New Mexico Gross Receipts Tax and Compensating Tax Protest

FORMAL PROTEST OF NOTICE OF ASSESSMENT — NEW MEXICO GROSS RECEIPTS TAX AND COMPENSATING TAX

TABLE OF CONTENTS

1. Caption and Filing Information
2. Identification of Taxpayer and Notice Protested
3. Timeliness
4. Statement of Facts
5. Grounds for Protest and Legal Argument
6. Relief Requested
7. Reservation of Rights
8. Request for Administrative Hearing
9. Verification
10. Signature, Power of Attorney, and Service Block
11. Schedule of Exhibits
12. New Mexico Practice Notes — GRT and Compensating Tax
13. Sources and References

1. CAPTION AND FILING INFORMATION

STATE OF NEW MEXICO

TAXATION AND REVENUE DEPARTMENT — PROTEST OFFICE

FORMAL PROTEST PURSUANT TO NMSA 1978 § 7-1-24

2. IDENTIFICATION OF TAXPAYER AND NOTICE PROTESTED

2.1. Taxpayer [NAME] ("Taxpayer") is a [type of entity] organized under the laws of [STATE], with principal place of business at [ADDRESS], [and registered to engage in business in New Mexico under CRS account [____] / and is a remote seller without physical presence in New Mexico].

2.2. By Notice of Assessment dated [__/__/____] (the "Notice"), the New Mexico Taxation and Revenue Department ("TRD" or "Department") asserted gross receipts tax / compensating tax liability for the reporting periods identified above in the principal amount of $[__], plus penalty of $[__] and interest of $[__].

2.3. Taxpayer hereby formally protests the Notice in its entirety [OR: as to the following items only] pursuant to NMSA 1978 § 7-1-24 and requests an administrative hearing before the New Mexico Administrative Hearings Office ("AHO") pursuant to NMSA 1978 §§ 7-1B-1 through 7-1B-10.

2.4. Taxpayer expressly notes for the record that New Mexico's "Gross Receipts Tax" under NMSA 1978 § 7-9-4 is an excise on the privilege of engaging in business measured by the seller's gross receipts, and is legally distinct from a retail sales tax. Taxpayer further notes that the "Compensating Tax" under NMSA 1978 § 7-9-7 is imposed on the buyer or user of property or services and functions as New Mexico's analogue to use tax. The Notice and Taxpayer's protest are framed accordingly.

3. TIMELINESS

3.1. The Notice was mailed on [__/__/____]. The 90-day protest period under NMSA 1978 § 7-1-24(B) expires on [__/__/____].

3.2. This protest is delivered to the TRD Protest Office on [__/__/____] by [certified mail return receipt / commercial courier with tracking / hand delivery / TAP electronic submission], on or before the statutory deadline. This protest is therefore timely.

4. STATEMENT OF FACTS

4.1. Taxpayer is engaged in the business of [describe products/services, NAICS code]. Taxpayer's New Mexico activity during the periods at issue consisted of [describe — physical locations, employees, real property, deliveries, online sales, marketplace facilitation].

4.2. [Physical presence taxpayers:] Taxpayer maintained CRS registration since [DATE] and timely filed CRS-1 returns for each period at issue, reporting gross receipts of $[__] and claiming deductions / exemptions under NMSA §§ 7-9-[__] in the amount of $[__].

4.3. [Remote sellers / marketplace providers:] Taxpayer [is / is not] a remote seller without physical presence in New Mexico. Taxpayer's taxable gross receipts sourced to New Mexico were $[__] in calendar year [YYYY] [and below the $100,000 economic-nexus threshold under NMSA § 7-9-114 / and Taxpayer registered effective [DATE] upon crossing that threshold].

4.4. The Department's adjustments arose from [describe — disallowance of deductions/exemptions; recharacterization of receipts; nexus assertion under § 7-9-114; sourcing dispute; missing or untimely NTTCs; compensating tax on out-of-state purchases; marketplace facilitator vs. seller dispute].

4.5. [Describe each transaction or category challenged with specificity, including dates, counterparties, sourcing locations, contractual terms, and supporting documents. Cross-reference Exhibits in Section 11.]

4.6. Taxpayer maintains complete books and records substantiating each item, including invoices, contracts, NTTCs (where applicable), and shipping documentation, as required by NMSA 1978 § 7-1-10.

5. GROUNDS FOR PROTEST AND LEGAL ARGUMENT

5.1. Ground One — Receipts Are Properly Deductible Under NMSA § 7-9-[__]

5.1.1. Under NMSA 1978 § 7-9-[__], gross receipts from [describe transaction type — e.g., sales of tangible personal property to a manufacturer for incorporation into a product for sale (§ 7-9-46); sales for resale (§ 7-9-47); sales to governmental entities (§ 7-9-54); receipts of construction subcontractors with NTTC (§ 7-9-52); export receipts (§ 7-9-3.5(A)(3))] are deductible from gross receipts.

5.1.2. Taxpayer satisfied each statutory element of the deduction and timely obtained Nontaxable Transaction Certificate(s) in the proper Type [__] under NMSA § 7-9-43, accepted in good faith. The NTTCs are produced as Exhibit [__].

5.1.3. The Department's disallowance is contrary to the statute and applicable regulations at 3.2.[__] NMAC.

5.2. Ground Two — Receipts Are Exempt Under NMSA § 7-9-[__]

5.2.1. Receipts at issue are exempt from gross receipts tax under NMSA 1978 § 7-9-[__] (e.g., § 7-9-13.1 receipts of certain organizations; § 7-9-13 governmental entities; § 7-9-29 receipts of nonprofit hospitals).

5.2.2. [Describe how each statutory element is satisfied with reference to documentary evidence.]

5.3. Ground Three — Receipts Are Not "Engaged in Business in New Mexico" / Lack of Substantial Nexus

5.3.1. Under NMSA 1978 § 7-9-3.3 and § 7-9-114, gross receipts tax applies only to a person "engaging in business" in New Mexico. Following South Dakota v. Wayfair, 138 S. Ct. 2080 (2018), § 7-9-114 conforms New Mexico's economic nexus standard to the constitutional substantial-nexus requirement, with a $100,000 threshold of taxable gross receipts sourced to New Mexico in the preceding calendar year.

5.3.2. Taxpayer's taxable gross receipts sourced to New Mexico in calendar year [YYYY] were $[__], below the $100,000 statutory threshold. Taxpayer did not engage in business in New Mexico for the periods at issue and is not subject to GRT.

5.3.3. [Alternatively, where physical presence:] Taxpayer's New Mexico contacts during the periods at issue did not constitute substantial nexus under the Commerce Clause as construed in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), and progeny.

5.4. Ground Four — Improper Sourcing / Wrong Local Reporting Location

5.4.1. NMSA 1978 § 7-1-14 (as amended effective July 1, 2021) prescribes destination-based sourcing for most receipts, with origin-based rules retained for limited categories (e.g., professional services rendered at the seller's New Mexico business location).

5.4.2. The Department improperly sourced $[__] of receipts to [reporting location code]. The correct reporting location is [code], where the [property was delivered / service was performed], with attendant local-option GRT consequences.

5.5. Ground Five — Marketplace Provider / Marketplace Seller Allocation

5.5.1. Under NMSA 1978 § 7-9-117 and § 7-9-3 (definitions of "marketplace provider" and "marketplace seller"), where sales are facilitated through a registered marketplace provider, the marketplace provider — not the marketplace seller — is liable for GRT on the facilitated receipts.

5.5.2. Receipts of $[__] assessed to Taxpayer were facilitated through marketplace provider [NAME], which is registered with TRD and remits GRT on those receipts. Taxpayer is therefore not liable for GRT on the same receipts.

5.6. Ground Six — Compensating Tax Inapplicability or Credit

5.6.1. Compensating tax under NMSA 1978 § 7-9-7 applies only where property or services are used in New Mexico and have not been subjected to gross receipts tax. Taxpayer's purchases at issue [were subjected to GRT collected and remitted by an in-state vendor / were exempt under § 7-9-7.1 / qualify for a credit under § 7-9-79 for tax paid to another state].

5.6.2. Imposition of compensating tax in addition to the GRT already paid would result in impermissible double taxation contrary to NMSA § 7-9-7 and the Commerce Clause.

5.7. Ground Seven — Statute of Limitations

5.7.1. Under NMSA 1978 § 7-1-18(A), the Department generally must assess within three (3) years from the end of the calendar year in which the tax was due. The Notice for periods [__/__/____] through [__/__/____] is partially time-barred. No statutory exception applies because Taxpayer filed all returns and did not understate gross receipts by 25 percent or more.

5.8. Ground Eight — Penalty Abatement

5.8.1. Civil negligence penalty under NMSA 1978 § 7-1-69 is unwarranted. Taxpayer's positions were taken in good faith based on [professional advice / TRD published guidance / prior audit acceptance / industry practice]. Reasonable cause supports abatement under 3.1.11 NMAC.

6. RELIEF REQUESTED

WHEREFORE, Taxpayer respectfully requests that the Department:

• A. Vacate the Notice in its entirety [OR: in the amount of $[__]];
• B. Abate all penalty and recompute or eliminate associated interest;
• C. Issue a Notice of Refund or appropriate credit for any amounts already paid;
• D. In the alternative, refer this protest to the Administrative Hearings Office for a formal hearing pursuant to NMSA 1978 § 7-1B-8; and
• E. Grant such other and further relief as is just and proper.

7. RESERVATION OF RIGHTS

7.1. Taxpayer reserves the right to amend or supplement this Protest as audit-workpaper review or further investigation may warrant, and to assert additional legal or factual defenses not specifically enumerated herein.

7.2. Taxpayer expressly preserves all constitutional defenses (Commerce Clause, Due Process, Equal Protection, Internet Tax Freedom Act); all statute-of-limitations defenses; and all rights under the New Mexico Taxpayer Bill of Rights, NMSA 1978 § 7-1-4.2.

7.3. Taxpayer requests an informal conference with the assigned auditor or protest auditor prior to formal hearing, without waiver of the right to hearing.

8. REQUEST FOR ADMINISTRATIVE HEARING

8.1. Pursuant to NMSA 1978 §§ 7-1-24(I) and 7-1B-8, in the event this protest is not resolved informally, Taxpayer requests that the matter be set for hearing before a hearing officer of the Administrative Hearings Office within ninety (90) days after a properly filed protest, as required by NMSA 1978 § 7-1B-8(A).

8.2. Taxpayer requests that the hearing be held [in person at the AHO offices in Santa Fe / by videoconference / in [CITY], New Mexico] pursuant to 22.600.3 NMAC.

8.3. Taxpayer estimates the hearing will require approximately [____ hours / days], with [____] witnesses.

8.4. Taxpayer requests issuance of subpoenas pursuant to NMSA 1978 § 7-1B-7 for the witnesses and records identified at Exhibit [__].

8.5. ☐ Taxpayer requests a Spanish-language interpreter.
☐ Taxpayer requests other accommodation: [describe].

9. VERIFICATION

STATE OF NEW MEXICO

COUNTY OF [COUNTY]

I, [OFFICER / TAXPAYER NAME], [Title] of [Taxpayer], declare under penalty of perjury under the laws of the State of New Mexico that I have read the foregoing Formal Protest, that I am authorized to execute this Verification on Taxpayer's behalf, and that the factual statements contained herein are true and correct to the best of my knowledge, information, and belief.

Dated: [__/__/____]

[________________________________]

[OFFICER NAME, TITLE]

Sworn to and subscribed before me this [____] day of [_______________], 20[____].

[________________________________]

Notary Public

(My Commission Expires: [_______________])

10. SIGNATURE, POWER OF ATTORNEY, AND SERVICE BLOCK

Date: [__/__/____]

Respectfully submitted,

[LAW FIRM / CPA FIRM NAME]

By: [________________________________]

[ATTORNEY / CPA NAME], [NM Bar No. / NM CPA No.] [####]

Authorized Representative for Taxpayer

[STREET ADDRESS]

[CITY, STATE ZIP]

Telephone: [__________]

Email: [__________]

Power of Attorney: Form ACD-31102 (Tax Information Authorization Tax Disclosure) is attached as Exhibit A and authorizes the foregoing representative to act on Taxpayer's behalf before the Department and the Administrative Hearings Office.

11. SCHEDULE OF EXHIBITS

12. NEW MEXICO PRACTICE NOTES — GRT AND COMPENSATING TAX

• GRT is not sales tax. New Mexico imposes a Gross Receipts Tax under NMSA § 7-9-4 on the privilege of engaging in business, measured by the seller's gross receipts. Legal incidence is on the seller, but the tax is commonly stated separately and passed through to the customer (NMSA § 7-9-7.5 governs separately stated tax and GRT-included pricing). Drafting must reflect this distinction; do not call it "sales tax."
• Compensating tax is the use-tax analogue. NMSA § 7-9-7 imposes compensating tax on the buyer/user of property or services brought into or used in New Mexico that have not borne GRT. Rates are 5.125 percent on property and 5 percent on services (state portion; verify current rate).
• Local-option GRT. Counties and municipalities impose local-option GRT layered on top of the state rate. Combined rates are reported on TRD's quarterly Gross Receipts Tax Rate Schedule. Verify the correct location code per destination-sourcing rules under NMSA § 7-1-14.
• Destination sourcing (post-July 1, 2021). Most receipts are sourced to where the buyer takes delivery or where the property/service is used. Origin-based sourcing remains for limited categories such as professional services performed at the seller's New Mexico location and construction services at a New Mexico job site. NMSA § 7-1-14.
• Economic nexus / Wayfair conformity. NMSA § 7-9-114 codifies the economic-nexus rule following South Dakota v. Wayfair, 138 S. Ct. 2080 (2018). A remote seller or marketplace provider is "engaging in business" if it has at least $100,000 in taxable gross receipts sourced to New Mexico in the preceding calendar year. The threshold counts taxable gross receipts (i.e., excluding amounts eligible for exemption or deduction).
• Marketplace providers and sellers. NMSA §§ 7-9-3 and 7-9-117 require marketplace providers meeting the $100,000 threshold to collect and remit GRT on facilitated sales. Marketplace sellers are relieved of liability on facilitated receipts where the provider is registered.
• Presumption of taxability. NMSA § 7-9-5 presumes all receipts of a person engaging in business are taxable; the taxpayer must establish the right to any deduction or exemption.
• NTTCs. NMSA § 7-9-43 deductions require a properly executed Nontaxable Transaction Certificate (NTTC) of the correct type, accepted in good faith, and obtained timely (generally within 60 days of a written request from TRD; see § 7-9-43(A)). Late NTTCs are not curative.
• Protest deadline. 90 days from the mailing date of the Notice of Assessment under NMSA § 7-1-24(B). Strict and jurisdictional.
• Administrative Hearings Office. AHO is independent of TRD under NMSA § 7-1B-2. Hearing required within 90 days of properly filed protest under § 7-1B-8(A); written Decision and Order within 30 days of hearing.
• Judicial review. Appeal to the New Mexico Court of Appeals within 30 days under NMSA § 7-1-25 and NMRA Rule 12-601. Standard: arbitrary/capricious, not supported by substantial evidence, or otherwise contrary to law.
• Statute of limitations. Three years standard; six for 25 percent understatement; seven for non-filers; ten for fraud (NMSA § 7-1-18).
• Refund claims. NMSA § 7-1-26 — three years from end of calendar year in which payment was due or made. Pay-under-protest available without waiver of protest.
• Records. NMSA § 7-1-10 requires accurate books permitting computation of tax; practical retention is the longer of the applicable § 7-1-18 period or seven years.

13. SOURCES AND REFERENCES

• NMSA 1978, Chapter 7, Article 9 (Gross Receipts and Compensating Tax Act) — https://nmonesource.com/
• NMSA 1978 § 7-9-114 (Engaging in business) — https://law.justia.com/codes/new-mexico/chapter-7/article-9/
• NMSA 1978 § 7-9-7 (Compensating tax) — https://law.justia.com/codes/new-mexico/chapter-7/article-9/section-7-9-7/
• NMSA 1978 § 7-1-24 (Protest) — https://law.justia.com/codes/new-mexico/chapter-7/article-1/section-7-1-24/
• NMSA 1978 § 7-1B-8 (Tax protest procedures) — https://law.justia.com/codes/new-mexico/chapter-7/article-1b/section-7-1b-8/
• NMSA 1978 § 7-1-25 (Appeals) — https://law.justia.com/codes/new-mexico/chapter-7/article-1/section-7-1-25/
• 22.600.3 NMAC (AHO Tax Protest Procedures) — https://www.srca.nm.gov/parts/title22/22.600.0003.html
• 3.2 NMAC (TRD Gross Receipts and Compensating Tax regulations) — https://www.srca.nm.gov/
• TRD Gross Receipts Tax Overview — https://www.tax.newmexico.gov/businesses/gross-receipts-overview/
• TRD Compensating Tax — https://www.tax.newmexico.gov/all-nm-taxes/2020/10/23/compensating-tax/
• TRD Determining Nexus — https://www.tax.newmexico.gov/businesses/determining-nexus/
• TRD FYI-206 (Gross Receipts and Compensating Tax — Remote Sellers) — https://www.tax.newmexico.gov/businesses/wp-content/uploads/sites/4/2021/09/FYI-206.pdf
• TRD FYI-230 (Compensating Tax) — https://www.tax.newmexico.gov/businesses/wp-content/uploads/sites/7/2020/11/FYI-230__Compensating-Tax_5-18.pdf
• TRD FYI-400 (Tax Audits and Protest Procedures) — https://www.tax.newmexico.gov/wp-content/uploads/sites/6/2020/10/FYI-400-Tax-Audits-and-Protest-Procedures-1.pdf
• TRD Form ACD-31094 (Formal Protest) — https://www.tax.newmexico.gov/wp-content/uploads/2023/09/ACD-31094-Formal-Protest_Updated-6.30.23.pdf
• South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018)
• Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977)

Disclaimer: This template is provided for informational purposes only and does not constitute legal or tax advice. New Mexico's Gross Receipts Tax and Compensating Tax differ materially from sales tax and use tax in other states; substantive analysis must reflect those differences. A New Mexico-licensed tax attorney must review and customize this document before filing.