If an out-of-state seller makes taxable New Mexico sales but claims it has no in-state presence and doesn't show up to contest the assessment, does it owe gross receipts tax and the 50% willful-evasion penalty?

Plain-English summary

American Hospitality Resources, Inc. ("AHR") sold hotel and motel furnishings to New Mexico lodging businesses. Its president, Victor Sprecher, ran the company as a Colorado corporation but had sold his Colorado home, closed his Colorado office, and moved to Albuquerque. AHR charged tax only on sales of electronics like televisions (apparently at its supplier's insistence) and told customers it did not collect New Mexico tax because it was a "Colorado corporation."

After an anonymous tipster reported the arrangement, a Department audit manager contacted New Mexico hotels and confirmed AHR had made at least $800,000 of New Mexico sales in 1995–1996. The Department issued 10 assessments totaling $120,777.10 (gross receipts tax, interest, and a 50% civil penalty for willful evasion). AHR filed a protest claiming it was a Colorado company that "does not maintain an office in New Mexico," but then failed to appear at the hearing.

The Hearing Officer denied the protest in full:

• No-show loses on the tax. By statute, a New Mexico tax assessment is presumed correct (§ 7-1-17(C)). A taxpayer has to appear and present evidence to overcome that presumption. Because AHR did not show up, the presumption alone established its liability for the gross receipts tax and interest.
• The Department carried its burden on the fraud penalty. The presumption of correctness does not apply to the 50% willful-evasion penalty; there, § 7-1-78 puts the burden of proof on the Department. The Department met it, proving AHR knew about the tax and deliberately evaded it: the company had once been registered for gross receipts tax and cancelled that registration; it charged tax on electronics but not on furnishings; its invoices carried written disclaimers of New Mexico tax; and its officers repeatedly asserted (falsely) that AHR had no New Mexico office.
• The "no presence / just a sales agent" story was false. AHR advertised an Albuquerque address and phone in the state Hotel & Motel Association directory, its letterhead listed an Albuquerque office, a credit invoice noted a returned desk was for "Vic to keep at Albuquerque Office," and several invoices billed for carpet installation — services performed in New Mexico, not the acts of a mere out-of-state sales agent.

So the full $120,777.10 assessment — tax, interest, and the 50% penalty — stood.

What this means for you

Out-of-state sellers making New Mexico sales

Selling into New Mexico from another state does not automatically keep you out of the gross receipts tax, and calling yourself a "Colorado corporation" is not a defense when your people, office, and activities are actually in New Mexico. If you have a New Mexico office or perform services here (like installation), your receipts are very likely taxable. Charging tax on some items but not others, and telling customers "you're responsible for any tax," are exactly the facts a state points to as evidence you knew the tax applied.

Anyone thinking about skipping a tax hearing

Not showing up almost guarantees you lose the tax. The assessment is presumed correct, and only your evidence can rebut it — silence can't. If you have a genuine dispute, appear and put on your proof.

When the 50% willful-evasion penalty is in play

The ordinary presumption of correctness does not decide the fraud penalty; the Department must affirmatively prove willful intent to evade. But documents in your own files — cancelled registrations, tax disclaimers on invoices, letters admitting awareness of the tax, and inconsistent statements to two states' revenue departments — can be more than enough to meet that burden.

Accountants and tax professionals

This decision is a clean illustration of two different burdens in one case: the taxpayer's burden to overcome the § 7-1-17(C) presumption on the tax, and the Department's § 7-1-78 burden to prove willfulness for the § 7-1-69(C) 50% penalty. Advising a client with New Mexico activity, watch for the hallmarks the Hearing Officer relied on — selective tax collection, invoice disclaimers, and representations that contradict the client's actual footprint.

Common questions

Q: AHR said it was a Colorado corporation with no New Mexico office — why did that fail?
A: Because the facts contradicted it. AHR advertised an Albuquerque address, its letterhead listed an Albuquerque office, an invoice referred to a desk kept "at Albuquerque Office," and it performed carpet installation in New Mexico. The Hearing Officer found the "no New Mexico office / just a sales agent" claim was false.

Q: How could the company lose without a hearing on the merits?
A: New Mexico law presumes a tax assessment is correct. The taxpayer must appear and present evidence to overcome that presumption. AHR failed to appear, so the presumption alone established liability for the tax and interest.

Q: Doesn't the Department have to prove fraud for the 50% penalty?
A: Yes. Section 7-1-78 places the burden on the Department in fraud cases, and the presumption of correctness does not apply to the penalty. Here the Department met that burden with the company's own records showing it knew about the tax and deliberately misrepresented its activities.

Q: Does this decision apply to my situation?
A: Not directly. A Decision and Order resolves one taxpayer's protest on its specific facts and the law in effect at the time. It shows how New Mexico treats out-of-state sellers with in-state activity and when the willful-evasion penalty applies, but your facts may differ.

Citations and references

Statutes:

• § 7-1-17(C) NMSA 1978 — a tax assessment is presumed correct; the taxpayer must overcome the presumption
• § 7-1-69(C) NMSA 1978 — 50% civil penalty for willful intent to evade or defeat payment of tax
• § 7-1-78 NMSA 1978 — in fraud cases, the burden of proof is on the director or the state
• § 7-1-24 NMSA 1978 — taxpayer protest procedure; jurisdiction over the protest

Case law cited:

• Mears v. Bureau of Revenue, 87 N.M. 240, 531 P.2d 1213 (Ct. App. 1975) — the assessment is presumed correct
• Archuleta v. O'Cheskey, 84 N.M. 428, 504 P.2d 638 (Ct. App. 1972) — the taxpayer must clearly overcome the presumption of correctness

Source

• Listing: New Mexico Decisions & Orders
• Decision post: American Hospitality Resources, Inc.
• Decision PDF: D&O 98-11

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
AMERICAN HOSPITALITY RESOURCES, INC. 98-11
ID. NO. 02-228639-00 0
ASSESSMENT NOs. 2105740 through 2105749

DECISION AND ORDER

This matter came on for formal hearing on February 26, 1998 before Margaret B. Alcock,

Hearing Officer. The Taxation and Revenue Department ("Department"), was represented by Bridget

A. Jacober, Special Assistant Attorney General. American Hospitality Resources, Inc. (“AHR”) failed

to appear at the hearing. Based upon the evidence and the arguments presented, IT IS DECIDED

AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. During the assessment periods May 1995 and February 1996-October 1996, AHR was

engaged in the business of selling hotel furnishings to hotels and motels in New Mexico.

2. On November 1, 1996, an anonymous person called Anita Williams, Audit Manager in

the Department’s Office of Inspector General. The caller complained that Victor Sprecher, president of

AHR, was not charging gross receipts tax on the corporation’s sales in New Mexico.

3. The caller stated that Mr. Sprecher bragged that he deposited receipts from New

Mexico sales in a Colorado bank account and receipts from Colorado sales in a New Mexico bank

account, thereby avoiding taxes in both states. The caller said Mr. Sprecher had closed his Colorado

office, sold his Colorado home and moved to Albuquerque a couple of years before.

4. The anonymous caller mailed Ms. Williams a copy of the 1995-96 Membership

Directory and Buyer’s Guide issued by the New Mexico Hotel & Motel Association. AHR was listed
under the category “Suppliers” with an Albuquerque address and telephone number. Department

Exhibit 5.

5. The cover letter sent with the directory listed the names and addresses of New Mexico

lodging facilities that had purchased furnishings from AHR. The letter, which was signed “Several

New Mexico Citizens”, stated that the only sales on which Victor Sprecher charged tax were sales of

television sets “because his TV supplier requires that he collect state sales tax.” The letter questioned

whether Mr. Sprecher actually paid the tax collected over to the state. Department Exhibit 12.

6. Ms. Williams subsequently called some of the lodging facilities listed in the letter.

After determining that one hotel had purchased over $300,000 of furnishings from AHR during 1996,

Ms. Williams sent letters to seven other hotels and motels requesting confirmation of purchases made

from AHR and copies of invoices relating to those purchases. Department Exhibit 16.

7. Based on the responses received, Ms. Williams confirmed that AHR had made at least

$800,000 of sales to New Mexico hotels and motels during 1995 and 1996. Department Exhibit 21.

8. The invoices also confirmed that the only sales on which tax was charged were sales of

electronic equipment such as television sets and clock radios. Department Exhibit 18, 3/22/96 invoice;

Department Exhibit 19, 2/23/96 and 3/7/96 invoices; Department Exhibit 28, 11/05/96 invoice.

9. Most of AHR’s invoices did not make any representations concerning tax. A January

2, 1996 invoice to Holiday Inn Farmington stated “TAXES NOT APPLICABLE. HOLIDAY INN IS

REQUIRED TO PAY ANY AND ALL.” Department Exhibit 20. A January 22, 1996 memo and

invoice to Keith Barbeau, General Manager of the Holiday Inn Farmington, stated: “A.H.R. does not

collect sales tax as a result that we are a Colorado corporation. If you are required to pay any taxes this

will be your responsibility.” The memo appeared on letterhead that listed AHR’s offices in Durango,

Colorado; Albuquerque, New Mexico; and Kailua, Oahu, Hawaii. Department Exhibit 20.

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10. Three invoices indicated delivery “FOB factory” or separately billed freight charges

from the factory. Department Exhibit 15, 8/9/96 invoice; Department Exhibit 18, 4/8/96 invoice;

Department Exhibit 20, 1/22/96 memo and invoice. The vast majority of invoices listed freight charges

as part of the order and did not specify the point of delivery.

11. Several invoices for sales to New Mexico hotels included charges for carpet

installation. Department Exhibit 15, 6/18/96 and 7/18/96 invoices; Department Exhibit 18, 4/4/96

invoice; Department Exhibit 19, 2/7/96 invoice.

12. One invoice showed a credit on the return of an office desk with the notation: “Vic to

keep at Albuquerque Office.” Department Exhibit 19, 3/22/96 invoice.

13. In February 1996, Victor Sprecher and Donyce Sprecher purchased a house located at

11500 Zinfandel NE in Albuquerque, New Mexico. Department Exhibit 29.

14. In July 1996, the Sprechers purchased a 1996 Mercedes which was titled and licensed

in New Mexico. Department Exhibit 7. In January 1997, Donyce Sprecher obtained a New Mexico

driver’s license. Department Exhibit 6.

15. At Anita Williams’ request, the Colorado Department of Revenue provided informa-

tion showing that the last year AHR filed corporate income tax returns with Colorado was 1995; the

corporation filed its final sales tax return with Colorado in September 1996. The last year the

Sprechers filed personal income tax returns with Colorado was 1994. Department Exhibit 27.

16. At some point, AHR registered with the Department for payment of New Mexico gross

receipts, compensating and withholding taxes showing a start date for its business of June 1, 1993. The

corporation subsequently retired its registration number effective December 31, 1992. AHR never

reactivated its registration with the Department, nor did it apply for a new registration.

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17. On November 7, 1997 and again on December 3, 1997, Anita Williams wrote to Victor

Sprecher at 6205 Antiqua NE, Albuquerque, New Mexico, the address shown in AHR’s listing in the

New Mexico Hotel & Motel Association’s 1995-96 Directory. Ms. Williams informed Mr. Sprecher

that she had been unable to locate an active registration for AHR and asked him to provide his New

Mexico tax identification number or call her for additional information. Department Exhibits 13 and

14.

18. On December 11, 1996, Victor Sprecher wrote to Ms. Williams stating that AHR was

not registered for payment of New Mexico gross receipts tax because it was based in Colorado and “is

fulfilling all of the reporting requirements necessitated by the laws of the state of Colorado.” Mr.

Sprecher indicated that he was well aware of requirements for filing tax returns with New Mexico,

concluding: “if I do incur any gross receipts or income tax liabilities while in New Mexico, I will

utilize the proper filing and reporting procedures as required by this state.”

19. Based on the invoices and other evidence of AHR’s business activities in New Mexico,

the Department issued 10 assessments numbered 2105740 through 2105749 in the total amount of

$120,777.10 covering tax periods May 1995 and February 1996 through October 1996. The

assessments, which were issued on February 2, 1997, imposed gross receipts tax, interest and the 50

percent civil penalty authorized by Section 7-1-69(C) for willful intent to evade or defeat payment of

any tax.

20. On March 5, 1997, Arthur Anderson LLP filed a request for a 60-day extension of time

for AHR to protest the Department’s assessments. On March 19, 1997, the Department granted an

extension until May 7, 1997.

21. On April 6, 1997, Donyce Sprecher, Vice President of AHR, filed a written protest on

behalf of the corporation. The protest stated that AHR was a Colorado corporation that “does not

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maintain an office in New Mexico.” The protest further stated that the corporation was a factory sales

agent, that all customers accepted title to property at the factory and that all customers were informed

that AHR was not paying gross receipts tax.

22. After the protest was filed, the Department made several attempts to contact someone

at AHR to discuss the protest and obtain additional information. No response was received.

Department Exhibits 23, 24, 25.

23. On January 9, 1998, the notice scheduling the formal hearing on AHR’s protest for

February 26, 1998 was mailed certified mail, return receipt requested, to AHR at 1710 Main Avenue,

Durango Colorado, the address shown on the protest filed by Donyce Sprecher. The signed green

receipt card was returned showing a delivery date of January 14, 1998.

24. To insure that the taxpayer had notice of the hearing, the Department express mailed

additional copies of the notice to three other addresses that appeared in AHR’s file. Two notices were

returned as undeliverable, including a notice sent to the Sprecher’s residence at 11500 Zinfandel NE in

Albuquerque, New Mexico. Department Exhibits 8 and 10. The third notice, which was mailed to

6205 Antiqua NE, Albuquerque, New Mexico, the address shown in AHR’s listing in the New Mexico

Hotel & Motel Association’s 1995-96 Directory, was returned marked “Refused.” Department Exhibit

9.

DISCUSSION

There is a statutory presumption that the Department’s assessment of tax is correct. Section 7-

1-17(C) NMSA 1978; Mears v. Bureau of Revenue, 87 N.M. 240, 241, 531 P.2d 1213, 1214 (Ct. App.

1975). In order for the taxpayer to be successful, he must clearly overcome this presumption.

Archuleta v. O'Cheskey, 84 N.M. 428, 431, 504 P.2d 638, 641 (Ct. App. 1972). Having failed to appear

and present evidence in support of its protest, AHR has not met its burden of proof in this case and the

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presumption of correctness that attaches to the Department’s assessment establishes AHR’s liability for

gross receipts tax and interest.

The presumption of correctness does not apply to the Department’s assessment of the 50

percent civil penalty for willful intent to evade or defeat payment of any tax. Section 7-1-78 NMSA

1978 states:

BURDEN OF PROOF IN FRAUD CASES. In any proceeding involving
the issue of whether any person has been guilty of fraud or corruption, the
burden of proof in respect of such issue shall be upon the director or the
state.

In this case, the Department presented ample evidence to show that AHR willfully failed to file gross

receipts tax returns resulting in an intentional evasion of payment of taxes due to New Mexico.

First, there is evidence that the corporation’s officers were well aware of the existence of New

Mexico’s gross receipts tax. At one time, AHR was registered for payment of gross receipts tax and

took affirmative action to cancel that registration. The corporation charged tax on its sales of electronic

equipment to hotels and motels located in New Mexico, most likely at its supplier’s insistence. Two of

the invoices sent to the Holiday Inn Farmington contained written disclaimers of AHR’s liability for

New Mexico tax. Finally, Victor Sprecher assured Anita Williams that “if I do incur any gross receipts

or income tax liabilities while in New Mexico, I will utilize the proper filing and reporting procedures

as required by this state.” All of these facts establish that AHR was well aware of New Mexico’s tax

laws.

Second, there is evidence that the corporation’s officers knew they would be liable for payment

of New Mexico gross receipts tax if the corporation maintained a presence in New Mexico or made

sales in New Mexico. The January 22, 1996 memo and invoice sent to Keith Barbeau, General

Manager of the Holiday Inn Farmington, stated: “A.H.R. does not collect sales tax as a result that we

are a Colorado corporation.” (emphasis added). In his December 11, 1996 letter to Anita Williams,

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Victor Sprecher stated that AHR was not registered for payment of New Mexico gross receipts tax

because it was based in Colorado. The April 6, 1997 protest filed by Donyce Sprecher, Vice President

of AHR, stated that the corporation was a Colorado corporation that “does not maintain an office in

New Mexico.” The protest further stated that AHR’s customers accepted title to property at the factory

and that the corporation did not bring property into New Mexico for resale. All of these statements

indicate an awareness that a company maintaining an office in New Mexico or making sales in New

Mexico would be subject to tax in New Mexico.

Third, there is evidence that AHR’s officers knowingly misrepresented the nature of the

corporation’s activities in an effort to evade payment of New Mexico gross receipts tax. In December

1996, Victor Sprecher told Anita Williams that AHR was based in the state of Colorado and “is

fulfilling all of the reporting requirements necessitated by the laws of the state of Colorado.” Two

months before that statement was made, the corporation filed its final sales tax report with the Colorado

Department of Revenue. The last year for which AHR filed corporate income tax returns with

Colorado was 1995.

In the protest filed with the Department, Donyce Sprecher maintained that AHR was not liable

for New Mexico gross receipts tax because it was a Colorado corporation that “does not maintain

offices in New Mexico.” This statement is clearly false. AHR advertised an Albuquerque address and

telephone number in the 1995-96 Membership Directory and Buyer’s Guide issued by the New Mexico

Hotel & Motel Association. Victor Sprecher received letters that Anita Williams mailed to the address

shown in the directory. A credit invoice issued to an Albuquerque hotel for the return of a desk

contained the notation: “Vic to keep at Albuquerque Office.” Finally, the corporation’s letterhead

represents that AHR maintains offices in Colorado, New Mexico and Hawaii.

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Donyce Sprecher’s statement that the corporation simply acted as a sales agent for manufac-

turers is also false. Several invoices for sales to New Mexico hotels included charges for carpet

installation, establishing that AHR provided services in conjunction with its sale of certain tangibles.

Other invoices refute the statement that “all customers” were informed that the corporation was not

paying gross receipts tax. AHR charged tax to New Mexico customers who purchased electronic

equipment such as television sets and clock radios. The tax collected by AHR was never reported or

paid over to the Department.

The evidence presented by the Department establishes that AHR intentionally and willfully

failed to report and pay New Mexico gross receipts tax in order to evade payment of those taxes.

CONCLUSIONS OF LAW

1. AHR filed a timely, written protest to Assessment Nos. 2105740 through 2105749

pursuant to Section 7-1-24 NMSA 1978, and jurisdiction lies over the parties and the subject matter of

this protest.

2. By failing to appear and present evidence in support of its protest, AHR has not met its

burden of proving that the Department’s assessment of gross receipts tax and interest is incorrect.

3. The Department has met its burden of proving that AHR’s failure to report and pay

gross receipts tax on its New Mexico sales was an intentional and willful attempt to evade payment of

tax due to New Mexico, and the 50 percent civil penalty was properly imposed pursuant to Section 7-1-

69(C).

For the foregoing reasons, AHR’s protest IS HEREBY DENIED.

DONE, this 9th day of March 1998.

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