Could a New Mexico glass subcontractor deduct construction-service receipts when general contractors did not provide NTTCs within the Department's 60-day audit deadline?

Plain-English summary

Century Glass, Inc. could not deduct subcontract construction receipts without obtaining the required nontaxable transaction certificates within the Department's 60-day audit deadline. Certificates supplied almost a year later were too late, regardless of why the general contractors had not cooperated.

Century Glass performed primarily commercial and residential construction work as a subcontractor. It also made a small number of direct glass sales, some on an installed basis.

When the Department began its audit in July 2001, it delivered a written notice giving the company 60 days to obtain NTTCs supporting its deductions. The notice warned that unsupported deductions would be disallowed and could produce tax, penalty, and interest.

By the September 21 deadline, Century Glass had produced only a few certificates. Two Type 9 NTTCs covering transactions of $44.00 and $262.42 were rejected because the transactions involved construction services rather than sales of tangible personal property.

Almost a year after the deadline, the company produced four more customer certificates. The Department rejected them as untimely. Most transactions remained unsupported by any NTTC.

The construction deduction required an NTTC

Section 7-9-52 allowed receipts from selling a construction service to be deducted when the buyer was engaged in the construction business and delivered an NTTC to the service provider.

The decision treated that documentation as a specific statutory condition. Without the general contractor's NTTC, the subcontractor had no basis for the deduction.

Section 7-9-5 also presumed that all business receipts were subject to gross receipts tax, while Section 7-1-17 presumed the assessment correct. Century Glass therefore carried the burden of establishing the claimed deduction.

The 60-day second chance was mandatory

Section 7-9-43 said sellers should possess the required NTTC when the return was due. It also gave an audited taxpayer a second chance: 60 days after Department notice to obtain the certificates.

If the seller did not possess them by the end of that period, deductions requiring the certificates had to be disallowed. The reason for missing the deadline did not change the statutory result.

Some general contractors refused to provide Century Glass with certificates, and another had gone out of business. Those facts were unfortunate but did not transfer the seller's responsibility to document its deductions.

Other arguments were abandoned

At the first hearing, Century Glass also challenged the rejection of Type 9 certificates and alleged that the audit double-counted some receipts. The hearing was continued so the company could supply supporting evidence.

It provided no additional evidence and did not appear when the hearing reconvened, so the decision treated those issues as abandoned.

The resulting assessments totaled $44,684.52 in gross receipts tax, penalty, and interest for January 1998 through June 2001.

Result: protest DENIED.

What this means for you

Construction subcontractors

Collect the correct NTTC from each qualifying general contractor while the transaction is current. Do not assume it will still be possible to obtain after an audit begins.

Businesses receiving a 60-day letter

Treat the deadline as firm. The statute described in this decision required disallowance when the seller lacked the certificate after 60 days.

Sellers whose customers will not cooperate

The gross receipts tax falls on the seller. Customer refusal or business closure did not excuse missing documentation in this case.

Taxpayers receiving a continued hearing

Use the added time to produce the promised evidence and appear when the hearing resumes. Unsupported issues may be treated as abandoned.

Common questions

Q: What deduction did Century Glass claim?
A: A deduction for construction services sold as a subcontractor to general contractors.

Q: What document was required?
A: A timely NTTC delivered by the qualifying buyer.

Q: Were certificates produced after the deadline accepted?
A: No. Four certificates produced almost a year later were rejected as untimely.

Q: Did uncooperative or closed contractors excuse the missing NTTCs?
A: No. The decision placed responsibility for documenting the deduction on Century Glass as the seller.

Q: What amount was upheld?
A: $44,684.52 of gross receipts tax, penalty, and interest.

Citations and references

Statutes:

• NMSA 1978, § 7-1-17 — presumption that an assessment is correct
• NMSA 1978, § 7-9-5 — presumption that business receipts are taxable
• NMSA 1978, § 7-9-43 — deadline for possession of required NTTCs
• NMSA 1978, § 7-9-52 — construction-service deduction supported by an NTTC

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)
• Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16, 558 P.2d 1155 (Ct. App. 1976)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Century Glass, Inc.
• Decision PDF: D&O 05-06

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
CENTURY GLASS, INC.; ID NO. 01-186790-00-6 05-06
TO ASSESSMENT NOS. 4028219 through 4028254

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on February 16, 2005, before

Margaret B. Alcock, Hearing Officer. The Taxation and Revenue Department ("Department")

was represented by Jeffrey W. Loubet, Special Assistant Attorney General. Century Glass, Inc.

(“Taxpayer”) was represented by Anthony Polaco, its Vice President. After the Taxpayer

presented its arguments, the hearing was continued to give the Taxpayer an opportunity to

provide the Department with additional evidence to support the Taxpayer’s position. The

hearing was reconvened on April 5, 2005. Jeffrey W. Loubet entered his appearance for the

Department; the Taxpayer failed to appear at the April 5, 2005 hearing. Based on the evidence

and arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer is a corporation headquartered in Albuquerque, New Mexico.

2. The Taxpayer’s business consists primarily of work performed as a subcontractor

on commercial and residential construction jobs.

3. The Taxpayer also makes a small number of direct sales of glass to nonprofit

organizations and other customers. At least some of these sales are made on an installed basis.

4. On July 23, 2001, the Department began a field audit of the Taxpayer. On the

same day, the auditor delivered a “60-day letter” to the Taxpayer’s president, who acknowledged

receipt by signing and dating the letter.

5. The July 23, 2001 letter notified the Taxpayer that it had 60 days to obtain

possession of nontaxable transaction certificates (“NTTCs”) needed to support its deductions and

further stated: “If the above listed required documentation is not in your possession and

delivered or mailed to the auditor within 60 days from the date of this notice, deductions

previously claimed relating to that documentation will be disallowed. Such disallowance may

result in a substantial tax liability which will include penalty and interest.” (Emphasis in the

original letter).

6. As of September 21, 2001, the expiration of the 60-day period, the Taxpayer had

provided a few NTTCs to the auditor.

7. The auditor rejected two Type 9 NTTCs, which apply to the sale of tangible

personal property to governmental and nonprofit organizations. The NTTCs were rejected

because the subject transactions (one for $44.00 and one for $262.42) involved the sale of

construction services rather than the sale of tangible personal property.

8. Almost one year after the expiration of the 60-day period, the Taxpayer presented

the Department with NTTCs from the following customers: D Shutz & Co., Inc.; TNGT

Construction Co.; Anu Antiques & Collectibles; and Sundaram Building, Inc. These NTTCs

were rejected as untimely.

9. For the majority of transactions, the Taxpayer failed to provide the Department

with any NTTCs to support its deductions.

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10. Some of the general contractors for whom the Taxpayer had performed work

refused to cooperate in providing the Taxpayer with NTTCs. One contractor had gone out of

business, making it impossible for the Taxpayer to obtain an NTTC from that contractor.

11. On September 20, 2002, the Department issued Assessment Nos. 4028219

through 4028254 to the Taxpayer in the total amount of $44,684.52, representing gross receipts

tax, penalty, and interest for the period January 1998 through June 2001.

12. On December 17, 2002, pursuant to an extension of time granted by the

Department, the Taxpayer filed a written protest to the assessments.

DISCUSSION

The issue to be decided in this protest is whether the Taxpayer’s failure to produce timely

NTTCs from the general contractors for whom it performed services bars the Taxpayer from

deducting its receipts from those contractors.1 NMSA 1978, § 7-1-17 states that any assessment

of taxes made 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). Further, NMSA 1978, § 7-9-5 creates a statutory presumption "that all receipts of a

person engaging in business are subject to the gross receipts tax." Where 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

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At the original hearing held on February 16, 2005, the Taxpayer raised two additional issues: whether the
Department improperly disallowed transactions supported by Type 9 NTTCs; and whether the Department
double counted certain receipts. The hearing officer continued the hearing to April 5, 2005 to give the
Taxpayer time to provide the Department with additional evidence to support its claims. The Taxpayer failed
to provide such evidence and failed to appear when the hearing resumed on April 5, 2005. Accordingly, the
Taxpayer’s arguments on these two issues are deemed abandoned and will not be addressed in this decision.

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Revenue Department, 111 N.M. 735, 740, 809 P.2d 649, 654 (Ct. App. 1991). Accordingly, it is

the Taxpayer’s burden to come forward with evidence and legal arguments to show that he is

entitled to the deductions claimed and that the Department's assessment is incorrect.

The Gross Receipts and Compensating Tax Act provides several deductions for taxpayers

who meet the statutory requirements set by the legislature. In this case, the Taxpayer claims the

following deduction provided in NMSA 1978, § 7-9-52:

A. Receipts from selling a construction service 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 person
performing the construction service. (emphasis added)

This statute allows a taxpayer to deduct its receipts from performing services as a subcontractor

if—and only if—the general contractor provides the taxpayer with an NTTC. The requirements of

NMSA 1978, § 7-9-52 are very specific: if the subcontractor fails to obtain an NTTC from the

general contractor, there is no basis for a deduction.

The requirements for obtaining NTTCs are set out in NMSA 1978, § 7-9-43, which

provides, in pertinent part:

All nontaxable transaction certificates...should be in the possession of the
seller or lessor for nontaxable transactions at the time the return is due for
receipts from the transactions. If the seller or lessor is not in possession of
the required nontaxable transaction certificates within sixty days from the
date that the notice requiring possession of these nontaxable transaction
certificates is given the seller or lessor by the department, deductions
claimed by the seller or lessor that require delivery of these nontaxable
transaction certificates shall be disallowed….

While taxpayers “should” have possession of required NTTCs at the time of the transaction at issue,

the statute gives taxpayers audited by the Department a second chance to obtain these NTTCs.

Taxpayers who rely on this provision must recognize, however, that they run the risk of having their

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deductions disallowed if they are unable to meet the 60-day deadline set by the legislature. The

reason why a taxpayer cannot obtain an NTTC is irrelevant. If a seller is not in possession of

required NTTCs within 60 days from the date of the Department's notice, "deductions claimed by

the seller...that require delivery of these nontaxable transaction certificates shall be disallowed."

(emphasis added).

In this case, the Taxpayer argues that circumstances outside its control prevented it from

obtaining the NTTCs required by § 7-9-52. Some of the general contractors for whom the

Taxpayer performed work refused to give the Taxpayer NTTCs, and one contractor had gone out

of business by the time the Taxpayer received the Department’s 60-day letter. While this series

of events is unfortunate, the Taxpayer's attempt to shift responsibility for documenting its gross

receipts tax deductions to the buyer of its services is inconsistent with New Mexico's self-

reporting tax system. Every person is charged with the reasonable duty to ascertain the possible tax

consequences of his or her actions. 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 incidence of

the gross receipts tax is on the seller, and it was the responsibility of the Taxpayer—not its

customers—to determine whether it had the documentation needed to support his deductions. The

Taxpayer's failure to obtain NTTCs within the 60-day period provided in NMSA 1978, § 7-9-43

leaves the Department no choice but to disallow the Taxpayer’s deductions.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to Assessment Nos. 4028219 through

4028254, and jurisdiction lies over the parties and the subject matter of this protest.

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2. The Taxpayer is not entitled to deduct receipts from customers who did not provide

the Taxpayer with a timely NTTC.

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

DATED April 6, 2005.

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