Could a USPS Highway Contract Route courier recover $179,732.03 of New Mexico gross receipts tax without its contract, route logs, receipts, or delivery-point records?

Plain-English summary

Diamond T U.S. Mail Services did not prove its right to a $179,732.03 gross receipts tax refund for mail transported between Texas and New Mexico. Interstate deductions could potentially apply, but the company produced no contract, receipts, route logs, delivery-point counts, or other records needed to establish the deductible amount.

Diamond T operated under a United States Postal Service Highway Contract Route, or HCR, contract. It transported bulk mail from Lubbock, Texas to New Mexico postal distribution sites including Roswell, Tatum, Lovington, Eunice, Jal, and Hobbs, then picked up mail for transportation back to Lubbock.

Its tax consultant claimed a refund for the reporting period ending July 31, 2015 under Sections 7-9-55 and 7-9-56. The Department denied the claim after treating Diamond T as a star route contractor and failing to receive records requested for apportionment.

An HCR was the modern name for a star route

Diamond T argued that “star route contractor” was obsolete and that Regulation 3.2.213.10 therefore did not apply.

But Diamond T's own USPS publication defined an HCR as a contractor route carrying bulk mail over highways between designated points and ended with “Formerly called star route.” The AHO treated HCR and star route as different names for functionally equivalent arrangements.

The company offered no USPS witness or other evidence establishing a material difference. Regardless of terminology, its transportation of mail between Lubbock and New Mexico points fell within the regulation.

The refund required apportionment evidence

Regulation 3.2.213.10(B) addressed contracts transporting United States mail between New Mexico and out-of-state points. Its calculation required the contract's total receipts and a fraction based on New Mexico delivery points and total delivery points.

The Department did not dispute that Diamond T could qualify for a deduction and refund under Section 7-9-55 or Section 7-9-56 if it supplied proper documentation. It sought logs so that it could separate New Mexico services from interstate commerce, but Diamond T produced no responsive documents.

At the hearing, Diamond T relied only on testimony from its consultants and the USPS publication. It did not introduce:

• its USPS contract;
• records of total contract receipts;
• the number of New Mexico delivery points;
• the total number of delivery points;
• route or transportation records; or
• evidence showing whether any mail was delivered entirely within New Mexico.

Without those facts, the AHO could not calculate a deduction or resulting refund.

The broader interstate statutes did not cure the proof problem

Section 7-9-55(A) allowed an interstate-commerce deduction only to the extent gross receipts tax would be unlawful under the United States Constitution. Diamond T presented no evidence that taxation of its particular receipts was unconstitutional.

Section 7-9-56(A) addressed receipts from transporting persons or property between New Mexico points while the transportation occurred in interstate commerce under a single contract. The decision identified three required elements: transportation between New Mexico points, interstate commerce, and a single contract.

Diamond T did not put its USPS contract or records establishing those elements into evidence. Even if the star-route regulation had not applied, the company still failed to prove either statutory deduction.

Result: protest DENIED. Diamond T established no entitlement to any part of the $179,732.03 refund claimed for the July 31, 2015 reporting period.

What this means for you

Mail carriers and transportation contractors

An interstate route does not by itself establish a gross receipts tax deduction. Preserve the governing contract, route records, receipts, and delivery-point data needed to apply the specific New Mexico rule.

Businesses filing refund claims

The taxpayer bears the burden of clearly proving a deduction underlying a refund. A plausible legal theory cannot substitute for transaction-level records that establish eligibility and amount.

Contractors operating under renamed programs

A changed program name may not change the tax treatment when official materials show that the new term replaced an older, functionally equivalent designation.

Common questions

Q: Was Diamond T transporting mail in interstate commerce?
A: It carried mail between Lubbock, Texas and several New Mexico distribution sites, but still had to document which receipts qualified and how the deduction should be calculated.

Q: Was an HCR different from a star route?
A: Not on the evidence presented. Diamond T's USPS publication described a Highway Contract Route as formerly called a star route.

Q: Did the Department say no deduction could ever apply?
A: No. It did not contest potential entitlement if Diamond T provided adequate documentation.

Q: What records were missing?
A: The USPS contract, total receipts, New Mexico and overall delivery-point counts, route records, and evidence about any intrastate deliveries.

Q: Why did Sections 7-9-55 and 7-9-56 fail?
A: Diamond T did not prove unconstitutional taxation under Section 7-9-55 or the required transportation, interstate-commerce, and single-contract elements under Section 7-9-56.

Q: How much refund was denied?
A: $179,732.03 for the reporting period ending July 31, 2015.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-9-55(A) — interstate-commerce deduction
• NMSA 1978, § 7-9-56(A) — interstate transportation under a single contract
• Regulation 3.2.213.10(B) NMAC — apportionment for United States mail contracts
• NMSA 1978, § 7-1B-8(A) — 90-day hearing requirement

Cases cited:

• Wing Pawn Shop v. Taxation and Revenue Department, 1991-NMCA-024 — strict construction and proof of deductions
• TPL, Inc. v. New Mexico Taxation and Revenue Department, 2003-NMSC-7 — proof of a claimed deduction
• Corrections Corporation of America of Tennessee v. State, 2007-NMCA-148 — presumption of correctness in a refund denial
• McKinnley Ambulance Service v. Bureau of Revenue, 92 N.M. 599, 592 P.2d 515 (Ct. App. 1979) — elements of the Section 7-9-56 transportation deduction

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Diamond T U.S. Mail Services, Inc.
• Decision PDF: D&O 17-02

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
DIAMOND T US MAIL SERVICES INC. 17-02
TO DENIAL OF REFUND
ISSUED UNDER LETTER ID NO. L1873411120

DECISION AND ORDER

A protest hearing occurred in the above-captioned matter on December 5, 2016 before

Chris Romero, Esq., Hearing Officer, in Santa Fe, New Mexico. At the hearing, Esteli Juarez,

Esq., appeared representing Diamond T U.S. Mail Services, Inc. (“Taxpayer”). Linda Anaya and

Raymond Anaya appeared and testified as witnesses for the Taxpayer. John Anaya, son of Linda

Anaya and Richard Anaya, observed with the expressed authorization of Taxpayer’s counsel.

Staff Attorney Peter Breen appeared representing the Taxation and Revenue Department of the

State of New Mexico (“Department”). Protest Auditor Tom Dillon appeared as a witness for the

Department. Protest Auditor Juan Trujillo was also present for observation and training purposes.

Department Exhibit A and Taxpayer Exhibit 1 were admitted into the record without objection.

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 December 28, 2015, through Letter ID No. L1873411120, the Department

denied Taxpayer’s claim for refund of $179,732.03 in CRS taxes for the reporting ending July

31, 2015.

2. On January 8, 2016, the Department received Taxpayer’s protest of the

Department’s denial of claim for refund. The protest was submitted by and through Raymond
Anaya of AAA Gross Receipts Consulting and Tax Service, LLC. As grounds for the protest,

Mr. Anaya indicated that Taxpayer was not a star route contractor with the United States Postal

Service and that Taxpayer had incorrectly reported receipts earned in interstate commerce.

3. Taxpayer executed a Tax Information Authorization on August 26, 2015

authorizing Mr. Anaya and AAA Gross Receipts Consulting and Tax Service, LLC to represent

it in reference to all state and CRS taxes for any year.

4. On January 14, 2016, the Department’s protest office acknowledged receipt of a

valid protest.

5. On February 29, 2016, the Department filed a Hearing Request with the

Administrative Hearings Office notifying it of the above-captioned protest and requesting a

hearing.

6. On March 7, 2016, the Administrative Hearings Office issued a Notice of

Telephonic Scheduling Conference, setting this matter for a scheduling hearing on March 25,

2016.

7. On March 25, 2016, a scheduling conference occurred in which the parties agreed

that the hearing would satisfy the 90-day hearing requirement established in NMSA 1978,

Section 7-1B-8 (A). The hearing occurred within 90 days of the date the Department received the

protest.

8. On March 28, 2016, the Administrative Hearings Office issued a Scheduling

Order and Notice of Administrative Hearing. A hearing on the merits was set for October 20,

2016 at 10 a.m.

In the Matter of Diamond T U.S. Mail Services, Inc.
Page 2 of 11

9. On April 5, 2016, the Department filed a Certificate of Service indicating that the

Department’s First Set of Requests for Production of Documents and Interrogatories were served

on Mr. Anaya by first class U.S. Mail on the same date.

10. On October 7, 2016, the Department filed its portion of the required Joint

Prehearing Statement.

11. On October 17, 2016, Mr. Anaya filed on Taxpayer’s behalf a request for a

continuance. The request asserted that Taxpayer retained Mr. Santiago Juarez to represent it in

the matter and Mr. Juarez required additional time to prepare.

12. On October 19, 2016, the Department indicated by email that it did not oppose the

request for a continuance.

13. On October 19, 2016, the Administrative Hearings Office granted the request and

entered a Continuance Order, Notice of Reassignment, and Amended Notice of Administrative

Hearing. The order reassigned the protest to the undersigned Hearing Officer and set a hearing

on the merits to occur on December 5, 2016.

14. On December 5, 2016, Esteli Juarez, Esq., of Amparo Legal Services entered an

appearance on behalf of Taxpayer.

15. Mr. Anaya owns and operates AAA Gross Receipts Consulting and Tax Service,

LLC. He has provided tax services to Taxpayer since 2015. [Testimony of Mr. Anaya].

16. Taxpayer is a mail courier under an HCR contract, also known as a Highway

Contract Route, with the United States Postal Service. [Testimony of Mr. Anaya; Testimony of

Ms. Anaya].

17. Under the HCR contract, Taxpayer transports mail over highways between

designated points. [Taxpayer Ex. 1].

In the Matter of Diamond T U.S. Mail Services, Inc.
Page 3 of 11

18. In this case, Taxpayer transports mail in bulk from Lubbock, Texas to various

post office distribution sites in New Mexico. Specific delivery locations identified by Mr. Anaya

include Roswell, Tatum, Lovington, Eunice, Jal, and Hobbs, New Mexico. [Testimony of Mr.

Anaya].

19. Taxpayer also picks up mail from the distribution sites for transportation back to

Lubbock, Texas. [Testimony of Mr. Anaya].

20. Mr. Anaya on Taxpayer’s behalf submitted a claim for refund in the amount of

$179,732.03. Mr. Anaya testified that the claim for refund relied on NMSA 1978, Section 7-9-55

and NMSA 1978, Section 7-9-56. [Testimony of Mr. Anaya].

21. The claim for refund was submitted in October of 2015 and denied in December

of 2015. The Department denied the refund claiming that the Taxpayer was a star route

contractor. [Testimony of Mr. Anaya].

22. Mr. Anaya and Ms. Anaya allege that the term star route contractor is obsolete

and for that reason, serves as an improper basis upon which to deny the claim for refund.

[Testimony of Mr. Anaya; Testimony of Ms. Anaya]. Ms. Anaya also works at with AAA

Gross Receipts Consulting and Tax Service, LLC.

23. Despite Taxpayer’s assertions regarding the term “star route contractor” or “star

route,” Taxpayer Exhibit 1, which derives from a publication of the United States Postal Service

suggests that the term “star route” has been replaced by “HCR” or “Highway Contract Route.”

[Taxpayer Ex. 1].

24. The Department attempted to obtain logs from the Taxpayer for the purpose of

apportioning taxes between services provided in New Mexico and those provided in interstate

In the Matter of Diamond T U.S. Mail Services, Inc.
Page 4 of 11
commerce. The Department did not receive any documents responsive to its request.

[Department Ex. A; Testimony of Mr. Dillon].

DISCUSSION

Although the Department did not issue Taxpayer an assessment in this matter, Taxpayer

still has the burden of establishing it was entitled to the claimed refund at issue. Taxpayer’s

claim for refund is premised on a deduction from gross receipts tax. “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.” 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-NMSC-7, ¶9, 133 N.M. 447; See also Corr.

Corp. of Am. of Tenn. v. State, 2007-NMCA-148, ¶17 & ¶29, 142 N.M. 779 (Court of Appeals

reviewed a refund denial through “lens of presumption of correctness” and applied the principle that

deductions underlying the claim for refund are to be construed narrowly). Consequently, Taxpayer

still must show that it is entitled to the deduction that is the basis of its claim for refund.

This case involves the question of whether Taxpayer is entitled to a refund of taxes paid

on gross receipts for delivery of U.S. mail transported between Lubbock, Texas and various

delivery points in New Mexico under a contract with the United States Postal Service. Taxpayer

argued that the refund is due under NMSA 1978, Section 7-9-55 and Section 7-9-56.

The Department did not contest that the Taxpayer could be entitled to a deduction and a

refund under either statute upon presenting proper documentation. The problem from the

perspective of the Department is that the Taxpayer did not provide the necessary documentation

to establish the right to the deduction. [Testimony of Mr. Dillon; Dept. Ex. A]. It was because

In the Matter of Diamond T U.S. Mail Services, Inc.
Page 5 of 11
Taxpayer failed to provide adequate documents that the Department was unable to approve

Taxpayer’s refund.

The documents that the Department determined would be relevant in considering the

claim for refund are addressed in Regulation 3.2.213.10 B (1) NMAC which provides that a

person who holds a contract for the transportation of United States mail from points within New

Mexico to other points outside of New Mexico may deduct a portion of gross receipts which

were derived from transactions in interstate commerce. Regulation 3.2.213.10 B (2) NMAC

provides the method by which the deduction is calculated. The total receipts from the contract

are to be multiplied by a fraction, the numerator of which is the total number of delivery points

in New Mexico and the denominator of which is the total number of delivery points. The term

“delivery point” is used to denote any point at which mail is required to be delivered under the

contract.

The Taxpayer asserted that Regulation 3.2.213.10 did not apply because the regulation

makes specific reference to “star route contractors.” The Taxpayer argued that it is not a star

route contractor and for that reason, Regulation 3.2.213.10 is inapplicable.

The contract under which Taxpayer provides service is known as an HCR contract or a

Highway Contract Route. [Testimony of Mr. Anaya]. The term as defined by the United States

Postal Service, as provided in Taxpayer Exhibit 1 denotes:

A route of travel served by a postal contractor to carry mail in bulk
over highways between designated points. HCRs generally do not
deliver mail to individual customer addresses along the line of
travel. Highway contract routes make up the largest single group of
transportation services used by USPS and range from long-haul
tractor trailers to box delivery routes. (Formerly called star route.)

(Emphasis added)

In the Matter of Diamond T U.S. Mail Services, Inc.
Page 6 of 11
Although Mr. Anaya and Ms. Anaya both allege that the HCR contract is distinct from a

star route contract, a term they both assert to be obsolete, Taxpayer Exhibit 1 suggests via the

emphasized parenthetical that they are the same, but under different designations. Accordingly,

the Hearing Officer interprets the parenthetical as signifying that the term “star route” has been

supplanted by “HCR” or “Highway Contract Route”, but that the underlying definitions are

functionally equivalent.

To the extent a contrary interpretation could be attributed to the parenthetical in Taxpayer

Exhibit 1, Taxpayer did not present any evidence or testimony from witnesses having personal

knowledge or expertise regarding the procedures or operations of the United States Postal

Service, who could have established a material distinction between the terms.

The testimony of Mr. Anaya and Mrs. Anaya established that the Taxpayer held a

contract for the transportation of mail from Lubbock, Texas to points within New Mexico, and

from points within New Mexico back to Lubbock, Texas. [Testimony of Mr. Anaya;

Testimony of Ms. Anaya]. Regardless of the terminology favored by the Taxpayer, the activity

falls squarely within the scope of Regulation 3.2.213.10.

For this reason, the Department sought documentation from the Taxpayer to determine

the portion of the receipts from the contract which were subject to gross receipts tax. The

Department presumably intended to identify the total receipts from the contract and then

multiply that figure by a fraction, the numerator of which is the total number of delivery points in

New Mexico and the denominator of which is the total number of delivery points. See Regulation

3.2.213.10 (B) (2) NMAC. However, the documents that the Taxpayer provided were

insufficient. [Testimony of Mr. Dillon].

In the Matter of Diamond T U.S. Mail Services, Inc.
Page 7 of 11
The evidence presented at the hearing was also insufficient to clearly establish the right to

the deduction upon which the claim for refund relies. The evidence upon which the Taxpayer relied

was the testimony of Mr. Anaya, Mrs. Anaya, and Taxpayer Exhibit 1, much of which was directed

at asserting that the Regulation 3.2.213.10 was inapplicable because the Taxpayer was not a “star

route contractor.” Otherwise, the record is devoid of any evidence upon which findings of fact

may be made to establish the portion of the receipts from the contract subject to gross receipts

tax from those receipts which are not, and consequently establish the amount of a deduction and

resulting refund. Relevant evidence on the issue subject of this protest may have included the

Taxpayer’s contract with the United States Postal Service, testimony from the Taxpayer

regarding his business activities, relevant records tending to establish the total receipts from the

contract, the total number of delivery points in New Mexico, the overall number of delivery

points, and records which may have established whether there was any intrastate delivery of

mail.

Even if the Hearing Officer would have been persuaded that the use of the allegedly

outdated term, “star route”, rendered Regulation 3.2.213.10 inapplicable, the Taxpayer

nevertheless failed under NMSA 1978, Section 7-9-55 to present evidence that the imposition of

gross receipts taxes in the context of Taxpayer’s business activities was unlawful under the

United States constitution. Section 7-9-55 (A) provides that “[r]eceipts from transactions in

interstate commerce may be deducted from gross receipts to the extent that the imposition of the

gross receipts tax would be unlawful under the United States constitution.”

Reliance on NMSA 1978, Section 7-9-56 fails for the same reason. Section 7-9-56

provides that “[r]eceipts from transporting persons or property from one point to another in this

state may be deducted from gross receipts when such persons or property, including any special

In the Matter of Diamond T U.S. Mail Services, Inc.
Page 8 of 11
or extra service reasonably necessary in connection therewith, is being transported in interstate or

foreign commerce under a single contract.” The evidence presented was once again insufficient

for the Taxpayer to establish the right to the claimed deduction.

For example, to deduct receipts under Section 7-9-56 (A), a taxpayer is required to show

three items: 1) the receipts must be from transporting persons or property from one point to

another in New Mexico; 2) the transportation must have been in interstate commerce; and 3) the

transportation must have been under a single contract. See McKinnley Ambulance Serv. v.

Bureau of Revenue, 92 N.M. 599, 592 P.2d 515 (Ct.App.1979). The evidence presented in this

protest was insufficient to establish any of the elements under McKinnley. As previously

explained, Taxpayer relied only on the testimony of Mr. Anaya, Mrs. Anaya, and Taxpayer

Exhibit 1. The Taxpayer did not seek to introduce any contract it had with the United States

Postal Service, or other records to establish any of the essential elements in establishing a right to

claim a deduction under Section 7-9-56 (A).

Because the Hearing Officer has made frequent references to the lack of evidence in this

protest, the Hearing Officer will state as a final remark that at the onset of the hearing, the

Hearing Officer summarized the contents of the administrative file in this protest. Taxpayer’s

counsel and witnesses were also permitted to review the administrative file and the parties were

informed that if either party wished for the Hearing Officer to consider other documents as part

of the record, the party was required to introduce those documents into the record as part of the

presentation of their case. Having reviewed the administrative file, Taxpayer elected only to

introduce Taxpayer Exhibit 1 as an exhibit and rely on the testimony of Mr. Anaya and Mrs.

Anaya. Without more, Taxpayer has failed to establish a right to the claimed deduction and the

resulting refund.

In the Matter of Diamond T U.S. Mail Services, Inc.
Page 9 of 11
Based on the insufficiency of evidence presented at the protest hearing in this case, the

Taxpayer’s protest must be denied.

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).

C. Taxpayer did not establish entitlement to any refund with the evidence it presented

at hearing.

For the foregoing reasons, the Taxpayers’ protest IS DENIED. Taxpayer did not establish

it was entitled to any refund for the July 31, 2015 reporting period.

DATED: January 4, 2017.

Chris Romero
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 (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

In the Matter of Diamond T U.S. Mail Services, Inc.
Page 10 of 11
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 Diamond T U.S. Mail Services, Inc.
Page 11 of 11