Could D-Trix exclude claimed private oilfield-road miles and report only loaded government-road miles for New Mexico weight-distance tax?

Plain-English summary

D-Trix Services could not exclude estimated oilfield-road mileage from weight-distance tax without route, vehicle, odometer, and road-maintenance proof. The Department recognized a $27,885.59 one-way-haul abatement, but the AHO upheld the remaining $44,390.29.

D-Trix hauled wastewater from New Mexico oil and gas wells to storage or disposal sites. Its vacuum trucks often traveled empty from the home yard, moved loaded between well sites and field disposal points, and returned empty.

The company believed it should report only loaded miles on roads marked as state, county, tribal, forest, or federal routes. It treated unmarked oilfield roads as privately maintained and excluded them as off-highway mileage.

An IFTA-to-weight-distance mileage mismatch led to the audit. The Department initially assessed:

• $34,955.11 weight-distance tax;
• $6,991.02 civil penalty;
• $3,852.02 interest; and
• $26,000 mileage-underreporting penalty.

The total initial assessment was $71,798.15.

All taxable highway miles had to be reported

Section 7-15A-8(A) used total New Mexico highway mileage to compute the tax and did not distinguish loaded from unloaded travel.

A qualifying one-way hauler paid two-thirds of the ordinary rate when at least 45% of mileage was traveled empty and the required application and information were supplied. That was a reduced rate on all taxable miles—not permission to report only loaded miles.

D-Trix had not applied for one-way-hauler status during the periods at issue. During the protest, however, the auditor determined that its operation qualified and granted the $27,885.59 abatement.

Maps did not quantify off-highway use

Regulation 3.12.5.9 excluded use on roads constructed, reconstructed, maintained, and repaired solely with private funds. Roads generally open to public travel and supported by federal, state, local, or tribal funds remained New Mexico highways.

D-Trix supplied satellite maps showing a web of oilfield roads. The AHO accepted that some roads likely were private, but the maps did not identify land boundaries, government funding, private maintenance, routes for particular trips, vehicle weight classes, or miles actually driven on each road.

The company also lacked 2009 records. Its estimates did not reconcile the hundreds of miles reported for IFTA but omitted from weight-distance returns.

The decision pointed to records used for one-way-haul verification as practical examples:

• vehicle-specific trip mileage;
• loaded and empty mileage;
• map mileage, hubometer, or odometer readings;
• logbooks; and
• itineraries showing origins, destinations, and routes.

Without comparable evidence, neither the auditor nor the AHO could calculate an off-highway reduction. The Department could use alternative methods to assess the missing mileage.

More-than-25% underreporting opened the six-year period

The Department found D-Trix had underreported weight-distance liability by more than 25%. D-Trix did not dispute that percentage.

Section 7-1-18(D) therefore allowed assessment within six years rather than the usual three. The May 2016 assessment could reach 2009 because it was issued within six years after the end of the calendar year when the 2009 tax was due.

The extended period depended on the objective amount of underreporting, not taxpayer intent.

Both penalty types remained

D-Trix changed its reporting method after discussion among owners and office staff, without consulting the Department or a tax professional. Its misunderstanding and failure to maintain substantiating records supported civil-negligence penalty.

Section 7-15A-16 separately required the mileage-underreporting penalty because total mileage was not accurately reported. Interest was mandatory until the tax principal was paid.

Result: protest DENIED after recognizing the partial abatement. D-Trix still owed $18,316.35 tax, $3,666.54 civil penalty, $20,200 underreporting penalty, and $2,207.40 interest, totaling $44,390.29.

Text note: The statutory quotation and final conclusion describe the one-way-haul benefit as paying two-thirds of the ordinary rate, a 33% reduction. One sentence in the analysis instead says the taxpayer can “pay 33% of the tax.” This summary follows the quoted statute and final conclusion.

What this means for you

Oilfield, mining, and rural haulers

Do not classify roads by signage alone. Document who constructed and maintains each route and whether any government or tribal funds were used.

One-way hauling operations

Apply for classification and report all taxable highway miles. Track loaded and empty mileage by vehicle to prove the 45% empty-mile threshold and calculate the reduced rate.

Businesses claiming off-highway mileage

Keep vehicle-specific trip records, routes, odometer readings, origins, destinations, and defensible private-road evidence. Satellite maps and general estimates may not support a computable exemption.

Common questions

Q: Did D-Trix need to report empty highway miles?
A: Yes. The tax used all New Mexico highway mileage; one-way status changed the rate rather than the mileage reported.

Q: Did D-Trix receive any relief?
A: Yes. The Department granted a $27,885.59 one-way-haul abatement during the protest.

Q: Why was no additional off-highway reduction allowed?
A: D-Trix did not prove which roads were solely privately funded or quantify the miles traveled on them.

Q: Why could the audit reach 2009?
A: The Department found more-than-25% underreporting, activating the six-year assessment period.

Q: Why were there two penalties?
A: Section 7-1-69 imposed civil-negligence penalty, while Section 7-15A-16 separately imposed a weight-distance mileage-underreporting penalty.

Q: What remained due?
A: $44,390.29 as of the January 2017 hearing, with interest continuing.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-15A-3, 7-15A-6(B), and 7-15A-8(A) — tax, one-way-haul reduced rate, and total mileage
• NMSA 1978, § 7-15A-16 — mileage-underreporting penalty
• NMSA 1978, §§ 7-1-10 and 7-1-11(D) — records and alternative assessment methods
• NMSA 1978, § 7-1-18(D) — six-year period for more-than-25% underreporting
• NMSA 1978, §§ 7-1-67 and 7-1-69 — interest and civil-negligence penalty
• Regulation 3.12.5.9 NMAC — off-highway use
• Regulations 3.12.6.7 through 3.12.6.11 NMAC — one-way-hauler definitions, qualification, and records

Cases cited:

• Taxation & Revenue Department v. Bien Mur Indian Market Center, Inc., 1989-NMSC-015 — 25% underreporting period depends on objective amount, not intent
• Wing Pawn Shop v. Taxation & Revenue Department, 1991-NMCA-024 — strict proof of exemption
• C & D Trailer Sales v. Taxation & Revenue Department, 1979-NMCA-151 — informed consultation and penalty
• El Centro Villa Nursing Center v. Taxation & Revenue Department, 1989-NMCA-070 — inadvertent error and negligence

Source

• Listing: New Mexico Decisions & Orders
• Decision post: D-Trix Services, LLC
• Decision PDF: D&O 17-11

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
D-TRIX SERVICES LLC
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L 1755121200 17-11

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on January 9, 2017 before
Hearing Officer Ignacio V. Gallegos, Esq. The Taxation and Revenue Department (Department)
was represented by Ms. Melinda Wolinsky, Staff Attorney. Ms. Veronica Galewaler, Auditor, also
appeared as a witness for the Department. Mr. Tim Cummins, owner of D-Trix Services, LLC
(Taxpayer), appeared representing Taxpayer for the hearing, and as a witness. The Hearing
Officer took notice of the contents of the Administrative file. Taxpayer’s Exhibits 1 through 6
and Exhibit 8 were admitted into the record. Department Exhibits A through F were admitted
into the record. All exhibits are more thoroughly described in the Administrative Exhibit Log. At
the request of the hearing officer, on January 10, 2017, the Department submitted without
objection an updated list of Taxpayer’s outstanding tax liabilities, broken down between Civil
penalty and Underreporting penalty. Based on the evidence and arguments presented, IT IS
DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On May 18, 2016, the Department assessed Taxpayer $34,955.11 in Weight
   Distance Tax, $6,991.02 in penalty, $3,852.02 in interest, and $26,000.00 in Weight Distance
   Tax underreporting penalty for a total assessment of $71,798.15 for the reporting period
   beginning October 1, 2009 through March 31, 2013. [Letter id. no. L1755121200].
2. On August 13, 2016 Taxpayer protested the assessment, received by the
   Department protest office on August 18, 2016.
3. On September 2, 2016, the Department acknowledged receipt of Taxpayer’s
   protest.

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Letter ID No. L1755121200
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4. On October 12, 2016, the Department requested a hearing in the matter.
5. On October 12, 2016, the Administrative Hearings Office issued Notice of
   Administrative Hearing, scheduling this matter for November 16, 2016 at 1:00 p.m.
6. On November 15, 2016, Taxpayer requested a continuance of the November 16,
   2016 hearing, indicating that he needed more time to prepare. The Department sent an emailed
   objection to the continuance.
7. On November 15, 2016, the Administrative Hearings Office issued an Order of
   Continuance and Amended Notice of Administrative Hearing, converting the November 16,
   2016 merits hearing to a telephonic scheduling conference.
8. On November 16, 2016 a telephonic scheduling hearing was held. Tim Cummins
   represented Taxpayer, and Ms. Melinda Wolinsky represented the Department. The parties
   agreed that the telephonic hearing satisfied the 90-day requirement of the statute.
9. On November 16, 2016 the Administrative Hearings Office issued a Scheduling
   Order and Notice of Hearing on the Merits.
10. On January 9, 2017 a hearing on the merits took place in Santa Fe, New Mexico
    at the Administrative Hearings Office in the Wendell Chino Building.
11. Taxpayer is a small business. Mr. Tim Cummins is 100% owner of the business
    now, but previously and during the period of time covered by the assessment he had a business
    partner. That partner ran the operations for the company during the period covered by the
    assessment. Mr. Cummins runs Taxpayer’s operations now.
12. Taxpayer is a business that provides services in the oil and gas industry, hauling
    waste water from well sites to designated storage facilities.
13. The waste water storage facilities are sometimes in the field, near the well
    locations, and sometimes the Taxpayer transports the waste water to a central disposal facility
    near the truck yard.
14. For each well-site visit the Taxpayer created a field ticket. In 2006 there were
    27,000 field tickets. In 2007 the number of field tickets increased dramatically to approximately
    200,000.
15. During the tax assessment period, the Taxpayer filled approximately 35,000 field
    tickets, which were invoiced, filled and paid.

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Letter ID No. L1755121200
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16. In 2010 or 2011 the Taxpayer decided that it was paying too much in Weight
    Distance Tax, since it was paying between 55% and 85% of its miles. The Taxpayer’s business
    model has the Taxpayer’s unloaded trucks going to and from the work area along state, federal
    and tribal roads, and travelling on roadways maintained by oil production companies with loads
    of water to then dispose of at a central location along the oil field roads.
17. The Taxpayer believed that he was required to only report loaded miles on roads
    maintained by state, local, tribal and federal funds. He believed if the road was marked with a
    sign, the miles should be reported; and if it was unmarked, it need not be reported. The
    Taxpayer came to this conclusion upon the belief that the roads it used in the oil fields were “off-
    highway” and not subject to Weight Distance tax, relying on Regulation 3.12.5.9 “Off highway
    use not subject to tax.”
18. The Taxpayer reports all miles and fuel for the IFTA (International Fuel Tax
    Agreement) tax, because it is a fuel tax. He explained that the mileage discrepancy is
    understandable because all miles are subject to IFTA and off highway miles are excluded from
    Weight Distance Tax.
19. In coming to the conclusion that he was paying too many miles, the Taxpayer did
    not consult with the Department or a tax professional. The decision was made to report using this
    methodology years ago, upon discussion with his then business partner and their office manager.
20. The Taxpayer had a practical rule, conveyed to its drivers, that if the road was
    marked as a state, county, forest, tribal or federal road then the miles travelled were taxable. The
    remainder of roads he believed were built and maintained by private oil companies or land
    owners.
21. Taxpayer operates in New Mexico, in the San Juan Basin primarily, but also
    through the Carlsbad and Artesia areas.
22. The Taxpayer keeps his trucks in the home yard. From the home yard, the trucks
    travel empty to the oil fields, where they pick up waste water from a variety of well sites. In the
    field, where miles are on roads sometimes designated as state roads and sometimes unmarked,
    the trucks go from well to well, then deposit the waste water at a designated disposal site. There
    are very few loaded miles on roads maintained by state, federal or tribal authorities because the
    disposal site is typically within a few miles of the well sites. After disposing the waste water, the
    trucks return from the oil fields to the home yard empty of all load.
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    Letter ID No. L1755121200
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23. There are small oil companies that do not have their own disposal site. When
    servicing small companies, the Taxpayer’s trucks service wells and the loaded trucks drive from
    the well sites over state roads to a dump site near the truck yard.
24. Taxpayer provided a list of the disposal sites it regularly uses, including a round-
    trip mileage table of the distances to the different disposal sites. [Exhibit 3]
25. The Taxpayer’s home office and yard is located between Bloomfield, NM and
    Aztec, NM along the Bloomfield Highway, US 550.
26. The Taxpayer, during the time covered by the assessment, used five to twelve
    different trucks in its business operation. At one point there were fourteen trucks running, but
    now after the oilfield crash there are only four trucks running.
27. In the past, Taxpayer had a dirt-work division in his company that built roads for
    oil companies, and believed that many of the roads in the spiderweb of roads to and from well-
    sites were maintained by the oil companies.
28. The trucks are ten-wheel truck with a vacuum tank truck. Some of the trucks
    have a second trailer. They hold eighty barrels of water at a time.
29. The trucks are commercially available in the Farmington area because it is a big
    business. The Taxpayer indicated that his business is small, with about ten trucks. There are
    other operations with more than 100 trucks.
30. The Agua Moss and Basin Disposal are within two miles of the Taxpayer’s yard.
    They are in Bloomfield, NM. In order to get to those disposal sites, Taxpayer’s trucks travel on
    roads maintained by government. Those are the disposal sites he uses when servicing wells run
    by small oil companies that do not have their own disposal sites. It is then that a service truck
    would have loaded miles to approximate fifty percent loaded miles.
31. The Department determined that the Taxpayer’s reported IFTA (International
    Fuel Tax Agreement) miles was different from the reported Weight Distance tax miles, so it
    began an audit based on the mismatch.
32. The Department concluded during the audit that Taxpayer underreported its tax
    liability by more than 25%. Consequently, the audit was expanded to include reporting periods
    up to seven years earlier than the audit, which took place in 2016.

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Letter ID No. L1755121200
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33. Taxpayer was not registered as a one-way hauler in New Mexico during the time-
    frame covered by the assessment. However, during the pendency of this protest, the Department
    granted an abatement of the tax based on qualification as a one-way hauler.
34. The Department partially abated the assessment by $27,885.59 based on the fact
    that the Department Auditor determined that Taxpayer qualified as a one-way hauler under
    NMAC Section 3.12.6.8.
35. During the protest, the Auditor communicated with the Taxpayer, who referred
    her to Lori King, to gather additional evidence that roadways driven upon were not roadways
    maintained by a government entity. [See also, roadmaps accompanying Taxpayer protest letter,
    dated August 18, 2016, 14 pages]
36. In the experience of the Auditor, typically, a company will have a trip ticket and
    logs showing a route, odometer readings at the beginning and end of the trip. Companies vary
    how they log in information. Usually, the companies will identify drivers and truck units. With
    this information, the Department can replicate a map of the route to verify the number of miles
    on the road.
37. In the experience of the Auditor, a company can document off-road miles with the
    assistance of the oil companies they work with. During the audit, the Department received a
    satellite map, but the problem remained that there was a discrepancy of hundreds of miles
    reported to IFTA, and no substantive documentation to support the claim of off-highway miles.
38. In the experience of the Auditor, the off-road miles claimed is typically a small
    percentage of the actual miles driven.
39. In communicating with the Taxpayer, the Department obtained no information
    that the roads claimed to be off-highway were actually on roads maintained privately by oil
    companies.
40. The IFTA transmittal [Exhibit B] was used by the Department as a basis for the
    assessment. The Auditor would compare the miles travelled in the base jurisdiction of New
    Mexico, and compare that to the reported miles under the Weight Distance tax.
41. The audit originally included the 2013 timeframe, but was expanded to include
    years back to 2009 because of the underreporting the Department found.
42. The Auditor could not attest to the date the IFTA transmittal was received by the
    Department, but stated that in a typical scenario, the Department receives Internal Revenue
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    Letter ID No. L1755121200
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    Service information approximately three years after it is filed by a taxpayer. If the Department
    finds a mismatch and underreporting of miles by 25%, it may extend the audit period up to seven
    years.
43. A one-way hauler is defined by statute and regulation, and requires an application.
44. The benefit that a one-way hauler receives is that the one-way hauler pays a lower
    tax rate, as compared to everyone else who pay for all miles.
45. The Department requires documentation that miles travelled on purported non-
    state roads were in fact non-state roads to justify an off-road exemption during an audit. Guesses
    and estimates are insufficient evidence to allow an auditor to justify the application of an
    exemption or abatement.
46. The Taxpayer’s records from 2009 were not available for inspection.
47. An ordinary one-way hauler would be similar to a trucker who picks up a load at a
    manufacturer and travels to a retailer to deliver the load, then drives back to the home location
    empty of all load.
48. An ordinary hauler that pays the full rate would be similar to a trucker who picks
    up a load in one location, drops it off at another location, and before heading back to the home
    location picks up another cargo and delivers it near the home location.
49. The Taxpayer’s business model is unlike either typical scenario.
50. As of the date of hearing, Taxpayer still owed $44,390.29 under the assessment.
    The assessment includes tax of $18,316.35, civil penalty of $3,666.54, interest of $2,207.40, and
    WDT underreporting penalty of $20,200.00. Interest continues to accrue until the assessment
    has been paid.

DISCUSSION

The issues to be decided are whether the Taxpayer is liable for the assessment of tax,
civil penalty, interest and underreporting penalty during the reporting periods between October 1,
2009 and March 31, 2013. Taxpayer argued for reduction of tax, penalties and interest because
the business model has the Taxpayer’s vehicles travel primarily on private roads while loaded.
The Department argued that the evidence provided by the Taxpayer do not support the private
road designation.

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Letter ID No. L1755121200
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The Department received a transmission detailing Taxpayer’s 2010-2011 reported miles
travelled in New Mexico under the International Fuel Tax Agreement (IFTA). The Department
compared the miles Taxpayer reported under IFTA to the miles reported through the Weight
Distance tax return. The Department found a mismatch and initiated an audit. The audit
revealed what the Department believed to be at least 25% underreporting. The Department
extended the audit to include year 2009. Based on the audit, the Department assessed Taxpayer
for Weight Distance Tax in years 2009, 2010, 2011, 2012 and 2013. Taxpayer timely protested
that assessment.
Taxpayer believed that his duty under the weight distance tax was to report only miles
travelled while loaded on roadways maintained by a governmental authority. Taxpayer did not
retain sufficient records from 2009 to disprove the allegation, and challenged the Department’s
process in going back so far. Taxpayer indicated that it changed its tax reporting policies to
reduce the tax burden in 2010 or 2011. The Taxpayer indicated that the miles reported prior to
2010 were at least 55% to 85% of total miles. The initial auditor conceded that the Taxpayer
qualified as a one-way hauler and partially abated the assessment. Taxpayer provided evidence
that his trucks travel on mostly private oilfield roads when loaded. The Taxpayer acknowledged
that there are smaller customers who do not have disposal sites of their own, and in instances
where he services their wells, his trucks make the return trip loaded and dispose of the
wastewater at a site near the home yard. Taxpayer believed his duty was to report and pay for
only loaded miles on governmentally designated roadways.

Presumption of Correctness and Burden of Proof.
Under NMSA 1978, Section 7-1-17(C) (2007), the assessment issued in this case is
presumed to be correct. Consequently, the Taxpayer has the burden to overcome the assessment
and show it was entitled to the abatement of tax under the Weight Distance Tax Act. See
Archuleta v. O'Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428. However, once a taxpayer rebuts the
presumption of correctness, the burden shifts to the Department to show the correctness of the
assessed tax. See MPC Ltd. v. N.M. Taxation & Revenue Dep't, 2003-NMCA-021, ¶13, 133 N.M.
217.
Seeking the exemption for “off highway use” under the Weight Distance Tax Act is akin to
claiming a deduction or exemption of tax that otherwise would be owed. Case law addressing a
D-Trix Services, LLC
Letter ID No. L1755121200
page 7 of 16
taxpayer’s burden when claiming a deduction is persuasive in considering whether Taxpayer is
entitled to the off-highway use exemption. “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.

Weight Distance Tax Act and the One-way Haul Rate
The Weight Distance Tax Act imposes a tax on all registered vehicles with a declared
weight in excess of 26,000 pounds that travel on state highways. See NMSA 1978, § 7-15A-3
(1988).
NMSA 1978, Section 7-15A-6 (2004) sets the tax rates under the Weight Distance Tax
Act for all motor vehicles other than buses. Subsection A establishes the base tax rates for all
registered vehicles based on the vehicles’ declared gross weight and on the mileage traveled on
state highways. See § 7-15A-6 (A). Under Section 7-15A-6 (A), the tax rate increases as a
vehicle’s weight classification increases. However, Section 7-15A-6 (B) establishes a reduced
one-way haul tax rate:
All motor vehicles for which the tax is computed under Subsection A of
this section shall pay a tax that is two-thirds of the tax computed under
Subsection A of this section if:
(1) the motor vehicle is customarily used for one-way haul;
(2) forty-five percent or more of the mileage traveled by the motor
vehicle for a registration year is mileage that is traveled empty of all load;
and
(3) the registrant, owner or operator of the vehicle attempting to qualify
under this subsection has made a sworn application to the department to be
classified under this subsection for a registration year and has given
whatever information is required by the department to determine the
eligibility of the vehicle to be classified under this subsection and the
vehicle has been so classified.
If the registrant, owner or operator of the vehicle can satisfy the three one-way haul rate criteria
identified under Section 7-15A-6 (B), the Weight Distance Tax (WDT) is calculated at two-
thirds of the base tax rate established under Subsection A (or 33% less than the full tax rate per
vehicle weight class).
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Numerous Department regulations also address one-way haulers for the purposes of
Section 7-15A-6 (B). Regulation 3.12.6.7 NMAC (11/15/01) provides definitions for empty
miles, loaded miles, and one-way haulers. Under Regulation 3.12.6.7 (A) NMAC, “empty miles”
means the “number of miles traveled on New Mexico roads when the vehicle or vehicle
combination is transporting no load whatsoever.”
Regulation 3.12.6.8 NMAC (11/15/01) and Regulation 3.12.6.9 NMAC (11/15/01)
respectively establish how a registrant can be qualified or disqualified as a one-way hauler.
Taxpayer did not apply to qualify as a one-way hauler under Regulation 3.12.6.8 NMAC
(11/15/01). Nevertheless, the initial Auditor saw that the Taxpayer would have qualified as a
one-way hauler, and granted an abatement on that basis. Taxpayer was unsure whether he
wanted to be labeled a one-way hauler, because under that scenario, he would still have to pay
for half of all miles, regardless of whether he carried a load on governmentally maintained
roadways. Taxpayer’s rationale was that the majority of the miles travelled on governmentally
maintained roadways were most often empty of all load, indicating that his loads were gathered
and deposited mostly on private oilfield roads. The Taxpayer misunderstands the WDT as
requiring taxpayers to report only loaded miles travelled on governmentally maintained
roadways. The WDT Act requires taxpayers to report all miles, and if it maintains records which
show that the vehicle carried no load at least 45% of the time, it can qualify for a reduced tax rate
for all the miles as a “one-way” hauler.

WDT Reporting requirements:
The Weight Distance Tax Act indicates that “The total number of miles travelled on New
Mexico highways during the tax payment period by the motor vehicle subject to the tax shall be
used in computing the tax.” NMSA 1978 Section 7-15A-8 (A) (1988). The Act does not make a
distinction between loaded and unloaded miles when reporting, except that it allows taxpayers to
apply for registration as a one-way hauler, and pay 33% of the tax if the taxpayer can prove at
least 45% of their miles are unloaded. See NMSA 1978 Section 7-15A-6 (B) (2004). The
Taxpayer was required to report all miles regardless of whether loaded or not.
The evidence presented by the taxpayer showed round trip miles to a list of his
commonly used waste water disposal sites. [Exhibit 3]. Taxpayer also sent to the Department a
summary of tickets for Energen Resources from November 2013 (outside the scope of the
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Assessment), with miles separated into highway and off road. [Exhibit C]. The summary of
tickets indicates that the disposal site used was “CBD.” The round-trip mileage to CBD, as
indicated on Exhibit 3, shows a round trip of 66.4 miles. The summary Exhibit C appears to
exclude the round trip miles, when it indicates only ten or eleven highway miles. Although the
Taxpayer’s WDT returns were not in evidence, the evidence presented shows that the Taxpayer
misunderstood the requirement of reporting all miles, regardless of load.

Off Highway use:
As noted above, case law addressing a taxpayer’s burden when claiming an exemption or
deduction is persuasive in considering whether Taxpayer is entitled to the off-highway use
exemption. “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).
The exemption is defined under NMAC Section 3.12.5.9 (11/15/01):

Off highway use not subject to tax:
A. Any registrant, owner or operator of a motor vehicle who does not use that
motor vehicle on the highways of this state, in whole or in part, is not subject to the tax
imposed by Section 7-15A-3 NMSA 1978 to the extent that the motor vehicle is not
operated on the highways of this state.
B. For the purposes of section 3.12.5.9 NMAC, "highways of this state" include
those roads, highways, thoroughfares, streets and other ways generally open to the use of
the public as a matter of right for the purpose of motor vehicle travel, regardless of
whether it is temporarily closed for the purpose of construction, reconstruction,
maintenance or repair, if the road, highway, thoroughfare, street or other way is or was
constructed, reconstructed, maintained or repaired with the use of any federal, state or
local government or Indian nation, tribe or pueblo government funding.
C. Any road, highway, thoroughfare, street or other way is not a "highway of this
state" if it is or was constructed, reconstructed, maintained or repaired solely with private
funds.

The Taxpayer provided a number of maps showing the spiderweb of roads his trucks
travel on through the oilfields of New Mexico. [Exhibit 8, maps 1 through 12; Protest letter

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Letter ID No. L1755121200
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containing maps and well names, pages 5 through 14]. It stands to reason that the unmarked dirt
roads through public and private lands would fall into the category of private roads. The
checkerboard of public lands, Indian lands, and private lands creates a practical impossibility of
deciphering which road is public and which is private. Likewise, it is a practical impossibility to
prove or disprove that the actual miles reported accurately reflect the private and public miles
travelled.
The maps provided show satellite views of well locations and waste-water disposal sites.
The detail maps show small roads leading to and from the well-sites, adjacent to governmentally
maintained roadways. The maps do not provide boundaries such as county lines, private
property lines, BLM or Indian land distinctions. Although it is clear that some of the roads are in
fact privately maintained, the taxpayer has not shown how many miles were travelled upon those
roads to justify reducing the tax burden by applying the exemption.
To make a comparison, Regulation 3.12.6.11 NMAC (11/15/01) lists the required records
that a one-way hauler must possess. NMSA 1978, § 7-15A-6(B) (3) (2004) mandates that before
a taxpayer can qualify for the reduced one-way hauler rate, that taxpayer must provide the
Department with “whatever information… required by the [D]epartment to determine the
eligibility of the vehicle…” By Regulation 3.12.6.11 NMAC (11/15/01), the Department has
articulated which records a taxpayer must provide under the statute for a taxpayer claiming the
reduced one-way hauler rate:
A. Vehicle trip mileage records for each vehicle operated in New Mexico.
The mileage records shall reflect the total empty miles and the total loaded
miles traveled on New Mexico roads. Accurate trip mileage records
indicating empty and loaded miles may include:
(1) accurate map mileage for each trip;
(2) hubometer or odometer readings; or
(3) vehicle-specific log books.
B. Vehicle itineraries including the origin and destination point of each
trip, and the routes taken.

Consequently, reading the statutory and regulatory requirements together, any time a taxpayer
claims the reduced one-way hauler rate under Section 7-15A-6 (B), that taxpayer should use and
maintain the records articulated under Regulation 3.12.6.11 NMAC (11/15/01). This statutory
and regulatory one-way hauler record keeping requirement is also consistent with the Tax

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Administration Act (“TAA”), NMSA 1978, Section 7-1-10 (2007), which requires a taxpayer to
maintain certain records for any provision of any statute administered by the Department.
Although the regulation concerning the off-highway use exemption does not require that
taxpayers retain the same sorts of records to justify the one-way haul rate reduction, it would be
wise for a Taxpayer to maintain such records in the event that reconstruction of claimed
deductions and exemptions becomes necessary, as in this case.
Taxpayer in this case did not present records necessary to substantiate its claim for a
deduction of off-highway miles, and no specific number of off-highway miles claimed was
provided, so a reduction using the mill rate was not possible either during the audit or at the
hearing. When a taxpayer fails to maintain adequate records, the Department is authorized to use
alternative methods to determine that taxpayer’s tax liability. See NMSA 1978, §7-1-11 (D)
(2007); see also Regulation 3.1.5.8 (B) NMAC (12/29/00).
Department properly assessed Taxpayer without reducing the assessment for off-highway
miles. Without records substantiating either the mileage traveled by specific reported vehicle
weight class or routes and proof of private maintenance, Taxpayer did not overcome the
presumption of correctness that attached to the assessment.

25% Underreporting of Tax Liability.
Taxpayer challenged the Department’s ability to expand the audit to include tax periods
2009, 2010, and 2011, periods beyond the typical statute of limitations on an assessment.
Taxpayer made numerous arguments about how the length of time between the hearing and the
first period covered by the assessment was so long that he had no idea that the method he was
using was not acceptable to the State.
The plain language of the TAA and New Mexico case-law interpreting the TAA controls
the analysis of this issue. Under NMSA 1978, Section 7-1-18 (A) (2013), the Department
typically only has three-years from the end of the calendar year from which a tax was due to
issue an assessment. However, under NMSA 1978, Section 7-1-18 (D) (2013), the Department
has six-years from the end of the calendar year in which the tax was due to issue an assessment
in instances where a taxpayer underreports their tax liability by 25%.
The New Mexico Supreme Court has held that Section 7-1-18 (D) does not depend on an
analysis of a taxpayer’s intent and/or culpability, only an objective analysis of the facts and the
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amount of a taxpayer’s underreported liability. See Taxation & Revenue Dep't v. Bien Mur
Indian Mkt. Ctr., 1989-NMSC-015, ¶6-7, 108 N.M. 228. Further, in Bien Mur, ¶7, the New
Mexico Supreme Court rejected the notion that Section 7-1-18 (D) is punitive in nature.
The end of the calendar year when 2009 Weight Distance Tax would have been due was
December 31, 2010. See NMSA 1978, § 7-15A-9 (A) (1999). Since the May 18, 2016
assessment occurred within six-years of that date, the assessment satisfied the statute of
limitations requirement contained in Section 7-1-18 (D) and the Department was obligated to
issue the assessment under the rationale expressed in Bien Mur, ¶7.
Here, the Department determined that Taxpayer had underreported its tax liability by
more than 25%. The Taxpayer did not take issue with the percentage of underreporting alleged
by the Department, only with what appeared to the Taxpayer to be the Department stretching as
far back as it could when the State budget was under stress for a lack of revenue stream. The
Department’s assessment of 2009-2013 weight distance tax was appropriate.

Interest and Civil Penalty.
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. 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). The language of the statute also makes it clear that interest begins to run
from the original due date of the tax and continues until the tax principal is paid in full.
Further, under NMSA 1978, Section 7-1-69 (2007), 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, the Department must impose a civil negligence penalty on that taxpayer.
As discussed above, Section 7-1-69 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.” See Marbob, ¶22. Although certainly unintentional, Taxpayer’s error in reporting
only loaded miles, and inability to substantiate reduction due to off-highway miles constitutes
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civil negligence. See El Centro Villa Nursing Center v. Taxation and Revenue Department, 1989-
NMCA-070, ¶10, 108 N.M. 795 (inadvertent error meets the definition of civil negligence).
Taxpayer did not show that it made a mistake of law in good faith and on reasonable grounds
under Section 7-1-69 (B) or any of the nonnegligence factors that might allow for abatement of
penalty under Regulation 3.1.11.11 NMAC (01/15/01).
The evidence presented indicated that the Taxpayer’s principal owners, including the
witness and current owner along with the former partner and office personnel, consulted amongst
themselves about how to reduce the tax liability in 2010 or 2011. Here, there is no evidence that
Taxpayer made an informed judgment or determination based on reasonable grounds that when
Taxpayer failed to report and all miles travelled for the Weight Distance taxes. See C & D Trailer
Sales v. Taxation and Revenue Dep’t, 1979-NMCA-151, ¶8-9, 93 N.M. 697 (penalty upheld where
there was no evidence that the taxpayer “relied on any informed consultation” in deciding not to pay
tax). Consequently, this mistake of law provision of Section 7-1-69 (B) does not mandate abatement
of penalty in this case.
Under New Mexico's self-reporting tax system, “every person is charged with the reasonable
duty to ascertain the possible tax consequences” of his or her actions. Tiffany Construction Co. v.
Bureau of Revenue, 1976-NMCA-127, ¶5, 90 N.M. 16. It is the duty of Taxpayer to determine what
taxes need to be reported and paid. Nothing in the record indicates that Taxpayer exercised ordinary
business care and prudence in determining its WDT reporting obligations. Therefore, the Department’s
imposition of penalty was legally supported and properly assessed.

Underreporting penalty.
Finally, under NMSA 1978, Section 7-15A-16 (2009), in addition to civil negligence
penalty, the Department was mandated to impose a penalty for underreported mileage on
Taxpayer. See Marbob, ¶22. Taxpayer did not accurately report total traveled mileage in all
periods. Taxpayer’s protest is denied.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely, written protest to the assessment issued by the Department
under Letter ID L1755121200. Jurisdiction lies over the parties and the subject matter of this
protest.
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B. Taxpayer did not present sufficient records to demonstrate that it properly reported
all taxable miles travelled in New Mexico.
C. Taxpayer did not prove it was entitled to a reduction of tax principal for off-highway
use under Regulation 3.12.5.9 NMAC. See Wing Pawn Shop, ¶16 (a taxpayer must clearly establish
the right to a deduction or an exemption from taxation).
D. By failing to produce sufficient records to support its claimed off-highway mileage
deductions, Taxpayer did not overcome the presumption of correctness that attached to the
Department’s assessment. See Archuleta, ¶11.
E. The Assessment period was properly expanded to include years 2009 through 2013.
See NMSA 1978, Section 7-1-18 (D) (2013)
F. Taxpayer proved to the Department Auditor that it qualified for the 33% reduced
one-way haul Weight Distance Tax rate, and Department allowed a one-time partial abatement of
the tax of $27,885.59. See NMSA 1978 Section 7-15A-6 (B) and NMAC Section 3.12.6.8.
G. Under the mandatory “shall” language of Section 7-1-67, Taxpayer is liable for
accrued interest under the assessment. See Marbob, ¶22.
H. Under the mandatory “shall” language of Section 7-1-69, Taxpayer is liable for
civil negligence penalty. See Marbob, ¶22. Although Taxpayer’s error was unintentional, such
error constitutes civil negligence subject to penalty. See El Centro Villa Nursing Center, ¶10.
I. Under the mandatory “shall” language of Section 7-15A-16, Taxpayer is liable for
Weight Distance Tax mileage underreporting civil penalty. See Marbob, ¶22.
For the foregoing reasons, Taxpayer's protest IS DENIED. The partial abatement of
$27,885.59 is recognized. As of the date of hearing, after applying the partial abatement,
Taxpayer still owed $18,316.35 in assessed Weight Distance Tax, $3,666.54 in civil penalty,
$20,200.00 in underreporting penalty, and $2,207.40 in interest for a total outstanding liability of
$44,390.29. Interest continues to accrue until tax principal is satisfied.
DATED: March 7, 2017.
Ignacio V. Gallegos
Ignacio V. Gallegos
Hearing Officer
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502

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NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, Section 7-1-25 (2015), 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. If an appeal is not timely filed with the Court of Appeals within 30 days, this
Decision and Order will become final. Rule of Appellate Procedure 12-601 NMRA articulates
the requirements of perfecting an appeal of an administrative decision with the Court of Appeals.
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 begin preparing the record proper. The parties will each be provided with a
copy of the record proper at the time of the filing of the record proper with the Court of Appeals,
which occurs within 14 days of the Administrative Hearings Office receipt of the docketing
statement from the appealing party. See Rule 12-209 NMRA.

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