Is a New Mexico tax assessment valid if it was mailed to the address on the taxpayer's registration but he had moved out of state without updating it and never received it?

Plain-English summary

A tax assessment and lien mailed to the taxpayer's last registered address were legally effective even though he had moved out of state, never updated his address, and never received them. Protest DENIED.

Christopher Taylor worked as an independent contractor for a New Mexico architectural firm from 1992 to 1995. He did not realize gross receipts tax applied to his services (or that a nontaxable transaction certificate could support a deduction), so he obtained no NTTC and paid no tax on that work. He registered with the Department in 1994 for separate "side jobs," listing a Madrid, New Mexico address. In 1995 he left New Mexico for Texas (and later Arizona), but he never retired his registration or filed a change of address.

In 1996 the Department got IRS data showing about $26,628 of unreported 1993 business income. Its audit notice to the Madrid address came back undeliverable; it tried two other addresses from its own records, then ordered a TransUnion credit report and mailed to a North Dakota address — all returned. In February 1997 it issued a $3,085.97 assessment for 1993, mailed to the registered Madrid address. Taylor, then in Texas, never received it and did not protest. In June 2000 the Department filed a tax lien, again mailing notice to Madrid. By chance, a small-town postmaster recognized Taylor's name and forwarded the lien notice; Taylor then protested the lien.

Notice to the last registered address is effective — even if returned

Taylor argued the assessment and lien were ineffective because he had not lived at the Madrid address since 1995, and that the Department had to keep searching for him. The hearing officer rejected this. Section 7-1-17(B)(2) makes an assessment effective when mailed to the taxpayer, and Section 7-1-9(A) says a mailed notice is effective "if mailed...to the taxpayer...at the last address shown on his registration certificate or other record of the department." The Department mailed to exactly that address, and in fact went beyond the requirement by ordering a credit report. New Mexico runs a self-reporting system in which the taxpayer — who best knows his own activities — must keep his registration current (Section 7-1-13(B); Tiffany Construction). The Department administers dozens of tax acts and thousands of monthly filings and cannot be expected to track when someone moves or leaves the state. The mailings complied with Section 7-1-9(A) and were effective to establish the liability.

No NTTC, no resale deduction — and the protest window had closed

Because Taylor never filed a timely protest to the 1997 assessment (Section 7-1-24(B) requires a protest within 30 days of mailing), the deduction question was not technically before the hearing officer. But the decision explained the point anyway: gross receipts tax applies to each transaction, including selling a service for resale (Sections 7-9-4, 7-9-3(E)–(F)). The resale deduction in Section 7-9-48 is available only "if the sale is made to a person who delivers a nontaxable transaction certificate to the seller." Deductions are construed strictly and must be clearly established by the taxpayer following the prescribed method (Wing Pawn Shop, Proficient Food). Taylor never obtained the NTTC, so he could not deduct — and because the gross receipts tax falls on the seller, he could not shift responsibility to the architectural firm for failing to give him one.

Result: protest DENIED. The notices were effective, and Taylor had no resale deduction without an NTTC.

What this means for you

Keep your tax registration address current — and close it when you leave

The Department can validly assess and lien you by mailing to the last address on your registration, even if the mail is returned and you never see it. If you move or stop doing business, update your address and retire your registration number. Otherwise a years-old liability can surface as a lien with penalty and interest you never had a chance to contest.

The 30-day protest clock is unforgiving

A protest must be filed within 30 days of the mailing of the assessment (Section 7-1-24(B)). If notice was validly mailed to your registered address, that clock runs whether or not you actually received it — and missing it can cost you the right to argue the merits, as it did here.

Selling a service "for resale" is deductible only with an NTTC in hand

It is not enough that your work is resold. Section 7-9-48 lets you deduct receipts from selling a service for resale only if you obtain the correct NTTC from your buyer. No NTTC means no deduction, and the buyer's failure to provide one does not shift the tax off you — the gross receipts tax is on the seller.

The Department is not required to track you down

New Mexico's self-reporting system puts the burden on you to know and report your tax. The Department need not run repeated searches to find a taxpayer who left no forwarding address; mailing to your registered address satisfies the law.

Common questions

Q: What tax was at issue?
A: New Mexico gross receipts tax on Taylor's 1993 receipts from services performed for a New Mexico architectural firm — a $3,085.97 assessment (tax, penalty, and interest) later secured by a tax lien.

Q: How can an assessment be valid if he never received it?
A: Section 7-1-9(A) makes a mailed notice effective when sent to the last address on the taxpayer's registration or Department records. The Department mailed to that address, so the assessment and lien were effective even though they were returned.

Q: Didn't the Department have to keep looking for him?
A: No. It is the taxpayer's duty to keep his registration current in New Mexico's self-reporting system. The Department actually went beyond the law by trying other addresses and a credit report, but it was only required to use the registered address.

Q: Why couldn't he argue about the deduction?
A: He never filed a protest within the 30-day window in Section 7-1-24(B), so the assessment stood and the deduction issue was not properly before the hearing officer (though the decision addressed it for his benefit).

Q: Could he deduct his receipts as sales for resale?
A: No. Section 7-9-48 allows the resale-of-service deduction only if the seller obtains an NTTC from the buyer. Taylor never got one, so no deduction applied — and he could not blame the buyer, because the tax is imposed on the seller.

Citations and references

Statutes:

• NMSA 1978, § 7-1-9(A) — a mailed notice is effective if sent to the last address shown on the taxpayer's registration certificate or other Department record
• NMSA 1978, § 7-1-17(B)(2) — an assessment is effective when mailed or delivered in person to the taxpayer
• NMSA 1978, § 7-1-13(B) — taxpayers must determine and report their own tax liability (self-reporting)
• NMSA 1978, § 7-1-24(B) — a protest must be filed within 30 days of the mailing of the notice of assessment
• NMSA 1978, § 7-9-4 — gross receipts tax imposed on persons engaging in business in New Mexico
• NMSA 1978, § 7-9-3(E)–(F) — definitions of "engaging in business" and "gross receipts"
• NMSA 1978, § 7-9-48 — deduction for selling a service for resale, available only if the buyer delivers an NTTC

Cases cited:

• Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16, 558 P.2d 1155 (Ct. App. 1976)
• Wing Pawn Shop v. Taxation and Revenue Department, 111 N.M. 735, 809 P.2d 649 (Ct. App. 1991)
• Proficient Food v. New Mexico Taxation & Revenue Department, 107 N.M. 392, 758 P.2d 806 (Ct. App. 1988)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Christopher Taylor
• Decision PDF: D&O 02-02

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
CHRISTOPHER TAYLOR No. 02-02
ID NO. 02-240583-00-6
NOTICE OF TAX LIEN NO. 754491-01

DECISION AND ORDER

A formal hearing on the above-referenced protest was held December 28, 2001, before

Margaret B. Alcock, Hearing Officer. Christopher Taylor (“Taxpayer”) represented himself. The

Taxation and Revenue Department ("Department") was represented by Javier Lopez, Special Assistant

Attorney General. Based on the evidence and arguments presented, IT IS DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. From 1992 to 1995, the Taxpayer worked as an independent contractor performing

services for an architectural firm in New Mexico.

2. The Taxpayer did not realize the New Mexico gross receipts tax applied to his receipts

from performing services for resale, nor did he understand that he would be entitled to claim a

deduction from gross receipts if he obtained the correct form of nontaxable transaction certificate

(“NTTC”) from the buyer of his services.

3. Due to his lack of knowledge of New Mexico law, the Taxpayer did not obtain an

NTTC from the architectural firm for which he worked and did not report or pay gross receipts tax on

his receipts from performing services for the firm.

4. In January 1994, the Taxpayer registered with the Department and began to pay gross

receipts tax on what he termed as “side jobs”, which were separate from the work he performed for the

architectural firm.

5. The mailing address the Taxpayer listed on his application for registration was House

193, Madrid, NM 87010.

6. In 1995, the Taxpayer left New Mexico and became a resident of Texas. The Taxpayer

later moved to Arizona, returning to Texas in 2001.

7. The Taxpayer never retired his gross receipts tax registration or provided the

Department with a change of address.

8. In 1996, the Department obtained information from the Internal Revenue Service

concerning business income reported on Schedule C of the Taxpayer’s 1993 federal income tax

return. The Department compared the amount of business income reported on the federal Schedule

C with the amount of business income reported to New Mexico for gross receipts tax purposes and

discovered a discrepancy of $26,628.00.

9. After discovering the discrepancy, the Department mailed the Taxpayer a notice of

limited scope audit asking him to explain why the 1993 business income reported to the IRS had not

been reported to the Department for gross receipts tax purposes.

10. The notice, which was mailed to the Madrid, New Mexico, address shown on the

Taxpayer’s registration application, was returned to the Department as undeliverable.

11. The Department checked its personal income tax and motor vehicle records to

determine whether it had any other addresses for the Taxpayer. The Department found the following

additional addresses in its records: 13 Firehouse Lane, Madrid, New Mexico, and Rt. 2, Box 504,

Santa Fe, New Mexico. The Department sent copies of the notice of audit to each of these addresses.

Both were returned as undeliverable.

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12. The Department then ordered a credit report from TransUnion, which listed the

Taxpayer’s current address as P. O. Box 5285, Fargo, North Dakota. The Department sent the notice

of audit to this address, but it was also returned as undeliverable.

13. On February 19, 1997, the Department issued Assessment No. 2109433 to the

Taxpayer in the total amount of $3,085.97, representing gross receipts tax, penalty and interest for

the period January through December 1993.

14. The Department mailed the assessment to the Taxpayer at the Madrid, New Mexico,

address listed on the Taxpayer’s gross receipts tax registration with the Department.

15. Because the Taxpayer had moved from New Mexico to Texas in 1995, he did not

receive the Department’s assessment and did not file a protest to the assessment.

16. On June 20, 2000, the Department filed Notice of Tax Lien No. 754491-01 on the

Santa Fe County records to secure payment of Assessment No. 2109433. The Department mailed a

copy of the notice to the Taxpayer at the Madrid, New Mexico, address shown on his gross receipts

tax registration, which still had not been retired or updated by the Taxpayer.

17. At the time the notice of tax lien was filed, the Taxpayer was living in Arizona, but

returned to New Mexico to visit friends during the month of July 2000.

18. The Taxpayer arranged to have mail forwarded from Arizona to Cerrillos, New

Mexico. Because the Cerrillos Post Office is quite small, the Postmaster recognized the Taxpayer’s

name on the envelope containing the Department’s notice of tax lien and included that envelope with

the mail forwarded to the Taxpayer from Arizona.

19. As soon as the Taxpayer received the notice of tax lien, he contacted the Department

and discovered the existence of the outstanding assessment against him.

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20. On July 12, 2000, the Taxpayer filed a written protest to the Department’s notice of

tax lien.

DISCUSSION

The Taxpayer’s protest raises the following issues: (1) whether the notice of tax lien and

underlying assessment were mailed to the proper address; and (2) whether the Taxpayer should be

allowed to deduct his receipts from selling services for resale, even though the Taxpayer did not have

an NTTC from his buyer.

Mailing of the Assessment and Notice of Lien. Section 7-1-17(B)(2) NMSA 1978 provides

that a notice of assessment is effective when “mailed or delivered in person to the taxpayer against

whom the liability for tax is asserted....” Section 7-1-9(A) NMSA 1978, states that “any notice

required or authorized by the Tax Administration Act to be given by mail is effective if mailed...to

the taxpayer or person at the last address shown on his registration certificate or other record of the

department.” In this case, the Department mailed Assessment No. 2109433 to the Taxpayer on

February 19, 1997 and mailed Notice of Claim of Tax Lien No. 754491-01 to the Taxpayer on June

20, 2000. Each of these documents was sent to “# 193, Madrid, NM 87010,” the mailing address

shown on the Taxpayer’s registration application.

The Taxpayer argues that the assessment and tax lien were ineffective because he had not

lived at the Madrid, New Mexico, address since 1995 when he moved to Texas. The Taxpayer

believes that once the Department’s notices were returned as undeliverable, the Department was

required to conduct a search to find him, including ordering successive credit reports to try and

locate the Taxpayer’s current address. The Taxpayer’s argument is based on a misunderstanding of

New Mexico’s self-reporting tax system. It is the obligation of taxpayers, who have the most accurate

and direct knowledge of their activities, to determine their liability for tax and pay that liability to the

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state. See, Section 7-1-13(B) 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) (the law charges

every individual with the reasonable duty to ascertain the possible tax consequences of his actions or

inaction). To this end, taxpayers are required to keep their tax registration information current. In this

case, the Taxpayer failed to retire his registration number at the time he left New Mexico in 1995 and

failed to provide the Department with a forwarding address in the event questions arose concerning

prior tax years.

To put the matter in perspective, it should be noted that the Taxpayer is required to keep track

of only one business, while the Department is charged with the administration of more than 40

different tax acts and receives thousands of tax filings each month. The Department is not

omniscient, and cannot be expected to know when a particular individual starts a business, ceases that

business, changes his address or leaves the state to take up residence elsewhere. It is not reasonable for

the Taxpayer to expect the Department to constantly monitor his activities or to expend time and

expense trying to determine where in this or some other state he might have chosen to relocate.

Section 7-1-9(A) NMSA 1978 specifically provides that assessments and other notices are effective

“if mailed...to the taxpayer or person at the last address shown on his registration certificate or other

record of the department.” The Department went far beyond this statutory requirement when it

ordered a credit report from TransUnion and sent a notice of audit to the “current address” listed on

that report. When this attempt to locate the Taxpayer was unsuccessful, the Department mailed its

notice of assessment and the later notice of tax lien to the Taxpayer at the address shown on his

registration with the Department. These mailings fully complied with the provisions of Section 7-1-

9(A) NMSA 1978 and were effective to establish the Taxpayer’s liability for the tax assessed.

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Sales for Resale. The Department’s assessment was based on the Taxpayer’s receipts from

selling services for resale. The Taxpayer argues that he should be allowed to deduct these receipts

even though he did not obtain the NTTC required by statute. Because the Taxpayer failed to file a

timely protest to the assessment itself, this issue is not technically before the hearing officer. See,

Section 7-1-24 NMSA 1978(B), which states that any protest “shall be filed within thirty days of the

date of the mailing to the taxpayer by the department of the notice of assessment....” Nonetheless, in

order to insure that the Taxpayer understands the basis of his tax liability to the state, a brief

discussion of the issue is set out below.

Section 7-9-4 NMSA 1978 imposes an excise tax on the gross receipts of any person

engaging in business in New Mexico. “Engaging in business” is defined in Section 7-9-3(E) NMSA

1978 to mean carrying on or causing to be carried on any activity with the purpose of direct or

indirect benefit. The term “gross receipts” is defined in Section 7-9-3(F) NMSA 1978 to include the

total amount of money or the value of other consideration received from performing services in New

Mexico. The statute makes no distinction between persons selling services for resale and persons

selling services to the final consumer. Each separate transaction is subject to gross receipts tax.

In an effort to alleviate the tax burden that results from taxing successive transactions, the

New Mexico Legislature has provided several deductions from gross receipts. At issue in this case is

the deduction provided in Section 7-9-48 NMSA 1978, which states, in pertinent part:

Receipts from selling a service for resale may be deducted from gross receipts
or from governmental gross receipts if the sale is made to a person who delivers
a nontaxable transaction certificate to the seller.... (emphasis added)

The fact that a particular transaction is a sale of service for resale is not sufficient to support a deduction

under Section 7-9-48. The requirements of the statute are very specific. The seller of the service must

obtain an NTTC from the buyer before the seller is entitled to claim a deduction. The law holds that

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when an exemption or deduction from tax is claimed, the statute must be construed strictly in favor of

the taxing authority, the right to the exemption or deduction must be clearly and unambiguously

expressed in the statute, and the right must be clearly established by the taxpayer. Wing Pawn Shop v.

Taxation and Revenue Department, 111 N.M. 735, 740, 809 P.2d 649, 654 (Ct. App. 1991). See also,

Proficient Food v. New Mexico Taxation & Revenue Department, 107 N.M. 392, 397, 758 P.2d 806,

811 (Ct. App.), cert. denied, 107 N.M. 308, 756 P.2d 1203 (1988) (the party claiming a tax exemption

or deduction must follow the method prescribed by statute or regulation or he waives his right thereto).

Because the Taxpayer in this case did not have the required NTTC from his buyer, he is foreclosed

from claiming a deduction under Section 7-9-48.

The Taxpayer maintains that he followed the advice he received from the architectural firm to

which he sold his services and should not be penalized for the firm’s failure to provide the Taxpayer

with the required NTTC. The Taxpayer’s attempt to shift responsibility to his buyer is inconsistent

with New Mexico’s gross receipts tax system. New Mexico does not have a sales tax that is charged

to and collected from the buyer. New Mexico has a gross receipts tax that is imposed directly on the

seller of goods and services. In effect, the gross receipts tax is part of the seller’s cost of doing

business. In this case, the Taxpayer was legally liable for payment of tax on receipts from

performing services in New Mexico, and it was his responsibility to determine whether he had the

NTTC needed to qualify for a deduction under the Gross Receipts and Compensating Tax Act.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to the filing of Department Lien No.

754491-01, and jurisdiction lies over the parties and the subject matter of this protest.

2. The Department’s mailing of the Assessment No. 2109433 and Notice of Tax Lien No.

754491-01 to the Taxpayer at the address shown on his registration application complied with the

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provisions of Section 7-1-9(A) NMSA 1978 and those notices were effective to establish the

Taxpayer’s liability for the gross receipts tax assessed.

3. The Taxpayer’s failure to obtain an NTTC from the architectural firm for which he

performed services precludes the Taxpayer from deducting his receipts from selling services for resale.

For the foregoing reasons, the Taxpayer's protest IS DENIED.

DATED January 7, 2002.

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