Could James Crowe avoid New Mexico gross receipts tax on $28,875 from an Albuquerque company by testifying that much of his marketing work occurred out of state after he destroyed the supporting records?
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This page answers the general question as of 2003. Ezel answers yours, under current New Mexico tax law, with citations.
Plain-English summary
James Crowe could not exclude his EchoPort compensation from New Mexico gross receipts tax because he had destroyed the records needed to prove that the services were performed outside the state. His testimony showed that at least some work occurred in EchoPort's Albuquerque office, and he could not establish the location or duration of the claimed out-of-state work.
James and Terry Crowe were New Mexico residents in 2000. Terry Crowe received $4,900 for consulting work for universities in Louisiana and Illinois. James Crowe received $28,875 from Albuquerque-based EchoPort for business-development and marketing services.
Both amounts appeared on federal Schedule C, but the Crowes did not report New Mexico gross receipts tax. After an IRS information match, the Department investigated.
The Department accepted documented out-of-state services
Terry Crowe provided Forms 1099 from Louisiana State University and North Park University. The Department accepted those documents as evidence that her services were performed outside New Mexico.
For James Crowe, the Department asked for a statement from EchoPort or other records showing which services were performed outside New Mexico rather than at its Albuquerque office. EchoPort was no longer operating, and Crowe said he had lost contact with its principals.
Some work occurred in Albuquerque
Crowe had been hired to help market EchoPort's remote tank-monitoring device. He spent time in the Albuquerque office consulting with managers and calling potential customers.
He also traveled to meet out-of-state prospects, and EchoPort arranged travel and reimbursed his cash expenses. But at the hearing he could identify only two prospects—Culligan Water in Chicago and PraxAir in Mississippi—and gave no dates or time allocations for those meetings.
Destroyed records left the claim unproved
The protest auditor suggested evidence that could support the claim, including the EchoPort contract, travel receipts, canceled checks, trade-show records, and documents from customers.
Crowe had thrown away his contract, expense reports, travel receipts, and other papers relating to the work. Sections 7-1-10(A) and 7-1-11(C) required taxpayers to maintain records permitting accurate tax computation and make them available to the Department.
Without those records or comparable third-party evidence, the hearing officer could not determine what portion of the services occurred outside New Mexico.
The statutory presumptions controlled
Section 7-1-17(C) presumed the Department's assessment correct, and Section 7-9-5 presumed receipts from engaging in business taxable. Crowe bore the burden of overcoming both presumptions.
His general testimony that EchoPort's potential customers were outside New Mexico did not prove where he performed the compensated services. The decision therefore found no basis for an abatement.
Result: protest DENIED. The Department upheld two assessments totaling $1,586.16 of tax, $158.62 of penalty, and $616.51 of interest for the two halves of 2000.
What this means for you
Consultants working in several states
Track where each service is actually performed, not just where the customer is located. Preserve calendars, travel records, contracts, work logs, and customer correspondence.
Contractors paid by an in-state company
An out-of-state customer list does not by itself prove out-of-state performance when office work, calls, and management meetings occur in New Mexico.
Businesses discarding old records
Keep tax-supporting records through the applicable audit and protest periods. Once records are destroyed, testimony may not be enough to allocate receipts.
Taxpayers responding to a limited-scope audit
Use the auditor's document requests as a checklist. Third-party documents can sometimes replace records from a company that has closed.
Common questions
Q: Why was Terry Crowe's $4,900 accepted as out-of-state?
A: Her Forms 1099 identified the Louisiana and Illinois universities for which she performed consulting services.
Q: How much did James Crowe receive from EchoPort?
A: $28,875 in 2000.
Q: Did he perform any work in New Mexico?
A: Yes. He acknowledged spending time in EchoPort's Albuquerque office consulting with managers and contacting prospects.
Q: Which records were missing?
A: His contract, expense reports, travel receipts, and other documents that could show when and where he worked.
Q: Who had the burden of proof?
A: Crowe, because New Mexico law presumed both the assessments and business receipts taxable.
Citations and references
Statutes:
- NMSA 1978, § 7-1-17(C) — presumption that a Department assessment is correct
- NMSA 1978, § 7-9-5 — presumption that business receipts are subject to gross receipts tax
- NMSA 1978, § 7-1-10(A) — duty to maintain records permitting accurate tax computation
- NMSA 1978, § 7-1-11(C) — duty to make records available for Department inspection
Cases cited:
- Archuleta v. O'Cheskey, 84 N.M. 428, 504 P.2d 638 (Ct. App. 1972)
- Wing Pawn Shop v. Taxation and Revenue Department, 111 N.M. 735, 809 P.2d 649 (Ct. App. 1991)
- Al Zuni Traders v. Bureau of Revenue, 90 N.M. 258, 561 P.2d 1351 (Ct. App. 1977)
Source
- Listing: New Mexico Decisions & Orders
- Decision post: James M. and Terry K. Crowe
- Decision PDF: D&O 03-20
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
JAMES M. AND TERRY K. CROWE No. 03-20
ID NO. 02-953793-00-2
ASSESSMENT NOS. 4068034 and 4068036
DECISION AND ORDER
A formal hearing on the above-referenced protest was held October 23, 2003, before
Margaret B. Alcock, Hearing Officer. The Taxation and Revenue Department ("Department") was
represented by Jeffrey W. Loubet, Special Assistant Attorney General. James M. Crowe (“Taxpayer”)
represented himself. Based on the evidence and arguments presented, IT IS DECIDED AND
ORDERED AS FOLLOWS:
FINDINGS OF FACT
-
James and Terry Crowe were residents of New Mexico during the 2000 tax year.
-
Dr. Terry Crowe worked at the University of New Mexico and also did consulting
work for Louisiana State University in New Orleans and North Park University in Chicago.
- Dr. Crow was paid $4,900 for the consulting services she performed in Louisiana and
Illinois during 2000.
- In June or July 2000, James Crowe was hired as the Business Development Manager
for EchoPort, Inc., a small company with offices located in Albuquerque, New Mexico.
- EchoPort had developed a wireless device that allowed the level of liquid in a tank to
be monitored electronically, thereby saving the time and expense of having a person manually check
the fluid level.
- Mr. Crowe had experience with start-up companies in California and was hired to
help EchoPort market its remote sensing device.
- Mr. Crowe spent some time at EchoPort’s Albuquerque office consulting with the
company’s managers and using the telephone to contact potential customers, which included
Culligan Water in Chicago and PraxAir in Mississippi.
-
Mr. Crowe received a flat fee of $5,000 per month for his services.
-
When Mr. Crowe traveled out-of-state to meet with potential customers, EchoPort
made all of the travel arrangements and paid for his expenses.
- When Mr. Crowe incurred out-of-pocket expenses for such items as meals, tolls,
parking, etc., he paid in cash and then submitted his receipts and an expense report to receive
reimbursement from EchoPort.
-
Mr. Crowe’s work with EchoPort ended in December 2000.
-
When James and Terry Crowe filed their 2000 federal income tax return, they
reported the $4,900 Dr. Crowe received from her consulting services and the $28,875 Mr. Crowe
received from his services for EchoPort on Schedule C to federal Form 1040.
- The Crowes filed New Mexico personal income tax returns for 2000, but did not ask
their accountant whether their compensation was also subject to the New Mexico gross receipts tax.
- As part of an information-sharing program with the Internal Revenue Service, the
Department was notified of the business income reported on the Crowes’ 2000 federal income tax
return. When the Department investigated, it found that neither of the Crowes was registered with
the Department for payment of gross receipts tax.
- On April 25, 2003, the Department sent the Crowes a Notice of Limited Scope Audit
asking them to explain why they had not reported gross receipts tax on their 2000 business income.
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- In response to the Department’s notice, Mr. Crowe sent the Department copies of the
Form 1099s his wife received for her consulting services and the Form 1099 he received from
EchoPort.
- The Department accepted the 1099s from Louisiana State University and North Park
University as evidence that Dr. Crowe’s services were performed outside New Mexico.
- Because EchoPort was based in Albuquerque, New Mexico, the Department asked
Mr. Crowe to provide a statement from someone at EchoPort that would explain the nature of Mr.
Crowe’s services and establish that those services were performed out-of-state rather than in
Albuquerque.
- Mr. Crowe stated that he could not provide any documentation concerning the nature
of his activities because EchoPort was no longer in business and he had lost contact with its
principals.
- On June 3, 2003, the Department issued the following assessments to the Crowes:
Assessment Report Period Tax Penalty Interest
4068034 1/00-6/00 $793.08 $ 79.31 $338.17
4068036 7/00-12/00 $793.08 $ 79.31 $278.34
-
On June 3, 2003, Mr. Crowe filed a written protest to the Department’s assessments.
-
After the protest was filed, the Department’s protest auditor wrote several letters to
Mr. Crowe with suggestions as to the kinds of documents that could serve as evidence that his
services were performed outside New Mexico. The list of documents the auditor requested from Mr.
Crowe included his contract with EchoPort, travel receipts, canceled checks, or third party
documents from trade shows he attended or customers he met with.
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- Mr. Crowe told the Department that he had thrown out all of the paperwork related to
his work with EchoPort, including his employment contract and his expense reports and travel
receipts, and did not have any documents that would establish his out-of-state travel during the 2000
tax year.
DISCUSSION
The Taxpayer maintains that the Department erroneously assessed gross receipts tax on
payments he received for performing services outside New Mexico. The Department responds that
the Taxpayer’s records were inadequate to establish what portion of the Taxpayer’s work was
performed at EchoPort’s Albuquerque office and what portion was performed out-of-state.
NMSA 1978, § 7-1-17(C) provides that any assessment of tax by the Department is
presumed to be correct, and it is the taxpayer's burden to overcome this presumption. Archuleta v.
O'Cheskey, 84 N.M. 428, 431, 504 P.2d 638, 641 (Ct. App. 1972); Wing Pawn Shop, 111 N.M. 735,
741, 809 P.2d 649, 655 (Ct. App. 1991). Additionally, "it is presumed that all receipts of a person
engaging in business are subject to the gross receipts tax." NMSA 1978, § 7-9-5. In this case, the
Taxpayer was unable to provide any records or other evidence to show that his services for EchoPort
were performed outside New Mexico. At the administrative hearing, the Taxpayer acknowledged that
he spent at least some time in EchoPort’s Albuquerque office meeting with the company’s managers
and making telephone calls. Although the Taxpayer testified that all of the companies to which
EchoPort marketed its sensing device were located out-of-state, he was able to identify only two of
those companies: Culligan Water and PraxAir. The Taxpayer did not provide any information
concerning the dates or length of time that he spent meeting with these companies.
NMSA 1978, § 7-1-10(A) requires every person to "maintain books of account or other
records in a manner that will permit the accurate computation of state taxes...." NMSA 1978, § 7-1-
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11(C) states that taxpayers “shall upon request make their records and books of account available for
inspection at reasonable hours to the secretary or the secretary's delegate.” The Taxpayer in this case
testified that he destroyed all of the records pertaining to his work with EchoPort, including his
employment contract and travel receipts. In Al Zuni Traders v. Bureau of Revenue, 90 N.M. 258,
561 P.2d 1351 (Ct. App. 1977), the New Mexico Court of Appeals held that the Department is not
required to allow an exemption or deduction for out-of-state sales when the taxpayer is unable to
provide proof of such sales. As stated by the court: “Taxpayer seeks to burden the Commissioner
with proof that its sales were not interstate. The burden, however, rests squarely on the taxpayer to
prove entitlement to an exemption.” 90 N.M. at 260, 561 P.2d at 1353. The same holds true in this
case. In the absence of any records or other credible evidence to show that his services for EchoPort
were performed outside New Mexico, the Taxpayer has failed to meet his burden of proof, and there
is no basis for an abatement of the Department’s assessment against him.
CONCLUSIONS OF LAW
- The Taxpayer filed a timely, written protest to Assessment Nos. 4068034 and 4068036,
and jurisdiction lies over the parties and the subject matter of this protest.
- The Taxpayer failed to meet his burden of proving that the Department’s assessment
was incorrect.
For the foregoing reasons, the Taxpayer's protest IS DENIED.
DATED October 28, 2003.
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