Were receipts from DEA hazardous-material cleanup jobs in New Mexico deductible because DEA headquarters and the final disposal facilities were outside the state?

Plain-English summary

Advanced Environmental Solutions owed New Mexico gross receipts tax on hazardous-material removal work performed for the Drug Enforcement Administration at New Mexico sites. Neither the DEA's Virginia headquarters nor the out-of-state location of final disposal moved the service or its product outside New Mexico.

The Albuquerque company responded when a local DEA agent or authorized representative obtained headquarters approval and a case and call-control number. Its team traveled to the designated site, identified the hazardous materials, packaged and labeled them, removed them, and temporarily stored or transferred them for later shipment.

Third-party facilities usually completed the ultimate disposal in Utah or Texas because no certified disposal facility operated in New Mexico. Advanced Environmental did not itself destroy the material. It obtained a certificate of disposal from the third party and used that certificate to complete billing to DEA headquarters.

The original gross receipts tax assessment for January 2010 through September 2015 was $82,069.74 before a withholding-tax credit and related small charges reduced the amount then due to $81,821.05. At the hearing, the Department's updated liability was:

• $64,872.66 gross receipts tax;
• $13,026.01 penalty; and
• $10,095.93 interest.

The updated total was $87,994.60.

The cleanup services were performed in New Mexico

Advanced Environmental argued that the most important part of the service—final disposal—occurred outside New Mexico and that the buyer was located in Virginia.

The AHO focused on what the company actually did to earn the receipts. Its personnel and equipment responded to New Mexico locations, collected the hazardous materials, removed them from the site, and stored them locally for a short time before further transport. The company could provide those services and receive the business benefit without traveling outside the state.

The contracts also identified the authorized removal-site address and described hazardous-waste cleanup and disposal services. The Hearing Officer found that the primary objective was removing danger from the New Mexico site; later destruction was one component, not the predominant service.

The product of the service was delivered and used immediately in New Mexico

Section 7-9-57 could deduct services sold to an out-of-state buyer only if the buyer, its employees, or agents did not take delivery or initially use the product of the service in New Mexico.

DEA headquarters authorized and paid for the work from Virginia, so the AHO accepted that the buyer was out of state. The dispositive question was where the direct result or benefit of the service was first delivered and used.

The decision identified that product as the safe removal of hazardous materials from a specific site. As the company packaged and removed each item, local DEA personnel and affiliated law-enforcement agencies could continue their work with less exposure risk. The public and environment also received immediate protection from possible contamination.

That New Mexico benefit arose at the same moment the cleanup work was delivered. A later certificate showing final disposal elsewhere completed the contract and billing process, but did not change where the product was first used.

The parties separately excluded a $6,492.65 response to Ignacio, Colorado from the New Mexico receipts at issue.

Result: protest DENIED. Advanced Environmental did not prove that the receipts were outside New Mexico or deductible under Section 7-9-57, and it did not establish entitlement to abatement of the civil penalty.

What this means for you

Environmental cleanup and remediation businesses

The location of the field work and immediate cleanup benefit can control even when waste is later transported to another state for final treatment or destruction.

New Mexico service providers with out-of-state government clients

An out-of-state contracting or payment office does not establish the deduction by itself. Determine where the direct result of the service is delivered and first used.

Businesses providing multi-stage services

Identify the overall product purchased, not only the last step. Here, out-of-state disposal was necessary, but the immediate site-safety benefit was the principal product delivered in New Mexico.

Taxpayers claiming Section 7-9-57

Preserve evidence addressing both requirements: the buyer's out-of-state status and the location of initial use or delivery of the service product.

Common questions

Q: Was the DEA treated as an out-of-state buyer?
A: Yes. Headquarters in Virginia authorized the expenditure and paid for the services, although local agents requested each dispatch.

Q: Why didn't out-of-state final disposal make the receipts deductible?
A: Final disposal was only one component. The direct product purchased was removal of hazards and immediate restoration of safety at the New Mexico site.

Q: Did Advanced Environmental itself destroy the hazardous materials?
A: No. It packaged, removed, stored, and transported or transferred them. Unrelated third-party facilities performed ultimate disposal.

Q: What role did the certificate of disposal play?
A: Advanced Environmental needed it to complete its contractual documentation and final billing, but the AHO did not treat the certificate as the product of the service.

Q: Was every job in the audit performed in New Mexico?
A: No. The parties identified and subtracted one $6,492.65 response in Ignacio, Colorado.

Q: What amount remained due?
A: The Department's updated calculation totaled $87,994.60 in gross receipts tax, penalty, and interest.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-9-3.5(A)(1) (2007) — receipts from services performed in New Mexico
• NMSA 1978, §§ 7-9-4 and 7-9-5 — GRT and presumption that business receipts are taxable
• NMSA 1978, §§ 7-9-3.3 and 7-9-3(M) — engaging in business and service
• NMSA 1978, § 7-9-57 (2000) — out-of-state-buyer service deduction and New Mexico initial-use/delivery limitation
• NMSA 1978, §§ 7-1-17(C) and 7-1-3(X) — assessment presumption and tax definition covering penalty and interest
• NMSA 1978, § 7-1-69 (2007) — civil negligence penalty
• Regulations 3.1.6.12 and 3.1.6.13 NMAC — unsupported statements and assessment presumption for penalty and interest

Cases cited:

• TPL, Inc. v. New Mexico Taxation & Revenue Department, 2003-NMSC-007 — product of a service and initial-use analysis under Section 7-9-57
• ITT Educational Services, Inc. v. Taxation & Revenue Department, 1998-NMCA-078 — identifying the service product through the benefit purchased
• Public Service Co. v. New Mexico Taxation & Revenue Department, 2007-NMCA-050 — taxpayer's burden to prove an exemption or deduction
• MPC Ltd. v. New Mexico Taxation & Revenue Department, 2003-NMCA-021 — unsupported statements and burden after rebutting the assessment presumption

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Advanced Environmental Solutions Inc
• Decision PDF: D&O 18-42

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
ADVANCED ENVIRONMENTAL SOLUTIONS INC.
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L0808261168

v. D&O No. 18-42

NEW MEXICO TAXATION AND REVENUE DEPARTMENT

DECISION AND ORDER

A hearing in the above-referenced protest was held September 10, 2018, before Chris

Romero, Hearing Officer, in Santa Fe, New Mexico. The Taxation and Revenue Department

(Department) was represented by Ms. Cordelia Friedman, Esq., who was accompanied by Ms.

Milagros Bernardo who testified on behalf of the Department. Mr. Robert Fiser, Esq. appeared

on behalf of Advanced Environmental Solutions, Inc., (Taxpayer) and was accompanied by its

owner, Mr. Robert Chavez, who also testified.

The primary issue in this protest was whether Taxpayer provides services within New

Mexico, thereby incurring an obligation to pay gross receipts tax on receipts derived from

providing services in New Mexico. If so, then the secondary issue is whether Taxpayer may be

entitled to the benefit of an applicable exemption or deduction which might reduce its gross

receipts and resulting gross receipts tax liability for periods of time subject of this protest.

Taxpayer Exhibits 1 and 2, and Department Exhibits A, E, and F, were admitted without

objection and the Hearing Officer took notice of all documents in the administrative file. The

Department was also permitted to submit as a late-filed exhibit, an update to Taxpayer’s alleged

liability. The Department filed its update on September 11, 2018 and the Hearing Officer
identified it as Department Exhibit F. Based on the evidence and arguments presented, the

Hearing Officer finds that the protest should be DENIED.

IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

Procedural History

1. On June 14, 2016, the Department issued a Notice of Assessment of Taxes and

Demand for Payment under Letter ID No. L0808261168 in the amount of $65,123.55 in gross

receipts tax, $12,952.46 in gross receipts tax penalty, and $3,993.73 in gross receipts tax interest

for a total gross receipts tax assessment of $82,069.74 for the periods from January 31, 2010

through September 30, 2015 (hereinafter the “Assessment”). [See Administrative File].

2. The Assessment also provided that Taxpayer was entitled to a credit from

withholding tax in the amount of $250.91, but that it also owed a nominal amount of withholding

tax penalty in the amount of $1.29 and interest in the amount of $0.93. The credit offset the total

amount due under the Assessment by $248.69 for a total amount due of $81,821.05. [See

Administrative File].

3. On September 7, 2016, Taxpayer filed a Formal Protest Against Tax Assessment,

by and through its counsel of record, Mr. Fiser. It was received in the Department’s Protest

Office on September 19, 2016. [See Administrative File].

4. On September 29, 2016, the Department acknowledged the protest under Letter

ID No. L0646348336. [See Administrative File].

5. On November 10, 2016, the Department filed a Hearing Request requesting that

the Administrative Hearings Office set a hearing to address scheduling. [See Administrative

File].
In the Matter of the Protest of Advanced Environmental Solutions, Inc.
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6. On November 14, 2016, the Administrative Hearings Office entered a Notice of

Telephonic Scheduling Conference which set a hearing to occur on December 2, 2016. [See

Administrative File].

7. On December 2, 2016, a telephonic scheduling occurred in which the parties

agreed that the hearing would satisfy the 90-day hearing deadline provided by NMSA 1978,

Section 7-1B-8 A. A hearing on the merits of Taxpayer’s protest was set to occur on March 1,

2017. [See Administrative File; Record of Hearing, 12/2/16].

2018. On February 6, 2017, Taxpayer filed an Unopposed Motion for Continuance of

Formal Hearing Set for March 2, 2017 & Request for New Scheduling Conference. [See

Administrative File].

9. On February 10, 2017, the Administrative Hearings Office entered a Continuance

Order and Notice of Telephonic Scheduling Hearing which set a second scheduling hearing to

occur on April 3, 2017. [See Administrative File].

10. On April 4, 2017, the Administrative Hearings Office entered a Second

Scheduling Order and Notice of Administrative Hearing which set a hearing on the merits of the

protest for July 19, 2017. [See Administrative File].

11. On July 10, 2017, Taxpayer filed a Motion for Continuance of Formal Hearing

Set for July 19, 2017. The Department expressed no position on the relief requested. [See

Administrative File].

12. On July 12, 2017, the Administrative Hearings Office entered a Continuance

Order and Notice of Third Telephonic Scheduling Hearing which set a scheduling hearing to

occur on July 19, 2017. [See Administrative File].

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13. On July 20, 2017, the Administrative Hearings Office entered a Third Scheduling

Order and Notice of Administrative Hearing which set a hearing on the merits of the protest for

December 11, 2017. [See Administrative File].

14. On November 17, 2017, Taxpayer filed an Unopposed Motion for Continuance of

Formal Hearing Set for December 11, 2017 & Request for New Scheduling Conference. The

Department concurred with the relief requested. [See Administrative File].

15. On November 20, 2017, the Administrative Hearings Office entered a

Continuance Order and Notice of Telephonic Scheduling Hearing which set a fourth scheduling

hearing to occur on December 11, 2017. [See Administrative File].

16. On December 11, 2017, the Administrative Hearings Office entered a Fourth

Scheduling Order and Notice of Administrative Hearing which set a hearing on the merits of the

protest for March 8, 2018. [See Administrative File].

17. On February 22, 2018, Taxpayer filed a Stipulated Motion for Continuance of

Formal Hearing Set for March 8, 2018. The Department concurred with the relief requested. [See

Administrative File].

18. On February 28, 2018, the Administrative Hearings Office entered a Continuance

Order and Notice of Telephonic Scheduling Hearing which set a fifth scheduling hearing to

occur on March 20, 2018. [See Administrative File]

19. On March 21, 2018, the Administrative Hearings Office entered a fifth

Scheduling Order and Notice of Administrative Hearing which set a hearing on the merits of the

protest for September 10, 2018. [See Administrative File].

20. On September 7, 2018, the parties filed their Joint Prehearing Statement. [See

Administrative File].
In the Matter of the Protest of Advanced Environmental Solutions, Inc.
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Merits of the Protest

21. Taxpayer is a corporation established in Albuquerque, New Mexico engaging in

the business of providing hazardous removal services under contracts with the Drug Enforcement

Administration (hereinafter “DEA”). [Testimony of Mr. Chavez].

22. In routine circumstances, Taxpayer is called to a location by a local DEA agent or

authorized representative 1 where it assumes responsibility for identifying, packaging, labeling,

and removing hazardous products from that location. Examples of such products would include

chemicals or materials associated with clandestine labs. [Testimony of Mr. Chavez].

23. In order to procure its services for that purpose, a local DEA agent or authorized

representative will acquire pre-approval from DEA headquarters in Springfield, Virginia and

obtain a “DEA Call Control/Call Number” and “DEA Case Number”. [See Taxpayer Exhibit 2-6

– 2-7; Testimony of Mr. Chavez].

24. Having obtained the necessary pre-approvals, “DEA Call Control/Call Number”

and “DEA Case Number,” the local DEA agent or authorized representative will contact

Taxpayer and request its dispatch to a specific location. [Testimony of Mr. Chavez].

25. In response to a request for dispatch, Taxpayer assembles its response team and

proceeds to the removal site with all necessary personnel and equipment required to safely

handle and remove any hazardous materials from the site. [Testimony of Mr. Chavez].

26. Although Taxpayer occasionally responds to locations outside of New Mexico,

the majority of the sites to which it responds are situated within New Mexico. [Testimony of Mr.

Chavez].

1
An authorized representative of the DEA may include a local law enforcement official. [Testimony of Mr.
Chavez].

In the Matter of the Protest of Advanced Environmental Solutions, Inc.
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27. Upon arrival at a removal site, Taxpayer will meet the local DEA agent or other

authorized representative who provides all necessary information, including the required “DEA

Call Control Number” and “DEA Case Number.” [See Taxpayer Exhibit 2-6 – 2-7; Testimony of

Mr. Chavez].

28. In standard conditions, hazardous materials will have already been relocated to an

exterior area and placed on a layer of protective sheeting to guard the ground from seepage or

spills. From that area, Taxpayer’s team proceeds with identification, packaging, labeling, and

removal of the hazard materials. [Testimony of Mr. Chavez].

29. Within 5 days of removing the hazardous materials, Taxpayer prepares cost

estimates, a manifest, lab-pack list, and receipt-of-service documents which are then submitted to

DEA headquarters, which retains the documents for its records pending final billing which will

occur after Taxpayer receives and tenders a Certificate of Disposal to DEA. [See Taxpayer Ex. 2-

14; 2-16; Testimony of Mr. Chavez].

30. Within 10 days of removing the hazardous materials, Taxpayer delivers or ships

the materials to a second, unrelated facility, for disposal. The disposal facility will thereafter

store the materials until their disposal is complete, at which time it generates a Certificate of

Disposal. [Testimony of Mr. Chavez].

31. Taxpayer does not engage in the direct disposal of hazardous materials. Ultimate

disposal of hazardous materials occurs exclusively out-of-state, by third-parties, since there are

no certified disposal facilities operating within New Mexico. [Testimony of Mr. Chavez].

In the Matter of the Protest of Advanced Environmental Solutions, Inc.
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32. At least one entity in New Mexico has issued Certificates of Destruction 2 which

DEA has subsequently found acceptable, although that entity does not directly engage in the

disposal of hazardous materials. [See Department Exs. E-023; E-034; E-046; E-072; E-098; E-

124; Testimony of Mr. Chavez].

33. After receiving a Certificate of Disposal, the DEA generates a purchase order

which is provided to Taxpayer, which thereafter authorizes its submission of a final invoice for

payment, but only after Taxpayer tenders a Certificate of Disposal. [See Taxpayer Exhibit 2-14;

2-16; Testimony of Mr. Chavez].

34. Upon receipt of the Certificate of Disposal and purchase order, Taxpayer prepares

a final invoice and submits it to DEA headquarters in Springfield, Virginia for payment. [See

Taxpayer Exhibit 2-2 – 2-4; 2-8; Testimony of Mr. Chavez].

35. DEA will thereafter pay the invoice within 10 days. Taxpayer receives payments

electronically with indication that the source of the funds was the Treasury Department of the

United States. [See Taxpayer Ex. 2-5 (line item October 31, 2014); Testimony of Mr. Chavez].

36. Taxpayer Exhibit 1 represents the sum of Taxpayer’s receipts paid under contract

with the DEA from March 12, 2013 to June 9, 2015. The sum of receipts contained in Taxpayer

Exhibit 1 is $204,463.20. [Testimony of Mr. Chavez; See Taxpayer Ex. 1].

37. The Department reviewed Taxpayer Exhibit 1 and determined that it included

receipts derived from Taxpayer’s response to a location in Ignacio, Colorado which it did not

perceive as taxable. Therefore, the correct amount of taxable receipts should be the difference

between the total as indicated on Taxpayer Exhibit 1 and the receipts derived from Taxpayer’s

2
Although perhaps analogous, the New Mexico entity entitles its document “Certificate of Destruction” while the
out-of-state entities, whose documents also appear in the record, entitle their documents “Certificate of Disposal”.
Mr. Chavez did not ascribe any significance to the difference in titles.

In the Matter of the Protest of Advanced Environmental Solutions, Inc.
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response to an address in Ignacio, Colorado, in the amount of $6,492.65. [Testimony of Ms.

Bernardo; See Department Exhibit A-020 (line item dated June 4, 2014)].

38. The parties agreed that the taxable gross receipts at issue were $197,970.55

calculated by subtracting $6,492.65 (Dept. Ex. A-020) from $204,463.20 (Taxpayer Ex. 1).

39. Taxpayer Exhibit 2 represents a sample standard transaction between Taxpayer

and the DEA for hazardous material removal services. [See Taxpayer Ex. 2; Testimony of Mr.

Chavez].

40. The standard DEA contract specifies that it is for “hazardous waste cleanup and

disposal services” and requires Taxpayer to respond to a specific “Authorized Removal Site

Address.” [See Taxpayer Ex. 2-6].

41. The standard DEA contract requires that “[a]ll services shall comply with

applicable Federal, state, and local laws and regulations.” [See Taxpayer Ex. 2-6, Para. 3].

42. Amounts billed to the DEA do not include any sum designated for payment of

tax. [See Taxpayer Ex, 2-2 – 2-3].

43. Taxpayer’s updated liability was $64,872.66 in gross receipts tax, $13,026.01 in

gross receipts tax penalty, and $10,095.93 in gross receipts tax interest for a total amount due of

$87,994.60. [See Department Ex. F (updated liability filed on September 11, 2018)].

DISCUSSION

The primary issue in this protest is whether services Taxpayer provides under contract

with the DEA are performed in New Mexico, thereby incurring an obligation to pay gross

receipts tax. If so, then the secondary issue in this protest is whether Taxpayer might

nevertheless qualify for an applicable exemption or deduction, particularly NMSA 1978, Section

7-9-57 which provides a deduction for certain services sold to out-of-state buyers.
In the Matter of the Protest of Advanced Environmental Solutions, Inc.
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Presumption of Correctness and Burden of Proof.

NMSA 1978, Section 7-1-17 (C) (2007) provides that the assessment from which this

protest arose is presumed correct, and the burden is on Taxpayer to overcome the presumption.

See Archuleta v. O’Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428, 504 P.2d 638. Unless

otherwise specified, for the purposes of the Tax Administration Act, “tax” is defined to include

interest and civil penalty. See NMSA 1978, Section 7-1-3 (X) (2013). Under Regulation 3.1.6.13

NMAC, the presumption of correctness under Section 7-1-17 (C) extends to the Department’s

assessment of penalty and interest. See Chevron U.S.A., Inc. v. State ex rel. Dep’t of Taxation &

Revenue, 2006-NMCA-50, ¶16, 139 N.M. 498, 503, 134 P.3d 785, 791 (agency regulations

interpreting a statute are presumed proper and are to be given substantial weight).

Accordingly, Taxpayer carries the burden of presenting countervailing evidence or legal

argument to show that it is entitled to an abatement of the assessment. See N.M. Taxation &

Revenue Dep’t v. Casias Trucking, 2014-NMCA-099, ¶8, 336 P.3d 436. “Unsubstantiated

statements that the assessment is incorrect cannot overcome the presumption of correctness.” See

MPC Ltd. v. N.M. Taxation & Revenue Dep’t, 2003-NMCA-021, ¶13, 133 N.M. 217, 62 P.3d

308; See also Regulation 3.1.6.12 NMAC. If a taxpayer presents sufficient evidence to rebut the

presumption, then the burden shifts to the Department to re-establish the correctness of the

assessment. See MPC, 2003-NMCA-021, ¶13.

Gross Receipts Tax.

For the privilege of engaging in business in New Mexico, the Gross Receipts and

Compensating Tax Act imposes a gross receipts tax on the receipts of any person engaged in

business within its boundaries. See NMSA 1978, Section 7-9-4 (2017). The Gross Receipts and

Compensating Tax Act establishes a presumption that all receipts of a person engaged in business
In the Matter of the Protest of Advanced Environmental Solutions, Inc.
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in New Mexico are taxable. See NMSA 1978, Section 7-9-5 (2002). The term “engaging in

business” is defined as “carrying on or causing to be carried on any activity with the purpose of

direct or indirect benefit.” See NMSA 1978, Section 7-9-3.3 (2003). The term “gross receipts” is

defined at NMSA 1978, Section 7-9-3.5 (A) (1) (2007) to mean:

the total amount of money or the value of other consideration
received from selling property in New Mexico, from leasing or
licensing property employed in New Mexico, from granting a right to
use a franchise employed in New Mexico, from selling services
performed outside New Mexico, the product of which is initially
used in New Mexico, or from performing services in New Mexico.

(Emphasis Added)

The term “service” is defined to mean “all activities engaged in for other persons for a

consideration, which activities involve predominantly the performance of a service as

distinguished from selling or leasing property.” See NMSA 1978, Section 7-9-3 (M).

Despite the presumption that all receipts of a person engaged in business are taxable, a

taxpayer may avail itself of any number of applicable exemptions or deductions. If a taxpayer

asserts entitlement to an exemption or deduction, then the burden rests with the taxpayer to prove

its entitlement. See Pub. Serv. Co. v. N.M. Taxation & Revenue Dep’t, 2007-NMCA-050, ¶32,

141 N.M. 520, 157 P.3d 85. See also Till v. Jones, 1972-NMCA-046, 83 N.M. 743, 497 P.2d

745. “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.” See Sec. Escrow Corp. v. State Taxation & Revenue Dep’t, 1988-NMCA-068, ¶8, 107

N.M. 540, 760 P.2d 1306. See also Wing Pawn Shop v. Taxation & Revenue Dep’t, 1991-

In the Matter of the Protest of Advanced Environmental Solutions, Inc.
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NMCA-024, ¶16, 111 N.M. 735, 809 P.2d 649. See also Chavez v. Comm’r of Revenue, 1970-

NMCA-116, ¶7, 82 N.M. 97, 476 P.2d 67.

Whether Taxpayers’ Receipts are Excluded from Taxation.

The material facts at issue in this case are mostly undisputed. Taxpayer generally

dispatches to sites at the request of the DEA where it is then responsible for identifying,

packaging, transporting, and managing for the disposal of hazardous materials, such as those

commonly associated with the illicit manufacture of controlled or banned substances.

Taxpayer proposes that the services it provides are not taxable in New Mexico because

the most critical component of the service, the ultimate disposal of hazardous materials, occurs

out-of-state, and because the DEA, as the entity procuring the services, is similarly situated out-

of-state. The Hearing Officer is unpersuaded.

The first issue is whether Taxpayer performs services in New Mexico pursuant to Section

7-9-3.5 (A) (1). As a practical matter, the Hearing Officer observed that Taxpayer is never

required to travel beyond the boundaries of this state in order to sell its services. It derives the

entire benefit of engaging in business in this state, without ever leaving the state. It responds to

sites within this state, collects and removes hazardous materials from those sites, and

subsequently stores those materials locally for short durations of time until it is able to ship them

out-of-state for final disposal by third-party disposal services. On other occasions, it might

transport hazardous materials from its local facility to another local provider which then arranges

for destruction of the materials. These circumstances weigh heavily in favor of taxability.

The Hearing Officer also found the underlying purpose of the Taxpayer-DEA contracts to

be enlightening. They provide that Taxpayer’s primary objective is the removal of hazardous

materials from sites within New Mexico, in which Taxpayer is required to adhere to state and
In the Matter of the Protest of Advanced Environmental Solutions, Inc.
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local laws and regulations in the performance of the services. The inherent purpose of the

contract, is promoting the health and safety of local law enforcement, the general public, and the

protection of the environment, in New Mexico.

However, Taxpayer suggests that because the final act of disposal occurs out of state, its

services should not be taxable in New Mexico. Although final disposal of hazardous materials

may be in furtherance of Taxpayer’s objective, that is not necessarily its predominant objective,

but merely one of several components comprising the final product of the services it provides.

Although completion of a contract and subsequent payment for services cannot occur

without a Certificate of Disposal, which originate predominantly from two out-of-state hazardous

materials disposal services, that may be more of an inconvenience than compelling evidence of

out-of-state services. Mr. Chavez testified that hazardous waste is shipped to Utah or Texas

because there are not any hazardous waste disposal services available in New Mexico.

However, at least one entity in New Mexico has issued Certificates of Destruction which

DEA has subsequently found acceptable. Although Mr. Chavez clarified that that entity was not

engaged in the business of directly disposing hazardous materials, it was authorized to store and

transport materials to their place of ultimate disposal, and the evidence suggested that it was also

authorized to issue Certificates of Destruction in satisfaction of Taxpayer’s contractual

obligation to the DEA. This would signify that the DEA was not necessarily concerned with the

location of where the disposal occurred, so long as it occurred, and Taxpayer was not required to

ship its materials out-of-state in order to satisfy that contractual obligation to the DEA.

For these reasons, the Hearing Officer was persuaded that the services under the facts of

this protest were performed in New Mexico, and are taxable under NMSA 1978, Section 7-9-3.5

(A) (1) (2007).
In the Matter of the Protest of Advanced Environmental Solutions, Inc.
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Deduction for Certain Services to an Out-of-State Buyer.

Having determined that Taxpayer’s receipts are generated from services performed in New

Mexico, the next inquiry is whether Taxpayer is entitled to any exemptions or deductions. It

specifically claimed applicability of NMSA 1978, Section 7-9-57 (2000) which provides as follows,

in relevant part:

7-9-57. Deduction; gross receipts tax; sale of certain services to
an out-of-state buyer.

A. Receipts from performing a service may be deducted from gross
receipts if the sale of the service is made to an out-of-state buyer
who delivers to the seller either an appropriate nontaxable
transaction certificate or other evidence acceptable to the secretary
unless the buyer of the service or any of the buyer’s employees or
agents makes initial use of the product of the service in New
Mexico or takes delivery of the product of the service in New
Mexico.

(Emphases Added)

The New Mexico Supreme Court has stated that Section 7-9-57 “provides New Mexico

businesses with a deduction from the gross receipts tax for services provided to out-of-state

buyers. Businesses are not eligible for the deduction, however, if the out-of-state buyer either

makes initial use or takes delivery of the ‘product of the service’ in New Mexico.” See TPL, Inc.

v. N.M. Taxation & Revenue Dep’t, 2003-NMSC-007, ¶1, 133 N.M. 447, 64 P.3d 474.

(Emphasis Added).

The Hearing Officer agrees that the sale of the service was made to the DEA which both

authorized the expenditure for services and subsequent payment from its headquarters in

Virginia, albeit upon the request of a local agent or authorized representative. However, the

dispositive issue in this protest turns on whether initial use, or delivery of the product of the

service, was in New Mexico.
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Therefore, the next inquiry concentrates on initial use of the product of Taxpayer’s

service, and the location where that product was delivered. If the initial use of the product occurs

in New Mexico, or if delivery of the product of the service occurs in New Mexico, then

Taxpayer is not entitled to the deduction regardless of where the buyer may be located. The New

Mexico Supreme Court has recognized that “the ‘product’ [of a service] is the ‘direct result’ or

‘consequence’ flowing from the service.” See TPL, Inc., 2003-NMSC-007, ¶12 citing TPL, Inc.

v. N.M. Taxation & Revenue Dep’t, 2000-NMCA-083, ¶13, 129 N.M. 539, 10 P.3d 863. As in

TPL, the Hearing Officer will ascertain the “product of the service” by identifying benefit the

out-of-state buyer received for the consideration paid. See TPL, Inc. 2003-NMSC-007, ¶12 citing

ITT Educ. Servs., Inc. v. Taxation & Revenue Dep’t, 1998-NMCA-078, ¶11, 125 N.M. 244, 959

P.2d 969.

Although Taxpayer accurately states that ultimate disposal of hazardous materials was a

necessary component of the services performed for the DEA, the Hearing Officer does not

perceive disposal as the end product of the service. See e.g. TPL, Inc., 2003-NMSC-007, ¶13.

Instead, it was but one component of the product.

The Hearing Officer was persuaded that the product of the service relevant to this protest

was the removal of hazardous materials from specific sites in New Mexico. If concentrating on

the benefit received for the consideration paid, then the benefit of Taxpayer’s service was not

delivered out-of-state, but delivered on the ground in New Mexico where Taxpayer utilized its

expertise and equipment to safely and responsibly collect and remove hazardous materials. The

principal product of that service was that local law enforcement personnel, including the DEA’s

local agents, were permitted to safely proceed with their activities at that site without the risk of

exposure to hazardous materials. A secondary product of that service also assured that the DEA
In the Matter of the Protest of Advanced Environmental Solutions, Inc.
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could minimize potential harm to the public resulting from exposure to hazardous materials. A

third product of that service would also be to allow the DEA to minimize potential harm to the

environment, such as contamination of air, water, or soil. These are the products of Taxpayer’s

services, all of which benefited people and real property in New Mexico, but perhaps most

significant to this protest, also advanced the DEA’s mission 3. See e.g. TPL, Inc., 2003-NMSC-

007, ¶21-22 (recognizing significance of services performed on real property in contrast to

services performed on mobile, tangible property).

In each instance described above, the product of the service, or the benefit, was initially

used at the moment it was also delivered. In other words, initial use of the product was

practically simultaneous with delivery. The safety of the site increased immediately, and perhaps

dramatically, as Taxpayer packaged and removed each item of hazardous material. This

permitted the DEA and its affiliated agencies to continue their work in a safe environment, as

well as minimize potential harm to the public and the environment.

That is not to say that the DEA in Springfield, Virginia did not also enjoy some benefit

from the product of the service. It most certainly did. However, the benefit to those in Virginia

stemmed directly from the success of its mission in New Mexico.

The Hearing Officer concludes that although the buyer in this protest may have been out-

of-state, the product of Taxpayer’s services was nevertheless initially delivered and used in New

Mexico. For that reason, Taxpayer has not established entitlement to a deduction under Section

7-9-57.

Based on the foregoing, Taxpayer’s protest should be denied.

CONCLUSIONS OF LAW

3
The Hearing Officer took Administrative Notice of the DEA’s mission statement at https://www.dea.gov/mission.

In the Matter of the Protest of Advanced Environmental Solutions, Inc.
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1. Taxpayer filed a timely written protest to the assessment issued under Letter ID

No. L0808261168, and jurisdiction lies over the parties and the subject matter of this protest.

2. A hearing was timely held in accordance with NMSA 1978, Sec. 7-1B-8 (A).

3. Taxpayer’s receipts from performing services in New Mexico are presumed to be

taxable. See NMSA 1978, Section 7-9-3.5 (A) (1); Section 7-9-5.

4. Taxpayer did not establish entitlement to an exemption or deduction from gross

receipts tax. See Pub. Serv. Co. v. N.M. Taxation & Revenue Dep’t, 2007-NMCA-050, ¶32, 141

N.M. 520, 157 P.3d 85. See also Till v. Jones, 1972-NMCA-046, 83 N.M. 743, 497 P.2d 745.

5. Taxpayer is not entitled to a deduction under NMSA 1978, Section 7-9-57.

6. Taxpayer is not entitled to abatement of penalty under NMSA 1978 Section 7-1-69

(2007).

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

DATED: December 3, 2018

Chris Romero
Hearing Officer
Administrative Hearings Office
P.O. Box 6400
Santa Fe, NM 87502

In the Matter of the Protest of Advanced Environmental Solutions, Inc.
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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.

In the Matter of the Protest of Advanced Environmental Solutions, Inc.
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CERTIFICATE OF SERVICE

On December 4, 2018, a copy of the foregoing Decision and Order was submitted to the

parties listed below in the following manner:

First Class Mail Interagency 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

In the Matter of the Protest of Advanced Environmental Solutions, Inc.
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