Could Cordero Transport use New Mexico's reduced one-way-hauler Weight Distance Tax rate without vehicle-specific records proving that at least 45% of each truck's mileage was traveled empty of all load?

Plain-English summary

Cordero Transport did not qualify for New Mexico's reduced one-way-hauler Weight Distance Tax rate because it could not prove that any truck traveled at least 45% of its mileage empty of all load. The decision upheld the Department's use of the full rate, its mileage estimate based on an industry-standard 5.71 MPG figure, and the related penalty and interest.

Cordero Transport hauled landscaping goods and agricultural commodities such as flour, corn, and green chile. The Department audited its Weight Distance Tax for 2006 through 2008 using three sample quarters.

The company did not have records organized by individual truck showing trip origins, destinations, routes, load weights, fuel use, mileage, or loaded and empty miles. It mainly had delivery invoices and fuel receipts. The Department assessed $20,364.40 in Weight Distance Tax, $4,072.88 in penalty, and $3,261.49 in interest, totaling $27,698.77 when assessed.

Cordero Transport withdrew its separate protest of an International Fuel Tax assessment. The remaining dispute concerned the Weight Distance Tax assessment.

The reduced rate required proof of empty mileage

Section 7-15A-6(B) reduced the ordinary Weight Distance Tax rate by one-third only when, among other requirements, a vehicle was customarily used for one-way haul and at least 45% of its annual mileage was traveled empty of all load.

Regulation 3.12.6.11 NMAC required records for each vehicle, including loaded and empty New Mexico mileage and trip itineraries showing origins, destinations, and routes. The decision treated those records as the information the Department could require to determine eligibility under the statute.

Cordero Transport produced invoices and bills of lading for only October 2007, one month in one of the three sample quarters. The documents did not identify enough information to calculate loaded and empty mileage for particular vehicles.

The Bueno Foods records also showed a substantive problem: after delivering chile, the trucks returned empty product crates. The decision held that carrying even minimally weighted empty crates was not traveling “empty of all load.”

Because the company could not establish which vehicle, if any, met the 45% test, it did not overcome the assessment's presumption of correctness. The full tax rate applied.

The 5.71 MPG audit estimate was reasonable

Without complete per-vehicle records, the Department estimated total New Mexico mileage from the gallons shown on Cordero Transport's fuel receipts.

The company claimed its trucks averaged 4.5 MPG but had no individual-truck records supporting that figure. The Department instead used a State of Nebraska industry study that assigned MPG by vehicle age and weight. Averaging Cordero Transport's registered trucks produced 5.71 MPG.

Cordero Transport argued that its lighter loads produced worse fuel economy than the study assumed. The decision found that claim unsupported and inconsistent with the study's general pattern of lighter vehicles having better fuel economy. Regulation 3.1.5.8(B) and (C) NMAC allowed alternative estimation methods when taxpayer records were inadequate, so the industry comparison was permissible and reasonable.

Penalty and interest remained due

Interest was mandatory from the original tax due date until payment. The decision also upheld the civil negligence penalty because failing to maintain the records required for the claimed reduced rate was inattention that caused an underpayment.

Result: protest denied.

What this means for you

Trucking companies claiming the one-way-haul rate

The reduced rate depends on proof by vehicle. Maintain records showing each trip's origin, destination, route, total mileage, and loaded and empty miles. General invoices and fuel receipts did not establish eligibility here.

Carriers returning containers or equipment

The decision read “empty of all load” literally. A return trip carrying empty chile crates did not count as empty mileage, even if the crates had little weight.

Businesses facing a sample audit

If the records needed for a direct calculation are missing, the Department may use a reasonable alternative method. Cordero Transport's unsupported MPG estimate did not defeat the Department's industry-based calculation.

Common questions

Q: What was the one-way-hauler benefit?
A: A qualifying vehicle paid two-thirds of the ordinary Weight Distance Tax calculated under Section 7-15A-6(A), effectively reducing the base rate by one-third.

Q: Why were the October 2007 invoices insufficient?
A: They covered only one month and did not provide the vehicle-specific route, mileage, and loaded-versus-empty information needed to prove the statutory 45% empty-mile threshold.

Q: Did returning empty crates count as an empty trip?
A: No. The decision held that the trucks were still carrying a load when they returned the empty chile crates.

Q: Why did the Department use 5.71 MPG?
A: It averaged industry MPG figures by the age and weight of the company's registered trucks. The company had no vehicle-specific records substantiating its claimed 4.5 MPG.

Q: Why was the negligence penalty upheld?
A: The company failed to maintain records required for the reduced rate, and that inattention caused it to pay less Weight Distance Tax than the full-rate calculation required.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-17(C) — presumption that Department assessments are correct
• NMSA 1978, § 7-15A-3 — Weight Distance Tax on registered vehicles over 26,000 pounds using state highways
• NMSA 1978, § 7-15A-6(A) and (B) — ordinary rate and requirements for the reduced one-way-hauler rate
• NMSA 1978, § 7-1-10 — taxpayer recordkeeping
• NMSA 1978, §§ 7-1-67 and 7-1-69 — mandatory interest and civil negligence penalty
• 3.12.6.7 through 3.12.6.11 NMAC — one-way-hauler definitions, qualifications, reporting, and records
• 3.1.5.8(B) and (C) NMAC — alternative tax estimation methods when records are inadequate
• 3.1.11.10 NMAC — negligence definitions

Cases:

• Archuleta v. O'Cheskey, 84 N.M. 428, 504 P.2d 638 (Ct. App. 1972)
• MPC Ltd. v. N.M. Taxation & Revenue Dep't, 133 N.M. 217, 2003-NMCA-021, 62 P.3d 308
• Wing Pawn Shop v. Taxation and Revenue Department, 111 N.M. 735, 809 P.2d 649 (Ct. App. 1991)
• State v. Lujan, 90 N.M. 103, 560 P.2d 167 (1977)
• El Centro Villa Nursing Center v. Taxation and Revenue Department, 108 N.M. 795, 779 P.2d 982 (Ct. App. 1989)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Cordero Transport
• Decision PDF: D&O 12-23

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
CORDERO TRANSPORT No. 12-23
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L0869713984 & “Manual”

DECISION AND ORDER

A protest hearing occurred on the above captioned matter on June 28, 2012 before Brian

VanDenzen, Esq., Tax Hearing Officer, in Santa Fe. Mr. Paul Cordero, owner of Cordero

Transport (“Taxpayer”), appeared in person. Staff attorney Ida Luján represented the Taxation

and Revenue Department of the State of New Mexico (“Department”). Protest Auditor Sylvia

Sena and Audit Supervisor Natalie K. Smith appeared as witnesses for the Department. Taxpayer

Exhibits #1-3 were admitted into the record. Department Exhibits A-Z were admitted into the

record. All exhibits are more thoroughly described in the Administrative Exhibit Coversheet.

Based on the evidence and arguments presented, IT IS DECIDED AND ORDERED AS

FOLLOWS:

FINDINGS OF FACT

1. Taxpayer is a New Mexico trucking company that transports cargo, including

landscaping goods and agriculture commodities like flour, corn, and green chile. [Department

Exhibit L].

2. On December 31, 2008, the Department sent notice to Taxpayer that the

Department had selected Taxpayer for audit of Weight Distance Tax for reporting periods
January 1, 2006 through December 31, 2008. The notice of audit informed Taxpayer of the

necessity of documentation to substantiate one-way haul claims, individual vehicle distance

records, vehicle specific driver’s logs, and trip reports. [Department Exhibit A].

3. On January 8, 2009, the Department informed Taxpayer that it would conduct the

audit on a sample basis, relying on reporting periods in the second quarter of 2006, the fourth

quarter of 2007, and the first quarter of 2008. [Department Exhibit C].

4. Since Taxpayer did not have records per truck unit, and could not provide an

accurate list of trucks in use during the sample audit period, the Department informed Taxpayer

on January 15, 2009 that all truck units would be considered during the sample audit periods.

[Department Exhibit D].

5. On February 3, 2009, the Department sent a letter to Taxpayer asking Taxpayer to

have trip reports, other mileage documentation, and fuel receipts available during the February

17, 2009 scheduled audit. [Department Exhibit E].

6. On February 20, 2009, Taxpayer acknowledged and agreed that the Department’s

audit would be conducted on a sample basis. [Department Exhibit F].

7. During the audit, Taxpayer did not produce specific records by individual truck

unit that showed origination, destination, route, load weight, fuel used, and mileage distance

traveled. [Department Exhibit O.3].

8. During the audit, Taxpayer presented no records of empty and loaded haul miles

per vehicle unit. [Department Exhibit O.4].

9. For the sample audit periods, Taxpayer only maintained records of invoices

showing the delivery location of truck loads and fuel receipts. [Department Exhibit O.3].

In the Matter of the Protest of Cordero Transport, Inc., page 2 of 15

10. Taxpayer produced invoices and bills of lading specific to Taxpayer’s business

with Bueno Foods in October 2007, which are admitted into the record as Taxpayer Exhibits #1

& #3. These invoices do not list the origin, destination, weights of each transport, the distance

traveled, the route taken, the specific vehicle used for each transport, the amount of fuel

consumed on each transport, or the number of miles traveled with a full or empty load. Taxpayer

testified that as courtesy to Bueno Foods, after dropping off its full load as shown on the

submitted invoices, Taxpayer would return the empty product crates to Bueno Foods.

11. Taxpayer produced invoices and bills of lading specific to Taxpayer’s business

with Gro-well Brands in October 2007, which are admitting into the record as Taxpayer Exhibit

2. There invoices and supporting bills of lading list an origin, destination, and weight of the

shipped goods on the bills of lading, but do not record route to destination and back, distance

traveled, or number of miles traveled with a full or empty load.

12. Taxpayer claimed an average miles per gallon (“MPG”) of 4.5 during the sample

audit period. However, Taxpayer did not have records by individual truck to substantiate this

claimed 4.5 MPG figure.

13. Because of the lack of records to substantiate Taxpayer’s claimed 4.5 MPG

figure, the Department applied an industry standard MPG figure of 5.71 miles per gallon taken

from a State of Nebraska study of vehicles by weight and age (admitted into the record as

Department N). [Department Exhibit O.5].

14. Based on the total gallons of fuel purchased, as shown on Taxpayer’s fuel

receipts, the Department used the 5.71 MPG to extract Taxpayer’s total traveled mileage in New

Mexico during the sample audit periods. [Department Exhibit O.5].

In the Matter of the Protest of Cordero Transport, Inc., page 3 of 15

15. During the audit, the Department found that Taxpayer’s records were insufficient

to substantiate its claim as a one-way hauler entitled to a reduced Weight Distance Tax rate.

16. On December 29, 2009, based on the Department’s audit, the Department

assessed Taxpayer $20,364.40 in Weight Distance Tax, $4,072.88 in penalty, and $3,261.49 in

interest, for a total assessment of $27,698.77, under letter id. no. L0869713984. [Department

Exhibit R].

17. On December 30, 2009, the Department also assessed Taxpayer for $264.28 in

International Fuel Tax, $100.00 in penalty, and $82.21 in interest. Although Taxpayer initially

protested this assessment, Taxpayer withdrew the protest to the International Fuel Tax during the

protest hearing.

18. On March 16, 2010, Taxpayer submitted a request for a retroactive extension to

file a protest to the assessments. [Department Exhibit T].

19. On March 16, 2010, Taxpayer submitted a letter protesting the Department’s

assessments. [Department Exhibit U].

20. On April 1, 2010, the Department granted Taxpayer’s request for a retroactive

extension and acknowledged receipt of Taxpayer’s protest. [Department Exhibit V].

21. On June 1, 2011, the Department submitted a request for hearing to the Hearings

Bureau.

22. On June 16, 2011, the Hearings Bureau sent Notice of Administrative Hearing,

scheduling the matter for October 5, 2011.

23. Taxpayer failed to appear for the October 5, 2011 Protest Hearing. On October 7,

2011, Hearing Officer Sally Galanter issued a default Decision and Order denying Taxpayer’s

protest based on Taxpayer’s non-appearance.

In the Matter of the Protest of Cordero Transport, Inc., page 4 of 15

24. On November 4, 2012 Taxpayer filed an appeal to the New Mexico Court of

Appeals.

25. On November 7, 2012, Taxpayer filed a motion to reconsider with the Hearings

Bureau, which Hearing Officer Galanter denied in light of Taxpayer’s pending appeal to the New

Mexico Court of Appeals.

26. On February 6, 2012, the Court of Appeals remanded the matter to the Hearings

Bureau for further consideration of Taxpayer’s motion to reconsider. Neither the Department nor

Taxpayer opposed Chief Hearing Officer Monica Ontiveros’ proposal to reschedule the matter

fully on the merits in light of the remand and Taxpayer’s motion to reconsider.

27. On April 3, 2012, the Hearings Bureau sent Notice of Hearing, setting the matter

for June 28, 2012 before Hearing Officer VanDenzen because Hearing Officer Galanter was no

longer with the Hearings Bureau.

DISCUSSION

At the beginning of the protest hearing, Taxpayer withdrew its protest with respect to the

International Fuel Tax “manual” assessment. Taxpayer did continue its protest of the Weight

Distance Tax Act, NMSA 1978, Section 7-15A-1 et seq. assessment, letter id. no. L0869713984.

There are three issues at protest under that assessment. The primary issue is whether Taxpayer

established that it was a one-way hauler and thus entitled to a reduced tax rate under the Weight

Distance Tax Act. The second issue relates to Taxpayer’s argument that the Department’s use of

an industry standard MPG chart to extrapolate from Taxpayer’s fuel receipts the numbers of

miles Taxpayer’s vehicles traveled during the audit period artificially raised the total mileage.

In the Matter of the Protest of Cordero Transport, Inc., page 5 of 15
Taxpayer also challenged the imposition of penalty and interest, but largely abandoned that issue

during the protest hearing.

Presumption of Correctness and Burden of Proof.

Under NMSA 1978, Section 7-1-17(C) (2007), the assessment issued in this case is

presumed to be correct. Consequently, the Taxpayer has the burden to overcome the assessment

and show it was entitled to the reduced tax rate for one-way haulers under the Weight Distance

Tax Act. See Archuleta v. O'Cheskey, 84 N.M. 428, 431, 504 P.2d 638, 641 (NM Ct. App. 1972).

However, once a taxpayer rebuts the presumption of correctness, the burden shifts to the

Department to show the correctness of the assessed tax. See MPC Ltd. v. N.M. Taxation & Revenue

Dep't, 133 N.M. 217, 220, 2003 NMCA 21, ¶13, 62 P.3d 308, 311 (N.M. Ct. App. 2002).

Seeking the reduced one-way haul rate under the Weight Distance Tax Act is akin to

claiming a deduction of tax that otherwise would be owed, and therefore case law addressing a

taxpayer’s burden when claiming a deduction has persuasive value. “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

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

Weight Distance Tax Act and Taxpayer’s claim for reduced one-way hauler rate

The Weight Distance Tax Act imposes a tax on all registered vehicles with a declared

weight in excess of 26,000 pounds that travel on state highways. See NMSA 1978, Section 7-

15A-3 (1988).

NMSA 1978, Section 7-15A-6 (2004) sets the tax rates under the Weight Distance Tax

Act for all motor vehicles other than buses. Subsection A establishes the base tax rates for all

In the Matter of the Protest of Cordero Transport, Inc., page 6 of 15
registered vehicles based on the vehicles’ declared gross weight and on the mileage traveled on

state highways. See NMSA 1978, § 7-15A-6(A) (2004). Taxpayer’s vehicles were registered

with a declared gross weight of the maximum 78,001 and over category, for which the tax rate is

43.78 mills per mile.

NMSA 1978, § 7-15A-6(B) (2004) reduces that base tax rate articulated under Subsection

A by one-third for one-way haulers. As NMSA 1978, § 7-15A-6(B) (2004) reads,

All motor vehicles for which the tax is computed under Subsection A of
this section shall pay a tax that is two-thirds of the tax computed under
Subsection A of this section if:
(1) the motor vehicle is customarily used for one-way haul;
(2) forty-five percent or more of the mileage traveled by the motor
vehicle for a registration year is mileage that is traveled empty of all load;
and
(3) the registrant, owner or operator of the vehicle attempting to qualify
under this subsection has made a sworn application to the department to be
classified under this subsection for a registration year and has given
whatever information is required by the department to determine the
eligibility of the vehicle to be classified under this subsection and the
vehicle has been so classified.

If the registrant, owner or operator of the vehicle can satisfy the three one-way haul criteria

identified under Subsection B, the Weight Distance Tax is calculated at two-thirds of the base tax

rate established under Subsection A.

Numerous Department regulations address one-way haulers for the purposes of NMSA

1978, § 7-15A-6(B) (2004). Regulation 3.12.6.7 NMAC (11/15/01) provides definitions for

empty miles, loaded miles, and one-way haulers. Regulation 3.12.6.8 NMAC (11/15/01) and

Regulation 3.12.6.9 NMAC (11/15/01) respectively establish the qualifications and

disqualifications as one-way haulers. Regulation 3.12.6.10 NMAC (11/15/01) requires one-way

haulers to report total number of empty miles and total number of loaded miles traveled in New

Mexico on a quarterly basis, unless Taxpayer otherwise reports annually.

In the Matter of the Protest of Cordero Transport, Inc., page 7 of 15
Regulation 3.12.6.11 NMAC (11/15/01) lists the required records that a one-way hauler

must possess. Regulation 3.12.6.11 NMAC (11/15/01) is important to the analysis in this matter

because NMSA 1978, § 7-15A-6(B) (3) (2004) mandates that before a taxpayer can qualify for

the reduced one-way hauler rate, that taxpayer must provide the Department with “whatever

information… required by the [D]epartment to determine the eligibility of the vehicle…” By

Regulation 3.12.6.11 NMAC (11/15/01), the Department has articulated which records a

taxpayer must provide under the statute for a taxpayer claiming the reduced one-way hauler rate:

A. Vehicle trip mileage records for each vehicle operated in New Mexico.
The mileage records shall reflect the total empty miles and the total loaded
miles traveled on New Mexico roads. Accurate trip mileage records
indicating empty and loaded miles may include:
(1) accurate map mileage for each trip;
(2) hubometer or odometer readings; or
(3) vehicle-specific log books.
B. Vehicle itineraries including the origin and destination point of each
trip, and the routes taken.

Consequently, reading the statutory and regulatory requirements together, any time a taxpayer

claims the reduced one-way hauler rate under NMSA 1978, § 7-15A-6(B) (2004), that taxpayer

should use and maintain the records articulated under Regulation 3.12.6.11 NMAC (11/15/01).

This statutory and regulatory one-way hauler record keeping requirement is also consistent with

the Tax Administration Act, NMSA 1978, Section 7-1-10 (2007), which requires a taxpayer to

maintain certain records for any provision of any statute administered by the Department.

In this protest, Taxpayer failed to present the detailed and vehicle-specific required

records under Regulation 3.12.6.11 NMAC (11/15/01) to substantiate Taxpayer’s claim for the

reduced one-way hauler tax rate either during the Department’s audit or during the protest

hearing. As Taxpayer acknowledged during the closing argument, at the time of the audit

Taxpayer lacked the accurate and complete records necessary to prove Taxpayer’s belief that it

In the Matter of the Protest of Cordero Transport, Inc., page 8 of 15
qualified as a one-way hauler. Without these records, there is no persuasive way for Taxpayer to

prove any of its registered vehicles qualified as a one-way hauler under NMSA 1978, § 7-15A-

6(B) (2004).

Taxpayer did produce invoices with attached bills of lading from one month, October

2007, of the fourth quarter 2007 sample audit period (there are no records from either of the

other two sample audit quarters). Those invoices with attached bills of lading were admitted into

the record at Taxpayer Exhibits #1-3. However, these invoices and bills of lading are both

incomplete for the purposes of Regulation 3.12.6.11 NMAC (11/15/01) and unpersuasive for the

purposes of overcoming the presumption of correctness of the assessment under NMSA 1978, §

7-1-17 (2007).

Taxpayer Exhibit #1 & #3, the invoices and bills of lading related to its business with

Bueno Foods in October 2007, do not list the origin, destination, weights of each transport, the

distance traveled, the route taken, the specific vehicle used for each transport, the amount of fuel

consumed on each transport, or the number of miles traveled with a full or empty load.

Moreover, as Mr. Cordero testified, after unloading the transported chile, Taxpayer would

transport the empty chile crates back to Bueno Foods. Transporting empty chile crates back to

their origin does not meet the statutory one-way hauler requirement of traveling “empty of all

load”, even if the crates are of minimal weight. See NMSA 1978, §7-15A-6(B)(2) (2004).

Taxpayer Exhibit #2, the invoice and supporting bills of lading for Gro-well Brands

October 2007 shipments lack all same basic information as Taxpayer Exhibits #1 & #3 with the

exceptions of listing an origin, destination, and weight of the shipped goods on the bills of

lading. From these limited records and from Mr. Cordero’s testimony, there is no way to

reasonably determine even under the preponderance standard whether and which of Taxpayer’s

In the Matter of the Protest of Cordero Transport, Inc., page 9 of 15
registered weight distance vehicles had 45% percent or more of traveled mileage empty of all

load, as required under NMSA 1978, §7-15A-6(B)(2) (2004) in order to claim the lower one-way

hauler tax rate. Since Taxpayer did not maintain the required regulatory records or provide the

records the Department required consistent with Taxpayer’s statutory obligations, the

Department properly issued assessment against Taxpayer using the full rate Weight Distance Tax

rate under NMSA 1978, § 7-15A-6(A) (2004).

In summary, Taxpayer had the burden to overcome the Department’s assessment of

Weight Distance Tax. Taxpayer neither produced the required records establishing the one-way

haul reduced Weight Distance Tax rate during the audit or during the protest hearing. The limited

invoices and bills of lading information Taxpayer did provide were not persuasive in establishing

that Taxpayer had any weight distance vehicle(s) that traveled 45% or more of their mileage

empty of any load. Because Taxpayer did not carry its burden and did not establish it was

entitled to the reduced one-way haul rate, the Department’s assessment for the full Weight

Distance Tax rate is appropriate and Taxpayer is liable for the assessed Weight Distance Tax.

Department’s Use of an Industry Standard MPG

Because Taxpayer did not present complete, per vehicle records, the Department could

not verify Taxpayer’s claimed traveled miles during the three sample quarters audited.

Consequently, the Department relied on alternative method of calculating the total miles

traveled. That alternative method was to consider the fuel receipts Taxpayer did possess, use the

total gallons of fuel purchased based on those receipts, and derive a total miles traveled by

dividing the total gallons of fuel purchased by the average MPG for each vehicle, as determined

by consulting a State of Nebraska study of industry standard MPG figures.

In the Matter of the Protest of Cordero Transport, Inc., page 10 of 15
The State of Nebraska industry MPG standards determines a vehicles average MPG by

age of the vehicle in relation to the weight of the vehicle. Taxpayer’s vehicles were all on the

declared gross weight category of 80,000 pounds. For that weight category, vehicle model years

between 1975-1984 have a 5 MPG average, vehicle model years 1985-1995 have a 5.5 MPG,

vehicle model years 1996-2000 have a 6 MPG, vehicle model years 2001-2002 have a 6.25

MPG, vehicle model years 2003-2005 have a 5.8 MPG, vehicle model years 2006-2008 have a 6

MPG, and vehicle model years 2009-2010 have a 6.8 MPG. [Department Exhibit N].

The amount of purchased gallons of fuel is a static number taken from Taxpayer’s fuel

receipts. Taxpayer’s dispute is the MPG amount used to calculate the total miles travels.

Taxpayer claimed its actual MPG figure was 4.5 MPG. However, Taxpayer lacked vehicle

specific records to substantiate this claimed 4.5 MPG figure. Using the State of Nebraska

industry standard study, the Department averaged the age of all of Taxpayer’s registered trucks

and calculated Taxpayer’s MPG at 5.71 MPG. Taxpayer claimed that the 5.71 MPG was too high

based on the Department’s faulty assumption that Taxpayer always transported at a full 80,000

pound load. Instead, Taxpayer argues that because Taxpayer usually transported loads in the

40,000 pound range, Taxpayer’s actual MPGs were much lower than the 5.71 figure the

Department relied on in the audit, thus meaning that Taxpayer traveled less total miles than the

Department relied upon in issuing the audit assessment.

There are two main problems with Taxpayer’s argument. First, Taxpayer’s argument is

not particularly plausible without more evidence to support Mr. Cordero’s testimony that less

weight in the vehicle results in poorer, less efficient fuel economy and a lower MPG number

than in the same vehicle with a heavy load. In the State of Nebraska study Industry Standard

Weight/Class MPG Chart, Department N, regardless of age of the truck, a truck of lesser

In the Matter of the Protest of Cordero Transport, Inc., page 11 of 15
declared weight usually had more efficient fuel economy than a vehicle of a higher weight in the

same age group. This finding is consistent with the general proposition that a lighter vehicle is

more efficient than the same vehicle with added additional cargo weight.

The second and bigger problem with Taxpayer’s argument is that Taxpayer simply did

not produce any records or evidence at hearing to establish its lower 4.5 MPG claimed figure. In

instances where Taxpayer’s records are inadequate, the Department has authority under

Regulation 3.1.5.8 (B) & (C) NMAC (12/29/00) to use alternative methods to determine or

estimate taxes due, including relying on alternative industry comparison method. The State of

Nebraska study of fuel economy of a vehicle given its age and weight constitutes a permissible

alternative industry comparison method under Regulation 3.1.5.8 (C) NMAC (12/29/00). The

testimony of the Department Natalie K. Smith, who supervised this audit, was particularly

credible and helpful in explaining how and why the Department relied on alternative audit

methods in this case. In the absence of Taxpayer’s records, it was reasonable for the Department

to use the industry standard MPG number as a basis to extrapolate from Taxpayer’s fuel receipts

the total number of miles traveled in New Mexico, and base the audit assessment partially on the

resulting additional mileage traveled in this state.

Interest and Penalty

Taxpayer’s protest letter also challenged the imposition of penalty and interest, but at the

hearing Taxpayer clarified that he only challenged penalty and interest to the extent that

Taxpayer believed he was entitled to the one-way haul rate and therefore had no additional

liabilities requiring the imposition of penalty or interest.

Interest was appropriate under the mandatory provisions of NMSA 1978, Section 7-1-67

(2001). When a taxpayer fails to make timely payment of taxes due to the state, “interest shall be

In the Matter of the Protest of Cordero Transport, Inc., page 12 of 15
paid to the state on that amount from the first day following the day on which the tax becomes

due...until it is paid.” NMSA 1978, § 7-1-67 (2001). Under the statute, the Department has no

discretion in the imposition of interest, as the statutory use of the word “shall” makes the

imposition of interest mandatory. See State v. Lujan, 90 N.M. 103, 105, 560 P.2d 167, 169

(1977). The language of the statute also makes it clear that interest begins to run from the original

due date of the tax and continues until the tax principal is paid in full. The assessment of interest is

not designed to punish taxpayers, but to compensate the state for the time value of unpaid

revenues.

Additionally, the Department’s imposition of penalty in this case is appropriate under the

Tax Administration Act. When a taxpayer fails to pay taxes due to the State because of

negligence or disregard of rules and regulations, but without intent to evade or defeat a tax,

NMSA 1978 Section 7-1-69 (2007) requires that

there shall be added to the amount assessed a penalty in an amount
equal to the greater of: (1) two percent per month or any fraction of
a month from the date the tax was due multiplied by the amount of
tax due but not paid, not to exceed twenty percent of the tax due
but not paid. (italics added for emphasis)

The statute’s use of the word “shall” makes the imposition of penalty mandatory in all instances

where a taxpayer’s actions or inactions meets the legal definition of “negligence” even if a

taxpayer’s actions or inactions were unintentional. Regulation §3.1.11.10 NMAC (1/15/01)

defines negligence in three separate ways: (A) “failure to exercise that degree of ordinary business

care and prudence which reasonable taxpayers would exercise under like circumstances;” (B)

“inaction by taxpayer where action is required; or (C) “inadvertence, indifference, thoughtlessness,

carelessness, erroneous belief or inattention.”

In the Matter of the Protest of Cordero Transport, Inc., page 13 of 15
In this protest, Taxpayer’s inattention in maintaining required one-way hauler rate

records resulted in Taxpayer’s failure to pay the full amount of the Weight Distance Tax during

the audit period. This type of inattention satisfies the definition of civil negligence subject to

civil penalty under the Tax Administration Act. See El Centro Villa Nursing Center v. Taxation

and Revenue Department, 108 N.M. 795, 799, 779 P.2d 982, 986 (Ct. App. 1989). Because of the

mandatory “shall” language of the statute, the Department had no choice but to impose a civil

negligence penalty on Taxpayer.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely, written request for retroactive extension to file a protest.

The Department granted that retroactive extension. Taxpayer filed a protest within the period of the

retroactive extension. Jurisdiction lies over the parties and the subject matter of this protest.

B. Taxpayer did not possess the requisite records under Regulation 3.12.6.11 NMAC

(11/15/01) to establish Taxpayer was entitled to the reduced one-way hauler Weight Distance Tax

rate under NMSA 1978, § 7-15A-6(B) (2004).

C. Taxpayer did not establish which, if any, of its vehicles traveled 45% of its total

mileage empty of all load, as required to claim the reduced one-way hauler Weight Distance Tax

rate under NMSA 1978, § 7-15A-6(B) (2004).

D. Taxpayer did not overcome the presumption of correctness of the assessment under

NMSA 1978, § 7-1-17 (2007).

E. Taxpayer is liable for interest under NMSA 1978, §7-1-68 (2007) and civil

negligence penalty under NMSA 1978, § 7-1-69 (2007).

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

In the Matter of the Protest of Cordero Transport, Inc., page 14 of 15
DATED: November 19, 2012.

Brian VanDenzen, Esq.
Tax Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

In the Matter of the Protest of Cordero Transport, Inc., page 15 of 15