Could Estes Spehar Design use a late Type 5 NTTC for billboard advertising after an audit employee said its Type 2 certificates and records looked okay during the 60-day period?
Apply this to your situation
This page answers the general question as of 2003. Ezel answers yours, under current New Mexico tax law, with citations.
Plain-English summary
Estes Spehar Design could not use a Type 2 property-resale certificate to deduct billboard-advertising receipts and obtained the required Type 5 service-resale certificate too late. An audit employee's preliminary comment that the records looked okay did not estop the Department from enforcing the certificate deadline.
Kim Estes Spehar's advertising business primarily designed and produced tangible items such as posters, stationery, and signs. For those sales, she had obtained Type 2 NTTCs from customers buying property for resale.
She later accepted a billboard project that included purchasing billboard space and arranging display of an advertisement. She did not realize New Mexico treated billboard placement as a service or that the customer's Type 2 certificate did not cover the service receipts.
Billboard placement was a taxable service
Regulation 3.2.1.18(O) stated that receipts from contracts to place advertising on outdoor billboards in New Mexico were receipts from performing an advertising service and were taxable regardless of the advertiser's location.
The regulation followed Markham Advertising Co. v. Bureau of Revenue, which treated posting billboard messages in New Mexico as a taxable service.
Because Estes was claiming service-resale treatment, she needed a Type 5 NTTC, not the Type 2 certificate used for tangible property sold for resale.
The 60-day deadline expired before the correct certificate arrived
The Department's June 4, 2002 audit notice gave Estes 60 days to possess every NTTC needed to support her deductions. It emphasized that deductions related to missing certificates would be disallowed. The deadline expired August 3, 2002.
Estes sent billing records and the existing Type 2 certificates to the audit employee. Only after the assessments and protest did another auditor explain that the billboard transaction required Type 5.
She obtained the correct certificate on January 31, 2003, nearly six months after the statutory deadline. The Department could not accept it as timely support.
Preliminary oral comments did not create estoppel
The first audit employee told Estes that "everything looked okay" and that she did not see a problem, then said the file would go to a supervisor. Estes did not check back before the deadline or consult her accountant.
Section 7-1-60 allowed statutory estoppel for reliance on a regulation or a written revenue ruling addressed to the taxpayer. The employee's oral comments were neither.
Equitable estoppel also failed. The employee was mistaken but did not conceal facts or intend to prevent Estes from obtaining the certificate. The governing regulation and case were public, and the comments were expressly preliminary rather than a final audit decision.
The taxpayer retained responsibility for the deduction
Under Section 7-1-13, New Mexico's self-reporting system required Estes to determine the nature of her receipts and the documentation needed. Oral agency comments could not substitute for reviewing the law or consulting a qualified professional.
Section 7-1-17(C) presumed the assessments correct, and a taxpayer claiming a deduction had to follow the prescribed method. The late Type 5 certificate did not overcome that presumption.
Result: protest DENIED. The two assessments totaled $1,245.77 of tax, $124.57 of penalty, and $567.66 of interest, or $1,938.
What this means for you
Advertising agencies handling billboards
Separate tangible design products from billboard-placement services and obtain the certificate type that matches each transaction.
Sellers relying on resale certificates
Check both the customer and the covered transaction. A valid property-resale certificate may not support a service-resale deduction.
Taxpayers in a limited-scope audit
Do not treat preliminary reassurance as a final determination. Confirm unresolved certificate requirements before the 60-day period ends.
Businesses seeking estoppel against the Department
Written taxpayer-specific rulings and applicable regulations carry different legal weight from informal oral comments.
Common questions
Q: Why did the Type 2 NTTC fail?
A: It covered tangible property sold for resale, while billboard placement was treated as an advertising service.
Q: Which certificate was required?
A: A Type 5 NTTC for services sold for resale.
Q: When did the audit deadline expire?
A: August 3, 2002.
Q: When did Estes obtain the Type 5 certificate?
A: January 31, 2003.
Q: Why were the employee's comments insufficient?
A: They were preliminary oral statements, not a regulation, written ruling, or final audit decision.
Citations and references
Statutes and regulation:
- NMSA 1978, § 7-9-43 — 60-day deadline for possession of required NTTCs
- NMSA 1978, § 7-1-60 — statutory estoppel based on regulations or taxpayer-specific written rulings
- NMSA 1978, § 7-1-13 — taxpayer responsibility in the self-reporting system
- NMSA 1978, § 7-1-17(C) — presumption that a Department assessment is correct
- Regulation 3.2.1.18(O) NMAC — billboard advertising as a taxable service
Cases cited:
- Markham Advertising Co. v. Bureau of Revenue, 88 N.M. 176, 538 P.2d 1198 (Ct. App. 1975)
- Kerr-McGee Nuclear Corp. v. Property Tax Division, 95 N.M. 685, 625 P.2d 1202 (Ct. App. 1980)
- Taxation and Revenue Department v. Bien Mur Indian Market, 108 N.M. 228, 770 P.2d 873 (1989)
- Gonzales v. Public Employees Retirement Board, 114 N.M. 420, 839 P.2d 630 (Ct. App. 1992)
- 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: Estes Spehar Design
- Decision PDF: D&O 03-09
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
ESTES SPEHAR DESIGN No. 03-09
ID NO. 02-083244-00 3
ASSESSMENT NOS. 3952402 and 3952403
DECISION AND ORDER
A formal hearing on the above-referenced protest was held on May 28, 2003, before
Margaret B. Alcock, Hearing Officer. The Taxation and Revenue Department (“Department”) was
represented by Jeffrey W. Loubet, Special Assistant Attorney General. Estes Spehar Design was
represented by Kim Estes Spehar, its owner (“Taxpayer”). Based on the evidence and arguments
presented, IT IS DECIDED AND ORDERED AS FOLLOWS:
FINDINGS OF FACT
- The Taxpayer is engaged in the advertising business and is registered with the
Department for payment of gross receipts, compensating, and withholding taxes, which are required
to be paid monthly under the Department’s combined reporting system.
- When the Taxpayer started her business, she had several discussions with employees
of the Taxation and Revenue Department concerning the application of the New Mexico gross
receipts tax to her business receipts.
- Based on these discussions and her own research, the Taxpayer obtained Type 2
nontaxable transaction certificates (NTTCs) from her customers, which allowed the Taxpayer to
deduct her receipts from selling tangible personal property for resale.
- Most of the Taxpayer’s work consisted of the sale of posters, stationery, signs, and
other tangible items that she designed and produced for her customers.
- Several years after the business began, the Taxpayer accepted a job to create a
billboard display. The job included purchasing space from the billboard company and arranging for
an advertisement to be displayed on the billboard.
- The Taxpayer did not realize that receipts derived from contracts to place advertising
on outdoor billboards located in New Mexico are receipts from performing a service.
- The Taxpayer did not realize that a Type 2 NTTC would not cover her receipts from
the billboard contract and that she needed to obtain a Type 5 NTTC (which covers the sale of
services for resale) from her customer.
- The Taxpayer did not research New Mexico’s tax statutes or regulations or consult
with her accountant concerning the taxability of her receipts from the billboard contract.
- The Taxpayer does not remember consulting with the anyone at the Department
concerning her receipts from the billboard contract.
- In June 2002, the Department began a limited scope audit of the Taxpayer for tax
year 1999.
- On June 4, 2002, the Department sent the Taxpayer a notice that she had 60 days
within which to obtain possession of all NTTCs needed to support her deductions and further stating
that the statute “REQUIRES THAT THESE NTTCS...BE IN YOUR POSSESSION WITHIN
SIXTY (60) DAYS FROM THE DATE OF THE NOTICE REQUIRING THEM OR
DEDUCTIONS CLAIMED RELATING TO THE NTTC’s WILL BE DISALLOWED.”
(capitalization in the original).
-
The 60-day period expired on August 3, 2002.
-
After receiving the Department’s notice in June 2002, the Taxpayer called the
Department and spoke with the Department employee assigned to the audit. The Taxpayer explained
2
the nature of her business and provided the employee with copies of billing records and the Type 2
NTTCs the Taxpayer had obtained from her customers.
- The employee told the Taxpayer that “everything looked okay” and that she “did not
see a problem” with the Taxpayer’s reporting. The employee then said she would forward the file to
her supervisor.
- The Taxpayer did not check with the Department before the expiration of the 60-day
period in August 2002 to determine whether the Department had made its final audit findings.
- The Taxpayer did not consult with her accountant concerning the Department’s audit
or ask him to review her gross receipts tax reporting.
- On October 31, 2002, the Department mailed two assessments to the Taxpayer in the
following amounts:
Assessment Report Period Tax Penalty Interest
3952402 1/99-6/99 $635.84 $ 63.58 $313.09
3952403 7/99-12/99 $609.93 $ 60.99 $254.57
-
On November 20, 2002, the Taxpayer filed a written protest to the assessments.
-
An auditor with the Department’s protest office subsequently told the Taxpayer that
the assessments resulted from the Taxpayer’s failure to obtain a Type 5 NTTC to support her
deduction of receipts from her services in connection with the billboard display.
- The Taxpayer called the billboard company, which confirmed that billboard
advertising constitutes a service and that the Taxpayer should have had a Type 5 NTTC from her
customer.
- On January 31, 2003, the Taxpayer obtained a Type 5 NTTC from her customer and
provided a copy to the Department.
3
- Because the NTTC was not in the Taxpayer’s possession within the 60-day period
required by statute, the Department refused to accept the NTTC or to abate the assessments issued
against the Taxpayer.
DISCUSSION
The issue presented is whether the Department’s failure to advise the Taxpayer that she
needed to obtain a Type 5 NTTC to support her deduction of receipts relieves the Taxpayer of her
obligation for tax, penalty, and interest due on those receipts. The Taxpayer acknowledges that she
was required to have a Type 5 NTTC to support her deduction of receipts from her billboard
contract. She also concedes that she did not obtain the required NTTC until after the 60-day period
allowed by statute. The Taxpayer argues, however, that the Department employee who handled the
initial audit misled the Taxpayer into believing that the records and NTTCs the Taxpayer had
previously provided to the Department were sufficient, thereby preventing the Taxpayer from
obtaining the Type 5 NTTC within the 60-day period.
In effect, the Taxpayer is raising an estoppel argument. As a general rule, courts are reluctant
to apply the doctrine of estoppel against the state. This general rule is given even greater weight in
cases involving the assessment and collection of taxes. Kerr-McGee Nuclear Corp. v. Property Tax
Division, 95 N.M. 685, 625 P.2d 1202 (Ct. App. 1980). In such cases, estoppel applies only pursuant to
statute or when “right and justice demand it.” Taxation and Revenue Department v. Bien Mur Indian
Market, 108 N.M. 228, 231, 770 P.2d 873, 876 (1989).
Section 7-1-60 NMSA 1978 provides for estoppel against the Department in two
circumstances: when the taxpayer acted according to a regulation or when the taxpayer acted according
to a written revenue ruling specifically addressed to the taxpayer. Here, the Taxpayer’s failure to obtain
4
the required NTTC was not attributable to any Department regulation or written ruling, and the estoppel
provisions of Section 7-1-60 do not apply.
Case law provides for estoppel against the state where right and justice demand its application.
In determining whether estoppel is appropriate, the conduct of both parties must be considered.
Gonzales v. Public Employees Retirement Board, 114 N.M. 420, 427, 839 P.2d 630, 637 (Ct. App.),
cert. denied, 114 N.M. 227, 836 P.2d 1248 (1992). The following elements must be shown as to the
party to be estopped (i.e., the Department): (1) conduct that amounts to a false representation or
concealment of material facts, (2) actual or constructive knowledge of the true facts, and (3) an
intention or expectation that the other party will act on the representations. As to the party claiming
estoppel, the following must be shown: (1) lack of knowledge of the true facts, (2) detrimental
reliance on the adverse party's representations or concealment of facts, and (3)that such reliance was
reasonable. Id. See also, Johnson & Johnson v. Taxation and Revenue Department, 123 N.M. 190,
195, 936 N.M. 872, 877 (Ct. App.), cert. denied, 123 N.M. 167, 936 P.2d 337 (1997).
The evidence presented in this case does not establish a basis for applying equitable estoppel
against the Department. First, there was no concealment or misrepresentation of material facts by
the Department. All of the facts concerning the transaction at issue were provided by the Taxpayer
and were within the Taxpayer’s knowledge. Although the Department employee was mistaken in
her interpretation of the tax law applicable to those facts, there is no evidence the employee acted
fraudulently or intended to prevent the Taxpayer from obtaining the NTTC needed to support her
deductions. Turning to the other side of the equation, the Taxpayer had access to the information
needed to make her own determination concerning the nature of her receipts and the need for a Type
5 NTTC. Department Regulation 3.2.1.18 NMAC under Section 7-9-3 NMSA 1978 specifically
states:
5
O. Billboard advertising. Receipts derived from contracts to place
advertising on outdoor billboards located within the state of New Mexico are
receipts from performing an advertising service. Such receipts are subject to the
gross receipts tax, regardless of the location of the advertiser.
This regulation is based on a 1975 decision by the New Mexico Court of Appeals, which held that
the posting of billboard messages on billboards located within New Mexico is a service subject to
New Mexico gross receipts tax. Markham Advertising Co. v. Bureau of Revenue, 88 N.M. 176, 538
P.2d 1198 (Ct. App.1975). Both this case and the Department’s regulation are matters of public
record.
New Mexico has a self-reporting tax system, and taxpayers have a statutory obligation to
determine their tax liabilities and accurately report those liabilities to the state. See, Section 7-1-13
NMSA 1978. While the Department makes every effort to give correct advice to taxpayers who contact
the Department, a taxpayer is not entitled to rely on the oral advice of a Department employee as a
substitute for making his or her own independent review of the statutes and regulations or consulting
with a qualified tax professional. Taxation and Revenue Department v. Bien Mur Indian Market, 108
N.M. 228, 231, 770 P.2d 873, 876 (1989). Here, the statements of the Department’s employee that
“everything looked okay” and that she “did not see a problem” with the Taxpayer’s reporting was not
the kind of advice on which the Taxpayer could reasonably rely, particularly when the employee
indicated that she was not the final decision-maker and that the file was being forwarded to her
supervisor for review.
Section 7-1-17(C) NMSA 1978 states that any assessment of taxes made by the Department
is presumed to be correct. Where a deduction from tax is claimed, the statute must be construed
strictly in favor of the taxing authority, the right to the 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). When a
6
taxpayer claiming a deduction fails to follow the method prescribed by statute or regulation, he waives
his right thereto. 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). In this case, the
Taxpayer did not comply with the statutory requirement for timely possession of NTTCs and has failed
to meet her burden of showing that the Department’s assessments are incorrect.
CONCLUSIONS OF LAW
- The Taxpayer filed a timely, written protest to Assessment Nos. 3952402 and 3952403,
and jurisdiction lies over the parties and the subject matter of this protest.
- The Taxpayer did not have timely possession of the NTTC required to support her
deduction of receipts from performing advertising services for her customer.
- The Department’s failure to advise the Taxpayer that she needed to obtain a Type 5
NTTC to support her deduction of receipts does not provide a basis for equitable estoppel and does
not relieve the Taxpayer of her obligation for tax, penalty, and interest due on those receipts
For the foregoing reasons, the Taxpayer's protest IS DENIED.
DATED June 2, 2003.
7
Get today's answer for your situation
You just read a 2003 ruling on this question. Ezel checks current New Mexico tax law and answers your specific situation, with citations.
Opens in Ezel Pro. Every answer cites the authority it relies on.