Did Old Dominion Freight Lines prove that it qualified for $324,214.83 of New Mexico High-Wage Jobs Tax Credit?

Plain-English summary

Old Dominion Freight Lines did not prove that it qualified for $324,214.83 of New Mexico High-Wage Jobs Tax Credit for 21 employees over 42 qualifying periods. The AHO rejected the Department's argument that an out-of-state company was categorically excluded, but it upheld the denial because Old Dominion's sales and employee evidence did not establish the statutory requirements.

Old Dominion operated trucking service centers in Albuquerque and Farmington and had more than 70 New Mexico employees. It was incorporated in North Carolina, where its central office handled billing, revenue, and payroll.

The Department denied the credit claim on June 23, 2017. At the protest hearing, the parties disputed both whether Old Dominion was an eligible employer and whether it had adequately documented the claim.

Being based outside New Mexico did not itself bar the credit

The Department argued that the credit was limited to New Mexico businesses and that Old Dominion did not qualify because it was incorporated and based in North Carolina.

The AHO rejected that interpretation. Section 7-9G-1 stated that the credit's purpose was to encourage urban and rural businesses to create and fill new high-wage jobs in New Mexico. The phrase described where the jobs must be created; it did not restrict the credit to businesses incorporated or headquartered in New Mexico.

The statute separately defined an “eligible employer,” and that definition did not contain the Department's proposed incorporation or headquarters limitation. It was undisputed that Old Dominion was an urban or rural business with employees in New Mexico.

Old Dominion still had to prove the out-of-state-sales test

Under the 2013 statute, an employer without the alternative certificate had to show that more than 50% of its sales of goods or services produced in New Mexico were made to persons outside New Mexico during the applicable qualifying period.

Old Dominion prepared revenue reports for invoices originating at its Albuquerque and Farmington service centers. It concluded that 80% of its sales were to out-of-state customers, but it classified customers solely by the address to which an invoice was billed.

That method did not determine whether the service was requested by a person outside New Mexico. Many customers were nationwide businesses with central billing offices, and the one qualifying-period invoice supplied for review involved pickup and delivery entirely within New Mexico even though the billing address was outside the state.

The supporting records were too limited and inconsistent

The revenue reports represented approximately 26,000 invoices, but Old Dominion provided only one invoice from a claimed qualifying period. The AHO described that as considerably less than 1% of the invoices.

The company's exhibits also reported three different 2014 New Mexico revenue totals:

• $3,211,384.13 in one column of Exhibit 1;
• $3,241,713.42 in another column of Exhibit 1; and
• $3,229,183.07 in Exhibit 2.

Old Dominion acknowledged the discrepancies. It had received the Department's document requests during the credit audit, knew employee eligibility was contested, and supplied no further documentation from June 2017 until the hearing exhibits in August 2018.

The AHO found that Old Dominion had not substantiated its revenue reports or provided evidence for all employee and other requirements needed to claim the credit.

Result: protest DENIED. The denial of the $324,214.83 High-Wage Jobs Tax Credit claim remained in place.

What this means for you

Multistate employers creating New Mexico jobs

An out-of-state incorporation or headquarters does not automatically defeat the 2013 credit. The statutory criteria, including where the jobs and qualifying activity are located, control.

Employers relying on an out-of-state-sales percentage

Document who requested each relevant sale or service and why that customer counts as outside New Mexico. A central billing address alone may not prove the location of the person purchasing the service.

Credit claimants preparing for an audit or protest

Preserve and timely produce the underlying invoices, employee records, and calculations for every statutory element. A summary report prepared for hearing may carry little weight when the underlying sample is extremely small or totals conflict.

Freight and logistics businesses

Track origin, destination, customer location, billing location, and the party actually requesting the service as separate data points. This decision treated billing location alone as insufficient proof of the statutory sales test.

Common questions

Q: Was Old Dominion denied because it was headquartered in North Carolina?
A: No. The AHO rejected the Department's proposed New Mexico-business limitation.

Q: What amount of credit was at issue?
A: $324,214.83 for 21 employees over 42 qualifying periods.

Q: What did Old Dominion have to prove as an eligible employer?
A: Because it did not have the alternative certificate, it had to prove that more than 50% of its New Mexico-produced sales were to persons outside New Mexico during the applicable qualifying period.

Q: Why was the billing-address method insufficient?
A: Nationwide customers could use out-of-state central billing offices even when the person requesting a particular service was in New Mexico. The only qualifying-period invoice supplied involved an entirely New Mexico pickup and delivery despite an out-of-state billing address.

Q: How many underlying invoices supported the hearing sample?
A: Only one qualifying-period invoice was supplied from revenue reports covering approximately 26,000 invoices.

Q: Did the revenue reports agree?
A: No. The exhibits contained three different totals for 2014 New Mexico revenue.

Q: Did Old Dominion prove the employee requirements?
A: No. The AHO found that it failed to provide further documentation on employee eligibility and other statutory criteria.

Citations and references

Statute:

• NMSA 1978, § 7-9G-1(A), (B), and (M)(3) (2013) — eligibility to apply, statutory purpose, and the eligible-employer out-of-state-sales test

Cases cited:

• Team Specialty Products v. New Mexico Taxation & Revenue Department, 2005-NMCA-020 — credits are narrowly construed and the claimant bears the burden
• Murphy v. Taxation & Revenue Department, 1979-NMCA-065 — tax-credit burden of proof
• Marbob Energy Corp. v. New Mexico Oil Conservation Commission, 2009-NMSC-013 — plain-language statutory interpretation
• New Mexico Real Estate Commission v. Barger, 2012-NMCA-081 — applying statutory language as written unless it produces an absurd result

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Old Dominion Freight Lines
• Decision PDF: D&O 18-33

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
OLD DOMINION FREIGHT LINES D&O No. 18-33
TO THE DENIAL OF HIGH WAGE JOBS TAX CREDIT
ISSUED UNDER LETTER ID NO. L1398322480

v.

NEW MEXICO TAXATION AND REVENUE DEPARTMENT

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on August 23, 2018 before

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

represented by Mr. David Mittle, Staff Attorney. Ms. Milagros Bernardo, Auditor, also appeared

on behalf of the Department. Mr. Jeffrey Morris, CPA and his associate, Ms. Jennifer

Thompson, from Think, LLP, which was representing Old Dominion Freight Lines (Taxpayer),

appeared for the hearing. Ms. Michele Jones, Tax Director for the Taxpayer, also appeared by

telephone. Ms. Jones, Ms. Thompson, and Ms. Bernardo testified. The Hearing Officer took

notice of all documents in the administrative file. The Taxpayer’s exhibits 1, 2, 3 1, and 4, and

the Department’s exhibits C and D were admitted. A more detailed description of exhibits

submitted at the hearing is included on the Administrative Exhibit Coversheet. Based on the

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

1
Exhibit 3 contains the names of other taxpayers. Due to confidentiality concerns, Exhibit 3 is sealed and
sequestered from public review.
FINDINGS OF FACT

1. On June 23, 2017, the Department denied the Taxpayer’s claim for the high wage

jobs tax credit (HWJTC) for $324,214.83 for 21 employees over 42 qualifying periods.

2. On September 21, 2017, the Taxpayer filed a formal protest letter.

3. On November 17, 2017, the Department filed a Request for Hearing with the

Administrative Hearings Office, asking that the Taxpayer’s protest be scheduled for a formal

administrative hearing.

4. On November 20, 2017, the Administrative Hearings Office issued a notice of

telephonic scheduling hearing.

5. On December 7, 2017, the Taxpayer requested a continuance of the telephonic

scheduling hearing and waived the 90-day requirement of the statute.

6. The Taxpayer’s request was granted. On December 11, 2017, the Administrative

Hearings Office issued an amended notice of telephonic scheduling hearing.

7. The telephonic scheduling hearing was conducted on December 18, 2017. The

hearing was held within ninety days of the protest.

8. On December 20, 2017, the Administrative Hearings Office issued a notice for a

second telephonic scheduling hearing.

9. A second telephonic scheduling hearing was conducted on March 23, 2018.

10. On March 27, 2018, the scheduling order and notice of hearing was issued.

11. On August 1, 2018, the Department filed an objection to the Taxpayer’s

discovery, as the discovery deadline had already passed.

12. On August 7, 2018, the parties filed their joint prehearing statement.

13. On August 7, 2018, the Taxpayer filed a motion to continue the hearing.

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Letter ID No. L1398322480
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14. On August 8, 2018, the Department opposed the motion to continue.

15. On August 20, 2018, the motion to continue was denied.

16. On August 21, 2018, the Taxpayer filed a motion to allow one of its witnesses to

appear by telephone.

17. On August 22, 2018, the Department filed its response and did not oppose the

motion.

18. On August 22, 2018, the order granting telephonic appearance was issued.

19. The Taxpayer engages in a trucking operation in New Mexico and throughout the

United States. [Testimony of Ms. Jones and Exhibits 1 and 2]

20. The Taxpayer is incorporated in North Carolina. All of its invoices are generated

in North Carolina or California, all of its bills are paid through its central office in North

Carolina, all of its revenue is paid to and deposited in its bank accounts in North Carolina, and all

of its payroll goes through its central office in North Carolina. [Testimony of Ms. Jones]

21. The Taxpayer hauls more than one customer’s freight on each truckload. The

Taxpayer dispatches trucks from various service centers. [Testimony of Ms. Jones]

22. When a customer requests service, the Taxpayer sends a truck to pick up the

customer’s freight. The truck is dispatched from the nearest service center. The freight is then

hauled to the service center. Depending on the customer’s needs and the ultimate destination for

the freight, the freight is either loaded onto a delivery truck, or loaded onto a trailer for long

hauling. [Testimony of Ms. Jones]

23. Freight loaded onto delivery trucks is delivered to its ultimate destination. Freight

loaded onto a trailer is hauled to another service center, nearest to its ultimate destination. The

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Letter ID No. L1398322480
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long-hauled freight is then loaded onto delivery trucks and delivered to its ultimate destination.

[Testimony of Ms. Jones]

24. The Taxpayer has two service centers in New Mexico. One is located in

Albuquerque, and the other is located in Farmington. [Testimony of Ms. Jones and Ms.

Thompson, and Exhibits 1 and 2]

25. The Taxpayer employs drivers who are specifically assigned to each service

center. The drivers typically live in the local community where their assigned service center is

located. [Testimony of Ms. Jones]

26. In 2013, the Taxpayer spent considerable funds and engaged in significant

renovations to expand their Albuquerque service center. [Testimony of Ms. Jones and Exhibit 4]

27. The Taxpayer currently has more than 70 employees in New Mexico and provides

them with wages and benefits. [Testimony of Ms. Jones]

28. In preparation for the hearing, the Taxpayer generated Exhibit 2. [Testimony of

Ms. Jones, Ms. Thompson, and Exhibit 2]

29. The Taxpayer generated revenue reports based on all invoices for sales of service

where the originating service center was located in Farmington and in Albuquerque. [Testimony

of Ms. Jones and Exhibit 2]

30. In the revenue reports, the Taxpayer did not include any invoices for sales of

service where the originating service center was located outside of New Mexico, even if the final

destination for delivery was inside of New Mexico. [Testimony of Ms. Jones, Ms. Thompson,

and Exhibit 2]

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Letter ID No. L1398322480
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31. In the revenue reports, the Taxpayer did not take into consideration the final

destination of the freight, whether inside or outside of New Mexico. [Testimony of Ms. Jones

and Exhibit 2]

32. The revenue reports represent approximately 26,000 invoices. [Testimony of Ms.

Jones, Ms. Thompson, Ms. Bernardo, and Exhibit 2]

33. The Taxpayer provided a small random sampling of invoices as part of Exhibit 2,

but only one invoice was actually from one of the claimed qualifying periods. [Testimony of

Ms. Jones, Ms. Thompson, Ms. Bernardo, and Exhibit 2.671]

34. The invoices track the originating service center and the destination service center

by a three-letter code. The code for Albuquerque is ABQ, and the code for Farmington is FNM.

[Testimony of Ms. Jones and Exhibit 2].

35. To determine if the invoices relied upon in Exhibit 2 were for out-of-state

customers, the Taxpayer relied solely upon the address to which the invoice was billed.

[Testimony of Ms. Jones]

36. Most of the Taxpayer’s customers are nationwide businesses, with central

corporate offices that handle their revenue and expenditures, much like the Taxpayer’s central

office does. [Testimony of Ms. Jones and Ms. Thompson]

37. The Taxpayer did not investigate any of the invoices to determine if the sale of

service was performed at the request of a person who was outside of New Mexico or if the

request actually came from a person inside of New Mexico whose billing address happened to be

outside of New Mexico. [Testimony of Ms. Jones]

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Letter ID No. L1398322480
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38. The sole invoice provided by the Taxpayer for the qualifying period in question

reflects a request for pickup and delivery solely within New Mexico, but a billing address outside

of New Mexico. [Exhibit 2.671]

39. The Taxpayer determined through its review of invoices used in Exhibit 2 that 80

percent of its sales were to customers outside of New Mexico, based solely on the location

reflected in the billing address. [Testimony of Ms. Jones]

40. The Taxpayer also prepared a revenue report based on total revenue from all of its

service centers for the 2014 calendar year. [Testimony of Ms. Jones and Exhibit 1]

41. The total revenue reports in Exhibit 1 and 2 should be exactly the same for the

totals from New Mexico for the 2014 calendar year. [Testimony of Ms. Jones]

42. The total revenue generated from New Mexico for 2014 was $3,211,384.13 in one

column and $3,241,713.42 in another column in Exhibit 1, and $3,229,183.07 in Exhibit 2.

43. The Taxpayer acknowledged that there was a discrepancy between its revenue

reports but felt that it was minor. [Testimony of Ms. Jones and Exhibits 1 and 2]

44. The Taxpayer believes that most of its employees would meet the criteria for

taking the credit. [Testimony of Ms. Jones and Ms. Thompson]

45. Through the course of the credit audit, the Taxpayer received the Department’s

requests for production of documents but did not provide all of the documents requested.

[Testimony of Ms. Thompson]

46. The Taxpayer was aware that the employee eligibility was also a contested issue

in this protest. [Testimony of Ms. Jones, Ms. Thompson, protest letter, and Exhibit C]

47. From June 2017 until August 2018, the Taxpayer did not provide the Department

with further documentation. [Testimony of Ms. Jones, Ms. Thompson, and Ms. Bernardo]

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Letter ID No. L1398322480
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48. The documents provided by the Taxpayer in August 2018 are the exhibits

submitted during the hearing. [Testimony of Ms. Jones, Ms. Thompson, and Ms. Bernardo]

DISCUSSION

The issue to be decided is whether the Taxpayer is eligible for the high wage job tax

credit. See NMSA 1978, § 7-9G-1 (2013) 2. The Taxpayer argues that the Department is

applying a standard for determining sales to an out-of-state person using the new 2016

amendment to the statute. The Taxpayer argues that the Department’s requests for

documentation on the sales and on the employees was unreasonable. The Department argues

that the Taxpayer is not a New Mexico business that was intended to be allowed the credit. The

Department also argues that the Taxpayer has not produced substantial evidence to support the

claim.

Burden of Proof.

Credits are similar to deductions and are considered legislative graces that should be

construed narrowly. See Team Specialty Prods. v. N.M. Taxation and Revenue Dep’t, 2005-

NMCA-020, 137 N.M. 50. See also Murphy v. Taxation and Revenue Dep’t, 1979-NMCA-065,

94 N.M. 90. Therefore, the burden is on the Taxpayer to show that it was entitled to claim the

credit.

High wage jobs tax credit.

“The purpose of the high-wage jobs tax credit is to provide an incentive for urban and

rural businesses to create and fill new high-wage jobs in New Mexico.” NMSA 1978, § 7-9G-1

(B). A taxpayer who satisfies all of the statutory criteria may apply for the HWJTC. See NMSA

1978, § 7-9G-1 (A). To claim the HWJTC, the taxpayer must meet several criteria, including

2
All references to Section 7-9G-1 are to the 2013 version unless otherwise noted.
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Letter ID No. L1398322480
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requirements on the employer, the employees, the qualifying periods, the new jobs, and the

wages. See NMSA 1978, § 7-9G-1.

The Department argues that the statute limits the credit to New Mexico businesses under

subsection B. The Department argues that the Taxpayer is not a New Mexico business because it

incorporated and bases its operations out of North Carolina. The Taxpayer argues that the statute

applies the credit to all urban and rural businesses that create new jobs in New Mexico.

The first step in statutory interpretation is to look at the plain language of the statute and

to refrain from further interpretation if the plain language is not ambiguous. See Marbob Energy

Corp. v. N.M. Oil Conservation Comm’n., 2009-NMSC-013, 146 N.M. 24. Statutes are to be

applied as written unless a literal use of the words would lead to an absurd result. See New

Mexico Real Estate Comm’n. v. Barger, 2012-NMCA-081, ¶ 7. If a statute is ambiguous or

would lead to an absurd result, then it should be construed in accordance with the legislative

intent or spirit and reason for the statute, even though it may require a substitution or addition of

words. See id. See also State ex rel. Helman v. Gallegos, 1994-NMSC-023, 117 N.M. 346. See

also Kewanee Indus., Inc. v. Reese, 1993-NMSC-006, 114 N.M. 784. When a statute is

ambiguous or would lead to an absurd result, it should be construed according to its obvious

purpose. See T-N-T Taxi Co. v. N.M. Pub. Regulation Comm’n, 2006-NMSC-016, ¶ 5, 139 N.M.

550.

Again, “[t]he purpose of the high-wage jobs tax credit is to provide an incentive for urban

and rural businesses to create and fill new high-wage jobs in New Mexico.” NMSA 1978, § 7-

9G-1 (B). The Department’s construction of the statute encourages a reading that transforms the

prepositional phrase “in New Mexico”, which applies to the location of the new jobs created,

into an adjective that restricts the types of businesses who are incentivized. The Department’s

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Letter ID No. L1398322480
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interpretation does not conform to ordinary rules of grammatical construction regarding

prepositional phrases and the clauses that they modify. See Envtl. Improvement Div. of N.M.

Health & Env’t Dep’t v. Bloomfield Irrigation Dist., 1989-NMCA-049, ¶ 11-14, 108 N.M. 691

(interpreting a regulation according to the clause that the prepositional phrase modified). See

also State ex rel. Sego v. Kirkpatrick, 1974-NMSC-059, 86 N.M. 359 (holding that striking a

prepositional phrase from a bill amounted to an alteration to its meaning and was not an

appropriate exercise of the veto power to disapprove or to destroy an item). The Department’s

interpretation also disincentivizes large, nationwide corporations from creating new high-wage

jobs in New Mexico, a result that would render the statute a nullity as to many companies who

are doing business with employees in New Mexico. Such interpretation produces an absurd

result in direct opposition to the stated purpose of the statute. Moreover, the statute defines who

an eligible employer is, and it does not make the type of restrictive requirement that Department

advocates. See NMSA 1978, § 7-9G-1. One would expect the definition to contain the

requirements of eligibility, rather than the overall purpose of the statute. It was undisputed that

the Taxpayer was an urban or rural business with employees in New Mexico. The Department’s

argument is not persuasive.

Lack of evidence.

The Taxpayer focused most of its evidence and argument on the issue of whether it was

an eligible employer. An “eligible employer” is one who “made more than fifty percent of its

sales of goods or services produced in New Mexico to persons outside New Mexico during the

applicable qualifying period; or” has a certain type of certificate. NMSA 1978, § 7-9G-1 (M)

(3). The Taxpayer did not have the certificate, so the Taxpayer’s eligibility hinges on its percent

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Letter ID No. L1398322480
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of sales to persons outside of New Mexico. The statute does not define who is to be considered a

person outside of New Mexico. See id.

The Taxpayer argues that most of its customers, with whom it has negotiated rate

contracts, are nationwide businesses that have their central billing offices outside of New

Mexico. The Taxpayer argues that these customers are persons outside of New Mexico for

purposes of the statute. The Department argues that the Taxpayer has not proven that their

customers are persons outside of New Mexico because the Taxpayer’s evidence consists of the

revenue report that it generated specifically for the hearing. The Department argues that the

Taxpayer disclosed the revenue report the week prior to the hearing and only provided a single

invoice pertaining to a claimed qualifying period. The Department argues that the Taxpayer’s

evidence could not be investigated and challenged because it was not disclosed during the

discovery period. The Department argues that the Taxpayer’s evidence amounts to

unsubstantiated claims.

The Taxpayer admitted that there were discrepancies between its own exhibits as to the

amounts of New Mexico-generated revenue for the 2014 year but argued that the discrepancies

were fairly minor in amount. The Taxpayer also admitted that it failed to provide more than one

invoice from the claimed period to substantiate its revenue reports. One invoice out of

approximately 26,000 is considerably less than one percent. The Taxpayer also admitted that it

did not provide any further documentation on the employees and other requirements necessary to

claim the credit. See NMSA 1978, § 7-9G-1. Given the inconsistencies in the Taxpayer’s own

exhibits, the failure to provide more than one substantiating document for its revenue reports,

and the failure to provide evidence as to all of the necessary criteria in order to claim the credit,

the Taxpayer’s claim was appropriately denied by the Department.

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Letter ID No. L1398322480
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CONCLUSIONS OF LAW

A. The Taxpayer filed a timely written protest to the denial of high wage jobs tax credit

issued under Letter ID number L1398322480, and jurisdiction lies over the parties and the subject

matter of this protest.

B. The Taxpayer failed to provide substantial evidence to prove that it was entitled to

the credit. See NMSA 1978, § 7-9G-1. See also Team Specialty Prods. v. N.M. Taxation and

Revenue Dep’t, 2005-NMCA-020, 137 N.M. 50. See also Murphy v. Taxation and Revenue

Dep’t, 1979-NMCA-065, 94 N.M. 90.

For the foregoing reasons, the Taxpayer's protest is DENIED.

DATED: October 24, 2018.

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. L1398322480
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CERTIFICATE OF SERVICE

I hereby certify that I mailed the foregoing Order to the parties listed below this 24th day of October,
2018 in the following manner:

First Class Mail Interoffice Mail

INTENTIONALLY BLANK

John D. Griego
Legal Assistant
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502
PH: (505)827-0466
FX: (505)827-9732

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