Which alarm-system sales and monitoring services could Home Security Systems and Industrial & Commercial Security Systems deduct when some transactions lacked timely or correct NTTCs or did not meet the claimed construction, resale, interstate, leasing, or government-sales rules?

View original ruling (PDF)

Plain-English summary

Home Security Systems (HSS) won one disputed deduction, and Industrial & Commercial Security Systems (ICSS) won deductions for two groups of transactions. The companies lost the other disputed deductions because they lacked a timely correct certificate or failed to prove that the transaction met the statutory deduction claimed.

The commonly owned companies designed, installed, serviced, and monitored electronic security systems. An audit covering January 2002 through March 2005 disallowed numerous gross receipts deductions. By the hearing, the consolidated protest concerned nine HSS customer groups and seven ICSS customer groups.

As of the hearing, ICSS owed $37,531.43 in gross receipts tax and interest after earlier audit adjustments. HSS owed $51,139.63 in gross receipts tax, uncontested compensating tax, and interest. The decision did not state the final recalculated balances after its additional allowed deductions.

The allowed deductions

HSS was entitled to its deduction for pre-wiring homes for T.C. Building & Realty. The builder passed the pre-wiring cost to home purchasers, the construction project was subject to gross receipts tax when completed, and the Department conceded the Section 7-9-52 construction-service deduction.

ICSS was entitled to deduct both Northrop Grumman invoices under the interstate-commerce provision. The Department had conceded the $16,473 invoice. Although the $13,934 invoice listed a Socorro service address, credible testimony established that the same kind of equipment was drop-shipped from Dallas to Don Diego Island without a New Mexico connection. The Department offered no contrary evidence.

ICSS also won its deductions for three Jaycor/L3 Services invoices. It timely held the correct Type 5 NTTC, and the evidence showed that Jaycor resold the radio-alarm monitoring equipment and wireless monitoring services to the federal government in transactions subject to gross receipts tax.

Timely possession of the correct NTTC mattered

Section 7-9-43 generally required the seller to possess the supporting NTTC when the return was due. After a Department notice, it provided a second chance—but made disallowance mandatory if the seller still lacked the required certificate after 60 days.

HSS did not timely provide certificates for Powerline Technologies or Southwest Fire and Sound, so those deductions failed regardless of their underlying merits.

ICSS timely had a Type 5 service-for-resale certificate for West Mesa Autocraft, but the transaction was a sale of alarm equipment for leasing and required a different certificate. ICSS obtained the correct Type 2 certificate only after the 60-day deadline, so the deduction remained disallowed.

A certificate's good-faith safe harbor did not make a taxable transaction deductible when the certificate type or the goods and services did not match the statutory deduction.

Monitoring was not proved to be construction

HSS argued that monitoring or leasing alarm systems for Rowland Electric, Alarm Communications, Alarm Control Technologies, Assured Protection Service, Guardian Alarm, and Professional Security Consultants qualified as construction-material or construction-service transactions.

The decision found insufficient evidence that the customers were engaged in statutorily defined construction for the invoices at issue. HSS also did not prove that its monitoring and leasing were qualifying construction services or that its equipment became an ingredient or component of a construction project. Licensing as a general contractor alone did not establish those facts.

ICSS's other deductions also failed

• Marlin Leasing: ICSS sold alarm equipment and cameras to a financing company that leased them to the end user. The transaction could otherwise fit the property-for-leasing deduction, but the Multistate Tax Commission certificate was not an allowable substitute for the required New Mexico NTTC under that deduction.
• Four Suns Builders: alarm systems used to deter theft at construction sites were an ancillary service, not a construction service. The record also did not show whether the systems became part of the finished projects or were removed.
• Bernalillo County Sheriff's Office: the government-sale deduction covered tangible personal property, not monitoring services. The Department had allowed the equipment portion and properly denied the service portion.
• Napa Auto Parts / Genuine Parts: ICSS held a Type 5 NTTC but did not show what Napa did with the security system and monitoring services or establish a sale of services for resale.

Result: both protests granted in part and denied in part. The Department was ordered to recalculate the assessments, and each company remained responsible for the recalculated tax and accrued interest.

What this means for you

Alarm, technology, and monitoring providers

A monitoring service connected to a construction project is not automatically a construction service. The provider needs evidence tying the buyer and the specific work to the statutory construction definitions.

Sellers relying on NTTCs

Confirm both timing and certificate type. A timely but mismatched NTTC did not protect the West Mesa transaction, and a correct certificate obtained after the 60-day deadline came too late.

Multistate sellers

An MTC certificate was not interchangeable with a New Mexico NTTC for every deduction. The regulation accepted it only for specified statutory deductions, not the property-for-leasing deduction used for Marlin Leasing.

Vendors selling to governments

The deduction discussed here distinguished property from services. Equipment sold to the county could be deducted, while monitoring services sold to the same government customer could not.

Common questions

Q: Which HSS deduction was allowed?
A: The T.C. Building & Realty pre-wiring transaction under the construction-service deduction.

Q: Which ICSS deductions were allowed?
A: Both Northrop Grumman interstate-commerce invoices and the three Jaycor/L3 service-for-resale invoices.

Q: Did any timely NTTC guarantee a deduction?
A: No. The certificate had to be appropriate for the transaction, and the underlying transaction still had to fit the statutory deduction.

Q: Why did the Powerline and Southwest Fire deductions fail?
A: HSS did not provide the required NTTCs within 60 days after the Department's notice, triggering mandatory disallowance.

Q: Why was the county monitoring service taxable?
A: The government-sales provision at issue allowed a deduction for tangible personal property but not for services.

Q: Did the decision state the final amounts owed?
A: No. It ordered the Department to allow the successful deductions and recalculate each assessment, with accrued interest on the remaining tax.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-17(C) — presumption that Department assessments are correct
• NMSA 1978, § 7-9-43 — NTTC possession, 60-day deadline, substitute documents, and good-faith safe harbor
• NMSA 1978, §§ 7-9-3.4, 7-9-51, and 7-9-52 — construction definitions and construction-material and service deductions
• NMSA 1978, § 7-9-48 — service-for-resale deduction
• NMSA 1978, § 7-9-55 — interstate-commerce deduction
• NMSA 1978, § 7-9-49 — tangible personal property sold for leasing
• NMSA 1978, § 7-9-54 — tangible personal property sold to government
• NMSA 1978, § 7-1-67 — interest on the recalculated liabilities
• 3.2.201.8, 3.2.201.13, and 3.2.201.14 NMAC — NTTC timing, MTC certificates, and good faith
• 3.2.1.11(A) NMAC — construction and excluded ancillary services
• 3.212.9(A) NMAC — services sold to governmental agencies

Cases:

• Archuleta v. O'Cheskey, 84 N.M. 428, 504 P.2d 638 (N.M. Ct. App. 1972)
• Wing Pawn Shop v. Taxation and Revenue Department, 111 N.M. 735, 809 P.2d 649 (Ct. App. 1991)
• MPC Ltd. v. N.M. Taxation & Revenue Dep't, 133 N.M. 217, 2003 NMCA 21, 62 P.3d 308
• Gas Co. v. O'Cheskey, 94 N.M. 630, 614 P.2d 547 (Ct. App. 1980)
• McKinley Ambulance Service v. Bureau of Revenue, 92 N.M. 599, 592 P.2d 515 (Ct. App. 1979)
• Arco Materials, Inc. v. New Mexico Taxation and Revenue Department, 118 N.M. 12, 878 P.2d 330 (Ct. App.), rev'd on other grounds, 118 N.M. 647, 884 P.2d 803 (1994)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Home Security Systems and Industrial & Commercial Security Systems
• Decision PDF: D&O 12-26

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
HOME SECURITY SYSTEMS
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L1674614016

AND No. 12-26

IN THE MATTER OF THE PROTEST OF
INDUSTRIAL & COMMERCIAL SECURITY SYSTEMS
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L0774628608

DECISION AND ORDER

A protest hearing occurred on the above captioned matter on October 4, 2012 before

Brian VanDenzen, Esq., Tax Hearing Officer, in Santa Fe. Attorneys Thomas Smidt II and

Thomas Smidt III appeared representing Home Security Systems, Inc. (“HSS”) and Industrial &

Commercial Security Systems, Inc. (“ICSS”), or known collectively as “Taxpayers”. Mr. Steven

Berniklau, President of HSS & ICSS, testified on behalf of Taxpayers. Staff Attorney Ida M.

Lujan appeared representing the Taxation and Revenue Department of the State of New Mexico

(“Department”). Protest Auditor Sylvia Sena appeared as a witness for the Department. By

stipulation, Department Exhibits A-T were admitted into the record. All exhibits are more

thoroughly described in the Administrative Protest Hearing Exhibit Log. The parties also

submitted a Joint Stipulations of Facts, numbered 1-31, which are adopted into the record. Both

parties submitted closing arguments, proposed findings of fact, and conclusions of law, which

are part of the record. Based on the evidence and arguments presented, IT IS DECIDED AND

ORDERED AS FOLLOWS:
FINDINGS OF FACT

1. HSS is a New Mexico corporation doing business in Albuquerque, New Mexico,

and it has been registered for a Combined Reporting System number with the Department since

July 30, 1979. [JSF #1].

2. HSS designs, pre-wires, installs, services and monitors 24-hour electronic security

systems including intrusion alarms, door access control, video (visible and hidden camera)

surveillance and computer-based integrated security systems. HSS sells and leases tangible

personal property and sells installation and monitoring services. [JSF #2].

3. HSS owns the only alarm company owned central alarm monitoring station in

New Mexico that provides alarm monitoring services to other alarm companies on a wholesale

basis.

4. HSS sells and leases tangible personal property and sells installation and

monitoring services.

5. ICSS is a New Mexico corporation doing business in Albuquerque, New Mexico,

and it has been registered for a Combined Reporting System number with the Department since

December 16, 1986. [JSF #3].

6. ICSS designs, pre-wires, installs, services and monitors 24-hour electronic

security systems, including intrusion or burglar alarms, fire alarms, access control systems, video

(visible and hidden camera) surveillance and computer-based integrated security systems on the

industrial and large commercial level. [JSF #4].

7. ICSS sells and leases tangible personal property and sells installation and

monitoring services.

In the Matter of the Protest of HSS and ICSS, page 2 of 26

8. Steve Berniklau is the president and owner of both HSS and ICSS, having

purchased those companies from his parents on March 3, 2005.

9. Steve Berniklau worked for HSS and ICSS during the time that all transactions

involved in these protests took place and is familiar with all of the transactions.

10. The Department audited both HSS and ICSS under various tax programs for a

period beginning January 1, 2002 through March 31, 2005.

11. On May 23, 2005, the Department issued a 60-day notice letter to both HSS and

ICSS requesting that Taxpayers possess New Mexico nontaxable transaction certificates (“NTTC

or NTTCs”) or other documentation to support claimed deductions by July 22, 2005.

12. As part of the audit of both HSS and ICSS, the Department proposed using a

sampling basis. Under that sampling method, the auditor selected invoices from the audit period

and broke those invoices into two strata: the first strata (detailed selection) consisted of invoices

of $5,000 or greater, and the second strata (sample selection) consisted of invoices under $5,000.

HSS and ICSS agreed to the sampling method and do not contest that method as part of this

protest.

13. The Department completed its audit of both HSS and ICSS sometime in February

14. The Department disallowed numerous claimed deductions by both HSS and ICSS during

the audit period.

14. At the protest hearing, the parties agreed that each respective protest was limited

to nine disallowed HSS’ claimed deductions and seven disallowed ICSS’ claimed deductions

(the claimed deductions at issue might have involved multiple invoices and/or transactions, but

In the Matter of the Protest of HSS and ICSS, page 3 of 26
all are categorized based on common customers). The findings of fact in this matter, therefore,

are limited to these sixteen disputed disallowed deductions1.

HSS Disputed Deductions

15. Rowland Electric, Inc. The Department disallowed three claimed deductions for

the sale of wholesale monitoring services to Rowland Electric, Inc. on February 21, 2002,

December 21, 2002, and December 22, 2003. [Department Exhibit B, pages C3.2-3].

a. HSS timely provided an executed Type 7 NTTC to support the claimed deduction.

[Department Exhibits B, pages C3.2-3 & B1a].

b. Rowland Electric, Inc. installed home monitoring and fire alarm systems into

buildings for its clients. Rowland Electric, Inc. then contracted with HSS to

monitor those installed systems on behalf of their clients.

16. Powerline Technologies, Inc. The Department disallowed four claimed deductions

for the sale of monitoring services to Powerline Technologies, Inc. on October 22, 2003, January

22, 2004, August 23, 2004, and November 20, 2004. [Department Exhibit B, page C3.3].

a. HSS failed to timely provide an NTTC to the Department by July 22, 2005, 60-

days after the Department’s notice to do so. [Department Exhibit B, page C3.3].

b. At the protest hearing, HSS presented a Type 7 NTTC, executed on April 10,

2002, to support these claimed deductions. [Department Exhibit B1b].

c. Powerline Technologies, Inc. installed home monitoring systems into buildings

for its clients. Powerline Technologies, Inc. then contracted with HSS to monitor

those installed systems on behalf of their clients.

1
For organizational and efficiency purposes, and in order to reduce redundancies throughout the findings, each
disputed disallowed deduction will be identified as a separate finding of fact, with sub-findings related to those
transactions listed alphabetically below each respective numbered finding of fact.

In the Matter of the Protest of HSS and ICSS, page 4 of 26

17. Alarm Communications Svc. The Department disallowed three claimed

deductions for the sale of monitoring services to Alarm Communications Svc. on July 17, 2003,

September 17, 2003, and May 26, 2004. [Department Exhibit B, page C3.2-3].

a. HSS timely provided an executed Type 7 NTTC to support the claimed deduction.

[Department Exhibit B, page C3.2-3 & Department Exhibit B1c].

b. Alarm Communications Svc. installed home monitoring systems into buildings

for its clients. Alarm Communications Svc. then contracted with HSS to monitor

those installed systems on behalf of their clients.

18. Alarm Control Technologies. The Department disallowed three claimed

deductions for the sale of monitoring services to Alarm Control Technologies (noted as “ACT”

on audit journal) on October 3, 2002, October 21, 2003, and September 4, 2004. [Department

Exhibit B, page C3.2-3 & Department Exhibit B1d].

a. HSS timely provided an executed Type 7 NTTC to support the claimed deduction.

[Department Exhibit B, page C3.2-3 & Department Exhibit B1d].

b. Alarm Control Technologies leased radios from HSS, which were connected into

security systems that Alarm Control Technologies installed for its clients. Alarm

Control Technologies then contracted with HSS to monitor those installed

systems on behalf of their clients.

19. Assured Protection Service. The Department disallowed HSS’ claimed deduction

for the sale of monitoring services to Assured Protection Service on February 15, 2004.

[Department Exhibit B, page C3.2 & Department Exhibit B1e].

a. HSS timely provided a Type 6 NTTC executed by Assured Protection Service

during the audit. [Department Exhibit B, page C3.2 & Department Exhibit B1e].

In the Matter of the Protest of HSS and ICSS, page 5 of 26
b. Assured Protection Service installed security systems into its customer’s building.

Assured Protection Service then contracted with HSS to monitor those installed

systems on behalf of their clients.

20. Guardian Alarm Co. The Department disallowed three claimed deductions for the

sale of monitoring services to Guardian Alarm Co. on July 25, 2003, October 2004, and

December 27, 2005. [Department Exhibits B, page C3.2-3 and B1f].

a. HSS timely provided a Type 6 NTTC executed by Guardian Alarm Co. during the

audit. [Department Exhibits B, page C3.2-3 and B1f].

b. Guardian Alarm Co. installed security systems into its customer’s building.

Guardian Alarm Co. then contracted with HSS to monitor those installed systems

on behalf of their clients.

21. Southwest Fire and Sound. The Department disallowed one claimed deduction for

the sale of monitoring services to Southwest Fire and Sound on May 21, 2004. [Department

Exhibit B, page C3.3]

a. HSS failed to timely provide an NTTC to support this claimed deduction to the

Department by July 22, 2005, 60-days after the Department’s notice to do so.

[Department Exhibit B, page C3.3].

b. At the protest hearing, HSS presented a Type 6 NTTC from Southwest Fire and

Sound, executed on December 14, 1999, to support this claimed deductions.

[Department Exhibit B1g].

c. Southwest Fire and Sound installed security systems into its customer’s building.

Southwest Fire and Sound then contracted with HSS to monitor those installed

systems on behalf of their clients.

In the Matter of the Protest of HSS and ICSS, page 6 of 26

22. Professional Security Consultants, Inc. The Department disallowed one claimed

deduction for the sale of monitoring services to Professional Security Consultants, Inc. in

October 2004. [Department Exhibits B, page C3.3 & B1h].

a. HSS timely provided a Type 6 NTTC executed by Professional Security

Consultants, Inc. during the audit. [Department Exhibits B, page C3.3 and B1h].

b. Professional Security Consultants, Inc. installed security systems into its

customer’s building. Professional Security Consultants, Inc. then contracted with

HSS to monitor those installed systems on behalf of their clients.

23. T.C. Building & Realty, Inc. The Department disallowed one claimed deduction

for the sale of pre-wiring services to T.C. Building & Realty, Inc. on September 8, 2004.

[Department Exhibits B, page C3.3 & B1i].

a. HSS timely provided a Type 7 NTTC executed by T.C. Building & Realty, Inc.

on March 6, 2002 during the audit. [Department Exhibits B, page C3.3 and B1h].

b. HSS pre-wired electrical, alarms, and audio visual equipment into homes being

constructed by the building company, T.C. Building & Realty, Inc. T.C. Building

& Realty, Inc. passed on the cost of this pre-wiring to the purchaser of the homes.

T.C. Building & Realty, Inc.’s construction project was subject to gross receipts

tax upon completion.

c. The Department conceded in its closing argument, proposed findings of fact, and

conclusions of law, that HSS is entitled to the disallowed deduction for T.C.

Building & Realty, Inc under NMSA 1978, Section 7-9-52 (2000).

In the Matter of the Protest of HSS and ICSS, page 7 of 26
ICSS Disputed Deductions

24. Marlin Leasing Co. The Department disallowed a claimed deduction for the

March 1, 2002 sale of alarm equipment and cameras totaling $16,018.00 to the financing

company Marlin Leasing Co., who provided the financing to ICSS’ actual customer LGM

Trucking Services. [Department Exhibit P, pages C3.3 & Department Exhibit Q.1B].

a. ICSS provided to the Department a Multi-jurisdiction Uniform Sales and Use Tax

Certificate, dated March 29, 2005 and listing Marlin Leasing Co.’s New Mexico

tax identification number, to support the claimed deduction. [Department Exhibit

Q.1].

b. ICSS installed alarms systems and cameras into LGM Travel Plaza in Wagon

Mound. LGM financed the purchase through Marlin Leasing Co., who provided a

lump payment to ICSS minus gross receipts tax. Marlin Leasing Co. then leased

the alarm system back to LGM.

25. Northrop Grumman. The Department disallowed claimed deductions for the

November 27, 2002 sale of security access control systems to Northrop Grumman under two

invoices totaling $13,934.00 and $16,473.00 respectively. [Department Exhibit P, pages C3.3,

Department Exhibit Q.2 & Department Exhibit Q.3].

a. ICSS is a distributor of a DSX security access control systems manufactured in

Dallas, TX.

b. ICSS sold DSX security access control systems to Northrop Grumman for

installation on the Island of Don Diego in the Atlantic Ocean. The entire

transaction occurred by telephone or email with Northrop Grumman’s Colorado

In the Matter of the Protest of HSS and ICSS, page 8 of 26
Springs office, and the product itself was drop-shipped from Dallas, Texas

directly to Northrop-Grumman in either Colorado Springs or Don Diego Island.

c. One of the invoices totaling $16,473.00 had a billing service address in Colorado

Springs, CO. [Department Exhibit Q.3]. The Department concedes that Taxpayer

is entitled to a deduction on this invoice.

d. The other invoice totaling $13,934.00 listed Northrop Grumman’s Colorado

Springs office for billing purposes, but also listed a service address in Socorro,

NM. However, there is no evidence that any portion of the transaction involved

Northrop Grumman’s New Mexico office. The product sold in this transaction

was drop-shipped from Dallas, TX to Don Diego Island in the same manner as the

other invoice. [Department Exhibit Q.2].

26. Napa Auto Parts/Sun Trust Leasing/Genuine Parts Co. The Department

disallowed a claimed deduction for the October 7, 2003 survey and sale of alarm equipment

totaling $7,053.00 to Napa Auto Parts/Sun Trust Leasing. [Department Exhibit P, page C3.4 &

Department Exhibit Q.4].

a. ICSS surveyed and installed security and alarm systems into a Napa Auto Parts

store.

b. The Department initially disallowed the claimed deduction for the absence of an

NTTC to support the deduction. [Department Exhibit P, page C3.4].

c. Genuine Parts Co. is a holding company for Napa Auto Parts.

d. ICSS provided to the Department a Type 5 NTTC for the service of sale for

resale, executed date of October 9, 2003, from Genuine Parts Co. to support the

claimed deduction. [Department Exhibit Q.5].

In the Matter of the Protest of HSS and ICSS, page 9 of 26
e. While ICSS in fact did possess an NTTC related to this disallowed deduction,

ICSS did not demonstrate how it was providing a sale of a service for resale under

NMSA 1978, Section 7-9-48 (2000).

27. West Mesa Autocraft. The Department disallowed a claimed deduction for the

November 25, 2003 sale of alarm system equipment totaling $14,754.00 to West Mesa

Autocraft. [Department Exhibit P, page C3.5 & Department Exhibit Q.6].

a. ICSS timely provided a Type 5 NTTC, service for resale, executed by West Mesa

Autocraft, to the Department during the audit. [Department Exhibit P, page C3.5

& Department Exhibit Q.7].

b. ICSS sold and installed a fire and burglar alarm into the building occupied by

West Mesa Autocraft. West Mesa bought the system, leased it to the building’s

owner, and the building’s owner leased the system back to West Mesa with the

rented space.

c. A Type 5 NTTC, service for resale, is not the appropriate NTTC to support a

deduction under NMSA 1978, Section 7-9-49 (1992), sale of tangible personal

property for leasing.

d. On May 12, 2006, after the expiration of the 60-day deadline on July 22, 2005 to

present NTTCs to the Department, ICSS untimely presented the Department a

Type 2 NTTC executed by West Mesa Autocraft. [Department Exhibit Q.8].

Because this Type 2 NTTC was untimely, the Department continued to disallow

the claimed deduction.

In the Matter of the Protest of HSS and ICSS, page 10 of 26

28. Jaycor and L-3 Services. The Department disallowed a claimed deduction for

three invoices in August 2004 for the sale of services totaling $1070.00 to JayCor/L3 Services.

[Department Exhibit P, page C3.1, C3.2 & Department Exhibit Q.9-11].

a. ICSS timely provided a Type 5 NTTC, service for resale, executed by Jaycor, to

the Department during the audit. [Department Exhibit Q.12].

b. ICSS sold Jaycor radio alarm monitoring equipment and wireless monitoring

services.

c. Jaycor resold these monitoring services to the Federal government, which was

subject to a gross receipts tax.

29. Bernalillo County Sheriff’s Office. The Department partially disallowed a

claimed deduction for the June 22, 2004 invoice amount related to the sale of a service (the

Department did allow the portion of the claimed deduction related to the sale of tangible personal

property). [Department Exhibit P, page C3.2 & Department Exhibit Q.13-14].

30. Four Suns Builders, Inc. The Department disallowed a claimed deduction for the

October 22, 2003 sale of services totaling $51.00 to Four Suns Building, Inc. [Department

Exhibit P, page C3.1].

a. ICSS timely provided a Type 7 NTTC, construction contractor purchaser of

services, executed by Four Suns Builders, Inc., to the Department during the

audit. [Department Exhibit Q.15].

b. ICSS sold Four Suns Builders, Inc. alarms systems into property under

construction in order to avoid thefts at the construction sites.

c. Four Suns Builders, Inc. incorporated the costs of the alarms systems into the

closing costs on the property.

In the Matter of the Protest of HSS and ICSS, page 11 of 26
d. There is insufficient evidence as to whether Four Suns Builders, Inc. actually

incorporated the security systems into the construction project, or removed the

systems upon completion of the project.

Procedural History

31. On August 31, 2006, the Department issued a Notice of Assessment, Letter ID

L1674614016, to HSS for $25,511.58 in gross receipts tax, and $9,459.96 in interest, for a total

gross receipts assessment of $34,972.54. HSS was assessed compensating tax of $2,163.20 and

$879.74 in interest. [Department C].

32. HSS does not protest the assessment of compensating tax in this matter.

33. On August 31, 2006, the Department issued a Notice of Assessment, Letter ID

L0774628608, to ICSS for $54,420.53 in gross receipts tax, and $20,346.19 in interest, for a total

gross receipts assessment of $74,766.72. [Department K].

34. On September 21, 2006 HSS and ICSS timely requested an extension of time to

file their protests. [Department Exhibits D & L].

35. On October 3, 2006, the Department granted HSS and ICSS an extension of time

to file protests. [Department Exhibits E & M].

36. On November 29, 2006, HSS and ICSS filed their respective protests to the

Department’s assessments. [Department Exhibit F & N].

37. On January 29, 2007, the Department acknowledged both HSS’ and ICSS’

protests. [Department Exhibit G & O].

38. On August 5, 2011, the Department filed its Requests for Hearing on the HSS and

ICSS protests.

In the Matter of the Protest of HSS and ICSS, page 12 of 26

39. On August 8, 2011, the Department’s Hearing Bureau sent notice of

administrative hearing, scheduling this matter for February 21, 2012.

40. On February 2, 2012, the Hearing Bureau sent amended notice of administrative

hearing, rescheduling this matter for May 8, 2012.

41. On May 4, 2012, the parties submitted a stipulated motion to consolidate HSS’

and ICSS’ protests given the common ownership of the companies, the common issues at protest,

and the common witnesses between the two proceedings.

42. On May 4, 2012, HSS and ICSS submitted an unopposed motion to continue the

May 8, 2012 protest hearing.

43. On May 7, 2012, the Hearing Bureau granted the stipulated motion to consolidate

the HSS and ICSS protest hearings.

44. On May 7, 2012, the Hearing Bureau continued the May 8, 2012 hearing and sent

notice of administrative hearing scheduling this matter for October 4, 2012.

45. On June 1, 2012, the Department’s protest bureau revised portions of the original

ICSS’ audit, made adjustments and/or abatements, and allowed some of ICSS’ previously

disallowed deductions. [JSF #20].

46. Reflecting the Department’s adjustments, as of the date of hearing, October 4,

2012, ICSS owed $37,531.43 in total gross receipts tax and accrued interest.

47. As of the date of hearing, October 4, 2012, HSS owed $51,139.63 in total gross

receipts tax, compensating tax, and respective accrued interest.

DISCUSSION

The main issue at protest is whether HSS and ICSS were entitled to an additional nine

and seven respective claimed deductions disallowed by the Department during the audit. In short

In the Matter of the Protest of HSS and ICSS, page 13 of 26
answer, HSS is entitled to one additional deduction and ICSS is entitled to two additional

claimed deductions. Otherwise, HSS and ICSS are liable for the remaining disallowed

deductions at issue in the protest.

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 establish that it was entitled to the claimed deductions during the sample audit period. See

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

case involves Taxpayer’s protest over disallowed claims for deductions. “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). 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).

Overview of Deduction, NTTCs, and Multistate Certificates

The Gross Receipts and Compensating Tax Act provides numerous deductions from gross

receipts for taxpayers who meet the statutory requirements set by the legislature. In order to qualify

for the claimed deductions, many of the deductions require a taxpayer to obtain a supporting NTTC.

Almost all of Taxpayer’s claimed deductions in this protest require a supporting NTTC.

NMSA 1978, Section 7-9-43 (2005) articulates the requirements for obtaining NTTCs:

All nontaxable transaction certificates...should be in the possession
of the seller or lessor for nontaxable transactions at the time the

In the Matter of the Protest of HSS and ICSS, page 14 of 26
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.

Regulation 3.2.201.8(A)(1) NMAC (05/31/01) further indicates that a taxpayer “should be in

possession of all (NTTCs) at the time the deductible transaction occurs.” While taxpayers “should”

have possession of required NTTCs at the time the return is due from the receipts at issue under the

statute, NMSA 1978, §7-9-43 (2005) gives taxpayers audited by the Department a second chance to

obtain the required NTTCs. See also Regulation 3.2.201.8(A)(2) NMAC (05/31/01).

Regardless of the reason for failing to obtain a requisite NTTC, taxpayers who rely on the

statute’s second chance provision run the risk of having their deductions disallowed if they are

unable to meet the 60-day deadline set by the legislature. The language of the statute is mandatory:

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). NMSA 1978, §7-9-43 (2005).

Under certain circumstances, the Department can accept a Multistate Tax Commission

Multi-jurisdiction Uniform Sales and Use Tax Certificate (“MTC certificate”) in lieu of NTTCs.

Under NMSA 1978, §7-9-43 (2005), the Department is authorized, through promulgation of

regulation, to accept as a valid NTTC “documents issued by other states or the multistate tax

commission to taxpayers not required to be registered in New Mexico.”

As directed by NMSA 1978, §7-9-43 (2011), the Department has in fact promulgated a

regulation regarding the acceptance of MTC certificates. Under Regulation 3.2.201.13 (A) NMAC

(3/15/10), the Department will accept a MTC certificate issued by another state or the multistate tax

commission “to a taxpayer not required to be registered in New Mexico” as equivalent to NTTCs
In the Matter of the Protest of HSS and ICSS, page 15 of 26
types issued in New Mexico for claimed deductions under NMSA 1978, Sections 7-9-46, 7-9-47,

and 7-9-75.

Application of Law to the Deductions at Issue.

a. Allowable Deductions.

In its proposed findings of fact, conclusions of law, and closing argument, the

Department rightfully conceded that HSS was entitled to one previously disallowed deduction

for its September 8, 2004 sale to T.C. Building and Realty, Inc. under NMSA 1978, Section 7-9-

52 (2000). In light of that concession, no further discussion of that deduction is necessary.

The Department also conceded in its proposed findings of fact, conclusions of law, and

closing argument, that ICSS was partially entitled to a previously disallowed deduction for its

sales to Northrop Grumman. Specifically, the Department conceded that the invoice totaling

$16,473.00, Department Exhibit Q.3, was a transaction in interstate commerce subject to a

deduction under NMSA 1978, §7-9-55 (1993).

The Department continues to challenge the claimed deduction as it relates to the Northrop

Grumman invoice totaling $13,934.00, Department Exhibit Q.2, because in addition to listing

Northrop Grumman’s Colorado Springs address, the invoice provides a service address in

Socorro, NM. However, given the testimony of Mr. Berniklau that the transaction represented in

Department Exhibit Q.2 involved the same sale of drop-shipped product from Dallas to Don

Diego Island without any connection to New Mexico, Taxpayer overcame the presumption of

correctness on the second invoice as well. The Department presented no countervailing evidence

to meet the shifted burden of correctness under MPC Ltd. Therefore, ICSS is also entitled to a

deduction under NMSA 1978, §7-9-55 (1993) of $13,934.00 for the other Northrop Grumman

invoice found at Department Exhibit Q.2.

In the Matter of the Protest of HSS and ICSS, page 16 of 26
Finally, ICSS is entitled to its claimed deduction for three invoices to Jaycor/L3 Services

under NMSA 1978, Section 7-9-48 (2000), sale of a service for resale. Under NMSA 1978, § 7-

9-48 (2000), a seller may claim a deduction for the sale of a service for resale if the buyer

delivers an applicable NTTC. In this case, ICSS timely provided the Department with a Type 5

NTTC, the correct type of NTTC for the sale of a service for resale. Based on the credible

testimony of Mr. Berniklau, ICSS sold Jaycor/L3 Services radio alarm monitoring equipment

and wireless monitoring services, which Jaycor/L3 Services in turn resold to the Federal

government in transactions subject to gross receipts tax. Thus, ICSS was entitled to its claimed

deductions on these three invoices.

b. Properly Disallowed HSS’ Claimed Deductions.

Aside from the deductions addressed in the previous discussion section, neither HSS nor

ICSS are entitled to any additional claimed deductions for the disputed invoices at issue in this

protest.

HSS failed to timely provide the requisite NTTC (or equivalent MTC Certificate) by the

statutory 60-day deadline for the claimed deductions for Powerline Technologies and Southwest

Fire and Sound. Regardless of the merits of the claimed Powerline Technologies and Southwest Fire

and Sound deductions, HSS was not entitled to those two claimed deductions under the mandatory

disallowed language of NMSA 1978, §7-9-43 (2005).

HSS claimed numerous deductions either under NMSA 1978, Section 7-9-51 (2001), sale

of construction material to persons engaged in the construction business, or under NMSA 1978,

§7-9-52 (2000), sale of construction services to persons engaged in the construction business.

NMSA 1978, §7-9-51 (2001) reads in pertinent part “(r)eceipts from selling construction

material may be deducted from gross receipts if the sale is made to a person engaged in the

In the Matter of the Protest of HSS and ICSS, page 17 of 26
construction business who delivers a nontaxable transaction certificate to the seller.” (italics for

emphasis). Construction materials is defined under that statute as “tangible personal property that

becomes or is intended to become an ingredient or component part of a construction project.”

NMSA 1978, §7-9-3.4 (B) (2003).

Similarly, under NMSA 1978, §7-9-52 (2000), “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… (italics for emphasis). NMSA 1978,

Section 7-9-3.4 (A) (2003) defines construction for gross receipt tax purposes as the “building,

altering, repairing or demolishing” any of the 18-listed items under the statute. Regulation

3.2.1.11(A) (1) NMAC (12/30/2003) limits construction services to the 18 items/activities listed

under NMSA 1978, Section 7-9-3.4 (A) (2003).

Under Regulation 3.2.1.11(A) (2) NMAC (12/30/2003), not all services related to a

construction project are considered construction services. As Regulation 3.2.1.11(A) (2) NMAC

(12/30/2003) indicates,

“Construction” does not include services that do not physically
change the land or physically create, change or demolish a building,
structure, or other facility as part of a construction project, even
though they may be related to a construction project. That fact that a
service may be a necessary prerequisite or ancillary to construction
or a construction project does not itself make the service a
construction service.

Finally, Regulation 3.2.1.11(A) (3) NMAC (12/30/2003) excludes leasing equipment from the

definition of construction.

In light of these statutory and regulatory requirements, there are two main problems with

almost all of HSS’ claimed deductions under either NMSA 1978, §7-9-51 (2001) or NMSA

1978, §7-9-52 (2000). First, HSS did not present sufficient evidence that Rowland Electric, Inc.,

In the Matter of the Protest of HSS and ICSS, page 18 of 26
Alarm Communication Svc., Alarm Control Technologies, Assured Protection Service, Guardian

Alarm Co., and Professional Security Consultants, Inc. are companies engaged in the

construction business based on the statutory definition of “construction.” Mr. Berniklau indicated

generally that everyone associated with the installation of security/alarm systems must be a

licensed general contractor by the New Mexico Regulation and Licensing Department. However,

that fact alone does not establish that those companies were performing any of the 18-

enumerated activities under the statutory definition of construction, NMSA 1978, Section 7-9-3.4

(A) (2003) at the time of the HSS’ invoices.

The second main problem is that even if those companies were engaged in the construction

business for the purposes of NMSA 1978, Section 7-9-3.4 (A) (2003) at the time of the HSS’

invoices, there is insufficient evidence that HSS was providing either a qualifying construction

service under NMSA 1978, §7-9-52 (2000) or tangible personal property that became an ingredient

or component part of the construction project under NMSA 1978, §7-9-51 (2001). By regulation

leasing and other ancillary services like “maintenance work, landscape upkeep, repair of equipment

or appliances, architectural, engineering, surveying, traffic safety or legal services” do not qualify as

construction services. Regulation 3.2.1.11(A) (2-3) NMAC (12/30/2003). Without more detailed

information about the nature of each transaction, HSS’ leasing of alarm systems and monitoring

services do not qualify as construction under Regulation 3.2.1.11(A) (2-3) NMAC (12/30/2003).

And with the exception of the allowable deduction to T.C. Building and Reality, Inc., there is little

evidence that any of the HSS’ security systems were an ingredient or component part of a

construction project under NMSA 1978, §7-9-3.4 (B) (2003).

Further, HSS cannot avail itself to the good-faith/safe harbor provision of NMSA 1978, §7-

9-43 (2005). Under NMSA 1978, §7-9-43 (2005), a seller who accepts a timely NTTC “in good

In the Matter of the Protest of HSS and ICSS, page 19 of 26
faith that the buyer… will employ the property… transferred in a nontaxable manner,” may rely on

that NTTC as “conclusive evidence” that the receipts from that transaction “are deductible.”

Regulation 3.2.201.14 NMAC (05/31/01) indicates that the statutes “good faith” provision will be

determined at the time of each transaction, and that a taxpayer claiming protection of an NTTC

“continues to be responsible that the goods delivered… are of the type covered by the certificate.”

By Regulation 3.2.201.14 NMAC (05/31/01) and by case law, a taxpayer may only rely on

an NTTC if the goods delivered during the transaction are the correct type given the NTTC issued

and the deduction at issue. See Gas Co. v. O'Cheskey, 94 N.M. 630, 632, 614 P.2d 547, 549 (Ct.

App. 1980) (issuance of NTTC does not transform an otherwise taxable transaction into a

nontaxable one); see also McKinley Ambulance Service v. Bureau of Revenue, 92 N.M. 599, 601-

602, 592 P.2d 515, 517-518 (Ct. App. 1979) (the "conclusive evidence" provision of § 7-9-43(A)

does not apply when there is no NTTC applicable to the transaction at issue); see also Arco

Materials, Inc. v. New Mexico Taxation and Revenue Department, 118 N.M. 12, 16, 878 P.2d

330, 334 (Ct. App.) (because Type 9 NTTCs no longer applied to the sale of construction

materials to government agencies, they could not be used to support the deductions claimed,

“regardless of what the NTTCs represented on their face”), rev’d on other grounds, 118 N.M.

647, 884 P.2d 803 (1994).

Here, without establishing that it was either selling qualifying construction materials or

providing a construction service, HSS had no basis to accept the NTTCs in good faith because the

transactions could never satisfy the statutory deductions absent such proof from HSS. The NTTCs

HSS did possess were insufficient to shield HSS from tax liability for an otherwise taxable

transaction. See Gas Co. v. O'Cheskey, 94 N.M. 630, 632, 614 P.2d 547, 549 (Ct. App. 1980).

In the Matter of the Protest of HSS and ICSS, page 20 of 26
c. Properly Disallowed ICSS’ Claimed Deductions.

ICSS challenged the Department’s decision to disallow the deduction for the $16,018.00

invoice to Marlin Leasing Company, for which ICSS provided a timely executed MTC

certificate. In this invoice, ICSS sold tangible personal property to Marlin Leasing Company,

which leased the property to LGM Travel Plaza. The nature of this transaction otherwise

qualifies for a deduction under NMSA 1978, Section 7-9-49 (1992), sale of tangible personal

property and licenses for leasing, assuming it is supported by a requisite NTTC. Marlin is a

financing company that purchases tangible personal property with a lump payment in order to

lease the tangible personal property to the end user. The problem is that by regulation, a taxpayer

may not use an MTC certificate as a substitute for an NTTC for any claimed deductions other

than deductions under NMSA 1978, Section 7-9-46, NMSA 1978, Section 7-9-47, and NMSA

1978, Section 7-9-75. See Regulation 3.2.201.13 NMAC (5/31/01). Since ICSS seeks a

deduction under NMSA 1978, Section 7-9-49 (1992), the MTC certificate is insufficient to

support the claimed deduction.

ICSS claimed a deduction for the sale and installation of alarm systems to Four Suns

Builders, Inc. under NMSA 1978, § 7-9-52 (2000). Four Suns Builders used the alarm systems to

monitor property under construction in order to avoid theft at construction sites. Four Suns Builders

then billed the costs of the alarm systems into the closing costs of the properties. This is an ancillary

service akin to traffic safety monitoring, which is excluded from the definition of construction under

Regulation 3.2.1.11(A) (2) NMAC (12/30/2003). Therefore, ICSS was not entitled to the claimed

deduction under NMSA 1978, § 7-9-52 (2000). The record is unclear whether Four Suns Builders

incorporated the alarms systems into the finished construction product (like T.C. Building and

Realty, Inc. did for the HSS’ alarm system) or simply removed them from the construction site.

In the Matter of the Protest of HSS and ICSS, page 21 of 26
Without this additional information, it is not possible to determine whether ICSS sold “construction

materials” under the statutory definition that might qualify for a deduction under NMSA 1978,

Section 7-9-51 (2001).

ICSS also claimed a deduction for the sale of monitoring services to the Bernalillo

County Sheriff’s Office. ICSS based its claim for a deduction on NMSA 1978, §7-9-54 (2003),

which allows a deduction for the sale tangible personal property to a governmental agency.

However, the language of NMSA 1978, §7-9-54 (2003) does not authorize a similar deduction

for the sale of a service to a governmental agency. In fact, under Regulation 3.212.9 (A) NMAC

(5/31/01), the sale of a service to a governmental agency is not deductible under the statute.

Therefore, the Department properly allowed the portion of the invoice related to the sale of the

security system, but properly disallowed the portion of the invoice related to the sale of a service.

ICSS claimed a deduction for its sale and installation of a fire and burglar alarm into a

building occupied by West Mesa Autocraft. West Mesa Autocraft leased the fire and burglar

alarm to the building’s owner (their landlord), who in turn leased it back to West Mesa

Autocraft. ICSS did timely possess a Type 5 NTTC, sale of a service for resale, related to this

invoice. However, that type of NTTC is not the correct type for the sale of tangible personal

property for leasing deduction covered by NMSA 1978, §7-9-42 (1992) and the Department

properly disallowed the claimed deduction during the audit. After the 60-day NTTC deadline,

ICSS presented the correct type of NTTC, a Type 2, to cover its transaction with West Mesa

Autocraft. However, under the mandatory disallowed language of NMSA 1978, §7-9-43 (2005), the

Department could not allow ICSS’s claimed deduction.

ICSS is not entitled to the good-faith/safe harbor protection under NMSA 1978, §7-9-43

(2005) for the Type 5 NTTC it timely received from West Mesa Autocraft because the NTTC it

In the Matter of the Protest of HSS and ICSS, page 22 of 26
received was the wrong type for the kind of transaction at issue. See Regulation 3.2.201.14

NMAC (05/31/01); See also Gas Co. v. O'Cheskey, 94 N.M. 630, 632, 614 P.2d 547, 549 (Ct. App.

1980); see also McKinley Ambulance Service v. Bureau of Revenue, 92 N.M. 599, 601-602, 592

P.2d 515, 517-518 (Ct. App. 1979; see also Arco Materials, Inc. v. New Mexico Taxation and

Revenue Department, 118 N.M. 12, 16, 878 P.2d 330, 334 (Ct. App.), rev’d on other grounds,

118 N.M. 647, 884 P.2d 803 (1994).

For the claimed Napa Auto Parts deduction, ICSS presented no evidence to show how it was

providing a sale of a service for resale to Napa under NMSA 1978, §7-9-48 (2000). There is no

information on the record as to what Napa did with the security system and monitoring services

ICSS provided to Napa. ICSS simply failed to meet its burden to establish it was entitled to the

claimed deductions and failed to overcome the presumption of correctness that attached to the

assessment.

CONCLUSIONS OF LAW

A. After the Department granted HSS an extension of time in which to file a protest,

HSS filed a timely, written protest to the gross receipts portion of assessment L1674614016.

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

B. After the Department granted ICSS an extension of time in which to file a protest,

ICSS filed a timely, written protest to the gross receipts portion of assessment L0774628608.

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

C. HSS was entitled to its claimed T.C. Building and Realty, Inc. deduction under

NMSA 1978, Section 7-9-52 (2000).

D. Under NMSA 1978, §7-9-43 (2005), HSS was not entitled to its claimed deductions

for Powerline Technologies and Southwest Fire and Sound deductions because it did not timely

In the Matter of the Protest of HSS and ICSS, page 23 of 26
present the requisite supporting NTTCs to the Department before the expiration of that statute’s 60-

day deadline.

E. HSS was not entitled to its claimed deductions for the Rowland Electric, Inc.,

Alarm Communication Svc., Alarm Control Technologies, Assured Protection Service, Guardian

Alarm Co., and Professional Security Consultants invoices for two legal reasons. First, there is

insufficient evidence that any of those companies are engaged in the construction business, as

required for a deduction under either NMSA 1978, §7-9-51 (2001) or NMSA 1978, Section 7-9-

52(A) (2000). Second, there is insufficient evidence that HSS was providing either a qualifying

construction service under NMSA 1978, §7-9-52 (2000) or tangible personal property that became

an ingredient or component part of the construction project under NMSA 1978, §7-9-51 (2001) to

any of these companies.

F. HSS is not entitled to NMSA 1978, §7-9-43 (2005)’s good-faith/safe harbor

protection for its disallowed deductions pursuant to Regulation 3.2.201.14 NMAC (05/31/01), Gas

Co. v. O'Cheskey, 94 N.M. 630, 632, 614 P.2d 547, 549 (Ct. App. 1980), McKinley Ambulance

Service v. Bureau of Revenue, 92 N.M. 599, 601-602, 592 P.2d 515, 517-518 (Ct. App. 1979), and

Arco Materials, Inc. v. New Mexico Taxation and Revenue Department, 118 N.M. 12, 16, 878

P.2d 330, 334 (Ct. App.), rev’d on other grounds, 118 N.M. 647, 884 P.2d 803 (1994).

G. ICSS was entitled to deduct both Northrop Grumman invoices pursuant to NMSA

1978, §7-9-55 (1993).

H. ICSS was entitled to its claimed deductions for the three Jaycor/L3 Services

pursuant to NMSA 1978, § 7-9-48 (2000).

In the Matter of the Protest of HSS and ICSS, page 24 of 26
I. ICSS was not entitled to its claimed deduction for the Marlin Leasing Company

invoice under NMSA 1978, §7-9-49 (1992) because a MTC certificate is not an adequate substitute

for an NTTC under that specific deduction. See Regulation 3.2.201.13 NMAC (5/31/01).

J. ICSS was not entitled to its claimed deduction for the Four Suns Builders, Inc.

invoices under NMSA 1978, §7-9-52 (2000) because it was providing an ancillary service outside

of the definition of construction under Regulation 3.2.1.11 (A) (2) NMAC (12/30/2003). Further,

there is insufficient evidence that ICSS qualified for this deduction under NMSA 1978, §7-9-51

(2001). See Wing Pawn Shop v. Taxation and Revenue Department, 111 N.M. 735, 740, 809 P.2d

649, 654 (Ct. App. 1991).

K. ICSS was not entitled to a deduction under NMSA 1978, §7-9-54 (2003) for its

sale of a service to the Bernalillo County Sheriff’s Office. See Regulation 3.212.9 (A) NMAC

(5/31/01).

L. ICSS did not timely possess the correct type of NTTC necessary to support its

claimed deduction under NMSA 1978, §7-9-42 (1992) for the West Mesa Autocraft invoices. A

Type 5 NTTC, service for resale, is not the appropriate NTTC to support a deduction under

NMSA 1978, Section 7-9-49 (1992), sale of tangible personal property for leasing. Under NMSA

1978, §7-9-43 (2005), the Department could not accept the correct NTTC that ICSS presented after

the expiration of the 60-day deadline to support the West Mesa deduction.

M. ICSS presented insufficient evidence that it was providing a sale of a service for

resale to Napa Auto Parts and therefore was not entitled to the claimed deduction under NMSA

1978, §7-9-48 (2000). See Wing Pawn Shop v. Taxation and Revenue Department, 111 N.M. 735,

740, 809 P.2d 649, 654 (Ct. App. 1991).

In the Matter of the Protest of HSS and ICSS, page 25 of 26
For the foregoing reasons, the HSS’ and ICSS' protests ARE GRANTED IN PART AND

DENIED IN PART. The Department is ordered to allow HSS’ claimed T.C. Building & Realty,

Inc. deduction, and recalculate that assessment accordingly. HSS is then ordered to pay the newly

calculated assessment and any accrued interest, as required under NMSA 1978, §7-1-67 (2007).

The Department is ordered to allow ICSS’ claimed deductions for both Northrop Grumman

invoices and Jaycor/L3 Services invoices, and recalculate that assessment accordingly. ICSS is

then ordered to pay the newly calculated assessment and any accrued interest, as required under

NMSA 1978, §7-1-67 (2007).

DATED: December 31, 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 HSS and ICSS, page 26 of 26