If a satellite TV (or similar) company's equipment and operations are all out of state, are its subscription fees exempt from New Mexico gross receipts tax as a service performed outside the state?
Apply this to your situation
This page answers the general question as of 2025. Ezel answers yours, under current New Mexico tax law, with citations.
Plain-English summary
DIRECTV provides satellite (Direct Broadcast Satellite) television to about 150,000–200,000 New Mexico subscribers. Its content acquisition, broadcast centers, satellites, and customer-support facilities are all located outside New Mexico. Believing that meant its service was "performed" out of state, DIRECTV filed two refund claims seeking back about $26.27 million of gross receipts tax (GRT) it had paid on New Mexico subscription fees for December 2016 through June 2019, invoking the exemption in NMSA 1978, Section 7-9-13.1. The Department denied both claims, and the Hearing Officer denied DIRECTV's protest, upholding the tax.
The decision turns on where a service is located for GRT purposes. New Mexico looks not at where the technical work happens but at where the customer receives and experiences the benefit. The "product of the service" DIRECTV sells is not an abstract signal — it is the ability to watch programming, and that benefit is realized when the subscriber turns on a television in New Mexico. As the Hearing Officer put it, a customer perceives a service failure only when their in-state screen goes blank, no matter where in the transmission chain something broke. So the service is both performed and initially used in New Mexico, and DIRECTV failed both prongs of Section 7-9-13.1 (which exempts receipts only when the service is performed outside the state and its product is initially used outside the state).
The Hearing Officer also rejected DIRECTV's fallback arguments. Section 7-9-13.1 is a binary, all-or-nothing test — it does not allow a cost-of-performance apportionment, so DIRECTV's analysis showing that only ~0.2% of its costs were incurred in New Mexico was legally irrelevant. The apportionment regulation (3.2.1.18(C) NMAC) applies only when part of the service as received by the customer is actually performed out of state, which was not the case here. Finally, the tax survives constitutional scrutiny: it satisfies the four-part Complete Auto Transit v. Brady Commerce Clause test (substantial nexus, fair apportionment, no discrimination, fair relation to state services), and no federal law preempts a nondiscriminatory tax on satellite-programming revenue. The Hearing Officer found the reasoning of South Carolina's DIRECTV and Dish satellite-TV cases persuasive and consistent with New Mexico's situs analysis.
What this means for you
Out-of-state service providers billing New Mexico customers
Having your servers, studios, call centers, or other infrastructure outside New Mexico does not put your receipts outside the state's gross receipts tax. What matters is where your customer receives the benefit of what they bought. If they use or consume the service in New Mexico, the receipts are generally taxable here.
Streaming, satellite, telecom, SaaS, and other digital services
This decision reads the situs of a delivered-content service as the customer's location. If New Mexico users watch, stream, or otherwise use your product in-state, expect the fees to be treated as a service performed and initially used in New Mexico — regardless of how technically dispersed your delivery network is.
Anyone counting on a cost-of-performance or partial exemption
Section 7-9-13.1 is all-or-nothing: you must show the service was both performed and initially used outside New Mexico. A cost study showing most of your expenses are out of state won't earn a proportional exemption. Apportionment under 3.2.1.18(C) NMAC requires that a discrete part of the service the customer receives is actually performed outside the state.
Multistate businesses weighing a Commerce Clause challenge
A nondiscriminatory New Mexico GRT on receipts from in-state customers readily satisfies Complete Auto. Physical presence isn't required (South Dakota v. Wayfair), and the tax being tied to in-state customers means it is fairly apportioned and non-discriminatory. Preemption arguments against a general revenue tax on satellite programming have not succeeded.
Common questions
Q: All our equipment and staff are out of state — isn't the service "performed" there?
A: Not for New Mexico gross receipts tax. The situs is where the customer receives and experiences the benefit. Because DIRECTV's subscribers watch programming in New Mexico, the service is treated as performed and used in New Mexico, even though the infrastructure is elsewhere.
Q: What is the "product of the service" that has to be used out of state to qualify for the exemption?
A: The Hearing Officer held the product is the ability to view programming — not the raw signal. That benefit is first realized where the subscriber watches, which is in New Mexico, so the exemption's "initially used outside" prong isn't met.
Q: Can I at least get a partial refund for the share of costs incurred out of state?
A: No. Section 7-9-13.1 is a binary test with no cost-of-performance apportionment. The apportionment rule (3.2.1.18(C) NMAC) applies only where part of the service the customer receives is genuinely performed outside the state, which wasn't shown here.
Q: Doesn't taxing a satellite service crossing state lines violate the Commerce Clause or federal law?
A: The Hearing Officer found the tax satisfies all four prongs of Complete Auto Transit v. Brady and that no federal law preempts a nondiscriminatory tax on revenue from New Mexico customers. Satellite providers have been taxed on in-state receipts in other states on similar reasoning.
Q: Can I rely on this decision for my own situation?
A: Not directly. A Decision and Order resolves one taxpayer's protest on its specific facts and is not a general ruling or advisory opinion of the Department. It is, however, a detailed statement of how New Mexico determines the situs of a service for gross receipts tax.
Citations and references
Statutes and rules:
- NMSA 1978, § 7-9-13.1 (1989, amended 2019) — exemption for a service performed outside New Mexico whose product is initially used outside the state (both prongs required)
- NMSA 1978, § 7-9-4 (2010, amended 2022) — imposition of gross receipts tax
- NMSA 1978, § 7-9-5(A) (2019) — all receipts presumed taxable
- NMSA 1978, § 7-9-3.3 — "engaging in business"; $100,000 receipts threshold (physical presence not required)
- NMSA 1978, § 7-9-3(P) (2019) — location/situs of a service
- NMSA 1978, § 7-9-3(E) (2007) — definition of "initial use" / "initially used"
- NMSA 1978, § 7-1B-8 (2019) — hearing requirement
- Regulation 3.2.1.18(C) NMAC — apportionment of services performed partly inside and partly outside New Mexico
- Regulation 3.1.6.12(A) NMAC — burden shifts to the Department once the presumption of correctness is overcome
Cases:
- Rauscher, Pierce, Refsnes, Inc. v. Taxation & Revenue Dep't, 2000-NMCA-065, aff'd 2002-NMSC-013 (out-of-state activity does not immunize a service; situs is where the customer receives the benefit)
- Talbridge Corp. v. N.M. Taxation & Revenue Dep't, 2024-NMCA-044 (activities incidental to a service performed in New Mexico are taxable)
- Mountain States Advert., Inc. v. Bureau of Revenue, 1976-NMCA-058 (focus on where the customer experiences the benefit)
- ITT Educ. Services, Inc. v. Taxation & Revenue Dep't, 1998-NMCA-078 (same)
- Sacred Garden, Inc. v. N.M. Taxation & Revenue Dep't, 2021-NMCA-038 (deductions/exemptions strictly construed; taxpayer's burden)
- Sutin, Thayer & Browne v. Revenue Div., 1985-NMCA-047 (exemptions are legislative grace, narrowly construed)
- Sec. Escrow Corp. v. State Taxation & Revenue Dep't, 1988-NMCA-068; Wing Pawn Shop v. Taxation & Revenue Dep't, 1991-NMCA-024; Pittsburgh & Midway Coal Mining Co. v. Revenue Div., 1983-NMCA-019 (strict construction of exemptions)
- TPL, Inc. v. N.M. Taxation & Revenue Dep't, 2003-NMSC-007; Corr. Corp. of Am. of Tenn. v. State, 2007-NMCA-148 (presumption of correctness; taxpayer's burden)
- Gemini Las Colinas, LLC v. N.M. Taxation & Revenue Dep't, 2023-NMCA-039 (burden of production/persuasion)
- Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) (four-part Commerce Clause test)
- South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018) (physical presence not required for nexus)
- DIRECTV, Inc. & Subsidiaries v. S.C. Dep't of Revenue, 421 S.C. 59, 804 S.E.2d 633 (2017); Dish DBS Corp. v. S.C. Dep't of Revenue, 2018 WL 5733487 (persuasive out-of-state satellite-TV situs cases)
- Warren Trading Post Co. v. Arizona State Tax Comm'n, 380 U.S. 685 (1965) (states may tax interstate businesses absent conflict with federal regulation)
Source
- Listing: New Mexico Decisions & Orders
- Decision post: DirectTV, LLC
- Decision PDF: D&O 25-06
Original ruling text
1 STATE OF NEW MEXICO
2 ADMINISTRATIVE HEARINGS OFFICE
3 TAX ADMINISTRATION ACT
4 DIRECTV, LLC
5 AHO Case Nos. 22.01-001R & 22.06-035R, D&O No. 25 – 06
6 v.
7 NEW MEXICO TAXATION AND REVENUE DEPARTMENT
8 DECISION AND ORDER
9 On May 7, 2024, Hearing Officer Chris Romero, Esq., of the Administrative Hearings
10 Office conducted an administrative hearing on the merits of the tax protest of DIRECTV, LLC
11 (hereinafter “DIRECTV” or “Taxpayer”) pursuant to the Tax Administration Act and the
12 Administrative Hearings Office Act. The record closed on August 26, 2024, upon filing of the
13 parties’ post-hearing submissions.
14 The Administrative Hearings Office is an independent agency tasked with the fair and
15 impartial adjudication of protests under the Tax Administration Act. As explained by Regulation
16 22.600.1.20(C) NMAC, the Hearing Officer is not “responsible to or subject to the direction of
17 any officer, employee or agent of the taxation and revenue department[.]”
18 Frank Crociata, Esq. and Scott Woody, Esq., appeared in person for DIRECTV
19 accompanied by Benjamin Gardner, Esq., and Stephen Carlozzi. Eli Geffin, Kevin Rodriguez,
20 Steve Dulac, and Michael Francis appeared by Zoom.
21 Staff Attorney David Mittle, Esq., appeared in person representing the Taxation and
22 Revenue Department (“Department”), and was accompanied by Mary Griego, protest auditor.
23 Thanyathorn Winkelmaier, protest auditor, and Donnita Wald, chief legal counsel, also appeared
24 to observe.
25 Taxpayer Exhibits 1 – 12 and Department Exhibits A – F and I – N were admitted upon
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1 stipulation of the parties. The Department’s binder also included a copy of DIRECTV’s
2 Prehearing Statement, identified as Department Ex. O. The Department explained it was
3 included for reference purposes only and is not admitted as an exhibit.
4 This matter arises from the protest by DIRECTV of the Department’s denial of gross
5 receipts tax refund claims for the periods December 2016 through June 2019. The central issue is
6 whether DIRECTV's gross receipts from subscribers located in New Mexico are subject to Gross
7 Receipts Tax or exempt under NMSA 1978, Section 7-9-13.1.
8 As explained below, the Hearing Officer concludes that the service provided by
9 DIRECTV is performed and consumed in New Mexico, and therefore does not qualify for the
10 exemption under Section 7-9-13.1. DIRECTV’s protest should be DENIED for the reasons stated.
11 IT IS DECIDED AND ORDERED AS FOLLOWS:
12 FINDINGS OF FACT
13 The following Findings of Fact include citations derived from the parties’ proposed
14 findings. Where a citation conflicts with the audio recording of the hearing, the audio recording
15 shall control as the official record of the proceeding.
16 Witnesses
17 1. Steve Dulac has been employed by DIRECTV since its inception, which he
18 estimates to be approximately 30 years ago. Mr. Dulac has a bachelor’s degree in electrical
19 engineering and a master’s degree in telecommunications engineering from the University of
20 California, Los Angeles. [Direct Examination of Mr. Dulac]
21 2. Prior to his current position, Mr. Dulac was director of engineering for
22 DIRECTV. He served in that capacity for 20 years, during which he was part of the team that
23 oversaw the development of features such as local channel retransmissions, high-definition
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1 display, digital video recording, and other home networking options. [Direct Examination of Mr.
2 Dulac]
3 3. Mr. Dulac is senior director of content technology and regulatory policy for
4 DIRECTV. He has been employed in this capacity for about ten years. His primary roles are to
5 assist DIRECTV’s legal and programming departments with negotiation of content agreements
6 as well as the technical aspects of acquiring and distributing programming signals. He also
7 manages earth and space station licenses regulated by the Federal Communications Commission
8 (FCC), including issues related to FCC policy. [Direct Examination of Mr. Dulac]
9 4. Mr. Dulac has published several papers in industry journals on satellite direct-to-
10 home services. [Direct Examination of Mr. Dulac]
11 5. Michael J. Francis has an accounting degree from Michigan State University. He
12 is a CPA and partner at BI Solutions Group, where he designs and implements financial cost and
13 performance solutions for clients. He has participated in “probably over a hundred” cost-related
14 engagements over his career. [Direct Examination of Mr. Francis]
15 6. Stephen L. Carlozzi has a bachelor’s and master’s degree in accounting from St.
16 John’s University. He is a certified member of the Institute for Professionals in Taxation. He has
17 been with KPMG, LLP for more than 20 years and currently serves as its Managing Director of
18 State and Local Tax. [Direct Examination of Mr. Carlozzi]
19 DIRECTV’s Services and Business Model.
20 7. DIRECTV provides Direct Broadcast Satellite (DBS) television service to
21 residential and commercial customers across the United States, including New Mexico, as well
22 as in the Caribbean and parts of Latin America. Affidavit of Steve Dulac, dated July 28, 2022
23 (“Dulac Aff.”),1 ¶¶ 3, 4; Tr. (May 7), 35:18-22, 38:24-39:4; 39:22-25.
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1 8. DBS television service is the process of using geostationary satellites to transmit
2 television programming directly to customers’ premises. Tr. (May 7), 39:5-11.
3 9. As part of its DBS television service, DIRECTV transmits live-broadcast
4 channels (e.g., ABC, CBS, NBC, and Fox) and hundreds of full-time programming channels,
5 such as TBS, TNT, and HBO, movie channels, sports channels, sports league games, and foreign
6 language selections, public interest, and other special event programming to customers. Dulac
7 Aff., ¶ 5; Tr. (May 7), 39:5-21.
8 10. DIRECTV charges customers monthly fees for DBS television service. Dulac
9 Aff., ¶ 6; New Mexico Taxation & Revenue Department’s Original Answer to Protest, dated
10 January 4, 2022 (“Jan. 2022 Answer”), at 1; Department’s Original Answer, dated July 6, 2022
11 (“Jul. 2022 Answer”), at 1; Tr. (May 7), 40:1-4; see Tr. (May 7), 41:19-42:10.
12 11. For residential customers, monthly DBS television service fees vary depending on
13 the programming package selected. Standard DBS television service fees typically range from
14 less than $75 to more than $150 per month. However, initial monthly DBS television service fees
15 may be lower if the customer is eligible for a discount or incentive for signing up for DBS
16 television service. Fees may increase if a customer subscribes to premium programming, such as
17 professional sports league games or special events. Dulac Aff., ¶ 7; Tr. (May 7), 40:1-41:8.
18 12. For commercial customers, monthly fees vary based on the type and scale of the
19 business. Dulac Aff., ¶ 8; Tr. (May 7), 41:9-42:10.
20 13. For small businesses, such as a nail salon with one or two televisions, monthly
21 fees are generally similar in structure and amount to residential plans. Dulac Aff., ¶ 8; Tr. (May
22 7), 41:19-42:2.
23 14. For commercial customers such as sports bars or restaurants, monthly DBS
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1 television service fees are typically based on occupancy limits. Tr. (May 7), 42:2-6.
2 15. For institutional customers, such as hotels or hospitals, monthly fees are charged
3 on a per-unit (per-outlet) basis, the amount of which depends on the level of programming
4 selected. Dulac Aff., ¶ 8; Tr. (May 7), 41:9-18, 42:7-10.
5 16. Monthly DBS television service fees for commercial customers range from levels
6 comparable to residential fees to several thousand dollars per month. Dulac Aff. ¶ 8; Tr. (May 7),
7 41:19-42:2; see Ex. M-001.
8 17. DIRECTV’s business model centers on retaining existing subscribers and
9 acquiring new ones who pay a monthly fee to access programming.
10 18. Subscription fees cover the costs of service delivery, including production,
11 broadcasting, installation, billing and customer care, IT support, and general administrative
12 overhead. May 7, p. 97, ll. 6-11; May 7, p. 122, ll. 4-8; Ex. 11-002; Ex. 12-002.
13 19. DIRECTV charges gross receipts tax to New Mexico customers on the amount
14 billed. May 8, p. 18, ll. 1-25; May 8, p. 19, ll. 1-4.
15 20. DIRECTV does not remit gross receipts tax on receipts from out-of-state
16 customers; the tax applies only to transactions involving in-state customers. May 8, p. 19, ll. 9-
17 12.
18 21. Customers typically subscribe to DBS television service for one to two years. Tr.
19 (May 7), 42:20-25.
20 22. Nationally, approximately 95% of DIRECTV’s fees derive from residential
21 customers, and 5% from commercial accounts. Dulac Aff., ¶ 9; Tr. (May 7), 43:1-10.]
22 23. From 2016 through 2019, DIRECTV had between 150,000 and 200,000
23 customers in New Mexico. Tr. (May 7), 46:6-10.
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1 24. From 2016 through 2019, DIRECTV had more than 20 million customers across
2 the United States. Tr. (May 7), 46:11-15.
3 25. Subscription fees from New Mexico customers represent the majority of
4 DIRECTV’s revenue from business activities in the state. [Cross Examination of Mr. Dulac]
5 26. New Mexico subscribers—both residential and commercial—pay DIRECTV to
6 watch television at homes and businesses located in the state.
7 Equipment and Installation
8 27. Customers who subscribe to DIRECTV enter into service agreements. Ex. J-001
9 (describing the terms and conditions for DIRECTV service, using DIRECTV constitutes
10 agreement to certain terms, and noting that equipment leases are subject to a different
11 agreement), J-002; K-001.
12 28. Residential customers receive a satellite dish and one set-top box at no additional
13 cost when ordering DBS television service. Dulac Aff., ¶¶ 20, 14; Tr. (May 7), 59:1-5, 60:12-17.
14 29. Residential customers receive standard installation of the receiving dish and set-
15 top box at no additional charge when ordering DBS television service. Dulac Aff., ¶ 25; Tr. (May
16 7), 70:5-16.
17 30. Standard installations are typically performed by a DIRECTV technician or third-
18 party contractor and involve mounting the receiving dish to the residence, running coaxial cable
19 to the set-top box, and connecting it to the customer’s television. Tr. (May 7), 69:16-70:4.
20 31. Residential customers who require more complex, custom installations, such as
21 those required to accommodate sophisticated home theater systems, can pay additional one-time
22 installation fees that are not included in the monthly DBS television service fees and that are
23 separately itemized on customer invoices. Dulac Aff., ¶ 25; Tr. (May 7), 70:17-71:9.
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1 32. Residential customers may lease additional set-top boxes from DIRECTV for
2 separate equipment rental charges not included in the standard DBS television service fees. The
3 rental fee for each additional set-top box is typically $7.00 per month and appears on customer
4 invoices as a “TV Access Fee.” Dulac Aff., ¶ 20; Tr. (May 7), 60:12-61:7; see Ex. L-002.
5 33. Nationally, almost 35% of DIRECTV’s customers do not request an additional
6 set-top box, and approximately 95% request three or fewer. Dulac Aff., ¶ 21; Tr. (May 7), 61:8-
7 20.
8 34. Upon installation, the residential customer acquires ownership of the receiving
9 dish and cabling. Dulac Aff., ¶ 24; Tr. (May 7), 59:17-21, 72:1-4.
10 35. Upon installation for residential customers, set-top boxes remain the property of
11 DIRECTV. Tr. (May 7), 60:12-22.
12 36. DIRECTV offers advanced equipment with features such as high-definition
13 viewing and DVR functionality, which customers may request in place of standard set-top boxes.
14 Tr. (May 7), 62:10-19.
15 37. Residential customers who want advanced capabilities rent the equipment from
16 DIRECTV and pay monthly fees that are separate from and not included in the standard DBS
17 television service charges. Tr. (May 7), 62:20-63:17, 68:6-24 (discussing Ex. J-008); Ex. J-008.
18 38. Commercial customers typically purchase receiving dishes and set-top boxes.
19 Dulac Aff. ¶¶ 26, 27; Tr. (May 7), 59:6-16, 61:21-62:3.
20 39. Small business customers, such as nail salons, may purchase equipment directly
21 from DIRECTV, which may also perform installation for a separate fee that is minor compared
22 to DBS television service fees. Dulac Aff., ¶ 26; Tr. (May 7), 71:10-23.
23 40. Other commercial customers typically purchase the receiving dish and set-top-
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1 boxes from third-party vendors, who also install that equipment at the customers’ premises.
2 Dulac Aff., ¶ 27; Tr. (May 7), 59:6-16, 61:21-62:3, 71:10-25.
3 41. Once installed, commercial customers own the receiving dish, set-top boxes, and
4 associated cabling. Tr. (May 7), 59:17-21, 62:4-9, 72:1-4.
5 42. DIRECTV will make service calls to customers’ premises after initial equipment
6 installation if the equipment breaks down or is not working properly. Dulac Aff., ¶ 28; Tr. (May
7 7), 72:5-9.
8 43. Post-installation service calls are infrequent and typically subject to separate
9 charges not included in DBS television service fees. Dulac Aff., ¶ 28; Tr. (May 7), 72:10-73:2.
10 44. DIRECTV does not sell or lease receiving dishes and set-top boxes independently
11 of its DBS television service. Dulac Aff., ¶ 22; Tr. (May 7), 69:5-12.
12 45. DIRECTV does not provide televisions to customers. Tr. (May 7), 69:13-15.
13 46. For tax periods December 2016 through June 2019, DBS television service fees
14 accounted for 70% of the total fees collected from New Mexico customers. The remaining 30%
15 consisted of equipment rental fees and separate charges for installations and service calls. Ex. 10-
16 001, 10-002, 10-003; Tr. (May 7), 172:10-173:22,174:5-10, 175:5-11.
17 47. With the standard equipment provided at no additional charge with DBS service,
18 customers can view live broadcast and full-time programming channels within their subscription
19 package and may purchase additional programming viewable only at its regularly scheduled
20 airtime. However, customers using standard equipment cannot view previously aired programs
21 or access on-demand content. Tr. (May 7), 43:11-25, 44:19-45:21.
22 48. Nationally, and from 2016 through 2019, over 90% of all DIRECTV viewership
23 consisted of watching live-broadcast and full-time television programming. Tr. (May 7), 45:22-
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1 46:5.
2 Technical Infrastructure and Service Delivery
3 49. The Department acknowledges that DIRECTV provides television services to
4 households in New Mexico, broadcasting signals to satellites from outside the state, which are
5 then transmitted to customer premises. Ex. 5-001; Ex. 6-001; Jan. 2022 Ans., at 1; July 2022
6 Ans., at 1.
7 50. The Department further acknowledges that DIRECTV provides a singular,
8 integrated service. Dep’t’s Resp. Mot. Summ. J., at 7.
9 51. For approximately 99% of its available programming, DIRECTV acquires
10 broadcasting or retransmission rights from third-party content providers, such as Disney, Warner
11 Brothers, and ESPN. Tr. (May 7), 47:23-49:22.
12 52. The broadcasting and retransmission rights acquired by DIRECTV do not convey
13 any ownership interest in the programming to DIRECTV. Tr. (May 7), 49:9-13.
14 53. The broadcasting and retransmission rights give DIRECTV the non-exclusive
15 right to broadcast or retransmit the programming to its customers. Tr. (May 7), 48:7-49:8.
16 54. Most third-party content providers distribute television programming signals
17 directly to DIRECTV’s two primary broadcast centers, via satellite transmission or, in some
18 cases, fiber optic cable. Dulac Aff., ¶ 12; Tr. (May 7), 50:15-51:8.
19 55. DIRECTV does not own, lease, or operate the satellite systems or fiber optic
20 cable networks that the third-party content providers use to distribute television programming
21 signals to DIRECTV. Dulac Aff., ¶ 19; Tr. (May 7), 51:9-16.
22 56. DIRECTV’s two primary broadcast centers are located in Los Angeles, California
23 and Castle Rock, Colorado. Dulac Aff., ¶ 30; Tr. (May 7), 51:2-8.
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1 57. DIRECTV’s two primary broadcast centers are large warehouse-style facilities
2 with satellite receiving antennae for incoming programming and uplink antennae that transmit
3 aggregated signals to DIRECTV’s satellites. The broadcast centers also house data center
4 equipment and communications hardware. Tr. (May 7), 51:17-20, 51:25-52:2, 52:8-21.
5 58. DIRECTV’s two primary broadcast centers receive programming signals from
6 third-party content providers, aggregate, compress, and encrypt the programming into a signal,
7 then transmit it via radiofrequency to DIRECTV’s satellites in orbit. Dulac Aff., ¶ 13; Tr. (May
8 7), 51:17-52:7, 55:9-56:20.
9 59. DIRECTV collects local television programming signals from Designated Market
10 Areas using Local Collection Facilities (“LCF”). Dulac Aff., ¶ 14; Tr. (May 7), 52:22-53:5.
11 60. LCFs consist of digital over-the-air antennae and minimal signal processing
12 equipment, typically housed in locations with strong broadcast reception. LCFs collect local
13 television signals and pre-process them for distribution. Dulac Aff., ¶ 30; Tr. (May 7), 53:9-17,
14 78:11-79:12.
15 61. After preprocessing, local programming signals are transmitted via fiber optic
16 cable from the LCFs to DIRECTV’s regional broadcast centers. Dulac Aff., ¶ 14; Tr. (May 7),
17 53:9-18.
18 62. DIRECTV’s regional broadcast centers perform the same functions as the primary
19 broadcast centers, but on a smaller scale. Tr. (May 7), 53:19-24, 56:21-57:9.
20 63. New Mexico customers would be unable to view programming without the
21 operation of DIRECTV’s primary and regional broadcast centers. Tr. (May 7), 86:23-87:7.
22 64. DIRECTV has approximately 200 LCFs in the United States. Dulac Aff., ¶ 14; Tr.
23 (May 7), 54:6-8.
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1 65. DIRECTV operates a single LCF in New Mexico, which serves only the
2 Albuquerque/Santa Fe area and not the entire state. Dulac Aff., ¶ 29; Tr. (May 7), 54:9-15.
3 66. Other than one LCF, DIRECTV does not acquire any other television
4 programming signals from content providers in New Mexico and does not store programming
5 content on any servers located in New Mexico. Tr. (May 7), 55:2-8.
6 67. DIRECTV’s regional broadcast centers are in Arizona, New Hampshire,
7 Minnesota, Virginia, and Washington state. None are located in New Mexico. Dulac Aff., ¶ 30;
8 Tr. (May 7), 54:16-55:1.
9 68. In 2016 through 2019, DIRECTV had 12 satellites that served the United States
10 market. The satellites sit in geostationary orbit along the equator. Dulac Aff., ¶ 31; Tr. (May 7),
11 57:10-58:7.
12 69. DIRECTV’s satellites are monitored and controlled from facilities in California.
13 Dulac Aff., ¶ 31; Tr. (May 7), 58:8-10.
14 70. DIRECTV’s satellites receive the radiofrequency transmission from DIRECTV’s
15 broadcast centers and distribute or retransmit the television programming signals to customers’
16 receiving dishes. Tr. (May 7), 58:11-17.
17 71. Customer receiving dishes collect the signals, convert them, and transmit them via
18 coaxial cable to the set-top box. Tr. (May 7), 58:18-25.
19 72. Set-top boxes decompress and decrypt the signal, then deliver the decoded
20 programming to the television for viewing. Dulac Aff., ¶ 16; Tr. (May 7), 59:22-60:11.
21 73. Encryption at the broadcast centers and decryption by the set-top box protect
22 DIRECTV’s content from unauthorized access. Tr. (May 7), 55:23-56:5, 60:1-11.
23 74. Each set-top box or advanced receiver includes an access card containing the
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1 decryption key for DIRECTV’s programming. Tr. (May 7), 67:7-25; Ex. J-002, subpart (e).
2 75. DIRECTV transmits continuous television programming signals 24 hours per day,
3 seven days per week. Nearly all programming signals originate outside New Mexico and travel
4 more than 44,000 miles round trip before reaching customers in New Mexico. Dulac Aff., ¶ 17;
5 Tr. (May 7), 56:9-20.
6 76. DIRECTV operates customer support facilities in Alabama, Colorado, Idaho,
7 Illinois, Montana, Oklahoma, and West Virginia. No customer support facilities are located in
8 New Mexico. Dulac Aff., ¶ 32; Tr. (May 7), 73:3-14.
9 77. Customer support centers assist subscribers with billing, technical support, and
10 equipment issues related to DBS television service. The customer care centers contain
11 specialized groups with in-depth knowledge of specific issues. Depending on the nature of the
12 inquiry, customer care calls may be routed to any of these facilities. Tr. (May 7), 73:15-74:11.
13 78. The facilities supporting DIRECTV’s operations are located outside New Mexico
14 and are maintained by other states’ infrastructure, emergency services, and regulatory
15 frameworks. Tr. (May 7), 86:10-22; Tr. (May 8), 36:22-37:19.
16 79. Although DIRECTV’s facilities are located outside New Mexico, they support
17 services ultimately delivered and received by customers within the state. May 8, p. 14, ll. 12-14;
18 May 8, p. 15, ll. 12-15, 21-22.
19 80. DIRECTV’s out-of-state costs—including broadcasting, customer care, billing,
20 and technology—are incidental to the actual act of watching television. May 8, p. 16, ll. 7-9, 24-
21 5; May 8, p. 17, ll. 1-13.
22 Customer Experience
23 81. Nicholas Pacheco is employed as an auditor with the Department. May 7, p. 213,
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1 l. 18; May 7, p. 215, l. 21.
2 82. Mr. Pacheco testified solely in his capacity as a DIRECTV subscriber, not as a
3 Department employee. May 7, p. 213, l. 24 through p. 214, l. 4.
4 83. Mr. Pacheco pays DIRECTV “to provide the [television] programs to my TV”
5 and confirmed that, as a satellite service, the programs are provided to his television by satellite
6 transmission. Tr. (May 7), 213:21-214:8, 216:21-217:20.
7 84. Mr. Pacheco’s decision to subscribe is not motivated by DIRECTV’s satellites,
8 rooftop dish, or set-top box. May 7, p. 215, l. 17 through p. 216, l. 2. He is ambivalent toward
9 DIRECTV’s operations and technology.
10 Refund Claims and Denials
11 85. On December 30, 2020, DIRECTV filed a refund claim with the Department,
12 covering tax periods December 2016 through December 2017 and requesting a refund of gross
13 receipts tax paid in the amount of $11,974,807.95. Ex. 3-001; Tr. (May 7), 151:15-152:5.
14 86. After receiving the 2016–2017 Refund Claim, the Department requested
15 additional documentation, which DIRECTV provided within the original 30-day deadline or an
16 agreed 15-day extension. DIRECTV provided all documentation by March 12, 2021. Tr. (May
17 7), 153:8-154:1.
18 87. The Department denied the 2016–2017 Refund Claim in full on March 12, 2021,
19 under Letter ID L0853504432. Ex. 5-001; Tr. (May 7), 154:4-154:9.
20 88. At no point did the Department assert that the supplemental information provided
21 by DIRECTV in support of the 2016–2017 Refund Claim was insufficient to review the claim.
22 Tr. (May 7), 154: 24-155:2.
23 89. On December 21, 2021, DIRECTV filed a second refund claim with the
In the Matter of the Protest of DirecTV, LLC
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1 Department, covering tax periods January 2018 through June 2019 and requesting a refund of
2 gross receipts tax paid in the amount of $14,801,136.54. Ex. 4-001; Tr. (May 7), 152:8-15.
3 90. Upon receiving the 2018–2019 Refund Claim, the Department requested
4 additional information and DIRECTV submitted all available information within the 30-day
5 response window. Tr. (May 7), 155:3-156:8.
6 91. DIRECTV received an email from TRD on or around January 24, 2022, advising
7 that the 2018–2019 Refund Claim remained under review. Tr. (May 7), 156:15-24.
8 92. However, through the Department’s TAP portal, DIRECTV learned that the
9 Department had denied the 2018–2019 Refund Claim on January 19, 2022 under Letter ID
10 L0836864944. Ex. 6-001; Tr. (May 7), 156:25-157:20.
11 93. On its original returns for the Refund Claim periods, DIRECTV had paid gross
12 receipts tax on all receipts generated from its New Mexico customers. Tr. (May 7), 159:20-
13 160:5.
14 94. Both Refund Claims sought refunds of gross receipts tax on the portion of DBS
15 television service assertedly performed outside New Mexico. Tr. (May 7), 160:6-23.
16 95. Neither Refund Claim eliminated all gross receipts from DIRECTV’s tax base.
17 Rather, even under its Refund Claims, DIRECTV continued to pay gross receipts tax on the
18 portion of DBS television service performed in New Mexico, charges for leased set-top-boxes
19 and advanced equipment, any separately stated installation charges, and any separate charges for
20 service calls. Tr. (May 7), 160:24-161:11.
21 96. Based on representative sample months, DIRECTV paid between $328,831 and
22 $368,833 per month on the gross receipts that were not eliminated from the tax base under the
23 Refund Claims, resulting in approximately $4 million in gross receipts tax paid annually, even if
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1 the Refund Claims had been granted. Ex. 10-001 through 10-003; Ex. 8-001, 8-012, 8-022; Tr.
2 (May 7), 162:16-163:20; Tr. (May 8), 32:1-33:2.
3 Cost Allocation and BI Solutions Analysis
4 97. To calculate the Refund Claims, DIRECTV utilized transaction-level data from its
5 data warehouse systems. Tr. (May 7), 163:24-165:19.
6 98. The data warehouse systems contain coding that indicates whether transactions
7 are DBS television service fees or non-DBS television service fees, such as equipment rentals.
8 Tr. (May 7), 166:2-24, 167:23-168:25.
9 99. Based on the coding, DIRECTV first segregated the data between DBS television
10 service fees and non-DBS television service fees to derive the total monthly gross receipts tax
11 paid that was attributable to DBS television service fees. Tr. (May 7), 169:24-170:7, 172:13-
12 174:10; Ex. 10-001 through 10-003.
13 100. DIRECTV multiplied the gross receipts tax paid on DBS television service fees
14 for each month in the Refund Claims by the percentage of its out-of-state costs of performing
15 DBS television service. Business Intelligence Solutions Group, LLC (“BI Solutions”) annually
16 determined DIRECTV’s in-state and out-of-state costs of performance. The product of that
17 calculation yielded the amounts requested in the Refund Claims. Ex. 10-001 through 10-003, 10-
18 004, 10-006; Tr. (May 7), 174:11–175:4, 175:18–176:9, 176:10–177:3, 177:9–178:2.
19 101. BI Solutions focuses on designing and implementing cost management solutions,
20 often through models. Tr. (May 7), 8:16-90:4.
21 102. During the relevant tax periods, BI Solutions developed annual cost models for
22 AT&T, DIRECTV’s parent company, which allocated costs geographically for service delivery
23 and assisted with compliance under state income tax requirements. Tr. (May 7), 92:3-93:16.
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1 103. BI Solutions also conducted analyses and produced reports to support
2 DIRECTV’s Refund Claims. Tr. (May 7), 93:17-21; Ex. 11; Ex. 12.
3 104. BI Solutions’ primary objective was to identify the types and locations of costs
4 incurred in performing DBS television service in New Mexico and several other states. Ex. 11-
5 001; Ex. 12-001; Tr. (May 7), 94:17-95:15.
6 105. To complete the analysis, BI Solutions extracted data from the annual
7 AT&T/DIRECTV cost models. Tr. (May 7), 95:16-25, 120:14-18, 128:25-129:7.
8 106. These cost models are part of DIRECTV’s standard cost accounting records. Tr.
9 (May 7), 106:22-25.
10 107. In conducting its analyses, BI Solutions relied on the Uniform Division of Income
11 for Tax Purposes Act (UDITPA) regulations because those regulations typically support a state-
12 specific view of where costs of performing a service are incurred. Tr. (May 7), 96:1-20, 104:17-
13 105:6.
14 108. BI Solutions determined that the following activities were necessary for the
15 performance of DBS television service: (a) production of original DIRECTV-produced content;
16 (b) broadcasting, which covers signal collection, conversion and satellite retransmission; (c)
17 Installation of receiving dishes and set-top-boxes at customers’ premises; (d) customer support;
18 (e) billing in order to secure revenue from providing DBS television service; and (f) IT and
19 technology enablement, which is integrated with the broadcasting activities. Ex. 11-008, 11-009;
20 Ex. 12-008, 12-009; Tr. (May 7), 97:3-98:15, 104:17-105:6, 121:19-122:8.
21 109. BI Solutions excluded research and development, sales, and general and
22 administrative costs from the analysis because they were not essential to performing DBS
23 television service. Ex. 11-009-11-010; Ex. 12-009; Tr. (May 7), 98:1-5, 104:17-105:6.
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1 110. The data BI Solutions used in the analyses for DIRECTV came from DIRECTV’s
2 general ledger, subledgers, payroll details, and operational systems and reports. Tr. (May 7),
3 98:19-101:14, 104:17-105:6.
4 111. These types of records are routinely used in cost modeling. Tr. (May 7), 99:15-21.
5 112. BI Solutions assigned equipment costs to the location where the equipment was
6 used and labor costs to the location of the employees performing the service, based on
7 DIRECTV’s cost accounting records. Tr. (May 7), 100:4-101:2, 141:6-21.
8 113. BI Solutions used alternative records, including annual reports and SEC filings, to
9 cross-verify its analysis. Tr. (May 7), 101:7-11.
10 114. Based on DIRECTV’s cost accounting records, BI Solutions determined that
11 0.27% of DIRECTV’s costs of performing DBS television service were incurred in New Mexico
12 in 2016. Ex. 11-016; Tr. (May 7), 103:23–104:4.
13 115. In 2017, 0.20% of DIRECTV’s costs of performing DBS television service were
14 incurred in New Mexico. Ex. 11-049; Tr. (May 7), 104:10–16.
15 116. In 2018, 0.25% of DIRECTV’s costs of performing DBS television service were
16 incurred in New Mexico. Ex. 12-029; Tr. (May 7), 106:9–13.
17 117. In 2019, 0.19% of DIRECTV’s costs of performing DBS television service were
18 incurred in New Mexico. Ex. 12-038; Tr. (May 7), 106:17–21.
19 118. BI Solutions was asked to extract and summarize the costs of performing DBS
20 television service, including the geographic location where those costs were incurred. Tr. (May
21 7), 125:8-12.
22 119. The Department denied both Refund Claims on the same two grounds. First, it
23 asserted that even though DIRECTV’s facilities are located outside New Mexico, DBS television
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1 service is for “end use” in New Mexico. Second, it asserted that DIRECTV’s cost accounting
2 methodology was invalid because DIRECTV did not calculate the costs of performing DBS
3 television service for each individual New Mexico customer. Ex. 5-001; Ex. 6-001; Tr. (May 7),
4 154:7-23, 157:13-25; Tr. (May 8), 14:6-19.
5 120. Based on his expertise in cost accounting and modeling, Mr. Francis testified that
6 the type of tax at issue has no bearing on what the costs of performing DBS television service are
7 or where those costs are incurred. Tr. (May 7), 144:3-145:5.
8 Procedural History
9 121. On March 12, 2021, the Department issued a Full Refund Denial on DIRECTV’s
10 refund claim in the amount of $11,974,807.95 for the periods December 31, 2016 – December
11 31, 2017. [Administrative File (Letter ID L0853504432)]
12 122. On June 9, 2021, DIRECTV submitted a formal written protest of the
13 Department’s denial of the 2016-2017 Refund Claim. [Administrative File]
14 123. On June 28, 2021, the Department acknowledged DIRECTV’s protest of the
15 denial for the period from December 31, 2016 – December 31, 2017. [Administrative File (Letter
16 ID No. L1478722992)]
17 124. On January 3, 2022, the Department filed a Request for Hearing and its Original
18 Answer to the Protest of refund denial relevant to the period from December 31, 2016 –
19 December 31, 2017. [Administrative File]
20 125. On January 4, 2022, the Administrative Hearings Office issued a Notice of
21 Telephonic Scheduling Hearing in Case No. 22.01-001R, setting an initial hearing on the 2016–
22 2017 Refund Claim. [Administrative File]
23 126. On January 19, 2022, the Department issued a full refund denial for DIRECTV’s
In the Matter of the Protest of DirecTV, LLC
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1 claim totaling $14,801,136.54 for the period from January 31, 2018, through June 30, 2019.
2 [Administrative File (Letter ID L0836864944)]
3 127. At the initial hearing on January 28, 2022, neither party objected to the hearing
4 proceeding as satisfying the 90-day statutory requirement. [Administrative File]
5 128. On February 17, 2022, the Administrative Hearings Office entered a Scheduling
6 Order and Notice of Administrative Hearing for Case Number 22.01-001R, setting the merits
7 hearing on the 2016-2017 Refund Claim protest for June 14 – 15, 2022. [Administrative File]
8 129. On April 13, 2022, DIRECTV submitted a formal written protest of the
9 Department’s denial of the 2018-2019 Refund Claim. [Administrative File]
10 130. On April 21, 2022, DIRECTV filed a Motion to Consolidate Case No. 22.01-
11 001R with its protest of the 2018–2019 Refund Claim denial, but advised the Administrative
12 Hearings Office that the Department had not yet obtained the documents necessary to file a
13 Request for Hearing. Because the Request for Hearing had not yet been filed, DIRECTV
14 requested that the Motion to Consolidate remain pending. [Administrative File]
15 131. On May 10, 2022, the Department filed a Motion to Reset the Date for the Merits
16 Hearing in Case Number 22.01-001R (“Motion to Reset”). [Administrative File]
17 132. On May 10, 2022, DIRECTV filed a Response to the Department’s Motion to
18 Reset. [Administrative File]
19 133. On May 11, 2022, the Department acknowledged DIRECTV’s protest of the
20 denial for the period from January 1, 2018 – June 30, 2019. [Administrative File (Letter ID No.
21 L1995462576)]
22 134. On May 13, 2022, the Administrative Hearings Office entered an Order Vacating
23 Hearing on the Merits and Notice of Telephonic Scheduling Hearing, setting a scheduling
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1 conference for June 3, 2022. [Administrative File]
2 135. On June 3, 2022, the Administrative Hearings Office held a scheduling
3 conference during which the merits hearing in Case No. 22.01-001R was reset for September 27–
4 28, 2022, and other unexpired deadlines were adjusted accordingly. [Administrative File]
5 136. On June 30, 2022, DIRECTV filed a Request for Hearing with the Administrative
6 Hearings Office for the protest of the Department’s denial of the 2018-2019 Refund Claim.
7 Admin. File.
8 137. On July 6, 2022, the Administrative Hearings Office entered an Order
9 Consolidating Protests identified by AHO case numbers 22.01.001R and 22.06-035R.
10 [Administrative File]
11 138. On July 6, 2022, the Administrative Hearings Office entered an Amended
12 Scheduling Order and Notice of Administrative Hearing to reflect the consolidation of the
13 protests. [Administrative File]
14 139. On July 6, 2022, the Department filed its Original Answer to the protest of the
15 denial of the 2018-2019 Refund Claim. [Administrative File]
16 140. On July 7, 2022, the Department filed an objection and request to amend the
17 Amended Scheduling Order to permit discovery in Case No. 22.06-035R. [Administrative File]
18 141. On July 13, 2022, DIRECTV filed a response to the Department’s objection and
19 request to amend the scheduling order. [Administrative File]
20 142. On July 26, 2022, the Administrative Hearings Office entered a Second Amended
21 Scheduling Order and Notice of Administrative Hearing permitting discovery in Case No. 22.06-
22 035R and establishing deadlines for preliminary witness and exhibit lists and dispositive
23 motions. [Administrative File]
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1 143. On July 29, 2022, DIRECTV filed a Motion for Partial Summary Judgment
2 regarding services performed outside New Mexico. [Administrative File]
3 144. Also on July 29, 2022, both parties filed their preliminary witness and exhibit
4 lists. [Administrative File]
5 145. On August 11, 2022, the Department filed a motion to extend the deadline to
6 respond to DIRECTV’s Motion for Partial Summary Judgment. [Administrative File]
7 146. On August 16, 2022, the Administrative Hearings Office entered a Third
8 Amended Scheduling Order, which extended the Department’s deadline to respond to
9 DIRECTV’s Motion for Partial Summary Judgment to September 16, 2022, vacated the merits
10 hearing scheduled for September 27–28, 2022, and scheduled a motions hearing for September
11 28, 2022. [Administrative File]
12 147. On September 15, 2022, the Department filed its Response to DIRECTV’s
13 Motion for Partial Summary Judgment. [Administrative File]
14 148. On September 19, 2022, DIRECTV filed an Expedited Motion for Leave to File a
15 Reply in Support of Motion for Summary Judgment. [Administrative File]
16 149. On September 22, 2022, the Administrative Hearings Office granted DIRECTV’s
17 expedited motion for leave to file a reply, setting a deadline of September 26, 2022.
18 [Administrative File]
19 150. On September 23, 2022, DIRECTV filed its Reply in Support of Motion for
20 Summary Judgment re: Services Performed Outside New Mexico. [Administrative File]
21 151. Also on September 23, 2022, the Department filed both an Objection and a
22 Supplemental Objection to the Administrative Hearings Office’s order granting DIRECTV leave
23 to file a Reply. [Administrative File]
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1 152. On September 28, 2022, the Administrative Hearings Office held a motions
2 hearing on DIRECTV’s Motion for Partial Summary Judgment. [Administrative File]
3 153. On May 2, 2023, the Administrative Hearings Office denied DIRECTV’s Motion
4 for Partial Summary Judgment, favoring the development of a more complete record through a
5 full merits hearing. [Administrative File]
6 154. The Administrative Hearings Office scheduled the merits hearing in the
7 consolidated cases for December 5–6, 2023. [Administrative File]
8 155. On November 8, 2023, DIRECTV filed an Unopposed Motion to Continue
9 Hearing until after April 1, 2024, due to the unexpected unavailability of one of its witnesses.
10 [Administrative File]
11 156. On November 14, 2023, the Administrative Hearings Office entered a
12 Continuance and Second Scheduling Order and Notice of Administrative Hearing, which set the
13 merits hearing in the consolidated cases for May 7–8, 2024, and established a deadline for the
14 parties’ prehearing statements 21 days before the hearing [Administrative File]
15 157. On April 16, 2024, both parties filed their respective prehearing statements.
16 [Administrative File]
17 158. On May 7–8, 2024, the Administrative Hearings Office conducted a merits
18 hearing in the consolidated cases. [Administrative File]
19 159. On May 14, 2024, the Administrative Hearings Office entered a Post-Hearing
20 Scheduling Order directing the parties to submit proposed findings of fact, conclusions of law,
21 and written closing arguments by August 16, 2024. [Administrative File]
22 160. The Post-Hearing Scheduling Order permitted the parties to stipulate to a
23 reasonable extension of the August 16, 2024, deadline, which they extended to August 26, 2024.
In the Matter of the Protest of DirecTV, LLC
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1 [Administrative File]
2 DISCUSSION
3 This protest concerns whether monthly subscription fees that DIRECTV receives from New
4 Mexico customers are subject to gross receipts tax or exempt under NMSA 1978, Section 7-9-13.1.
5 Under that statute, receipts from performing a service are exempt only if the taxpayer proves both
6 that (1) the service was performed outside New Mexico, and (2) the product of the service was
7 initially used outside the state.
8 DIRECTV’s Position
9 DIRECTV argues that it provides a satellite broadcasting service whose essential
10 components—content acquisition, signal processing, encryption, and transmission—occur
11 entirely outside New Mexico. It characterizes its service as the delivery of programming signals
12 by satellite to customer premises within the state. Because these technical operations take place
13 outside New Mexico, DIRECTV contends that its receipts qualify for exemption under Section
14 7-9-13.1, entitling it to a refund of $26,268,168.93 for the relevant tax periods.
15 DIRECTV maintains that its subscribers are purchasing access to a transmission service,
16 not the programming itself. It emphasizes that all signal acquisition, encryption, uplink, and
17 transmission occur outside New Mexico, which it argues establishes that the service is physically
18 performed outside the state. According to DIRECTV, these technical operations are integral to
19 delivering the service and support its claim that its receipts qualify for exemption under Section
20 7-9-13.1.
21 DIRECTV also argues that its gross receipts tax liability should be apportioned based on
22 the geographic distribution of its service-related costs. Relying on a cost-allocation analysis
23 developed with industry consultants, DIRECTV claims that the vast majority of its operational
In the Matter of the Protest of DirecTV, LLC
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1 costs were incurred outside New Mexico. Therefore, even if not fully exempt, DIRECTV asserts
2 that its receipts should at least be partially excluded under a proportional exemption or cost-of-
3 performance analysis.
4 Department’s Position
5 The Department disagrees, arguing that subscribers are not paying for the technical
6 process of signal transmission, but for the ability to access and view programming from locations
7 within New Mexico. From the Department’s perspective, the service is performed where the
8 customer experiences and consumes it: at homes and businesses within New Mexico. The
9 taxable event, it argues, is the reception of functional, viewable programming within the state,
10 not the technical operations occurring elsewhere.
11 Burdens of Production and Persuasion
12 Refund claims are evaluated under a presumption of correctness. See Corr. Corp. of Am.
13 v. State of N.M., 2007-NMCA-148, ¶ 17, 142 N.M. 779, 782, 170 P.3d 1017, 1020; TPL, Inc. v.
14 New Mexico Taxation & Revenue Dept., 2003-NMSC-007, ¶ 10, 133 N.M. 447, 451, 64 P.3d
15 474, 478. The taxpayer bears the burden of presenting countervailing evidence to rebut that
16 presumption. This principle was clarified in Gemini Las Colinas, LLC v. New Mexico Taxation
17 & Revenue Dep't, 2023-NMCA-039, 531 P.3d 622.
18 Under Gemini, overcoming the presumption is the first threshold. The taxpayer need only
19 present some countervailing evidence, which need not be persuasive at the presumption-
20 overcoming stage. Whether the presumption has been overcome is a legal question reserved for
21 the hearing officer. See Gemini, ¶ 25. Once the presumption is overcome, the Department bears a
22 burden of production, and the taxpayer retains the ultimate burden of persuasion. Id., ¶¶ 23–24,
23 29; Regulation 3.1.6.12(A) NMAC.
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1 Here, the Hearing Officer finds that DIRECTV has met its initial burden and has overcome
2 the presumption of correctness. The Department also met its burden of production by presenting
3 evidence to support its position. The dispositive question is whether DIRECTV has met its ultimate
4 burden of persuasion which, in this case, balances on a question of law.
5 Background: DIRECTV’s Operations and Customers
6 DIRECTV, headquartered in El Segundo, California, provides digital television
7 programming to residential and commercial customers across the United States, the Caribbean, and
8 parts of Latin America. DIRECTV delivers its service via satellite in exchange for monthly
9 subscription fees.
10 DIRECTV acquires distribution rights from national and regional content providers, such as
11 ESPN, CNN, and FOX. These providers transmit programming signals to DIRECTV’s primary
12 broadcast centers in California and Colorado, typically via satellite or fiber optic cable. At those
13 centers, the content is aggregated, processed, encrypted, and prepared for uplink to DIRECTV
14 satellites in geostationary orbit.1
15 In addition to its primary facilities, DIRECTV operates regional broadcast centers in
16 Arizona, New Hampshire, Minnesota, Virginia, and Washington, as well as approximately 200
17 LCFs nationwide. LCFs are small, equipment-based installations that capture over-the-air local
18 broadcasts and transmit them to regional centers for preprocessing. In New Mexico, DIRECTV
19 operates one LCF, located in Albuquerque, which serves its Albuquerque/Santa Fe market.
20 After signals have been processed and transmitted to DIRECTV’s network of satellites, the
21 satellites relay programming signals to DIRECTV receiving dishes located at customer premises,
1
Although witness testimony established the foundation for a basic understanding of geostationary orbit in the
context of this protest, the Hearing Officer also referenced https://www.britannica.com/science/geostationary-orbit.
(reviewed October 24, 2024)
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1 typically mounted on rooftops or other elevated surfaces. The signal then travels by coaxial cable
2 from the receiving dish to a set-top box, where it is decrypted and decoded for viewing on a
3 television. During the relevant tax periods, DIRECTV operated a fleet of 12 geostationary satellites.
4 In all cases, the programming is received, decoded, and viewed by the customer in New Mexico.
5 In addition to programming fees, New Mexico customers—consistent with DIRECTV’s
6 nationwide practices—may also pay for set-top box rentals, multi-room viewing capabilities,
7 advanced features, and custom installations. DIRECTV collects and remits gross receipts tax on
8 payments from New Mexico customers, but not on payments from customers located outside the
9 state.
10 While DIRECTV’s infrastructure is technologically sophisticated and geographically
11 dispersed, these facts alone do not determine where the service is deemed to be performed for gross
12 receipts tax purposes.
13 The New Mexico Gross Receipts and Compensating Tax Act
14 The Gross Receipts and Compensating Tax Act imposes an excise tax on the privilege of
15 engaging in business in New Mexico. The tax applies to the gross receipts of any person
16 engaging in business within the state, subject only to specifically authorized deductions and
17 exemptions. See NMSA 1978, Section 7-9-4 (2010, amended 2022).
18 To facilitate enforcement, the Act presumes that all receipts of persons engaging in
19 business in New Mexico are taxable. See NMSA 1978, Section 7-9-5(A) (2019). As the New
20 Mexico Supreme Court has explained, the claimant must show that their demand “is within the
21 letter as well as the spirit of the law.” See TPL, Inc., 2003-NMSC-007, ¶ 9 (quoting Rauscher,
22 2002-NMSC-013, ¶ 11).
23 The term “engaging in business” is defined broadly in NMSA 1978, Section 7-9-3.3 to
In the Matter of the Protest of DirecTV, LLC
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1 include “carrying on or causing to be carried on any activity with the purpose of direct or indirect
2 benefit.” Notably, physical presence in New Mexico is not required to be considered “engaging
3 in business.” A person or entity is considered to be engaging in business in New Mexico if, in the
4 previous calendar year, they had at least $100,000 in taxable gross receipts sourced to the state.
5 Id. The record confirms that DIRECTV met this threshold during the relevant tax periods.
6 Although the Gross Receipts Tax applies broadly, taxpayers may reduce their liability
7 only through deductions or exemptions expressly authorized by the Legislature. These provisions
8 are narrowly construed, as they are “a matter of legislative grace and a way of achieving [the
9 Legislature’s] policy objectives.” See Sutin, Thayer & Browne v. Revenue Div. of Taxation &
10 Revenue Dept., 1985-NMCA-047, ¶ 17, 104 N.M. 633, 636, 725 P.2d 833, 836.
11 New Mexico courts have consistently held that tax deductions and exemptions must be
12 strictly construed in favor of the taxing authority, stating:
13 Where an exemption or deduction from tax is claimed, the statute
14 must be construed strictly in favor of the taxing authority, the right
15 to the exemption or deduction must be clearly and unambiguously
16 expressed in the statute, and the right must be clearly established
17 by the taxpayer.
18 See Sec. Escrow Corp. v. State Taxation & Revenue Dept., 1988-
19 NMCA-068, ¶ 8, 107 N.M. 540, 543, 760 P.2d 1306, 1309; Wing
20 Pawn Shop v. Taxation & Revenue Dept. for State of N.M., 1991-
21 NMCA-024, ¶ 16, 111 N.M. 735, 741, 809 P.2d 649, 655;
22 Pittsburgh & Midway Coal Mining Co. v. Revenue Div., 1983-
23 NMCA-019.
24 As the Court of Appeals reaffirmed in Sacred Garden, Inc. v. New Mexico Taxation &
25 Revenue Dep't, 2021-NMCA-038, ¶ 6, 495 P.3d 576, 578 (internal citations omitted):
26 The right to a deduction must be clearly and unambiguously
27 expressed, and the taxpayer bears the burden of establishing that it
28 is entitled to the statutory deduction. Nevertheless, these provisions
29 must also be given “fair, unbiased, and reasonable construction,
30 without favor or prejudice to either the taxpayer or the [s]tate, to
31 the end that the legislative intent is effectuated and the public
In the Matter of the Protest of DirecTV, LLC
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1 interests to be subserved thereby are furthered.”
2 Absent clear legislative intent authorizing a deduction or exemption, it must be denied.
3 See Sutin, 1985-NMCA-047, ¶ 18.
4 Characterization of the Service
5 The central legal question is how to properly characterize the service DIRECTV provides to
6 its New Mexico subscribers for purposes of gross receipts taxation. Under New Mexico law, the
7 location of a service is defined by what the customer receives, not by where technical components
8 of delivery take place. See NMSA 1978, Section 7-9-3(P) (2019) (applicable to refund period at
9 issue). The customer’s experience—selecting, receiving, and viewing programming—takes place
10 entirely within New Mexico.
11 As explained in Rauscher, “[s]imply because activity necessary to complete the service
12 takes place out-of-state does not mean that the services provided are immune from New
13 Mexico’s gross receipts tax.” See Rauscher, 2000-NMCA-065, ¶ 31, aff'd sub nom. Rauscher,
14 Pierce, Refsnes, Inc. v. Taxation & Revenue Dept. of State of N.M., 2002-NMSC-013, ¶ 31, 132
15 N.M. 226, 46 P.3d 687; See also Mountain States Advert., Inc. v. Bureau of Revenue, 1976-
16 NMCA-058, 89 N.M. 331, 552 P.2d 233. Likewise, in Talbridge Corp. v. New Mexico Taxation
17 & Revenue Dep't., 2024-NMCA-044, ¶ 10, 550 P.3d 901, 906, the Court emphasized that
18 “activities incidental to a service performed in New Mexico are subject to gross receipts tax,
19 whereas activities performed out of state are not.”
20 The relevant inquiry is not the location of infrastructure or technical processes, but where
21 the service is received and experienced by the customer. DIRECTV’s focus on transmission
22 mechanics mischaracterizes the nature of the taxable service. In other words, the proper focus
23 lies not in how the signal is transmitted, but in the situs of its receipt and use by the customer.
24 Subscribers pay for the ability to receive and view programming content—not for the technical
In the Matter of the Protest of DirecTV, LLC
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1 process of delivering the signal. Put simply, a New Mexico customer perceives a service failure
2 only when they turn on their television at their home or commercial location and find nothing but
3 a blank screen, regardless of where the technical process for service failed.
4 Application of Section 7-9-13.1 (1989, amended 2019)
5 During all times relevant to this protest, Section 7-9-13.1 exempted receipts from
6 performing a service only when the following prongs were satisfied: (1) the service is performed
7 outside New Mexico; and (2) the product is initially used outside New Mexico. Like all
8 exemptions, this provision is narrowly construed. See Sutin, 1985-NMCA-047, ¶¶ 17–18. In the
9 absence of express legislative intent, no deduction or exemption may be inferred or implied. The
10 terms, “initial use” and “initially used” are defined to mean “the first employment for the
11 intended purpose and does not include” several activities not applicable under the facts of this
12 protest. See NMSA 1978, Section 7-9-3(E) (2007).
13 Although DIRECTV’s infrastructure is located outside New Mexico, the service—the
14 delivery of usable programming to New Mexico subscribers—is completed and consumed in
15 New Mexico. The benefit is realized when the customer watches programming on their
16 television. This is the “product of the service” for purposes of the statute. The customer does not
17 purchase a signal in the abstract, but rather the ability to view specific programming content. The
18 service concludes where the subscriber gains access to that content.
19 New Mexico courts focus on where the customer experiences the benefit. See Mountain
20 States, 1976-NMCA-058; ITT Educ. Services, Inc. v. Taxation & Revenue Dept. of State of N.M.,
21 1998-NMCA-078, 125 N.M. 244, 959 P.2d 969. This protest fits squarely within those
22 precedents. The product of DIRECTV’s service is not a signal—it is the ability to view content,
23 and that occurs in New Mexico.
In the Matter of the Protest of DirecTV, LLC
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1 Although no New Mexico appellate court has yet addressed satellite broadcasting
2 services under Section 7-9-13.1, courts in other jurisdictions have confronted similar legal
3 questions. To illustrate, South Carolina Administrative Law Court decisions in DIRECTV, Inc. &
4 Subsidiaries v. S.C. Dep't of Revenue, 421 S.C. 59, 804 S.E.2d 633 (Ct. App. 2017) and Dish
5 DBS Corp. v. S.C. Dep't of Revenue, 2018 WL 5733487 (S.C. Ct. App. Oct. 31, 2018), are
6 instructive because they address a similar argument. In both cases, the courts found that even
7 though the providers’ infrastructure and technical operations occurred outside South Carolina,
8 the actual benefit of the service was received and enjoyed by customers at their homes in-state.
9 The courts concluded that the “product of the service” was the delivery of usable programming
10 to subscribers, with the benefit initially realized by customers in South Carolina.
11 This reasoning is consistent with New Mexico’s situs analysis. As in Rauscher and
12 Talbridge, the focus is on where the customer receives the benefit. The South Carolina courts
13 rejected attempts to reframe the service as mere signal transmission. The Hearing Officer agrees
14 with and adopts that reasoning in finding that the benefit of DIRECTV’s service is first realized
15 in New Mexico.
16 No Apportionment Permitted under Section 7-9-13.1 or NMAC 3.2.1.18(C)
17 DIRECTV also argues that its receipts should be apportioned based on the geographic
18 distribution of its costs. It cites NMAC 3.2.1.18(C), which provides that receipts from services
19 performed partly in New Mexico and partly outside may be apportioned.
20 However, apportionment under this regulation is permitted only when a taxpayer actually
21 performs discrete parts of a single service both within and outside New Mexico. The regulation
22 requires more than the existence of out-of-state infrastructure or support functions; it
23 contemplates a factual showing that a portion of the service itself—as received by the
24 customer—is performed beyond New Mexico’s borders. Yet in this case, all delivery, reception,
In the Matter of the Protest of DirecTV, LLC
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1 and consumption of programming by New Mexico subscribers occurs entirely within the state,
2 rendering the apportionment provision inapplicable.
3 Moreover, Section 7-9-13.1 sets out a binary test: the taxpayer must show that the service
4 was both performed and used outside New Mexico. It does not authorize proportional
5 exemptions based on cost models or allocation formulas. As Rauscher and Talbridge confirm,
6 the location where the customer experiences the benefit—not where supporting infrastructure is
7 located—determines the situs of performance for purposes of Section 7-9-13.1.
8 Even if DIRECTV’s cost-allocation model were applicable in this case, it would not
9 entitle it to relief under Section 7-9-13.1. The statute requires a showing of performance and use
10 outside the state—not an analysis of where costs are incurred.
11 Commerce Clause and Preemption Considerations
12 DIRECTV further argues that the gross receipts tax, as applied to its subscription
13 revenues, violates the Commerce Clause of the United States Constitution. Specifically, it
14 contends that because its service infrastructure is based outside New Mexico and delivers
15 programming via satellite signals across multiple states, taxing its New Mexico receipts burdens
16 interstate commerce and risks interfering with federally regulated broadcasting.
17 Challenges under the Commerce Clause are evaluated under the four-part test articulated
18 in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 274, 97 S. Ct. 1076, 1076, 51 L. Ed. 2d
19 326 (1977). A state tax will be sustained if: (1) the taxed activity has a substantial nexus with the
20 taxing state; (2) the tax is fairly apportioned; (3) the tax does not discriminate against interstate
21 commerce; and (4) the tax is fairly related to services provided by the state.
22 Each element of the Complete Auto test is satisfied in this case. DIRECTV has substantial
23 nexus with New Mexico, as it had more than $100,000 in taxable receipts sourced to the state
24 during each relevant year and delivered ongoing service to a substantial number of New Mexico
In the Matter of the Protest of DirecTV, LLC
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1 subscribers. Physical presence is not required under current jurisprudence. See S. Dakota v.
2 Wayfair, 585 U.S. 162, 178, 138 S. Ct. 2080, 2093, 201 L. Ed. 2d 403 (2018).
3 The tax is also fairly apportioned. It applies only to gross receipts attributable to New
4 Mexico subscribers. There is no showing that the tax results in duplicative or multiple taxation
5 across jurisdictions.
6 The tax does not discriminate against interstate commerce. It applies uniformly to all
7 service providers—whether in-state or out-of-state—who engage in business in New Mexico and
8 derive revenue from in-state customers.
9 Finally, the tax is fairly related to the services provided by the state. DIRECTV benefits
10 from New Mexico’s commercial infrastructure, legal system, regulatory protections, and access
11 to its consumer market.
12 Accordingly, the gross receipts tax, as applied to DIRECTV, does not violate the
13 Commerce Clause. Comparable arguments involving satellite television providers have been
14 addressed in other jurisdictions, where courts have upheld the taxation of receipts derived from
15 in-state customers, even when the service infrastructure is located out of state. See, e.g.,
16 DIRECTV, Inc. & Subsidiaries v. S.C. Dep't of Revenue, 421 S.C. 59, 804 S.E.2d 633 (Ct. App.
17 2017)
18 DIRECTV also argues that federal law preempts New Mexico from taxing satellite
19 television services. This argument is unpersuasive. The gross receipts tax does not regulate
20 satellite transmissions or interfere with the FCC’s authority; it simply taxes revenue earned from
21 New Mexico customers. No provision of federal law cited by DIRECTV—or otherwise known
22 to the Hearing Officer—prohibits states from imposing nondiscriminatory taxes on satellite
23 programming revenue. Courts have consistently held that states may tax businesses engaged in
In the Matter of the Protest of DirecTV, LLC
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1 interstate commerce, including satellite service providers, so long as the tax does not conflict
2 with federal regulation and is applied in a constitutionally permissible manner. See, e.g., Warren
3 Trading Post Co. v. Arizona State Tax Comm’n, 380 U.S. 685 (1965); DIRECTV, Inc. v. S.C.
4 Dep’t of Revenue, Dkt. No. 17-ALJ-17-0239-CC (S.C. Admin. Law Ct. Apr. 20, 2021).
5 Accordingly, preemption is not warranted.
6 Conclusion of Analysis
7 The evidence demonstrates that the service is both performed and initially used in New
8 Mexico. DIRECTV’s customers pay to receive and view programming in the state. The
9 infrastructure enabling that experience, while sophisticated and largely out-of-state, does not
10 alter the situs of the taxable service. Accordingly, because DIRECTV has not satisfied either
11 statutory prong of Section 7-9-13.1, the exemption cannot apply.
12 CONCLUSIONS OF LAW
13 A. Taxpayer timely requested a hearing, and the Administrative Hearings Office
14 conducted it within 90 days of the protest, in accordance with NMSA 1978, Section 7-1B-8 (2019).
15 Neither party objected to the adequacy of the hearing under that provision.
16 B. The Administrative Hearings Office has jurisdiction over the parties and the subject
17 matter of this protest pursuant to NMSA 1978, Sections 7-1-24 and 7-1-60, and 22.600.3 NMAC.
18 C. DIRECTV bears the burden of proving its entitlement to the refund claims, subject
19 to the presumption of correctness afforded to the Department’s determination. See Corr. Corp. of
20 Am. of Tenn. v. State, 2007-NMCA-148, ¶ 17; TPL, Inc. v. N.M. Taxation & Revenue Dep’t, 2003-
21 NMSC-007, ¶ 10.
22 D. To overcome the presumption of correctness, a taxpayer must present some
23 countervailing evidence. This threshold burden does not require that the evidence be credible or
24 ultimately persuasive. The determination is a question of law. See Gemini Las Colinas, LLC v.
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1 New Mexico Taxation & Revenue Dep't., 2023-NMCA-039, ¶ 25, 531 P.3d 622.
2 E. Whether the taxpayer has overcome the presumption of correctness is the first step
3 in resolving a tax protest and is dispositive only if the taxpayer fails to meet that burden. See
4 Gemini Las Colinas, LLC v. N.M. Taxation & Revenue Dep’t, 2023-NMCA-039, ¶ 23. Once the
5 presumption is overcome, the Department must be afforded an opportunity to produce evidence
6 justifying its denial.
7 F. Once the presumption is overcome, the Department bears a burden of production,
8 but the ultimate burden of persuasion remains with the taxpayer. See Gemini Las Colinas, LLC v.
9 New Mexico Taxation & Revenue Dep't, 2023-NMCA-039, ¶ 26, 531 P.3d 622.
10 G. The burden is on the taxpayer to demonstrate entitlement to a claimed exemption or
11 refund under the Gross Receipts and Compensating Tax Act. See Corr. Corp. of Am., 2007-
12 NMCA-148, ¶ 17; TPL, 2003-NMSC-007, ¶ 10.
13 H. All gross receipts of a person engaging in business in New Mexico are presumed
14 taxable unless specifically exempted by statute. See NMSA 1978, Section 7-9-5(A) (2019).
15 I. Tax deductions and exemptions must be narrowly construed against the taxpayer
16 and granted only when clearly provided for by statute. See Sutin, Thayer & Browne v. Revenue
17 Div., 1985-NMCA-047, ¶ 17.
18 J. DIRECTV is an entity meeting the definition of person engaging in business in
19 New Mexico during the tax periods at issue within the meaning of NMSA 1978, Sections 7-9-3.3
20 and 7-9-4.
21 K. NMSA 1978, Section 7-9-13.1 exempts receipts from performing a service only
22 when both: a. the service is performed outside New Mexico; and b. the product of the service is
23 initially used outside New Mexico.
In the Matter of the Protest of DirecTV, LLC
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1 L. DIRECTV has not established that the service it provides—delivery of viewable
2 television programming to its customers—was performed outside New Mexico.
3 M. Even if DIRECTV had established that the service was performed outside New
4 Mexico, it has not demonstrated that the product of the service was initially used outside New
5 Mexico, as the benefit of the service was first realized by customers within the state.
6 N. The location of DIRECTV’s infrastructure and the allocation of operational costs
7 outside New Mexico do not determine the situs of service performance for purposes of the Gross
8 Receipts Tax Act. See Rauscher, 2000-NMCA-065, ¶ 31, aff'd sub nom. Rauscher, Pierce,
9 Refsnes, Inc. v. Taxation & Revenue Dept. of State of N.M., 2002-NMSC-013, ¶ 31, 132 N.M.
10 226, 46 P.3d 687; Talbridge Corp. v. New Mexico Taxation & Revenue Dep't., 2024-NMCA-
11 044, ¶ 10, 550 P.3d 901, 906.
12 O. New Mexico law does not authorize a proportional exemption based on out-of-state
13 cost allocation under Section 7-9-13.1.
14 P. Because DIRECTV failed to establish that its service was both performed and
15 initially used outside New Mexico, as required by Section 7-9-13.1, its gross receipts from New
16 Mexico customers are subject to gross receipts tax.
17 Q. The Department’s denial of DIRECTV’s refund claim was correct and is upheld.
18 For the reasons stated, Taxpayer’s protest is respectfully DENIED.
19 DATED: June 27, 2025
20
21 Chris Romero
22 Hearing Officer
23 Administrative Hearings Office
24 P.O. Box 6400
25 Santa Fe, NM 87502
In the Matter of the Protest of DirecTV, LLC
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1 NOTICE OF RIGHT TO APPEAL
2 Pursuant to NMSA 1978, Section 7-1-25 (2015), the parties have the right to appeal this
3 decision by filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the
4 date shown above. If an appeal is not timely filed with the Court of Appeals within 30 days, this
5 Decision and Order will become final. Rule of Appellate Procedure 12-601 NMRA articulates
6 the requirements of perfecting an appeal of an administrative decision with the Court of Appeals.
7 Either party filing an appeal shall file a courtesy copy of the appeal with the Administrative
8 Hearings Office contemporaneous with the Court of Appeals filing so that the Administrative
9 Hearings Office may begin preparing the record proper. The parties will each be provided with a
10 copy of the record proper at the time of the filing of the record proper with the Court of Appeals,
11 which occurs within 14 days of the Administrative Hearings Office receipt of the docketing
12 statement from the appealing party. See Rule 12-209 NMRA.
13 CERTIFICATE OF SERVICE
14 I hereby certify that I served the foregoing to the parties listed below this 27th day of June
15 2025 in the following manner:
16 E- Mail and First Class US Mail E- Mail and First Class US Mail
INTENTIONALLY BLANK
17
In the Matter of the Protest of DirecTV, LLC
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