Could a postal-services business reduce its gross receipts tax with NTTCs it still had not produced years after the audit?

Plain-English summary

The hearing officer denied Express Packaging and Postal Service's protest and upheld gross receipts, compensating, and withholding tax plus interest for January 1998 through August 2003. The audit found that the company either did not file gross-receipts returns or understated gross receipts by more than 25% for most months.

The company did not contest the compensating-tax or withholding-tax portions with evidence or legal argument. For gross receipts tax, it acknowledged that it provided taxable services but said it had nontaxable transaction certificates (NTTCs) from two customers. It never produced those certificates—not during the audit that preceded the August 2004 assessment and not by the January 2012 hearing.

The NTTC deductions failed for two separate reasons. First, NMSA 1978, § 7-9-43 required the certificates within 60 days after Department notice, making the years-late certificates untimely. Second, the auditor explained that the two customers were nonprofit or government entities permitted to issue Type 9 certificates for tangible personal property. Express provided services rather than reselling tangible property, so those certificates would not have covered its receipts anyway.

The decision upheld $19,515.20 in gross receipts tax, $700.20 in compensating tax, $4,379.51 in withholding tax, and $11,557.43 in combined interest. No penalty had been assessed.

What this means for you

Service businesses

An exempt or government customer does not automatically make service receipts deductible. The certificate must be the proper type for the actual transaction.

Businesses relying on NTTCs

Possess and retain the correct certificate when the receipts are due. If the Department issues a notice requiring certificates, missing the 60-day deadline makes disallowance mandatory under the statute applied here.

Owners managing an old tax protest

The assessment is presumed correct. A taxpayer must present evidence and legal argument for each tax component; Express presented neither for compensating nor withholding tax.

Common questions

Q: Were Express's service receipts subject to gross receipts tax?
A: Yes. The company did not dispute that it performed taxable services in New Mexico.

Q: Why were the claimed NTTCs too late?
A: The audit and assessment occurred in 2004, yet the company still had not produced the certificates at the 2012 hearing. Section 7-9-43 required possession within 60 days after Department notice.

Q: Would Type 9 NTTCs have worked if Express found them?
A: No, according to the auditor's undisputed explanation. Those certificates covered sales of tangible personal property by the nonprofit or government customers, while Express's assessed receipts came from services.

Q: Why was interest upheld?
A: NMSA 1978, § 7-1-67(A) made interest mandatory because the taxes were not paid when due. The company president acknowledged that interest continued to accrue on unpaid principal.

Q: What was the total assessment described in the decision?
A: $36,152.34: $24,594.91 in tax principal and $11,557.43 in interest. No penalty was assessed.

Citations and references

• NMSA 1978, § 7-9-43 — NTTC possession deadline
• Regulation 3.2.201.8(D) NMAC — proper certificate form and type
• Regulation 3.2.1.18(A) NMAC — services performed in New Mexico
• NMSA 1978, §§ 7-1-13 and 7-1-17 — self-reporting and assessment presumption
• NMSA 1978, § 7-1-67(A) — interest on unpaid tax

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Express Packaging and Postal Service, Inc.
• Decision PDF: D&O 12-06

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
EXPRESS PACKAGING AND POSTAL SERVICE, INC., No. 12-06
TO ASSESSMENT ISSUED UNDER
ID NO. L0169401344

DECISION AND ORDER

A formal hearing on the above-referenced protest was held January 17, 2012, before Dee

Dee Hoxie, Hearing Officer. The Taxation and Revenue Department (Department) was

represented by Ms. Cordelia Friedman, Staff Attorney. Ms. Lizzy Vedamanikam, Auditor, also

appeared on behalf of the Department. Express Packaging and Postal Service, Inc. (Taxpayer)

appeared for the hearing and was represented by its President, Mr. Maurice Landavazo. The

Hearing Officer took notice of all documents in the administrative file. TRD “A” through “I”

were admitted. Based on the evidence and arguments presented, IT IS DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer was engaged in business in New Mexico for the tax periods from January

1998 through August 2003. The Taxpayer’s business provided services for its customers.

2. The Taxpayer was audited by the Department. The Department determined that the

Taxpayer was a non-filer on gross receipts tax or was underreporting its gross receipts tax

by more than 25% for most months from January 1998 through August 2003.

3. On August 12, 2004, the Department assessed the Taxpayer for gross receipts tax,

compensating tax, withholding tax, and interest for the tax period from January 31, 1998

through August 31, 2003. The assessment was for gross receipts tax of $19,515.20 and
interest of $9,073.16, compensating tax of $700.20 and interest of $354.11, and

withholding tax of $4,379.51 and interest of $2,130.16. No penalty was assessed.

4. On August 23, 2004, the Taxpayer filed a formal protest letter.

5. On July 18, 2011, the Taxpayer’s accountant withdrew his representation of the Taxpayer

on this case.

6. On December 16, 2011, the Department filed a Request for Hearing asking that the

Taxpayer’s protest be scheduled for a formal administrative hearing.

7. The Taxpayer requested a continuance at the hearing.

8. The request for continuance was denied.

DISCUSSION

The issue to be decided is whether the Taxpayer is liable for gross receipts tax,

compensating tax, withholding tax, and interest for the tax periods from January 31, 1998

through August 31, 2003, due to its failure to file gross receipts tax reports and due to its

underreporting its gross receipts tax by more than 25%.

Burden of Proof.

Assessments by the Department are presumed to be correct. See NMSA 1978, § 7-1-17.

Tax includes, by definition, the amount of tax principal imposed and, unless the context

otherwise requires, “the amount of any interest or civil penalty relating thereto.” NMSA 1978, §

7-1-3. See also, El Centro Villa Nursing Center v. Taxation and Revenue Department, 108 N.M.

795, 779 P.2d 982 (Ct. App. 1989). Therefore, the assessment issued to the Taxpayer is presumed

to be correct, and it is the Taxpayer’s burden to present evidence and legal argument to show that

it is not liable for the tax and is entitled to an abatement of interest.

In the Matter of Express Packaging and Postal Service, Inc., page 2 of 5
The Taxpayer presented no evidence and made no arguments with respect to the

assessment of the compensating tax or of the withholding tax. Therefore, the assessment of those

taxes is presumed to be correct.

The Taxpayer argued that it was unable to properly defend itself at the hearing. Mr.

Landavazo explained that he had received documents from the accountant only a few days prior

to the hearing. Mr. Landavazo also explained that he had not attempted to secure other

representation after he was notified of the hearing because he did not feel that he would be able

to get anyone in that amount of time. Mr. Landavazo claimed that he needed more time to secure

the NTTCs in question and argued that he did not know that reports for several months during

the tax period in question had not been filed. The Department argued that this case was already

several years old, that the Taxpayer had been involved in the original audit and that the NTTCs

could not be submitted this late in any case. Ms. Vedamanikam also explained that even if the

Taxpayer had NTTCs from the two businesses that they would not be applicable to the

Taxpayer’s gross receipts. As the Taxpayer made no effort to secure representation prior to the

hearing, and based upon the facts presented, the request for continuance was denied.

Gross Receipts Tax.

Services performed within the State of New Mexico are subject to the gross receipts tax.

See 3.2.1.18 (A) NMAC (2003). It is the responsibility of the taxpayer, who is in the position to

know the details of its business activities, to determine accurately and to report its tax liabilities

to the Department. See NMSA 1978, § 7-1-13. At the hearing, the Taxpayer did not dispute that

it was providing services and that the receipts from the services were taxable. The Taxpayer

argued that it had non-taxable transaction certificates (NTTCs) from two businesses that should

have reduced its tax liabilities. However, the NTTCs from the businesses were never provided.

In the Matter of Express Packaging and Postal Service, Inc., page 3 of 5
A taxpayer engaged in business may be able to deduct certain gross receipts when they

are provided with NTTCs from buyers. See NMSA 1978, § 7-9-43 (2005). An NTTC must be in

the proper form and of the proper type to be valid. See 3.2.201.8 (D) NMAC (2001). A taxpayer

should be in possession of NTTCs when the receipts from the transaction are due. See NMSA

1978, § 7-9-43. If the taxpayer is not in possession of NTTCs within sixty days of the notice

from the Department requiring possession of NTTCs, “deductions claimed by the seller or lessor

that require delivery of these nontaxable transaction certificates shall be disallowed.” Id.

(emphasis added). The word “shall” indicates that the disallowance of the deduction is mandatory,

not discretionary. See State v. Lujan, 90 N.M. 103, 105, 560 P.2d 167, 169 (1977). The Taxpayer

was audited by the Department prior to the assessment, which was made in August 2004. The

Taxpayer was still not in possession of the NTTCs at the hearing. Therefore, any deductions

based on the NTTCs would be disallowed as they were not provided timely.

Moreover, Ms. Vedamanikam explained that the two business from which the Taxpayer

claimed to have NTTCs were organizations that would be classified as “501 (C)” or as

government entities. Ms. Vedamanikam explained that “501 (C)” organizations and government

entities are only allowed to issue Type 9 NTTCs, which are for the sale of tangible personal

property. As the Taxpayer was in the business of providing services and not in the business of

resale of tangible personal property, the NTTCs from those two businesses would not be

applicable to the Taxpayer’s gross receipts anyway.

Assessment of Interest.

Interest “shall be paid” on taxes that are not paid on or before the date on which the tax is

due. NMSA 1978, § 7-1-67 (A). Again, the word “shall” indicates that the assessment of interest

is mandatory, not discretionary. See Lujan, 90 N.M. at 105. The assessment of interest is not

In the Matter of Express Packaging and Postal Service, Inc., page 4 of 5
designed to punish taxpayers, but to compensate the state for the time value of unpaid revenues.

Because the taxes were not paid when they were due, interest was properly assessed. Mr.

Landavazo acknowledged at the hearing that he was aware interest continued to accrue on unpaid

tax principal.

CONCLUSIONS OF LAW

1. Taxpayer filed a timely written protest to the Notice of Assessment of gross receipts

tax, compensating tax, withholding tax, and interest for the tax periods from January 31, 1998

through August 31, 2003 issued under Letter ID number L0169401344, and jurisdiction lies over

the parties and the subject matter of this protest.

2. Taxpayer was properly assessed for gross receipts tax, compensating tax,

withholding tax, and interest for the tax periods from January 31, 1998 through August 31, 2003.

Any NTTCs that the Taxpayer could provide would be denied as untimely, and would also not be

applicable to the Taxpayer’s gross receipts tax.

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

DATED: February 10, 2012.

DEE DEE HOXIE
Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

In the Matter of Express Packaging and Postal Service, Inc., page 5 of 5