When a contractor buys materials tax-free in New Mexico and uses them to build tax-exempt housing on an Indian reservation, does it owe New Mexico compensating (use) tax on the materials?

Subject

Richey Construction, Inc. (D&O 00-01)

Plain-English summary

Richey Construction, a general contractor based in Arizona with a New Mexico branch, built housing on Indian land in New Mexico — as prime contractor on a Sandia Pueblo project and as subcontractor on three Navajo Reservation projects (site grading, sewer lines, curbs, paving). It bought some construction materials off-reservation in New Mexico using Type 6 nontaxable transaction certificates (NTTCs), so the vendors charged no gross receipts tax. Because the company believed all the reservation work was tax-exempt, it never reported compensating tax (New Mexico's use tax) on those materials. A 1996 audit produced a huge assessment — over $304,000 in gross receipts tax, compensating tax, penalty, and interest — built largely on an estimate that materials equaled 50% of the company's receipts.

The Hearing Officer's decision was a partial win (granted in part, denied in part):

• Gross receipts tax on the Sandia Pueblo project — abated. The Department conceded that, because the All Indian Housing Authority is an Indian entity, taxing the prime contractor's receipts was preempted by federal law (Ramah Navajo). That piece was dropped.
• Compensating tax on the Navajo-project materials — owed, but not preempted. Under Section 7-9-7(A)(3), compensating tax applies to property bought in a transaction not subject to gross receipts tax that, because of the buyer's use, should have been taxed. The Type 6 NTTC only supports the vendor's deduction (Section 7-9-51) if the finished construction project is subject to gross receipts tax — and here the reservation project was not (preemption). So the materials use triggered compensating tax. The company argued the compensating tax was preempted too, but federal Indian preemption has a territorial limit: the taxable event (first use, when the materials were bought off-reservation and hauled to the site) occurred off the reservation (Mescalero v. Jones), so it was not preempted.
• The dollar amount was slashed. The company brought thorough, credible invoices showing its actual off-reservation New Mexico materials were $350,099.61 — 8.627% of its reservation receipts, not the 50% the auditor had estimated. That overcame the presumption of correctness, cutting the compensating tax to $17,504.98. The Hearing Officer rejected the Department's request to "fudge up" the error rate to 10% for missing Arizona invoices, finding the taxpayer's evidence credible and substantially complete.
• Negligence penalty and interest — upheld on the remaining tax. The failure to report compensating tax was negligent, not fraudulent: the return preparer did not understand the compensating tax and never sought advice, and New Mexico's self-reporting system charges every taxpayer with a duty to ascertain the tax consequences of its actions (Section 7-1-69(A); Tiffany Construction). Interest is mandatory under Section 7-1-67(A) regardless of the reason for late payment.

What this means for you

• A tax-free purchase for a tax-exempt project can still trigger compensating tax. If you buy materials with a resale certificate so no gross receipts tax is charged, and the finished project is not subject to gross receipts tax (as on a reservation), the certificate's condition fails and you owe compensating (use) tax on your use of the materials.
• Federal Indian preemption is territorial. Preemption can knock out tax on the on-reservation construction itself, but it does not shield an off-reservation purchase and use of materials. Where the taxable event happens matters.
• Good records can beat an estimated assessment. Richey's assessment fell from six figures to about $17,500 because it produced credible invoices overcoming the Department's 50%-of-receipts estimate. Keep and present your purchase invoices — the presumption of correctness is rebuttable with solid proof.
• Not understanding a tax is negligence, not an excuse. Under New Mexico's self-reporting system you must find out how a tax applies to you. Failing to seek advice about the compensating tax was enough to sustain the negligence penalty, and interest is mandatory no matter the reason for underpayment.

Key questions answered

Why did the company owe compensating tax at all if the building was tax-exempt?
Because it bought the materials off-reservation with a Type 6 NTTC, so no gross receipts tax was charged, and the resale-certificate deduction (Section 7-9-51) only holds if the completed project is subject to gross receipts tax. The reservation project was not, so its use of the materials fell under the compensating tax in Section 7-9-7(A)(3).

Wasn't the compensating tax preempted the same way the gross receipts tax on the pueblo project was?
No. Federal Indian preemption has a territorial dimension. The taxable event for the compensating tax — the first use of the materials — occurred off the reservation when they were purchased and transported to the site (Mescalero v. Jones), so it was not preempted.

How did the assessment drop so much?
The Department had estimated materials at 50% of receipts. At the hearing the company produced credible, substantially complete invoices showing the actual off-reservation New Mexico materials were only 8.627% of receipts ($350,099.61), overcoming the presumption of correctness and reducing the compensating tax to $17,504.98.

Why were the penalty and interest not waived given how confusing the issue was?
The negligence penalty applies to a failure to exercise ordinary care, and the preparer neither understood the compensating tax nor sought advice — negligence under New Mexico's self-reporting system (Tiffany Construction). Interest under Section 7-1-67(A) is mandatory regardless of the reason for late payment.

Verbatim citations

The compensating tax on later use:

For the privilege of using tangible personal property in New Mexico, there is imposed on the person using the property an excise tax equal to five percent of the value of tangible property that was: (3) acquired as the result of a transaction which was not initially subject to...the gross receipts tax but which transaction, because of the buyer's subsequent use of the property, should have been subject to...the gross receipts tax.

Preemption is territorial:

There is, however, a distinct territorial aspect to the implied federal preemption doctrine, which does not apply to preempt state taxes on transactions occurring off reservation.... Thus, the taxable incident occurred off-reservation and the compensating tax is not preempted.

The assessment was overcome by credible evidence:

Because I find that the Taxpayer's evidence was highly credible and substantially complete with regard to its off-reservation materials purchases, I find that the Taxpayer has met its burden of proving that the Department's assessment of compensating tax was overstated and should be reduced to $17,504.98 in compensating tax principle.

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Richey Construction, Inc.
• Decision PDF: D&O 00-01

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
RICHEY CONSTRUCTION COMPANY, INC. NO. 00-01
ID. NO 02-113799-00 4, PROTEST TO
ASSESSMENT NO 2082085

DECISION AND ORDER

This matter came on for formal hearing on December 14, 1999 before Gerald B.

Richardson, Hearing Officer. Richey Construction Company, Inc., hereinafter, “Taxpayer”, was

represented by Mr. Clinton Richey, its Vice-President, Chief Operating Officer and General

Manager. The Taxation and Revenue Department, hereinafter, “Department”, was represented

by Bruce J. Fort, Special Assistant Attorney General. Based upon the evidence and the

arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer is a general construction contractor whose principal offices are located

in Gilbert, Arizona with a branch facility located in Kirtland, New Mexico.

2. On February 13, 1996, the Department wrote the Taxpayer notifying it that it had

been selected for an audit In the notification letter the Department informed the Taxpayer that

the types of records to be examined included sales and purchase invoices, books, general and

subsidiary ledgers, financial statements and state and federal income tax returns.

3. Department auditor Sue Solosky conducted the audit of the Taxpayer at the

Taxpayer’s offices in Gilbert, Arizona on April 22 and 23, 1996.

4. Annette Anselman, an employee of the Taxpayer who prepares the Taxpayer’s returns

filed with the Department under its combined reporting system, worked with the Department’s
auditor during the conduct of the audit at Taxpayer's offices to provide information, documents,

answer the auditor’s questions, etc.

5. Although Ms. Anselman was familiar with New Mexico’s gross receipts tax at the

time of the audit, she was not at all familiar with New Mexico’s compensating tax, and the

Taxpayer had never reported or filed tax returns with the Department reporting and paying

compensating tax.

6. The Department’s auditor found several audit exceptions relating to work the

Taxpayer had done with respect to the construction of housing on Indian reservations in New

Mexico. The Taxpayer had acted as a prime contractor under a contract with the All Indian

Housing Authority to construct homes on Sandia Pueblo. The Taxpayer had not reported gross

receipts tax on its receipts from this project because it believed that imposition of the tax was

preempted by federal law. Because the Department’s auditor considered the All Indian Housing

Authority to be a federal agency, the auditor believed that the Taxpayer’s receipts from this

project were subject to gross receipts tax.

7. The other exceptions found by the Department’s auditor related to three Indian

housing projects on the Navajo Reservation in which the Taxpayer acted as a subcontractor,

performing site grading, installation of main sewer lines and lateral lines to individual houses,

construction of street curbs and gutters and asphalt paving of the streets. In two of the projects,

the prime contractor was Hunt Building Corporation and in the third, the prime contractor was

Joe E. Woods Construction Company.

8. With respect to the housing construction projects on the Navajo Reservation, the

Taxpayer purchased some of the materials off reservation, either in New Mexico or Arizona, for

use in the construction projects on the reservation. Some of the materials purchased off-

reservation in New Mexico were purchased by the Taxpayer using a Type 6 Nontaxable
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Transaction Certificate (“NTTC”). This enabled the vendor of those materials to claim a

deduction from gross receipts tax on the sale of those materials, consequently enabling the

Taxpayer to purchase those materials free of the cost of passed on gross receipts tax. In other

instances, the sale of the materials to the Taxpayer was subject to gross receipts tax imposed

upon the vendor of the materials.

9. The Department periodically sends CRS-1 filers kits to all taxpayers who report to the

Department under the Combined Reporting System. The Combined Reporting System covers

the gross receipts, compensating and withholding tax programs which the Department

administers.

10. The Department’s CRS-1 filers kits instruct taxpayers that Type 6 NTTCs support a

deduction from gross receipts tax upon the sale of construction materials to a person in the

construction business. The instructions further provide that it is a requirement that the materials

become a part of a construction project and that upon its completion, the construction project

must be subject to the gross receipts tax.

11. The Department’s auditor proposed to assess compensating tax on the value of

materials which were purchased off reservation in New Mexico in transactions which had not

been subject to gross receipts tax and which were used by the Taxpayer in the construction

projects on the portion of the Navajo Reservation falling within the borders of New Mexico.

12. The Department’s auditor is of oriental descent and for whom English is a second

language. Ms. Anselman had considerable difficulty communicating with and understanding

the auditor.

13. Ms. Anselman cannot recall whether the Department’s auditor requested to see the

purchase invoices for materials used in the Navajo Reservation projects. Some of them would

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have been available on the Taxpayer’s premises during the conduct of the audit, and some

would have been in archival storage off the Taxpayer’s business premises.

14. The communication difficulties between the Department’s auditor and Ms Anselman,

together with Ms. Anselman’s lack of understanding of New Mexico’s compensating tax caused

a breakdown in communication between the Taxpayer and the Department with respect to the

need for the actual purchase invoices so that the amount of compensating tax to be assessed

could be calculated with precision.

15. Because the Department’s auditor did not have available to her the actual purchase

invoices to establish the value of the materials purchased off-reservation in New Mexico for the

construction work the Taxpayer performed on the Navajo Reservation, the auditor calculated the

amount of the compensating tax to be assessed by estimating that 50% of the Taxpayer’s

receipts for those projects represented the value of those materials purchases.

16. As a result of the Department’s audit, on October 31, 1996, the Department mailed

Assessment No 2082085 to the Taxpayer, assessing $68,453.25 in gross receipts tax,

$130,459.73 in compensating tax, $19,891.32 in penalty and $86,136.69 in interest for a total

assessment of $304,940.99 for the reporting periods of January, 1990 through December, 1995.

17. On November 22, 1996, the Taxpayer filed a timely, written protest to Assessment No

2082085 with the Department.

18. The Department has agreed that because the All Indian Housing Authority is an

Indian entity, that its assessment of gross receipts tax on the receipts from that project is

preempted by operation of federal law and it has been abated.

19. The Department has agreed that its original estimate that 50% of the Taxpayer’s

receipts from the construction projects on the Navajo Reservation represents the value of

materials is too high. It has also agreed that only the portion of materials which were purchased
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off-reservation within New Mexico in transactions which were not subjected to gross receipts

tax are appropriate for the imposition of compensating tax.

20. At the formal hearing the Taxpayer presented credible evidence to demonstrate that it

purchased materials in the amount of $350,099.61 for incorporation into its construction

projects on the Navajo Reservation, which purchases were made in off-reservation transactions,

from sources within New Mexico and which transactions were not subjected to the imposition

of gross receipts tax. This amount represents 8.627% of the value of the Taxpayer’s receipts

from the construction projects on the Navajo Reservation.

21. Applying the statutory 5% compensating tax rate to the value of materials purchased

off-reservation within New Mexico for use by the Taxpayer in its construction projects on the

Navajo Reservation results in $17,504.98 in compensating tax.

22. The Department’s auditor determined that during 1990, the Taxpayer had

$298,608.24 in unidentified revenues and included that amount in the tax base to which the 50%

estimate of value of materials purchases was applied for purposes of calculating the amount of

compensating tax assessed by the Department. The auditor arrived at the amount of unidentified

revenues by comparing the amounts of gross revenues carried on the Taxpayer’s books to the

gross receipts reported by the Taxpayer

23. Mr. Richey testified credibly that the unidentified revenues represented compensation

owed the Taxpayer for amounts retained by its customers for warranty retainers on projects

completed prior to the audit period. Mr. Richey further credibly explained that the discrepancy

in gross revenues and gross receipts was attributable to the fact that the Taxpayer’s books are

kept on an accrual basis and its gross receipts are reported on a cash basis and the unidentified

revenues represented amounts which had been reported in the Taxpayer’s records during periods

prior to the audit period.
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24. Ms. Anselman, who prepared the Taxpayer’s CRS-1 returns for filing with the

Department, never sought legal advice from Mr. Richey, who was the General Manager of the

Taxpayer, or from any other legal counsel or accountants concerning whether compensating tax

should be reported and paid with respect to construction materials which it used in the Indian

housing projects where it acted as a subcontractor.

DISCUSSION

The issues which this case presents are largely the result of misunderstandings between

the Taxpayer and the Department, both during and after the Department’s audit of the Taxpayer.

Those misunderstandings were exacerbated by the fact that the Taxpayer’s activities upon which

tax was assessed were in connection with construction projects on Indian reservations within

New Mexico, thus involving the complex and confusing area of state jurisdiction to tax activities

involving Indian tribes and their members.

The first area of misunderstanding arose during the audit with respect to the Taxpayer’s

receipts as a prime contractor constructing housing on Sandia Pueblo for the All Indian Housing

Authority. The auditor thought that the All Indian Housing Authority might be a federal agency,

in which case, in accordance with Blaze Construction Co v. Taxation and Revenue Department

of New Mexico, 118 N.M. 647, 884 P.2d 803 (1994), cert. denied 514 U.S. 1016, 115 S.Ct. 1359

(1995), the Taxpayer’s receipts would be subject to tax. Because the Taxpayer did not have

documentation to establish the nature of the All Indian Housing Authority, gross receipts tax was

assessed. It has now been abated by the Department on the basis of federal preemption. See,

Ramah Navajo School Board v. Bureau of Revenue, 458 U.S. 832, 102 S.Ct. 3394 (1982)

(gross receipts tax imposed upon non-Indian construction company building a school for the

Navajo Tribe on the Navajo Reservation preempted by operation of federal law).
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The second area of misunderstanding arose during the audit with respect to the

assessment of compensating tax on the value of materials used by the Taxpayer on the other

Indian housing construction projects in which it acted as a subcontractor. Some of the materials

were purchased by the Taxpayer using NTTCs, resulting in the vendor failing to charge passed on

gross receipts tax on the purchase to the Taxpayer, some were purchased in Arizona, and some

were purchased in New Mexico but without the use of NTTCs. The auditor did not review all of

the purchase invoices from these projects to determine the amount of compensating tax assessed,

because the invoices were not made available at the time of the audit, but simply estimated that

all materials had been purchased in New Mexico free of gross receipts tax and estimated the

amount of materials at 50% of the Taxpayer’s receipts from those projects. Although the

Department had sent a letter prior to the audit to have all records and invoices available for the

auditor when the audit occurred, apparently the auditor did not ask for the invoices when she was

there to do the audit and the issue only came up during the exit interview between the auditor and

Ms. Anselman. Ms. Anselman was unfamiliar with the operation of the compensating tax and so

probably did not understand the significance of the invoices to demonstrate how a more accurate

amount of compensating tax could have been calculated for purposes of assessment. This is

especially so since the Taxpayer did not believe that the housing construction activities being

performed on the Indian reservations were taxable, let alone the materials which went into those

construction projects.

All of these misunderstandings led to an impasse between the Department and the

Taxpayer which lasted for several years until the matter was set for hearing. Finally, in early

November, 1999, the Taxpayer brought to the Department a detailed listing of the purchase

invoices for the materials it purchased in New Mexico for its use in the New Mexico

construction projects, together with copies of the invoices, in an attempt to avail itself of the
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amnesty program the Department was administering at that time. Because of the volume of

requests for amnesty, the volume of the materials brought in by the Taxpayer, and the lack of

personnel at the Department who would be available to review these materials in the short

amount of time before the close of the amnesty period, the Department refused to review the

materials to recalculate the amount of compensating tax owing and allow the Taxpayer to apply

for amnesty as to the penalty and interest owing on any recalculated amount of compensating tax.

Thus, the matter came on for hearing.

At the hearing, the Taxpayer presented credible evidence to demonstrate that it purchased

materials in the amount of $350,099.61 for incorporation into its construction projects on the

Navajo Reservation, which purchases were made in off-reservation transactions from sources

within New Mexico, and which transactions were not subjected to the imposition of gross

receipts tax. This amount represents 8.627% of the value of the Taxpayer’s receipts from the

construction projects on the Navajo Reservation. The Taxpayer’s evidence was quite thorough,

with purchase invoices for all purchases for the Navajo Reservation projects, except those

occurring in Arizona, which demonstrated whether the materials were purchased in transactions

on which gross receipts tax was charged or not. The Department conceded that no compensating

tax would be owing on materials purchased in Arizona, but it argued that since the Taxpayer’s

records produced at the hearing did not actually contain copies of the Arizona invoices to

demonstrate that the materials were, in fact, purchased in Arizona, the percentage of error to be

applied to arrive at the correct amount of compensating tax should be “fudged up” to 10% to

account for this discrepancy. Because I find that the Taxpayer’s evidence was highly credible

and substantially complete with regard to its off-reservation materials purchases, I find that the

Taxpayer has met its burden of proving that the Department’s assessment of compensating tax

was overstated and should be reduced to $17,504.98 in compensating tax principle.
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With respect to the basis for the compensating tax assessment, compensating tax was

assessed pursuant to § 7-9-7(A)(3), which provides in pertinent part:

A. For the privilege of using tangible personal
property in New Mexico, there is imposed on the person using
the property an excise tax equal to five percent of the value of
tangible property that was:
(3) acquired as the result of a transaction
which was not initially subject to…the gross receipts tax
but which transaction, because of the buyer’s subsequent
use of the property, should have been subject to…the gross
receipts tax.

In this case, the Taxpayer made materials purchases from suppliers located within New Mexico

and outside of the boundaries of the Navajo Reservation, and it issued Type 6 NTTCs to some of

its materials vendors when making such purchases. The Type 6 NTTC allows the vendor to

claim a deduction from gross receipts tax pursuant to § 7-9-51 NMSA 1978, which provides as

follows:

A. Receipts from selling tangible personal property
may be deducted from gross receipts if the sale is made to a
person engaged in the construction business who delivers a
nontaxable transaction certificate to the seller.
B. The buyer delivering the nontaxable transaction
certificate must incorporate the tangible personal property as:
(1) an ingredient or component part of a
construction project which is subject to the gross receipts
tax upon its completion or upon the completion of the
overall construction project of which it is a part; or
(2) an ingredient or component part of a
construction project which is subject to the gross receipts
tax upon the sale in the ordinary course of business of the
real property upon which it was constructed.
(emphasis added).

In this case, both the Department and the Taxpayer agree that the Indian housing construction

project itself, being built on the Navajo Reservation for the tribe, would not be subject to gross

receipts tax under the implied federal preemption doctrine applied in the Ramah case cited

above. Because the construction project was not subject to gross receipts tax, compensating tax
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would be imposed based upon the Taxpayer’s initial purchase not being subject to gross receipts

tax because of the NTTC it issued to its supplier, and the Taxpayer’s subsequent use of the

materials for incorporation into a construction project which was not subject to the gross receipts

tax upon its completion.

The Taxpayer argues that the compensating tax should be preempted on the same basis

that imposition of the gross receipts tax on the prime contractor would be preempted under the

implied federal preemption doctrine. There is, however, a distinct territorial aspect to the

implied federal preemption doctrine, which does not apply to preempt state taxes on transactions

occurring off reservation. See, Mescalero v. Jones, 411 US. 145, 93 S.Ct. 1267 (1973). In this

case, the Taxpayer first used the materials at issue when it purchased them off-reservation and

transported them from their place of purchase to the reservation. Thus, the taxable incident

occurred off-reservation and the compensating tax is not preempted.

The Taxpayer also asks for relief from the imposition of penalty and interest on the

compensating tax assessed, based upon the confusing nature of the compensating tax and the

complexity of the taxability issue in this case because of the overlay of federal Indian law.

The imposition of penalty is governed by the provisions of NMSA 1978, Section 7-1-69(A)

NMSA 1978, which imposes a penalty of two percent per month, up to a maximum of ten percent:

In the case of failure, due to negligence or disregard of rules and regulations, but
without intent to defraud, to pay when due any amount of tax required to be paid or
to file by the date required a return regardless of whether any tax is due,....

This statute imposes penalty based upon negligence (as opposed to a willful or fraudulent intent) for

failure to timely pay tax. Thus, there is no contention that the failure to report and pay taxes was

based upon any conscious attempt by the Taxpayer to underreport taxes. What remains to be

determined is whether the Taxpayer was negligent in failing to report its taxes properly. Taxpayer

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"negligence" for purposes of assessing penalty is defined in Regulation 3 NMAC 1.11.10 (formerly

TA 69:3) as:

1) failure to exercise that degree of ordinary business care and prudence which
reasonable taxpayers would exercise under like circumstances;
2) inaction by taxpayers where action is required;
3) inadvertence, indifference, thoughtlessness, carelessness, erroneous
belief or inattention.

In this case the Taxpayer's failure to report and pay taxes was based upon Ms. Anselman's

lack of knowledge about New Mexico’s compensating tax. Ms. Anselman admitted that prior to

the Department’s audit, she had no knowledge or understanding of the compensating tax. Thus,

even aside from the Indian law issues, she would not have understood that NTTC’s should not be

used to purchase materials unless the construction project itself will be subject to gross receipts tax.

New Mexico has a self-reporting tax system which requires that taxpayers voluntarily report and

pay their tax liabilities to the state. Because of this, the case law is well settled that every person is

charged with the reasonable duty to ascertain the possible tax consequences of his actions, and the

failure to do so has been held to amount to negligence for purposes of the imposition of penalty

pursuant to Section 7-1-69 NMSA 1978. Tiffany Construction Co. v. Bureau of Revenue, 90

N.M. 16, 558 P.2d 1155 (Ct. App. 1976), cert. denied, 90 N.M. 255, 561 P.2d 1348 (1977). Thus,

at the very least, Ms. Anselman should have sought advice to determine whether the nontaxable

nature of the housing construction project itself would have any tax consequences for it as a

subcontractor purchasing materials for use in the project. She admitted that she did not do so, and

that amounts to negligence for purposes of the imposition of penalty.

Section 7-1-67(A) NMSA 1978 addresses the imposition of interest on tax deficiencies and

provides as follows:

A. If any tax imposed is not paid on or before the day on which it
becomes due, interest shall be paid to the state on such amount from
the first day following the day on which the tax becomes due,
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without regard to any extension of time or installment agreement,
until it is paid. (emphasis added).

It is a well settled rule of statutory construction that the use of the word "shall" in a statute indicates

that the provisions are intended to be mandatory rather than discretionary, unless a contrary

legislative intent is clearly demonstrated. State v. Lujan, 90 N.M. 103, 560 P.2d 167 (1977).

Applying this rule to Section 7-1-67, the statute requires that interest be paid to the state on any

unpaid taxes and no exceptions to the imposition of interest are countenanced by the statute. Thus,

it doesn't matter why taxes were not paid in a timely manner. Interest is imposed any time that

taxes are not paid when they are due, and for the period of time that they are unpaid. Thus, there is

no basis for adjusting the interest assessed in this matter.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to Assessment No. 2082085 and

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

2. The Taxpayer was subject to the imposition of compensating tax on its

purchases of construction materials off-reservation within New Mexico using a Type 6 NTTC,

enabling it to purchase those materials in transactions upon which gross receipts tax was not

imposed.

3. The Taxpayer overcame the presumption of correctness which attached to the

assessment of compensating tax on its off-reservation materials purchases when it presented

competent and credible evidence to support a compensating tax assessment in the amount of

$17,504.98.

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4. The Taxpayer’s failure to report and pay compensating tax was based upon its

own negligence and the imposition of penalty with respect to the compensating tax assessment

was proper.

5. The imposition of interest was proper.

For the foregoing reasons, the Taxpayer’s protest IS GRANTED IN PART AND DENIED

IN PART. The Department IS HEREBY ORDERED to abate all but $17,504.98 in compensating

tax, and to abate the penalty and interest relating to the amount of compensating tax ordered to be

abated.

DONE, this 11th day of January, 2000.

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