Could an IFTA carrier replace destroyed 2015 fuel records with a reconstructed four-month sample from 2018 and avoid the default 4.0 MPG assessment?

View original ruling (PDF)

Plain-English summary

Distribution Management Corporation could not replace destroyed 2015 IFTA fuel records with an incomplete 2018 comparison. Because the carrier failed to retain records from which true fuel-tax liability could be determined, the Department properly used IFTA's default 4.0 miles per gallon.

Distribution Management, doing business as DMC Logistics, provided pickup and delivery service across the Southwest. In 2015 its only self-operated interstate route using trucks over 26,000 pounds was a Phoenix–El Paso circuit carrying pharmaceuticals in one direction and returns or empty totes in the other.

The Department issued two September 2018 assessments:

• an International Registration Plan fleet-audit assessment of $952.63, which the Department fully abated before the hearing; and
• an IFTA assessment of $36,110.92, consisting of $31,075.13 of tax, $200 of penalty, and $4,835.79 of interest for the four quarters of 2015.

Only the IFTA assessment remained disputed.

The carrier destroyed the required raw data

The company's internal policy retained fuel-purchase records for only 90 days. IFTA required supporting records for four years after the report filing date. By the 2018 audit, the 2015 fuel receipts had been destroyed.

The remaining 2015 driver logs contained no fuel-purchase information. The company had GPS tracking, but it calculated IFTA mileage using MapQuest rather than the logs or GPS. Procurement-card statements given to the auditor showed dollar amounts but not gallonage, fuel type, or the truck receiving the fuel.

The Department accepted the carrier's reported 2015 miles. Without adequate fuel records, however, it could not verify gallons or true MPG and used the 4.0 MPG default authorized by the applicable IFTA Audit Manual.

The 2018 “test period” was not comparable proof

The company submitted fuel receipts and summaries for approximately September through December 2018, arguing that the same Phoenix–El Paso circuit ran five nights per week with the same mileage and fuel economy as 2015.

The evidence did not establish those constants. Reported 2015 fleet miles dropped from 158,592 in each of the second and third quarters to 56,320 in the fourth quarter, an unexplained 102,272-mile difference. Trucks also traveled within Phoenix and El Paso for maintenance and other reasons, so trip distance could vary.

The 2018 package had further defects:

• it did not supply 2015 statements for comparison;
• it lacked beginning and ending odometers, unit numbers, and jurisdiction-by-jurisdiction vehicle mileage;
• supporting statements and receipts were missing for the Phoenix route;
• one El Paso monthly summary reported 13 transactions when the statement showed 40; and
• it averaged individual trip MPG values instead of dividing total miles by total gallons.

The carrier was allowed to submit a post-hearing summary of its surviving 2015 driver logs but never did so.

The AHO recognized that IFTA lets an auditor consider prior experience, similar operations, industry averages, distributor records, and other information. A different year's complete records might therefore have some relevance. But this particular reconstruction was incomplete, inconsistent, unsupported by the audit-year data, and entitled to effectively no evidentiary weight.

Penalty and interest also remained

Both New Mexico law and IFTA presumed the assessment correct, placing the burden on the carrier to prove it erroneous or excessive. The inadequate records and unreliable reconstruction did not meet that burden.

IFTA allowed penalty for underpaid tax and required the base jurisdiction to assess interest for itself and the other member jurisdictions. The carrier showed no good cause for penalty relief.

Result: protest DENIED. The order lists $31,075.13 of tax, $200 of penalty, and $4,835.79 of interest through October 4, 2019, less an $84.91 offset, and then states total outstanding liability of $37,709.38, with interest continuing at member-jurisdiction rates.

Arithmetic note: the listed components total $36,110.92 before the $84.91 offset, so they do not reconcile with the order's stated $37,709.38 balance. This page preserves the decision's figures without guessing which figure was intended.

What this means for you

IFTA retention overrides a shorter company policy

Keep supporting distance and fuel documents for at least the required four-year period. A 90-day destruction schedule left this carrier unable to defend its returns.

Preserve vehicle-level raw data

Maintain fuel date, location, quantity, type, price, vehicle identity, odometer or distance records, and jurisdictional mileage—not only card totals or route estimates.

GPS data is useful only if retained and produced

The company tracked pharmaceutical trucks electronically but did not use that information to substantiate the audit-year reporting.

A substitute sample must be truly comparable

If original records are missing, later-period evidence should document both periods and every relevant variable. General testimony that a route stayed the same will not overcome contradictory mileage data.

Default MPG can create a large assessment

When true liability cannot be determined from records, IFTA's audit rules may permit a low default fuel economy that materially increases taxable gallons.

Common questions

Q: Were the reported 2015 miles rejected?
A: No. The Department accepted the miles. The missing and inadequate fuel records prevented verification of gallons and MPG.

Q: What MPG had the carrier reported?
A: Its 2015 IFTA reports consistently showed 7.77 MPG. The Department applied 4.0 MPG because the supporting records were inadequate.

Q: Why didn't 2018 records prove 2015 fuel use?
A: The carrier supplied no reliable audit-year comparison, omitted necessary vehicle and mileage data, lacked support for one route, missed transactions, and used a flawed average.

Q: What happened to the IRP assessment?
A: The Department fully abated the separate $952.63 IRP assessment before the merits hearing.

Q: What balance did the order uphold?
A: It stated $37,709.38 after an $84.91 offset, but the separately listed tax, penalty, and interest do not add to that amount.

Citations and references

Statutes, regulations, and IFTA provisions:

• NMSA 1978, §§ 7-1-10(A), 7-1-17(C), and 7-1-3(X) — adequate records, assessment presumption, penalty, and interest
• NMSA 1978, § 9-11-6.2(G) — presumption for Department instructions
• Regulations 3.1.5.8(A), 3.1.6.12(A), and 3.1.6.13 NMAC — record sufficiency and evidence needed to rebut an assessment
• IFTA Articles of Agreement, Article XII, R1210 through R1230 — inadequate records, assessment, license consequences, penalty, and interest
• IFTA Procedures Manual, P510 through P570 — required distance and fuel records, summaries, availability, and retention
• IFTA Audit Manual, A550.100 — 4.0 MPG default absent substantial contrary evidence

Cases:

• New Mexico Taxation and Revenue Department v. Casias Trucking, 2014-NMCA-099 — credibility and countervailing evidence
• MPC Ltd. v. New Mexico Taxation and Revenue Department, 2003-NMCA-021 — unsupported statements do not overcome an assessment
• Archuleta v. O'Cheskey, 1972-NMCA-165 — taxpayer's duty to provide books and records
• GEA Integrated Cooling Technologies v. State Taxation and Revenue Department, 2012-NMCA-010 — penalty law in effect at assessment

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Distribution Management Corporation Inc
• Decision PDF: D&O 20-03

Original ruling text

1 STATE OF NEW MEXICO
2 ADMINISTRATIVE HEARINGS OFFICE
3 TAX ADMINISTRATION ACT

4 IN THE MATTER OF THE PROTEST OF
5 DISTRIBUTION MANAGEMENT CORPORATION INC.
6 TO ASSESSMENT ISSUED UNDER
7 LETTER ID NO. L1293029552
8 and Case Numbers 18.12-328A and 18.12-330A
9 LETTER ID NO. L0219287728 Decision and Order No. 20-03
10 v.
11 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

12 DECISION AND ORDER

13 On October 3, 2019, Hearing Officer Ignacio V. Gallegos, Esq., conducted a merits

14 administrative hearing in the matter of the tax protest of Distribution Management Corporation

15 Inc. (Taxpayer) pursuant to the Tax Administration Act and the Administrative Hearings Office

16 Act. At the hearing, Attorney Wayne G. Chew appeared representing Taxpayer. Mr. Stephen

17 Griego, president, appeared in person as the Taxpayer’s primary witness, and witnesses Ricky

18 Lee Shriver and Robert Esparza appeared by telephone for Taxpayer. Staff Attorney Peter Breen

19 appeared, representing the opposing party in the protest, the Taxation and Revenue Department

20 (Department). Department protest auditor Mary Griego appeared as a witness for the

21 Department. Department Exhibits were admitted into the record without objection. Taxpayer

22 Exhibit 1 was admitted over the Department’s relevancy objection. Taxpayer also offered and

23 retracted its offer of a box of driver records from 2015, which the Department objected to as

24 being irrelevant and burdensome to sort. Taxpayer offered to prepare and present a summary of

25 the contents of the box of exhibits, and the Hearing Officer allowed an additional two weeks’

26 time to do so. Taxpayer never provided the 2015 driver records summary.

27 In quick summary, this protest involves Taxpayer’s International Fuel Tax Agreement

28 (IFTA) returns and the adequacy of records supplied upon audit and thereafter. Taxpayers

In the Matter of the Protest of Distribution Management Corporation, Inc., page 1 of 32.
1 protested the imposition of fuel tax, penalty, and interest in this case, arguing that, although the

2 required records were destroyed under the company’s internal record-keeping policy, the

3 Taxpayer was able to replicate the fuel tax miles per gallon records using a different year, to

4 corroborate its 2015 reporting, and that the Department’s default calculation of tax was

5 unfounded. Ultimately, after making findings of fact and discussing the issue in more detail

6 throughout this decision, the Hearing Officer finds that Taxpayers’ protest must be denied. IT IS

7 DECIDED AND ORDERED AS FOLLOWS:

8 FINDINGS OF FACT

9 Procedural Findings

10 1. On September 25, 2018, under Letter Id. No. L1293029552, the Department

11 issued a Notice of Assessment of Taxes and Demand for Payment to Taxpayer, indicating that

12 Taxpayer owed $952.63 for an International Registration Plan (IRP) Fleet Audit assessment for

13 tax period of April 30, 2017. [Administrative File].

14 2. On October 11, 2018, Taxpayer protested the IRP assessment alleging the audit

15 was erroneous. [Administrative File].

16 3. On November 7, 2019, under Letter Id. No. L1783861424, the Department

17 acknowledged receipt of Taxpayer’s IRP protest. [Administrative File].

18 4. On November 13, 2018, Taxpayer filed a Qualified Representative Information

19 authorization, allowing Attorney Wayne G. Chew to receive all state tax information.

20 [Administrative File].

In the Matter of the Protest of Distribution Management Corporation, Inc., page 2 of 32.
1 5. On December 20, 2018, the Department submitted a Hearing Request to the

2 Administrative Hearings Office, requesting a hearing on the protest under the IRP.

3 [Administrative File].

4 6. On December 21, 2018, the Administrative Hearings Office issued a Notice of

5 Telephonic Scheduling Hearing, setting the IRP matter for a telephonic hearing on January 9,

6 2019. [Administrative File].

7 7. The undersigned Administrative Hearing Officer Ignacio V. Gallegos conducted

8 the telephonic scheduling conference on January 9, 2019 with the parties present. Neither the

9 Department nor the Taxpayer objected that conducting the scheduling hearing satisfied the 90-

10 day hearing requirements of Section 7-1B-8 (A) (2015). The Hearing Officer preserved a

11 recording of the hearing. [Administrative File].

12 8. On September 25, 2018, under Letter Id. No. L0219287728, the Department

13 issued a Notice of Assessment of Taxes and Demand for Payment to Taxpayer, indicating that

14 Taxpayer owed tax in the amount of $31,075.13, penalty of $200.00, and interest of $4,835.79,

15 for a total assessment of $36,110.92 for an International Fuel Tax Agreement (IFTA) Carrier

16 Audit assessment for tax periods of March 31, 2015 through December 31, 2015.

17 [Administrative File].

18 9. On October 11, 2018, Taxpayer protested the IFTA assessment alleging the audit

19 was erroneous. [Administrative File].

20 10. On November 7, 2019, under Letter Id. No. L0710119600, the Department

21 acknowledged receipt of Taxpayer’s IFTA protest. [Administrative File].

In the Matter of the Protest of Distribution Management Corporation, Inc., page 3 of 32.
1 11. On November 13, 2018, Taxpayer filed a Qualified Representative Information

2 authorization, allowing Attorney Wayne G. Chew to receive all state tax information.

3 [Administrative File].

4 12. On December 21, 2018, the Department submitted a Hearing Request to the

5 Administrative Hearings Office, requesting a hearing on the protest under the International Fuel

6 Tax Agreement. [Administrative File].

7 13. On December 21, 2018, the Administrative Hearings Office issued a Notice of

8 Telephonic Scheduling Hearing, setting the IFTA matter for a telephonic hearing on January 9,

9 2019. [Administrative File].

10 14. The undersigned Administrative Hearing Officer Ignacio V. Gallegos conducted

11 the telephonic scheduling conference on January 9, 2019 with the parties present. Neither the

12 Department nor the Taxpayer objected that conducting the scheduling hearing satisfied the 90-

13 day hearing requirements of Section 7-1B-8 (A) (2015). The Hearing Officer preserved a

14 recording of the hearing. [Administrative File].

15 15. On January 10, 2019, the Administrative Hearings Office issued an Order

16 Consolidating Cases and Notice of Second Telephonic Scheduling Hearing, giving the parties

17 notice that a second scheduling hearing concerning the consolidated IFTA and IRP matters

18 would take place on February 20, 2019. [Administrative File].

19 16. The undersigned Administrative Hearing Officer Ignacio V. Gallegos conducted

20 the second telephonic scheduling conference on February 20, 2019 with the parties present. The

21 Hearing Officer preserved a recording of the hearing. [Administrative File].

In the Matter of the Protest of Distribution Management Corporation, Inc., page 4 of 32.
1 17. On February 26, 2019, the Administrative Hearings Office issued a Notice of

2 Third Telephonic Scheduling Hearing, giving the parties notice that a third scheduling hearing

3 would take place on April 11, 2019. [Administrative File].

4 18. On March 29, 2019, Taxpayer filed a Notice of Non-Availability. [Administrative

5 File].

6 19. On March 29, 2019, Taxpayer filed a Motion to Vacate and Reset Administrative

7 Hearing in Albuquerque, under the misapprehension that a merits hearing was scheduled for May

8 7, 2019. [Administrative File].

9 20. Via email, the Department, through Staff Attorney Kenneth Fladager, agreed to a

10 continuance of the hearing, but objected to holding a hearing in Albuquerque. [Administrative

11 File].

12 21. The undersigned Administrative Hearing Officer Ignacio V. Gallegos conducted

13 the third telephonic scheduling conference on April 11, 2019 with the parties present. The

14 Hearing Officer preserved a recording of the hearing. [Administrative File].

15 22. On April 17, 2019, the Administrative Hearings Office issued a Scheduling Order

16 and Notice of Administrative Hearing, setting discovery and motions deadlines as well as

17 providing notice to the parties that the merits hearing would take place on October 3, 2019 in

18 Santa Fe, New Mexico. [Administrative File].

19 23. On October 2, 2019, Taxpayer filed its Affidavit of Stephen A. Griego, including

20 unmarked exhibits of (1) distances between El Paso, Texas and San Simon, Arizona, and

21 between San Simon, Arizona and Phoenix, Arizona; (2) a summary of receipts from the Phoenix

22 route procurement card statement between October 26, 2018 and December 21, 2018 for gallons

23 of fuel purchased in 2018; and (3) a summary of receipts from the El Paso route procurement

In the Matter of the Protest of Distribution Management Corporation, Inc., page 5 of 32.
1 card statement between August 26, 2018 and December 21, 2018 for gallons of fuel purchased in

2 2018. [Administrative File].

3 24. The undersigned Administrative Hearing Officer Ignacio V. Gallegos conducted

4 the merits hearing on October 3, 2019 with the parties present at the Administrative Hearings

5 Office in the Wendell Chino Building in Santa Fe, New Mexico. The Hearing Officer preserved

6 a recording of the hearing in two parts: Hearing Record 1 and Hearing Record 2 (hereinafter

7 “H.R.1” and “H.R.2”). [Administrative File].

8 25. On October 4, 2019, the Department submitted a Notice of Late-Filed Exhibit,

9 TRD substitute exhibit C-001. [Administrative File].

10 26. On October 15, 2019, the Taxpayer submitted a Notice of Filing Late-Filed

11 Supplemental Exhibit. The filing did not contain any exhibits but did contain additional

12 argument. [Administrative File].

13 27. On October 17, 2019, the Department submitted a Summary of the Case,

14 containing additional argument. [Administrative File].

15 28. On October18, 2019, the Taxpayer submitted its Surreply to Department’s

16 Summary of the Case, containing additional argument. [Administrative File].

17 Substantive Findings

18 29. The Department fully abated the IRP Audit assessment issued under Letter Id. No.

19 L1293029552 at some point before the merits hearing, although no supporting document

20 evidencing the same was provided by the parties. [Statement of Department Attorney Peter

21 Breen, H.R.1 at 6:30-7:30; Direct examination of Mary Griego, H.R.2 11:40-12:05].

In the Matter of the Protest of Distribution Management Corporation, Inc., page 6 of 32.
1 30. Taxpayer Distribution Management Corporation, Inc. is a New Mexico

2 Corporation. The Taxpayer does business as DMC Logistics, LLC. [Affidavit of Stephen A.

3 Griego, Direct examination of Stephen A. Griego, H.R.1 29:30-30:05].

4 31. Stephen A. Griego is the president and chief executive officer for Taxpayer and

5 has operated the business for approximately 34 years. Mr. Griego has degrees from the

6 University of New Mexico Anderson School of Business and the University of Wisconsin.

7 [Direct examination of Stephen A. Griego, H.R.1 29:10-30:15].

8 32. Taxpayer provides pickup and delivery services throughout the southwest,

9 primarily in Texas, New Mexico, Arizona, Utah and Nevada. [Direct examination of Stephen A.

10 Griego, H.R.1 30:30-31:30].

11 33. Taxpayer’s only 2015 self-operated interstate route using vehicles of a weight

12 greater than 26,000 pounds was from Phoenix to El Paso, with a return trip from El Paso to

13 Phoenix (hereinafter the “Phoenix/El Paso circuit route”). The Taxpayer owned a total of six

14 Peterbilt straight trucks for this route, and only two drove the route on any given workday.

15 [Direct examination of Stephen A. Griego, H.R.1 56:40-59:55, H.R.1 1:04:20-1:07:10].

16 34. The Phoenix/El Paso circuit route consisted of two trucks and two drivers

17 travelling on the same night, leaving their respective terminals in Phoenix and El Paso. The

18 circuit route consisted of two truck routes – the Phoenix route and the El Paso route. The

19 Phoenix route consisted of a truck leaving the hub in Phoenix loaded with a cargo of

20 pharmaceuticals from a warehouse in Phoenix (Tolleson) travelling to the El Paso hub where

21 they were unloaded and the cargo was separated and directed to the end users (hospitals and

22 pharmacies). The truck leaving El Paso was not loaded with cargo, except for returns and empty

23 totes, but was returning to the Phoenix hub for reloading. Over one night, one loaded truck

In the Matter of the Protest of Distribution Management Corporation, Inc., page 7 of 32.
1 would leave from Phoenix and stop for fuel in San Simon, Arizona. On the same night, an

2 empty truck would leave El Paso and stop for fuel in San Simon, Arizona. In San Simon, the

3 two drivers met and traded trucks. The driver from Phoenix would then drive the empty truck to

4 Phoenix and the driver from El Paso would drive the loaded truck to El Paso. [Direct

5 examination of Stephen A. Griego, H.R.1 42:30-45:45; Direct examination of Ricky Lee Shriver,

6 H.R.1 2:17:50-2:22:00; Direct examination of Robert Esparza, H.R.1 2:26:00-2:28:31;

7 Department’s Exhibit A-2].

8 35. Taxpayer purported that the total mileage for the Phoenix/El Paso circuit route did

9 not change between 2015 and 2018 yet provided no documentary support for this claim. The

10 Department accepted the reported miles of 2015 as correct. [Direct examination of Stephen A.

11 Griego, H.R.1 59:45-1:02:55; Direct examination of Robert Esparza, H.R.1 2:28:00-2:28:25;

12 Direct examination of Mary Griego, H.R.2 12:25-14:55; Department Exhibit A-13].

13 36. The Taxpayer purported that Phoenix/El Paso circuit route ran consistently five

14 times per week both in 2015 and 2018 yet provided no documentary support for this claim.

15 [Direct examination of Stephen A. Griego, H.R.1 59:45-1:02:55; Direct examination of Ricky

16 Lee Shriver, H.R.1 2:17:50-2:20:10; Direct examination of Robert Esparza, H.R.1 2:26:15-

17 2:28:30].

18 37. The audit report workpapers indicate that the circuit route was not so consistent as

19 purported. The IFTA reported miles in all jurisdictions during the first quarter of 2015 was

20 156,114. The reported miles in all jurisdictions during the second quarter of 2015 was 158,592.

21 The reported miles during the third quarter of 2015 was 158,592. The reported miles in all

22 jurisdictions during the fourth quarter of 2015 was 56,320. The fourth quarter of 2015 had a

23 102,272 -mile discrepancy from the previous two quarters that remained unexplained, showing

In the Matter of the Protest of Distribution Management Corporation, Inc., page 8 of 32.
1 inconsistency. There was no document provided to support the claim that 2018 matched 2015,

2 whether through an IFTA report of 2018 or another document that could verify the consistency

3 in variables for mileage and fuel usage. [Exhibit A-13, Exhibit A-14, and Exhibit A-15 (Column

4 A); Exhibit A-16 (IFTA summary statement)].

5 38. Taxpayer destroyed its fuel purchase records for tax year 2015. When the

6 Department audited the Taxpayer’s fuel use under the International Fuel Tax Agreement, the

7 Taxpayer was unable to provide original records of fuel purchases for the time frame under audit.

8 [Direct examination of Stephen A. Griego, H.R.1 45:35-47:00].

9 39. Taxpayer tracks its trucks electronically, especially those containing

10 pharmaceuticals, using a global positioning system (GPS). [Direct examination of Stephen A.

11 Griego, H.R.1 53:30-55:45; Cross examination of Stephen A. Griego, H.R.1 1:44:30-1:45:30].

12 40. The only original physical records that remained from 2015 were driver logs (also

13 referred to as manifests) which contained no fuel purchase records. The 2015 driver logs were

14 purported to contain starting and ending odometer readings, yet no summary of their contents

15 was ever provided to directly compare with the 2018 summary provided in the Taxpayer’s

16 Affidavit. Miles reported for IFTA returns were taken from MapQuest, for the circuit route,

17 rather than as a sum of the driver logs or directly from GPS. [Direct examination of Stephen A.

18 Griego, H.R.1:20:40-1:21:55; H.R.1 2:31:45-2:36:25; Cross examination of Stephen A. Griego,

19 H.R.1 1:41:35-1:44:30; AHO examination of Stephen A. Griego, H.R.1 2:08:55-2:10:20].

20 41. Taxpayer submitted its fuel purchase receipts and its procurement card statements

21 for approximately the same four months subject to audit (September through December) of a

22 different year not the subject of audit (2018) to provide an alternative (or “test period”) to the

23 records the Department requested for the audit period in 2015. The procurement card statements

In the Matter of the Protest of Distribution Management Corporation, Inc., page 9 of 32.
1 submitted covered only the El Paso route (El Paso to San Simon and back to El Paso) and not the

2 Phoenix route (Phoenix to San Simon and back to Phoenix). [Affidavit of Stephen A. Griego;

3 Taxpayer’s Exhibit 1; Direct examination of Stephen A. Griego, H.R.1 1:11:50-1:20:40].

4 42. Taxpayer purported to have reported 2015 miles per gallon (MPG) as 7.0 MPG to

5 be conservative, rounding down, rather than the 7.7 MPG he claimed the trucks ran at using the

6 2018 summary. The miles per gallon (MPG) reported to IFTA were consistently 7.77 miles per

7 gallon in all four quarters of 2015, and the 2018 records summary shows a monthly average of

8 7.76 miles per gallon. [Affidavit of Stephen A. Griego (summary of 2018 fuel usage); Direct

9 examination of Stephen A. Griego, H.R.1 1:15:30-1:20:40, H.R.1 1:23:10-1:24:20; Cross

10 examination of Stephen A. Griego, H.R.1 1:27:50-1:28:30; Department’s Exhibit A-13, A-14, A-

11 15, A-16 (Column C)].

12 43. The procurement cards used by the truck drivers were assigned to the routes for

13 diesel fuel purchases only. There are different procurement cards for the driver leaving from and

14 returning to El Paso, and the driver leaving from and returning to Phoenix. [Department Exhibit

15 B; Taxpayer’s Exhibit 1; Direct Examination of Stephen A. Griego, H.R.1 1:11:40-1:12:30;

16 Cross examination of Stephen A. Griego, H.R.1 1:48:30-1:50:30].

17 44. In 2015 the El Paso route designation on the procurement card statement was

18 ELP406, account ending in 5147, for a time period unrelated to the audit. In 2018 the El Paso

19 route designation on the statement was ELP409, account ending in 2315. [Department exhibit B;

20 Taxpayer exhibit 1-001, 1-019, 1-032, 1-057; Cross examination of Stephen A. Griego, H.R.1

21 1:48:30-1:50:30].

22 45. Once unloaded, the vehicles would travel within the cities of El Paso and

23 Phoenix, for service and maintenance as well as other reasons. The trucks required frequent

In the Matter of the Protest of Distribution Management Corporation, Inc., page 10 of 32.
1 maintenance. There is no mechanic employed at the El Paso hub. [Direct examination of

2 Stephen A. Griego, H.R.1 1:18:55-1:19:15; 1:23:00-1:24:00; Cross examination of Stephen A.

3 Griego, H.R.1 1:43:15-1:43:45; Cross examination of Ricky Lee Shriver, H.R.1 2:22:15-2:23:30;

4 Cross examination of Robert Esparza, H.R.1 2:28:50-2:29:00].

5 46. New Mexico is the IFTA home base jurisdiction of this Taxpayer/Licensee

6 [Direct examination of Mary Griego, H.R.2 4:45-4:55].

7 47. The Department used the most recent IFTA Articles of Agreement, Procedures

8 Manual, and Audit Manual available on the IFTA official website when conducting this audit.

9 These were effective December 1, 2018. The earlier versions were not available on the website.

10 [AHO examination of Mary Griego, H.R.2 33:45-37:15; Re-cross examination of Mary Griego,

11 H.R.2 47:00-47:20; Department Exhibit A].

12 48. The Taxpayer provided procurement card statements with fuel purchase dollar

13 amounts for the timeframe at issue in the audit to the auditor but did not provide gallonage, fuel

14 type, or truck numbers. The Taxpayer did not provide the same procurement card statements as

15 evidence to support its position at the merits hearing. [Direct examination of Mary Griego, H.R.2

16 5:10-5:40; Cross examination of Mary Griego H.R.2 15:20-23:20].

17 49. The Department considered the procurement card statements inadequate to

18 support gallonage, type of fuel, and the identity of the vehicle into which the fuel was placed.

19 [Cross examination of Mary Griego, H.R.2 21:00-23:20].

20 50. The Department applied the 4.0 MPG default miles per gallon rate based on the

21 Taxpayer’s inability to provide adequate fuel records. [Direct examination of Mary Griego,

22 H.R.2 5:35-7:55; Department Exhibit A-7].

23 DISCUSSION

In the Matter of the Protest of Distribution Management Corporation, Inc., page 11 of 32.
1 Taxpayer claims that the quantity of fuel it used in 2015 was comparable to the fuel it

2 used in 2018 and asserted that providing records for 2018 should satisfy the Department for

3 support of its reported fuel used in 2015. Taxpayer seeks to apply the miles per gallon

4 calculation justified by receipts in the last four months of 2018 as a substitute for records to

5 support the miles per gallon it reported in the last four months of 2015. The Taxpayer has

6 offered this alternative method because its internal records retention policy required retention of

7 fuel purchase records for only ninety days, and the records of 2015 fuel purchases had been

8 destroyed by the time of the audit in 2018. The International Fuel Tax Agreement (IFTA), under

9 which the audit was conducted, requires participating carriers to retain supporting documents for

10 four years. Although the Department accepted the reported miles travelled, there remained

11 variables unsupported by Taxpayer’s evidence. The Taxpayer’s witnesses’ testimony, although

12 credible, was at times directly contradicted by documentary evidence, causing the Hearing

13 Officer to hesitate to accept any general statements at face value. When the Taxpayer was given

14 the opportunity to provide a late-filed exhibit to supplement the record by summarizing the 2015

15 trip logs, which were purported to corroborate the testimony that the fuel receipts for 2018

16 matched the variables (gallons purchased and miles travelled within each state) from 2015 that

17 go into the computation of fuel use taxes, Taxpayer failed to take the opportunity. Taxpayer’s

18 approach to support its 2015 reporting, by the comparison to 2018, was both unorthodox and

19 ultimately unconvincing.

20 Under NMSA 1978, Section 7-1-17 (C) (2007) an assessment issued by the Department

21 is presumed correct. Likewise, under IFTA, an assessment against a licensee, issued by a base

22 jurisdiction is presumed correct. See International Fuel Tax Agreement, Art. XII, R1210.300 (as

In the Matter of the Protest of Distribution Management Corporation, Inc., page 12 of 32.
1 amended through July 1, 2000) 1. Consequently, “where the validity of the assessment is

2 questioned, the burden shall be on the licensee to establish by a fair preponderance of evidence

3 that the assessment is erroneous or excessive.” See Id. Likewise, unless otherwise specified, for

4 the purposes of the Tax Administration Act, “tax” is defined to include interest and civil penalty.

5 See NMSA 1978, Section 7-1-3 (X) (2013). Under Regulation 3.1.6.13 NMAC, the presumption

6 of correctness under Section 7-1-17 (C) extends to the Department’s assessment of penalty and

7 interest. See Chevron U.S.A., Inc. v. State ex rel. Dep't of Taxation & Revenue, 2006-NMCA-50,

8 ¶16, 139 N.M. 498, 134 P.3d 785 (agency regulations interpreting a statute are presumed proper and

9 are to be given substantial weight). Accordingly, it is a taxpayer’s burden to present some

10 countervailing evidence or legal argument to show that they are entitled to an abatement, in full

11 or in part, of the assessment issued in the protest. See N.M. Taxation & Revenue Dep't v. Casias

12 Trucking, 2014-NMCA-099, ¶8, 336 P.3d 436. When a taxpayer presents sufficient evidence to

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

1
The IFTA governing documents (Articles of Agreement, Procedures Manual and Audit Manual) are the
substantive legal documents pertinent to the resolution of this dispute and contain the law governing the case. It
should be noted that the Articles of Agreement and Procedures Manual were revised, re-published and made
effective December 1, 2018, less than three months after the assessment was issued on September 25, 2018. The
previous versions were removed from the IFTA clearinghouse official website. See IFTA, Inc. website,
https://iftach.org/manualnew.php (last visited November 22, 2019). Nevertheless, each section and subsection of the
governing documents integrates legislative history in the form of commentary, and only a few subsections actually
took effect on December 1, 2018. See IFTA Articles of Agreement, Art. XXI, R1220; see also, IFTA Procedures
Manual, P1030. Subsections pertinent to this protest, and the remainder of the governing documents were in effect
prior to the issuance of the Department’s assessment, unless so noted. For the sake of consistency and accessibility,
this Decision and Order will cite to the December 1, 2018 publications of the Articles of Agreement and Procedures
Manual, noting effective dates and pertinent differences, when necessary. While the changes are minor, the proper
substantive record-keeping requirements applied here are those in effect in 2015. The penalty and interest provisions
are those in effect at the time of the assessment. See GEA Integrated Cooling Tech. v. State Taxation and Revenue
Dep’t, 2012-NMCA-010, ¶ 11, 268 P.3d 48 (recognizing that “the law in place at the time of [the] assessment would
govern the penalty to be imposed”); Bradbury & Stamm Constr. Co. v. Bureau of Revenue, 1962-NMSC-078, ¶ 43,
70 N.M. 226, 372 P.2d 808 (interest is computed using the rate in effect at the time the liability accrued, and if the
rate changes, prospectively using the new rate, unless a retroactive effect is clearly apparent). The Audit Manual was
revised, effective July 1, 2017, and the earlier version remains on the IFTA clearinghouse official website. While
the application of one publication over the other publication may affect the analysis of some issues, it does not affect
the ultimate decision reached in this case. The six different publications (two of each of the governing documents)
are retained in the administrative file for ease of reference.

In the Matter of the Protest of Distribution Management Corporation, Inc., page 13 of 32.
1 See MPC Ltd. v. N.M. Taxation & Revenue Dep't, 2003-NMCA-21, ¶13, 133 N.M. 217, 62 P.3d

2 308.

3 As a distinct difference particular to IFTA, the Hearing Officer retains some discretion as to

4 assessed penalties. IFTA states: “the base jurisdiction commissioner may waive penalties

5 authorized by this Article for reasonable cause.” See IFTA, Art. XII, R1260.100 (as amended

6 through January 1, 2006).

7 International Fuel Tax Agreement.

8 The assessment in this protest arises from an audit conducted pursuant to the International

9 Fuel Tax Agreement (IFTA), uncodified in New Mexico Statutes, but applicable to participating

10 states (member jurisdictions) and participating motor carriers (licensees) under federal law. IFTA is

11 an interstate and international compact among the 48 contiguous States of the United States of

12 America, and 10 provinces in Canada, specifically permitted by Congress. IFTA is primarily a

13 mechanism for the participating jurisdictions to enforce state taxes.

14 The Commerce Clause of the United States Constitution has granted Congress the power

15 “[t]o regulate Commerce with foreign Nations, and among the several States, and with the Indian

16 Tribes.” USCS Const. Art. I, § 8, Cl 3. Interstate trucking is quintessentially interstate commerce.

17 Yet, the Compact Clause of the United States Constitution disallows states from entering into “any

18 agreement or compact with another state” without the consent of Congress. USCS Const. Art. I, §

19 10, Cl 3. Therefore, in order to facilitate collection of individual state fuel use taxes, Congress

20 enacted the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA), Pub. L. No. 102-

21 240, 105 Stat. 1914, which amended the Motor Carrier Act, 49 USCS §§ 31701-31708. In pertinent

22 part, the ISTEA provides that “[a]fter September 30, 1996, a State may establish, maintain, or

23 enforce a law or regulation that has a fuel use tax reporting requirement (including any tax reporting

In the Matter of the Protest of Distribution Management Corporation, Inc., page 14 of 32.
1 form) only if the requirement conforms with the International Fuel Tax Agreement.” 49 USCS §

2 31705.

3 Each state has the power to tax economic activity conducted within their respective borders,

4 and states, including New Mexico, have enacted laws imposing taxes on diesel fuel used in the state.

5 See NMSA 1978, Section 7-16A-1 through 7-16A-21 (Special Fuels Supplier Tax Act). Likewise,

6 our neighbor states of Arizona and Texas (both at issue here) have enacted laws imposing fuel use

7 taxes for diesel and a variety of other fuels. Under New Mexico law, the Department has the

8 ability to enter into cooperative agreements such as IFTA “for the exchange of information, the

9 reciprocal, joint or common enforcement and administration of revenue or transportation laws of

10 the party jurisdictions or the reciprocal, joint, or common collection, remittance and audit of

11 revenues of the party jurisdictions.” See NMSA 1978, Section 9-11-12 (A) (2001).

12 New Mexico is an IFTA member. Because the state has entered into IFTA, the state is

13 required, as a base jurisdiction, to administer and execute the provisions of the agreement for the

14 benefit of all participating states. See IFTA, Art. I, R150 (as amended through July 1, 2003).

15 The duties of the base jurisdiction include, but are not limited to, issuing licenses to interstate

16 carriers whose principal place of business is located within the base jurisdiction, collect and

17 distribute fuel use taxes for each jurisdiction the licensee operates within, to perform regular

18 audits of licensees, and to revoke a license if a licensee does not comply with the agreement.

19 The provisions of the Audit Manual, the Procedures Manual and the Articles of Agreement,

20 known collectively as the Governing Documents, “are equally binding upon the member

21 jurisdictions and IFTA licensees.” See Id. Art. I, R120 (as amended through July 1, 1998).

22 Without IFTA, fuel use taxes could be difficult to enforce, considering that fuel users are on

23 the move. A fuel user can purchase fuel from a vendor out of state and then transport the fuel

In the Matter of the Protest of Distribution Management Corporation, Inc., page 15 of 32.
1 wherever the road may lead. This travelling fuel is used within the state without raising the

2 eyebrows of even the most diligent tax enforcement official. Conceptually, this seems to be the

3 reason why fuel use taxes are based on the raw data of quantity of fuel (gallons) purchased as well

4 as total mileage broken down into state-by-state mileage. See Regulation 3.16.110.8 NMAC

5 (6/14/01). The use tax administered by the IFTA organization for New Mexico is the Special Fuels

6 Supplier Tax Act. NMSA 1978, Section 7-16A-1 through 7-16A-21. For computing the tax due,

7 the method is clear.

8 Regulation 3.16.110.8 (B) NMAC (6/14/01) provides the following example:

9 Example 1: Trucker’s fleet logged 1,000,000 miles with 100,000 travelled in New
10 Mexico. Trucker used 202,100 gallons of special fuel. Trucker has used 20,202
11 gallons in New Mexico, computed as follows:
12 1,000,000 miles everywhere
13 divided by 202,100 gallons of special fuel everywhere
14 equals 4.948 = 4.95 average miles per gallon
15
16 100,000 New Mexico miles
17 divided by 4.95 average mile per gallon
18 equals 20,202 New Mexico special fuel gallons
19

20 Once the in-state gallonage is known, the reporting taxpayer multiplies that by the applicable tax

21 rate of twenty-one cents per gallon ($.21) and the tax due results. In the example above, the tax due

22 would be $4,242.42. See NMSA 1978, Section 7-16A-3(B) (2003). New Mexico has only the

23 diesel fuel tax, as noted above, but adjoining states of Arizona and Texas have their own special fuel

24 taxes. To properly enforce the taxes, it is essential for states to cooperate to provide a mechanism

25 for reciprocal licensing, reporting, and enforcement. IFTA provides that cooperative tax

26 enforcement mechanism.

27 IFTA requires that licensees retain records “to substantiate information reported on the tax

28 returns.” Art. VII, R700 (as amended through January 1, 2006). The Procedures Manual in effect

In the Matter of the Protest of Distribution Management Corporation, Inc., page 16 of 32.
1 in 2015 informs licensees that “[t]he licensee is required to preserve the records upon which the

2 quarterly tax return or annual tax return is based for four years from the tax return due date or filing

3 date, whichever is later…” P510.100 (as amended through January 1, 2006) (2013 revision).2

4 IFTA requires retention of distance records. To this end, IFTA requires that records are kept

5 for each individual vehicle’s distance travelled, and distance recaps for each vehicle for each

6 jurisdiction in which the vehicle is operated. P540.100 (as amended through January 1, 2001) (2013

7 revision). These records “should include” the start and end date of each trip, the origin and

8 destination, route of travel, beginning and ending odometer or hubometer reading, total mileage,

9 miles by jurisdiction, unit number or vehicle identification number, fleet number, registrant’s name,

10 and any additional information required by the base jurisdiction. P540.200 (as amended through

11 January 1, 2001) (2013 revision).3

12 IFTA also requires retention of fuel records. To this end, IFTA requires “a licensee must

13 maintain complete records of all motor fuel purchased, received, and used in the conduct of its

14 business.” P550.100 (as amended through January 1, 2001) (2013 revision). These records “shall

15 contain” the date of each receipt of fuel, the seller, the number of gallons, the type of fuel, and the

16 vehicle into which the fuel was placed. P550.400 (as amended through January 1, 2001) (2013

17 revision).4

2
The current manual is very similar: the Procedures Manual informs licensees that “[a] licensee shall retain records
of its operations to which IFTA reporting requirements apply for a period of four years following the date the IFTA
tax return was due or was filed, whichever is later…” IFTA Procedures Manual, P510 (as amended through January
1, 2017). Application of either subsection does not materially affect the inquiry or decision here.
3
Under the current manual, IFTA requires that records be kept for each individual vehicle’s dates of travel, origin
and destination, route, distance travelled (using odometer hubometer, engine control module, or other device), and
distances for each jurisdiction in which the vehicle is operated. IFTA Procedures Manual, P540.100 (as amended
through January 1, 2017).
4
Under the current manual, IFTA requires: “[t]he licensee shall maintain complete records of all motor fuel
purchased, received, and used in the conduct of its business, and on request, produce these records for audit.”
P550.100 (as amended through January 1, 2017). Acceptable records must be adequate for the auditor “to verify the
total amount of fuel placed into the licensee’s qualified motor vehicles, by fuel type.” Id. The elimination of the
“should” and “shall” language might give licensees a little more leeway under the current revision but does not
affect the inquiry or decision here.

In the Matter of the Protest of Distribution Management Corporation, Inc., page 17 of 32.
1 IFTA informs licensees that non-compliance with record-keeping requirements may result

2 in an assessment and revocation of a license. “Failure to maintain records upon which the licensee’s

3 true liability may be determined or to make records available upon proper request may result in an

4 assessment as stated in IFTA Articles of Agreement Section R1200.” Procedures Manual,

5 P530.100 (as amended through January 1, 2006) (2013 revision). In addition, “[n]on-compliance

6 with any recordkeeping requirement may be cause for revocation of a license.” Procedures Manual,

7 P530.200 (2013 revision).5 And in the event that a licensee fails to maintain records “from which

8 the licensee’s true liability may be determined,” an assessment of tax, or a revocation or suspension

9 of the license is appropriate, or both. See IFTA, Art. XII, R1210.100, R1210.200, R1210.300 (as

10 amended through July 1, 2000).

11 If the licensee “fails to maintain records from which the licensee’s true liability may be

12 determined,” the IFTA Articles provide for the base jurisdiction to “determine the tax liability of the

13 licensee for each jurisdiction.” Art. XII, R1210.100.015 and R1210.200.005 (as amended through

14 July 1, 2000). The Procedures Manual in effect at the time the tax liability was incurred did not

15 make mention of a method of accomplishing the goal of determining the tax liability, yet the Audit

16 Manual allows the base jurisdiction, after determining that “the licensee’s records are lacking or

17 inadequate to support any tax return filed” to either “estimate the fuel use” using prior experience of

18 the licensee, licensees with similar operations, industry averages, records available from fuel

5
The current IFTA Procedures Manual, P530 (as amended through January 1, 2017) provides a thorough revision of
the section: “The adequacy of a licensee’s records is to be ascertained by the records’ sufficiency and
appropriateness. Sufficiency is a measure of the quantity of records produced; that is, whether there are enough
records to substantially document the operations of the licensee’s fleet. The appropriateness of the records is a
measure of their quality; that is, whether the records contain the kind of information the auditor needs to audit the
licensee for the purposes stated in the preceding paragraph [i.e., to verify distances travelled and fuel purchased].
Records that are sufficient and appropriate are to be deemed adequate. … Licensee records which do not contain all
of the elements set out in P540, P550 and P560 may still, depending on the sufficiency and appropriateness of the
records and of the licensee’s operations, be adequate for an audit.” This last paragraph provides a safety valve,
creating more leeway for taxpayers who have not kept thorough records.

In the Matter of the Protest of Distribution Management Corporation, Inc., page 18 of 32.
1 distributors, and other pertinent information, and “in the absence of adequate records, a standard of

2 4 MPG/1.7 KPL will be used.” Audit Manual, A550.100 (as amended through January 2006). 6

3 The Audit.

4 The Department’s audit of tax year 2015 found issues with the sampling months September,

5 October, November and December. The auditor found that the Taxpayer failed to provide records

6 adequate to support the Taxpayer’s IFTA report of fuel usage. In detailing the Taxpayer’s

7 methodology, the auditor reported that the Taxpayer used “departure and arrival times” as a

8 substitute for actual odometer readings when determining mileage. For fuel usage, the Taxpayer

9 has acknowledged that the fuel purchase receipts for 2015 were destroyed before the audit. The

10 auditor determined that a question remained as to the number of gallons of fuel used, which is

11 required to apply the arithmetic for an accurate calculation of average miles per gallon. The miles

12 per gallon figure, rounded to two decimal places, is necessary for the computation of gallons of

13 diesel fuel used in each of the three states the Taxpayer operated within. See Regulation 3.16.110.8

14 NMAC.

15 The audit report found the mileage reporting method inadequate but accepted the reported

16 miles. Both the IFTA Audit Manual of 2017, and the earlier version effective at the time the

17 liability arose, have identical sections, differently numbered, offering guidance for auditors faced

18 with inadequate records. The auditor can use “[p]rior experience of the licensee; [l]icensees with

19 similar operations; [o]ther vehicles in the fleet with similar operations; [i]ndustry averages;

6
The newer Audit Manual had this numbered differently and adds a secondary method. Under the new Audit
Manual, if the auditor finds inadequate records, the auditor may “reduce the vehicle MPG or KPL by 20% or adjust
the vehicle MPG to 4.00 or the KPL to 1.7.” A350.300 (effective July 1, 2017. Likewise, the current Procedures
Manual recapitulates this base jurisdiction responsibility. See IFTA Procedures Manual, P570 (as amended through
January 1, 2017). “If the base jurisdiction determines that the records produced by the licensee for audit do not, for
the licensee’s fleet as a whole, meet the criterion for the adequacy of records set out in P530,…the base jurisdiction
shall impose an additional assessment by either: adjusting the licensee’s reported fleet MPG to 4.00 or 1.70 KPL; or
reducing the licensee’s reported MPG or KPL by twenty percent.” Id. While there is a slight difference in language,
the inquiry and decision reached here is not affected by the choice of using one manual over the other.

In the Matter of the Protest of Distribution Management Corporation, Inc., page 19 of 32.
1 [r]ecords available from fuel distributors or other third parties; [and] [o]ther pertinent information

2 the base jurisdiction may obtain or examine” to determine the licensee’s tax liability. Audit

3 Manual, A350.200 (as amended through July 1, 2017); Audit Manual, A550.100 (as amended

4 through January 2006) (1996-2016 revision). After finding that there were inadequate records to

5 support the reported gallonage used, the Department assessed the Taxpayer applying the default 4.0

6 miles per gallon to the miles reported. Audit Manual, A350.300.10 (as amended July 1, 2017);

7 Audit Manual, A550.100 (as amended through January 2006) (1996-2016 revision).

8 Under the procedures in effect at the time the liability was incurred, distance records “should

9 include” the start and end date of each trip, the origin and destination, route of travel, beginning and

10 ending odometer or hubometer reading, total mileage, miles by jurisdiction, unit number or vehicle

11 identification number, fleet number, registrant’s name, and any additional information required by

12 the base jurisdiction. Procedures Manual, P540.200 (as amended through January 1, 2001) (2013

13 revision).7

14 In determining that the records for distance were inadequate, the audit found that the

15 Taxpayer’s method did not record “the unit number, beginning and ending odometers,

16 origin/destination and no original fuel receipts or fuel statements were kept. DMC uses a time

17 period to track the units and no reports are verified.” As anyone stuck in a snowstorm, a

18 construction zone or rush hour traffic can affirm, and it should go without saying, that time spent on

19 the road is not a reliable substitute for specific miles travelled. Likewise, time spent on the road for

20 the Phoenix/El Paso circuit route does not account for the additional miles travelled within the

7
Under the latest procedures manual, for distance records not produced by a vehicle-tracking system, IFTA requires
taxpayers keep trip dates, trip origin and destination, travel routes, beginning and ending vehicle mileage, total
distance, distance for each jurisdiction, and vehicle identification or unit number. Procedures Manual, P540.100 (as
amended through January 1, 2017). The revision does not affect the analysis or decision in this matter.

In the Matter of the Protest of Distribution Management Corporation, Inc., page 20 of 32.
1 terminal city for maintenance and other reasons. IFTA does not allow this time-distance

2 methodology.

3 Under the procedures in effect at the time the liability was incurred, fuel use records “shall

4 contain” the date of each receipt of fuel, the seller, the number of gallons, the type of fuel, and the

5 vehicle into which the fuel was placed. P550.400 (as amended through January 1, 2001) (2013

6 revision).8 Taxpayer, shifting the focus from gallons used to its calculated miles per gallon, testified

7 that the 2015 miles per gallon were conservatively reported at 7 miles per gallon. On the contrary,

8 the audit work papers indicate the miles per gallon reported in the 2015 IFTA returns were

9 consistently 7.77 mpg, for each of the four quarters. This, by itself, raises red flags and suggests

10 that the Taxpayer’s witness was unaware of the actual reporting that went on. The audit narrative

11 and testimony indicated that the supervisors at the respective terminals in Phoenix, AZ and El Paso,

12 TX were responsible for recording the miles the trucks drove. The audit found that Taxpayer was

13 able to provide only procurement card statements to support the Taxpayer’s report of fuel purchases.

14 The procurement card statements did not provide data to support the number of gallons, price per

15 gallon, tax paid (if any), or the vehicle unit number into which the fuel was placed.

16 Generally, IFTA requires that “[e]very licensee shall maintain records to substantiate

17 information reported on the tax returns. Operational records shall be maintained or be made

18 available for audit in the base jurisdiction. Recordkeeping requirements shall be specified in the

19 IFTA Procedures Manual.” See Articles of Agreement, Art. VII, R700 (as amended through

20 January 1, 2006). The agreement also requires: “The licensee must report all fuel placed in the

8
Under the latest procedures manual, IFTA requires: “[t]he licensee must maintain complete records of all motor
fuel purchased, received, and used in the conduct of business, and on request, produce these records for audit.”
Rather than specify all the data necessary, the manual only requires that “[t]the records shall be adequate for the
auditor to verify the total amount of fuel placed into the licensee’s qualified motor vehicles, by fuel type.”
Procedures Manual, P550.100 (as amended through January 1, 2017). And in order to obtain credit for tax-paid
retail purchases, there are even greater strictures. Procedures Manual, P550.300 (as amended through January 1,
2017).

In the Matter of the Protest of Distribution Management Corporation, Inc., page 21 of 32.
1 supply tank of a qualified motor vehicle as taxable on the tax return.” See Art. VIII, R820 (as

2 amended through January 1, 2001). When fuel is placed in a vehicle, the retail vendor usually

3 applies the tax of the local jurisdiction. For a licensee to obtain credit for the tax paid at the time of

4 purchase, “the licensee must retain a receipt, invoice, credit card receipt, or automated vendor

5 generated invoice or transaction listing, showing evidence of such purchases and taxes paid.” See

6 Art. X, R. 1000.100 (as amended through January 1, 1996). And in the event that a licensee fails to

7 maintain records “from which the licensee’s true liability may be determined,” an assessment of tax,

8 or a revocation or suspension of the license is appropriate. See Art. XII, R1210.100, R1210.200,

9 R1210.300 (as amended through July 1, 2000).

10 Sufficiency of evidence to support IFTA report

11 The question that must be addressed in this proceeding is whether the Taxpayer’s evidence

12 at hearing is sufficient to meet the Taxpayer’s burden of establishing that the claims contained in the

13 IFTA reports matched the actual, audited miles within each jurisdiction, total gallons of fuel

14 purchased, miles per gallon average, and the subsequent per-jurisdiction apportionment of tax. The

15 Department first contends that the 2018 data supplied by the Taxpayer is irrelevant. The

16 Department further contends that, without any contemporaneous document from 2015 (receipts or

17 summary of receipts) showing the amount of fuel purchased, the testimony alone that the 2015

18 numbers matched 2018 numbers is insufficient. The Taxpayer contends that the 2018 records are

19 both relevant and sufficient because the reported miles travelled were accepted at audit as true, and

20 the trucks used in 2015 and 2018 had the same fuel efficiency, hence the miles per gallon figure was

21 substantially similar. Taxpayer contends that the “reference number” contained in the procurement

22 card statements is sufficient for the Department to audit the gallonage. Taxpayer contends that, with

23 the evidence supportive of the reported 7.77 mpg average, the Department’s application of the 4.0

In the Matter of the Protest of Distribution Management Corporation, Inc., page 22 of 32.
1 mpg standard is unreasonable and punitive. The “good enough” approach the Taxpayer wishes to

2 apply is simply not legally sufficient to overcome the presumption of correctness.

3 When considering the Department’s objection as to relevancy, the Hearing Officer

4 considered that the IFTA governing documents allow the tax auditor to use “prior experience of the

5 licensee; licensees with similar operations; industry averages; records available from fuel

6 distributors; [and] other pertinent information the auditor may obtain or examine” to determine the

7 licensee’s tax liability. Audit Manual, A350.200 (as amended through July 1, 2017); Audit

8 Manual, A550.100 (as amended through January 2006) (1996-2016 revision). This does not

9 prohibit the Department or the Hearing Officer from considering even unorthodox means to justify

10 an IFTA tax report. Similarly, while the best evidence is the raw data, IFTA recognizes that

11 “monthly fleet summaries” which “at a minimum, must include distance data on each individual

12 vehicle for each trip” may be adequate to substantiate reported travel distances. See Procedures

13 Manual, P540.200 (as amended through January 1, 2001) (2013 revision).9 While the 2015

14 information is certainly the best evidence, bearing the greatest evidentiary weight, the complete

15 evidence of 2018, if in fact comparable, would be relevant, yet of lesser evidentiary weight.

16 Taxpayer provided the Department with a summary of records, procurement card records,

17 and fuel receipts for the months of September, October, November and December of 2018, a “test

18 period” it claimed would produce the same or similar results as the audit period at issue. The

19 Taxpayer’s eight -page “Affidavit of Stephen A. Griego” (Affidavit) of the 2018 “test period,”

20 Taxpayer’s Exhibit 1, and Department’s Exhibit B are the only documentary evidence the Taxpayer

21 has provided the Hearing Officer to support its contention. Upon close review, Department’s

9
Under the latest version of the Procedures Manual, summaries of the “distance travelled by and the fuel placed into
each vehicle in the fleet…, both in total and by jurisdiction, may be necessary for the efficient audit of the licensee’s
records.” P560 (as amended through January 1, 2017).

In the Matter of the Protest of Distribution Management Corporation, Inc., page 23 of 32.
1 Exhibit B is a credit card or procurement card statement and contains no entries for the four-month

2 sampling time-frame at issue here. Also, the Taxpayer’s Affidavit (pages 4 through 8) provides no

3 distance data in the form of odometer readings for trip beginning mile or ending mile, no unit

4 number, or other identifying information for the vehicle into which fuel was placed. The Affidavit

5 provides an unsupported statement of mileages between the Phoenix and El Paso terminals and the

6 refueling station in San Simon. The Affidavit purports to summarize the gallons used, and a per-trip

7 miles per gallon calculation, as well as monthly averages of miles per gallon.

8 The Taxpayer’s Affidavit is unsupported by raw data, is inconsistent, and therefore

9 unreliable. For example, the Affidavit does not give a total mileage travelled by each truck. In

10 looking at the first page of the Phoenix summary, statement month of November, the columns

11 contain information of number of transactions (26), statement month (November), receipt date

12 (beginning 10/26 and ending 11/21), total gallons in a transaction, miles per gallon per transaction,

13 and average miles per gallon in a statement month. The only information that may be relevant for

14 computation of tax are (1) the column indicating the number of transactions, and (2) the information

15 contained in the column for total gallons purchased. Taxpayer forces one to extrapolate from the

16 Affidavit that the total monthly mileage is 244 miles multiplied by the total number of monthly

17 transactions -- 26 -- for a total mileage of 6,344 (assuming the truck fuels up only once per trip).

18 One also must extrapolate from the Affidavit that the total gallons purchased in the statement month

19 of November was the sum of the total gallons’ column, or 742.316. So, using the data as

20 extrapolated from the evidence in the Affidavit, the average for the statement month of November is

21 total miles of 6,344 divided by total gallons purchased of 742.316. The miles per gallon for the

22 Phoenix statement month of November 2018 is then 8.546225 mpg. The Taxpayer’s Affidavit

23 reported that the average mpg for the statement month was 8.674705 mpg. The discrepancy in

In the Matter of the Protest of Distribution Management Corporation, Inc., page 24 of 32.
1 average mpg stems from methodology: the Taxpayer used the miles per gallon per trip and averaged

2 those per-trip calculations. This calculation is simply an example of the inadequacy of Taxpayer’s

3 summary data, which ignores the relevant raw data, and provides statement month averages, not

4 based on the raw data, but on per trip averages. The affidavit for the Phoenix card statements is not

5 supported by the actual statements or the actual fuel receipts showing gallons. IFTA requires

6 licensees to use and retain raw data. See Procedures Manual, P510-P570 (as amended through

7 January 1, 2006) (2013 revision).

8 It should be noted that regardless of how the Phoenix procurement card statement summary

9 is or is not skewed, there was no evidence providing any way to compare the 2018 statements to the

10 2015 statements, since the 2015 card statements of the time frame at issue were never offered as

11 evidence (Department Exhibit B1 and B2 related to May 26 through June 18 of 2015). Likewise,

12 the 2018 Phoenix route statement summary provided had no supporting documentation, such as

13 receipts. To compare, the El Paso route statement summaries did have other supporting

14 documentation, such as copies of receipts and copies of procurement card statements, i.e.,

15 Taxpayer’s Exhibit 1.

16 Turning to the El Paso route procurement card statements of 2018, the summary within the

17 Affidavit is somewhat supported by Taxpayer’s Exhibit 1. For example, the Affidavit provides a

18 line entry from the November statement month, for a transaction that took place on October 24.

19 The transaction yielded 30.947 gallons of fuel. In support of this summary entry, Taxpayer’s

20 Exhibit 1-032 is the card statement for the November statement month, and shows a transaction that

21 took place on October 24, which charged $99.00 to the Taxpayer, from a Shell Oil in El Paso, TX.

22 Taxpayer’s Exhibit 1-033 has the receipt from the transaction showing that, on October 24,

23 Taxpayer purchased 30.947 gallons of regular diesel, for a total cost of $99.00. This line entry for

In the Matter of the Protest of Distribution Management Corporation, Inc., page 25 of 32.
1 the summary has evidentiary support. Yet, Taxpayer has not provided anything but unreliable

2 testimony to support that the 2018 procurement card statements matched 2015 procurement card

3 statements. The Taxpayer never provided the Hearing Officer with the statements from 2015 that it

4 provided the original auditor; nor did the Taxpayer provide a summary of statements from 2015 to

5 justify the comparison.

6 Also, one need not look far within the same November statement month to find a transaction

7 that undercuts the reliability of the Affidavit summary. Taxpayer’s Exhibit 1-032 lists a transaction

8 on November 16 for $78.11. Taxpayer’s Exhibit 1-054 has the same transaction receipt, showing

9 that Taxpayer purchased 24.725 gallons of diesel for a total cost of $78.11 from a Petroleum

10 Wholesale LP Sunmart in San Simon, Arizona on November 16, 2018. Yet, the Affidavit summary

11 does not report this transaction on the November statement for the El Paso route (or the Phoenix

12 route, for that matter). The Affidavit summary reports thirteen transaction for the statement month

13 of November while the November statement shows forty transactions. Sloppy and incomplete

14 evidence is not reliable evidence.

15 Likewise, I note again that no evidence presented at the hearing corroborated the 2018

16 summary or exhibits to the 2015 card statements, as no 2015 procurement card statements for the

17 last four months of 2015 were offered into evidence. Although potentially helpful to the Taxpayer’s

18 theory of the case at times -- for the sake of comparison to 2015 -- the evidentiary weight of the

19 2018 summary affidavit is effectively nil because: (1) it is for a different year; (2) it does not

20 provide any evidence of the year at issue that would allow comparison; (3) it omits necessary data

21 points (i.e., odometer readings to support total miles travelled, miles by jurisdiction, vehicle into

22 which the fuel was placed, etc.); (4) it omits necessary refueling transactions (i.e. for the statement

In the Matter of the Protest of Distribution Management Corporation, Inc., page 26 of 32.
1 month of November, only 13 of 40 transactions were reported); and (5) it provides skewed averages

2 of miles per gallon.

3 The State of New Mexico, Taxation and Revenue Department has published regulatory

4 guidance for taxpayers who file special fuel use tax returns. See Regulation 3.16.110.8 NMAC

5 (Computation of miles-per-gallon factor); Regulation 3.16.110.9 NMAC (Required records);

6 Regulation 3.16.110.10 NMAC (Alternative calculation available for certain vehicles); Regulation

7 3.16.110.11 NMAC (Records required for alternative calculation method); Regulation 3.16.110.12

8 NMAC (Application of alternative calculation method).

9 Taxpayer provided testimonial evidence that the truck route ran five days a week, used the

10 same trucks, carried the same type of cargo, and originated from the same location and arrived at the

11 same terminal. Yet these claims were unsupported by actual mileage records, per jurisdiction

12 mileage records, and fuel records, and was directly contradicted by a substantial variance of miles

13 reported in the fourth quarter of 2015. Also undermining the Taxpayer’s claim was evidence that,

14 although Taxpayer claimed that trip miles were static, the mileage could vary. It could vary from

15 trip to trip if a driver took one exit or another, or when maintenance and other matters required

16 driving around the terminal city (El Paso or Phoenix). The Taxpayer acknowledged using

17 Mapquest.com miles to assess mileage, despite its having access to GPS vehicle monitoring and

18 actual miles of 2015 from driver logs. And despite the ability to supplement the record with a

19 summary of the 2015 driver logs after the hearing had concluded, the Taxpayer refused to provide

20 any actual summary; instead, Taxpayer simply provided another unsubstantiated claim. The records

21 provided for the “test period” were insufficient, skewed and unreliable.

In the Matter of the Protest of Distribution Management Corporation, Inc., page 27 of 32.
1 The Department has issued instructions for IFTA licensees. The IFTA Quarterly Tax

2 Return Instructions10 require that each IFTA licensee “maintain records for a period of four years

3 from the filing date of the report to substantiate information reported. Such records shall be made

4 available on request by any member state for an audit.” NMSA 1978, Section 9-11-6.2 (G) (2015)

5 indicates: “[a]ny regulation, ruling, instruction or order issued by the secretary or delegate of the

6 secretary is presumed to be a proper implementation of the provisions of the laws that are charged to

7 the department, the secretary, any division of the department or any director of any division of the

8 department.” Equally compelling is the following language in the Tax Administration Act, NMSA

9 1978, Section 7-1-10 (A) (2007): “[E]very taxpayer shall maintain books of account or other

10 records in a manner that will permit the accurate computation of state taxes.” The regulation that

11 accompanies this statute also requires that “[b]ooks of account, documents and other records shall

12 be kept and maintained by a taxpayer in a manner that will permit the accurate computation of state

13 taxes…If state taxes cannot be accurately or readily computed by the secretary or secretary’s

14 delegate from the records, the records are not sufficient or adequate.” Regulation 3.1.5.8 (A) NMAC

15 (12/29/01). See also Archuleta v. O'Cheskey, 1972-NMCA-165, ¶16, 84 N.M. 428, 504 P.2d 638

16 (“The taxpayer has a duty to provide the commissioner with books and records upon which to

17 establish a standard for taxation”) (specially concurring opinion).

18 IFTA also sets standards for accuracy in reporting. “Failure to maintain records upon which

19 the licensee’s true liability may be determined or to make records available upon proper request

20 may result in an assessment as stated in IFTA Articles of Agreement Section R1200.” See

21 Procedures Manual, P530.100 (as amended through January 1, 2006) (2013 revision).11 The IFTA

10
Available through the New Mexico Taxation and Revenue Department, Motor Vehicle Division website. See
http://mvd.newmexico.gov/commercial-forms.aspx (last accessed 11/22/19).
11
The 2018 revision sets standards for “adequacy of a licensee’s records,” providing greater leniency in determining
sufficiency and appropriateness of licensee’s records. See Procedures Manual, Section P530 (as amended through

In the Matter of the Protest of Distribution Management Corporation, Inc., page 28 of 32.
1 Articles of Agreement provide that “[i]n the event that any licensee… fails to maintain records from

2 which the licensee’s true liability may be determined, the base jurisdiction shall proceed in

3 accordance with .200 and .300.” Article XII, R1210.100 (as amended through July 1, 2000).12

4 Subsections .200 and .300 provide for revocation or suspension of an IFTA license, and for the

5 imposition of tax, penalties, and interest. See Article XII, R1210.200 and R1210.300 (as amended

6 through July 1, 2000). The IFTA Audit Manual allows the auditor to use the default standard of 4

7 mpg, absent “substantial evidence to the contrary.” A550.100 (as amended through January 2006)

8 (1996-2016 revision). The Taxpayer has not provided substantial evidence to support the accuracy

9 of its IFTA reports. Taxpayer’s records suggest that its IFTA reports are inaccurate and do not

10 provide the “substantial evidence to the contrary” required to disallow use of the default 4 mpg

11 standard. In short, the records are inadequate under state law and under IFTA.

12 The fact that the Taxpayer kept no organized business records to support the fuel use taxes it

13 reported is the salient feature of this controversy. It is the Taxpayer’s duty to prove with substantial

14 evidence that it properly reported taxes owed. “Substantial evidence is relevant evidence that a

15 reasonable mind might accept as adequate to support a conclusion.” State v. Largo, 2012-NMSC-

16 015, ¶ 30, 278 P.3d 532 (internal quotation marks and citation omitted). Without reliable and

17 relevant supporting documents entered into evidence, we are left with Mr. Griego’s word alone. “It

18 is the sole responsibility of the trier of fact to weigh the testimony, determine the credibility of the

19 witnesses, reconcile inconsistencies, and determine where the truth lies.” N.M. Taxation & Revenue

20 Dep’t v. Casias Trucking, 2014-NMCA-099, ¶ 23. Although he was cordial and composed, Mr.

21 Griego’s unsubstantiated statements are insufficient to overcome the presumption of correctness that

January 1, 2017). The inadequate records assessment provision gives auditors the options of imposing either the
default rate of 4.00 MPG, or a reduction by 20%. Id.
12
The provisions of Article XII remain constant in the 2018 revision of the IFTA Articles of Agreement.

In the Matter of the Protest of Distribution Management Corporation, Inc., page 29 of 32.
1 attached to the assessment. See MPC Ltd. v. N.M. Taxation & Revenue Dep’t, 2003-NMCA-021,

2 ¶13, 133 N.M. 217, 62 P.3d 308. See also Regulation 3.1.6.12 (A) NMAC (1/15/01). The

3 Department properly applied the default standard miles per gallon of 4.0 to the miles reported by

4 Taxpayer. See Audit Manual, A550.100 (as amended through January 2006) (1996-2016

5 revision). 13

6 The IFTA Articles of Agreement provide that “[t]he base jurisdiction may assess the

7 licensee a penalty of $50.00 or 10 percent of delinquent taxes, whichever is greater, for failing to

8 file a tax return, filing a late tax return, [or] underpaying taxes due.” Art. XII, R1220.100 (as

9 amended through January 1, 2006). Similarly, the Articles of Agreement require the base

10 jurisdiction to assess interest, “for itself and on behalf of the other jurisdictions.” Art. XII, R1230

11 (as amended through July 1, 2013). Taxpayer provided no evidence amounting to good cause to

12 override the Department’s assessment of penalty.

13 CONCLUSIONS OF LAW

14 A. Taxpayer filed a timely, written protest of the Department’s assessment and

15 jurisdiction lies over the parties and the subject matter of this protest.

16 B. The hearing was timely set and held within 90-days of protest under NMSA 1978,

17 Section 7-1B-8 (2015).

18 C. Taxpayer failed to meet his burden to overcome the presumption of correctness in

19 the Department’s assessment of IFTA tax, penalty, and interest. See NMSA 1978 Section 7-1-17

20 (C) (2007). See also MPC Ltd. v. N.M. Taxation & Revenue Dep’t, 2003-NMCA-021, ¶13, 133

13
This differs somewhat from the 2017 Audit Manual revision. The 2017 IFTA Audit Manual, A350.100-
A350.400, gives tax auditors the option of reducing the reported MPG by 20% or applying the default 4.00 MPG.

In the Matter of the Protest of Distribution Management Corporation, Inc., page 30 of 32.
1 N.M. 217, 62 P.3d 308. See also Regulation 3.1.6.12 (A) NMAC (1/15/01). See also International

2 Fuel Tax Agreement, July 1, 1998, Art. XII, R1210.300 (as amended through July 1, 2000).

3 D. Taxpayer’s IFTA license may be revoked by the Department. See International

4 Fuel Tax Agreement, July 1, 1998, Art. XII, R420 and R1210.200.010 (as amended through July

5 1, 2000).

6 For the foregoing reasons, the Taxpayer’s protest IS DENIED. IT IS ORDERED that

7 Taxpayer is liable for $31,075.13 in tax, $200.00 in penalty, and $4,835.79 in interest (through

8 October 4, 2019), less offsets of $84.91, for a total outstanding liability of $37,709.38. Interest

9 continues to accrue at the rates of the applicable member jurisdictions until the tax is paid.

10 DATED: February 4, 2020.

11

12
13 Ignacio V. Gallegos
14 Hearing Officer
15 Administrative Hearings Office
16 P.O. Box 6400
17 Santa Fe, NM 87502

18

19 NOTICE OF RIGHT TO APPEAL

20 Pursuant to NMSA 1978, Section 7-1-25 (2015), the parties have the right to appeal this

21 decision by filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the

22 date shown above. If an appeal is not timely filed with the Court of Appeals within 30 days, this

23 Decision and Order will become final. Rule of Appellate Procedure 12-601 NMRA articulates

In the Matter of the Protest of Distribution Management Corporation, Inc., page 31 of 32.
1 the requirements of perfecting an appeal of an administrative decision with the Court of Appeals.

2 Either party filing an appeal shall file a courtesy copy of the appeal with the Administrative

3 Hearings Office contemporaneous with the Court of Appeals filing so that the Administrative

4 Hearings Office may begin preparing the record proper. The parties will each be provided with a

5 copy of the record proper at the time of the filing of the record proper with the Court of Appeals,

6 which occurs within 14 days of the Administrative Hearings Office receipt of the docketing

7 statement from the appealing party. See Rule 12-209 NMRA.

8 CERTIFICATE OF SERVICE

9 On February 4, 2020, a copy of the foregoing Decision and Order was submitted to the

10 parties listed below in the following manner:

11 First Class Mail Interdepartmental Mail

12 INTENTIONALLY BLANK
13
14 John Griego
15 Legal Assistant
16 Administrative Hearings Office
17 P.O. Box 6400
18 Santa Fe, NM 87502

In the Matter of the Protest of Distribution Management Corporation, Inc., page 32 of 32.