presumption of correctness that favors the Department. See id. at ¶ 54. The court

found that the statutory deadline did not affect the essential power to decide complex and time-

consuming protests. See id. at ¶ 55. As there was not a statutory or regulatory violation in failing to

refer the Taxpayer’s protest for such an extended period of time, there is no administrative remedy that

can be granted.

CONCLUSIONS OF LAW

A. The Taxpayer filed a timely written protest to the assessment of interest issued under

Letter ID number L1903815744, and jurisdiction lies over the parties and the subject matter of this

protest.

B. The Taxpayer was in possession of a properly executed and timely NTTC for the sale

of its services, which the Taxpayer accepted in good faith. See NMSA 1978, § 7-9-43. See also

NMSA 1978, § 7-9-52.

C. The Taxpayer successfully rebutted the presumption of correctness as an NTTC is

conclusive evidence. See NMSA 1978, § 7-9-43.

D. The Department failed to establish that the assessments were correct and failed to

establish that NTTCs must be issued by the payor or will negate a taxpayer’s safe harbor protection. See

id. See also 3.2.201.8 and 3.2.201.9 NMAC. See also Leaco, 1974-NMCA-076. See also In Re

Southwest Mobile Service, No. 34,551 mem. op. at ¶ 15-16 (N.M. Ct. App. July 25, 2016) (non-

precedential).

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Letter ID No. L1903815744
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E. As the Taxpayer was entitled to deduct the gross receipts, it owed no gross receipts

taxes. Therefore, interest does not apply. See NMSA 1978, § 7-1-67.

F. The Taxpayer’s hearing was not required to be set within 90 days of the protest

because the protest was filed prior to the statutory change, and there is no administrative remedy to

the Department’s tardy referral of the protest for hearing. See NMSA 1978, § 7-1-24 (2003). See

also NMSA 1978, § 7-1B-8 (2015). See also Ranchers-Tufco, 1983-NMCA-126, ¶ 13.

For the foregoing reasons, the Taxpayer's protest is GRANTED and the interest assessed is

HEREBY ABATED.

DATED: November 30, 2016.

Dee Dee Hoxie
DEE DEE HOXIE
Hearing Officer
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502

NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, § 7-1-25, 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. A copy of the Notice of Appeal should be mailed to John Griego, P. O. Box 6400,

Santa Fe, New Mexico 87502. Mr. Griego may be contacted at 505-827-0466.

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Letter ID No. L1903815744
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