Could a home-inspection subcontractor deduct services resold by WIN when WIN issued the Type 5 NTTC after the audit's 60-day deadline and said it had paid tax?

Plain-English summary

Alan Moya lost a service-resale deduction because WIN issued his Type 5 NTTC after the audit's mandatory 60-day deadline. WIN's payment of tax on its own customer receipts did not eliminate Moya's separate gross receipts tax obligation.

Moya worked exclusively for WIN Home Inspection during 2008 and 2009, performing home inspections as an independent subcontractor. WIN resold his services to its clients.

Because Moya was not an employee, his receipts were presumed taxable. Section 7-9-48 potentially allowed a service-for-resale deduction, but only when the buyer delivered the required NTTC.

The Type 5 NTTC arrived after the second-chance period

Moya did not hold an NTTC when the original returns were due. On June 25, 2012, the Department sent a limited-scope audit notice giving him 60 days—until August 24, 2012—to produce any required certificates.

He supplied none by the deadline. WIN executed a Type 5 NTTC on October 3, 2012 and wrote that it had not known about the requirement and would have issued the certificate during the service years if it had known.

Section 7-9-43 said deductions requiring NTTCs “shall be disallowed” when the seller did not possess them within 60 days of notice. The hearing officer found no discretion to accept WIN's late certificate, regardless of the reason.

WIN's tax payment did not make Moya's assessment duplicative

WIN also wrote that it had paid gross receipts tax for Moya's services. Moya argued that taxing him too was excessive double taxation.

The decision treated the two businesses as having different receipts: WIN received money from its clients for selling home inspections, while Moya received money from WIN for subcontracting. Without a valid deduction, each business's own receipts could be taxed.

Financial hardship likewise did not authorize abatement of a legally required assessment.

Penalty and interest remained

Moya was responsible for researching his own seller-side tax and documentation requirements. His lack of knowledge and failure to act during the audit notice period counted as negligence.

Interest was mandatory until the principal was paid.

Result: protest denied. As of the hearing, Moya owed $5,318.68 in tax, $1,063.73 in penalty, and $771.76 in interest, totaling $7,154.17.

What this means for you

Subcontractors whose services are resold

Obtain the correct NTTC from the reseller when the work begins. The reseller's own tax treatment does not replace your certificate requirement.

Taxpayers receiving a 60-day NTTC notice

Treat the deadline as absolute. Customer delay, lack of awareness, and later cooperation did not permit acceptance after expiration.

Small businesses facing hardship

Ask about payment arrangements separately. The decision held that inability to pay did not reduce the legal assessment itself.

Common questions

Q: Was Moya an employee of WIN?
A: No. He performed the inspections as a subcontractor and was engaged in business.

Q: Were his services resold?
A: Yes, but resale alone was insufficient without a timely NTTC.

Q: When was the certificate due and when was it issued?
A: It was due August 24, 2012 and issued October 3, 2012.

Q: Why wasn't WIN's tax payment enough?
A: WIN and Moya had separate receipts from separate business activities, and Moya lacked the certificate needed for his own deduction.

Q: What did Moya owe at the hearing?
A: $7,154.17, with interest continuing until principal was paid.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-9-4, 7-9-3.3, and 7-9-5 — gross receipts tax and taxable-receipts presumption
• NMSA 1978, § 7-9-17 and Regulation 3.2.105.7 NMAC — employee wages
• NMSA 1978, § 7-9-48 — service-for-resale deduction
• NMSA 1978, § 7-9-43 — NTTC possession deadline
• Regulation 3.1.6.14 NMAC — ability to pay
• NMSA 1978, §§ 7-1-67 and 7-1-69 and Regulations 3.1.11.10-.11 NMAC — interest and negligence penalty

Cases cited:

• House of Carpets v. Bureau of Revenue, 84 N.M. 747 (Ct. App. 1973)
• New Mexico Sheriffs & Police Association v. Bureau of Revenue, 85 N.M. 565 (Ct. App. 1973)
• Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16 (Ct. App. 1976)
• El Centro Villa Nursing Center v. Taxation and Revenue Department, 108 N.M. 795 (Ct. App. 1989)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Alan Moya
• Decision PDF: D&O 13-13

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
ALAN MOYA No. 13-13
TO ASSESSMENTS ISSUED UNDER LETTER
ID NO.’s L1220085056 & L0146343232

DECISION AND ORDER

A protest hearing occurred on the above captioned matter on May 16, 2013 before Brian

VanDenzen, Esq., Tax Hearing Officer, in Santa Fe. Mr. Alan R. Moya (“Taxpayer”) appeared

pro se. Chief Legal Counsel Nelson Goodin appeared representing the Taxation and Revenue

Department of the State of New Mexico (“Department”). Protest Auditor Milagros Bernardo

appeared as a witness for the Department. Taxpayer Exhibits #1-2 and Department Exhibits A

and C were admitted into the record. All exhibits are more thoroughly described in the

Administrative Exhibit Log. Based on the evidence and arguments presented, IT IS DECIDED

AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On September 20, 2012, the Department assessed Taxpayer $2,536.54 in gross

receipts tax principal, $507.30 in penalty, and $377.78 in interest for a total assessment of

$3,421.62 for the reporting period ending December 31, 2008. [Letter id. no. L0146343232].

2. On September 20, 2012, the Department assessed Taxpayer $2,782.14 in gross

receipts tax principal, $556.43 in penalty, and $287.46 in interest for a total assessment of

$3,626.03 for the reporting period ending December 31, 2009. [Letter id. no. L1220085056].

3. On November 7, 2012, Taxpayer filed a written request for a retroactive extension

in which to file a protest.

4. On November 7, 2012, Taxpayer filed a written protest to the assessments.

5. On November 27, 2012, the Department granted Taxpayer a retroactive extension

in which to file a protest and acknowledged receipt of Taxpayer’s protest as timely.

6. On February 8, 2013, the Department requested a hearing in this matter.

7. On February 8, 2013, the Hearing Bureau sent Notice of Administrative Hearing,

scheduling the protest hearing in this matter on May 16, 2013.

8. As of May 16, 2013, Taxpayer owed $2,536.54 in gross receipts tax principal,

$507.30 in penalty, and $428.58 in interest for the reporting period ending on December 31,

2008. [Department Ex. C].

2009. As of May 16, 2013, Taxpayer owed $2,782.14 in gross receipts tax principal,

$556.43 in penalty, and $343.18 in interest for the reporting period ending on December 31,

2009. [Department Ex. C].

2010. In 2008 and 2009, Taxpayer worked as subcontractor performing home

inspections exclusively for WIN Home inspection (“WIN”).

11. On June 25, 2012, the Department sent Taxpayer “Notice of Limited Scope Audit

Commencement.” [Department Ex. A].

12. The “Notice of Limited Scope Audit Commencement” informed Taxpayer that

Taxpayer had 60-days, until August 24, 2012, to produce any necessary nontaxable transaction

certificates (“NTTC or NTTCs”) to support Taxpayer’s claimed deductions.

13. Taxpayer did not possess or produce any NTTCs by the August 24, 2012, 60-day

deadline.

In the Matter of the Protest of Alan Moya, page 2 of 10

14. On October 3, 2012, after the 60-day deadline had expired, WIN executed a Type

5 NTTC to Taxpayer for Taxpayer’s subcontracting services. This Type 5 NTTC was untimely.

[Taxpayer Ex. 1].

15. On October 3, 2012, Bonnie Norris, co-owner of WIN, wrote the Department a

letter indicating that WIN had paid the gross receipts tax for Taxpayer’s services, that WIN was

unaware of the NTTC requirements, and that it would have issued the NTTC to Taxpayer at the

time the services were performed if it had been aware of the requirements. [Taxpayer Ex. 2].

DISCUSSION

The issue at protest is whether Taxpayer is entitled to a deduction of gross receipts from

his work as a subcontractor with WIN when Taxpayer did not receive the NTTC, and the NTTC

was not executed, until after the 60-day deadline. While Taxpayer stated he understood the need

for some sort of penalty for the delay in producing the NTTC, Taxpayer argued that imposing the

full assessment on Taxpayer when WIN had already paid the taxes was excessive and amounted

to double taxation.

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 deduction. See Archuleta v. O'Cheskey, 84 N.M.

428, 431, 504 P.2d 638, 641 (NM Ct. App. 1972). Moreover, “[w]here 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); See also TPL, Inc. v. N.M.

In the Matter of the Protest of Alan Moya, page 3 of 10
Taxation & Revenue Dep't, 2003 NMSC 7, ¶9, 133 N.M. 447, 451, 64 P.3d 474, 478 (N.M. 2002).

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, 2003 NMCA 21, ¶13, 133 N.M. 217, 220, 62 P.3d 308, 311 (N.M. Ct. App. 2002).

Gross Receipts Tax, the Deduction, and NTTCs.

For the privilege of engaging in business, New Mexico imposes a gross receipts tax on the

receipts of any person engaged in business. See NMSA 1978, Section 7-9-4 (2002). “Engaging in

business” is defined as “carrying on or causing to be carried on any activity with the purpose of

direct or indirect benefit.” NMSA 1978, Section 7-9-3.3 (2003). Under the Gross Receipts and

Compensating Tax Act, there is a statutory presumption that all receipts of a person engaged in

business are taxable. See NMSA 1978, Section 7-9-5 (2002).

Taxpayer suggested that since he only performed home inspection work for WIN, Taxpayer

was not engaged in business. However, Taxpayer acknowledged that he was performing home

inspection work as a subcontractor for WIN. There is no evidence that Taxpayer was an employee

of WIN. See NMSA 1978, Section 7-9-17 (exempting wages of employees from gross receipts tax);

See also Regulation 3.2.105.7 NMAC (5/15/01) (defining “employee”). Since Taxpayer worked as

a subcontractor rather than an employee, Taxpayer met the definition of engaged in business under

NMSA 1978, § 7-9-3.3 (2003). Therefore, Taxpayer’s receipts from performing services for WIN

are presumptively taxable under NMSA 1978, § 7-9-5 (2002).

The New Mexico Gross Receipts and Compensating Tax Act provides numerous deductions

of gross receipts tax. Taxpayer’s sale of home inspection services to WIN, whom in turn resold

Taxpayer’s home inspection service to its own clients, is potentially deductable from gross receipts

under NMSA 1978, Section 7-9-48 (2000). NMSA 1978, § 7-9-48 (2000) states that:

In the Matter of the Protest of Alan Moya, page 4 of 10
Receipts from selling a service for resale may be deducted from
gross receipts or governmental gross receipts if the sale is made to a
person who delivers a nontaxable transaction certificate to the seller.
The buyer delivering the nontaxable transaction certificate must
resell the service in the ordinary court of business and the resale must
be subject to the gross receipts tax....

Simply performing a service for resale, as the Taxpayer did in this instance as a subcontractor for

WIN, is not enough to satisfy the requirements of the deduction under NMSA 1978, § 7-9-48

(2000). The statute clearly and unambiguously conditions the deduction on a sale made to a person

who delivers a NTTC.

NMSA 1978, § 7-9-43 (2011) 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
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.

Under NMSA 1978, Section 7-9-43 (2011), Taxpayer had a statutory obligation at the time he

performed the services for WIN and filed his corresponding CRS returns in 2008 and 2009 to obtain

the relevant NTTC supporting the claim for a deduction. In this case, Taxpayer did not possess a

NTTC from WIN either at the time of the initial transaction or when Taxpayer’s tax returns for

2008 and 2009 gross receipts tax were due.

While taxpayers “should” have possession of required NTTCs at the time the return is due

from the receipts at issue, the statute gives taxpayers audited by the Department a second chance to

obtain these NTTCs. Taxpayers who rely on this provision run the risk of having their deductions

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

taxpayer cannot obtain a NTTC is irrelevant. The language of NMSA 1978, § 7-9-43 (2011) is

In the Matter of the Protest of Alan Moya, page 5 of 10
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). See Marbob Energy Corp. v. N.M.

Oil Conservation Comm'n, 2009 NMSC 013, ¶22, 146 N.M. 24, 32, 206 P.3d 135, 143 (N.M. 2009)

(use of the word “shall” in a statute indicates provision is mandatory absent clear indication to the

contrary).

On June 25, 2012, the Department sent Taxpayer Notice of Limited Scope Audit, including

express notice that Taxpayer had 60-days, until August 24, 2012, to obtain any NTTCs necessary to

support claimed deductions. This Department notice requesting supporting NTTCs within 60-days

is in accord with the second chance provision of NMSA 1978, §7-9-43 (2011). Only after the 60-

day deadline had passed did Taxpayer seek and receive the NTTC from WIN; the NTTC was

executed over a month after the 60-day deadline. Regardless of the reason for non-possession of a

required NTTC, NMSA 1978, §7-9-43 (2011), with its mandatory “shall be disallowed” language,

does not allow the Department any leniency to grant Taxpayer a deduction not supported by a

timely NTTC. Therefore, the Department was required to deny Taxpayer’s claim for a sale of a

service for resale deduction under NMSA 1978, § 7-9-48 (2000) and assess the full gross receipts

tax for 2008 and 2009.

Taxpayer argued that imposition of the full assessments against him when WIN had already

paid the gross receipts tax amounted to excessive double taxation. However, under the New Mexico

Gross Receipts Tax Act, the fact that WIN may have paid gross receipts tax on the home inspection

receipts does not necessarily alter the analysis of Taxpayer’s own gross receipts tax obligations. The

New Mexico Gross Receipts and Compensating Tax Act imposes a tax on all receipts of a business.

The focal point under the New Mexico Gross Receipts and Compensating Tax Act is not any one

In the Matter of the Protest of Alan Moya, page 6 of 10
transaction, but the receipts of all persons and companies engaged in business. Here, there are two

separate businesses liable for gross receipts tax: WIN had receipts from its sale of home inspection

service to its clients, and Taxpayer, as a separate business entity from WIN, had receipts for his

subcontracting services with WIN. Both WIN and Taxpayer, two separate businesses, had receipts

potentially subject to gross receipts tax liability. The receipts of each respective business, in absence

of an exemption or a deduction, were subject to gross receipts tax. See House of Carpets v. Bureau

of Revenue, 84 N.M. 747, 750-751, 507 P.2d 1078, 1081-1082 (N.M. Ct. App. 1973) (in a case

where no NTTC was executed, court found no double taxation on the sale of a service of resale

because each taxable transaction was for a different subject matter). See also New Mexico Sheriffs &

Police Ass'n v. Bureau of Revenue, 85 N.M. 565, 567 514 P.2d 616, 618 (N.M. Ct. App. 1973)

(finding no double taxation when a tax is imposed on the gross receipts of two separate businesses).

Taxpayer also argued the imposition of the full assessments against him was excessive and

created a burden on his finances. However, the assessed tax was the amount legally required in

absence of a deduction. Moreover, Regulation 3.1.6.14 NMAC (01/15/01) does not allow the

Department to abate otherwise legally required assessments based on Taxpayer’s ability to pay.

Interest.

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

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, Section 7-1-67 (2007) (italics for emphasis). 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 Marbob Energy Corp., ¶22, 32,

133. 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 Department has no discretion

In the Matter of the Protest of Alan Moya, page 7 of 10
under NMSA 1978, § 7-1-67 (2007) and must assess interest against Taxpayer from the time the

tax was due but not paid until such time as the tax is paid.

Penalty.

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)

As discussed above, 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. In instances where a

taxpayer might otherwise fall under the definition of civil negligence subject to penalty, NMSA

1978, § 7-1-69 (B) (2007) provides a limited exception: “No penalty shall be assessed against a

taxpayer if the failure to pay an amount of tax when due results from a mistake of law made in

good faith and on reasonable grounds.”

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.”

Inadvertent error meets the legal definition of “negligence” under the penalty statute. See El Centro

Villa Nursing Center v. Taxation and Revenue Department, 108 N.M. 795, 799, 779 P.2d 982, 986

(Ct. App. 1989).

In the Matter of the Protest of Alan Moya, page 8 of 10
While Taxpayer may not have been aware of the NTTC requirements in 2008 and 2009,

that lack of knowledge meets the definition of negligence under Regulation 3.1.11.10 (C) NMAC

(1/15/01) because it demonstrates “inattention” or “indifference.” Moreover, under New Mexico's

self-reporting tax system, every person is charged with the reasonable duty to ascertain the possible

tax consequences of his or her actions. See Tiffany Construction Co. v. Bureau of Revenue, 90

N.M. 16, 17, 558 P.2d 1155, 1156 (Ct. App. 1976), cert. denied, 90 N.M. 255, 561 P.2d 1348

(1977). Under Tiffany Construction Co., failure to do reasonable research into what the tax law

requires meets the definition of negligence. See id. The incidence of the gross receipts tax is on the

seller of the service—in this case Taxpayer—and it was the responsibility of Taxpayer not WIN to

determine whether there was sufficient documentation to support the claimed deductions.

Moreover, while it is certainly understandable that Taxpayer may have been busy at the

time of the Department’s Notice of Limited Scope Audit setting the 60-day NTTC deadline,

Taxpayer’s inaction in the face of that notice nevertheless meets the definition of negligence for

purposes of civil penalty under the statute. Under these facts, Taxpayer did not show that the

failure to pay gross receipts resulted from a good faith mistake of law on reasonable grounds under

NMSA 1978, § 7-1-69 (B) (2007). Taxpayer also did not establish any of the non-negligence

factors under Regulation 3.1.11.11 NMAC (01/15/01) that might allow the abatement of penalty.

Consequently, the Department must assess civil penalty under NMSA 1978, § 7-1-69 (2007).

CONCLUSIONS OF LAW

A. After the Department granted a retroactive extension pursuant to its authority under

NMSA 1978, Section 7-1-24 (B) (2003), Taxpayer filed a timely, written protest to the assessments.

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

In the Matter of the Protest of Alan Moya, page 9 of 10
B. Taxpayer is a person engaged in business under NMSA 1978, § 7-9-4 (2002). All

Taxpayer’s receipts are presumed subject to gross receipts tax under NMSA 1978, § 7-9-5 (2002).

C. Taxpayer did not possess the requisite NTTC to support the claimed deduction for

the sale of a service for resale under NMSA 1978, § 7-9-48 (2000) at the time the 2008 and 2009

CRS returns were due and did not possess the requisite NTTC within 60-days of the Department’s

Notice of Audit.

D. Under NMSA 1978, §7-9-43 (2011), without possession of a timely executed NTTC

at either the time of the filing of returns or within 60-days of notice of audit, the Department is not

allowed to grant and Taxpayer is not entitled to the claimed deduction.

E. Under NMSA 1978, § 7-1-67 (2007), Taxpayer is liable for accrued interest under

the assessments. Interest continues to accrue until the tax principal is satisfied.

F. Under Regulation 3.1.11.10 (C) NMAC (1/15/01), Taxpayer was negligent and

thus liable for civil penalty pursuant to NMSA 1978, § 7-1-69 (2007). See Tiffany Construction

Co. v. Bureau of Revenue, 90 N.M. 16, 17, 558 P.2d 1155, 1156 (Ct. App. 1976).

For the foregoing reasons, Taxpayer's protest IS DENIED. For tax year 2008, Taxpayer

owes $2,536.54 in gross receipts tax principal, $507.30 in penalty, and $428.58 in interest (as

calculated as of the date of hearing). For tax year 2009, Taxpayer owes $2,782.14 in gross

receipts tax, $556.43 in penalty, and $343.18 in interest (as calculated as of the date of hearing).

Under NMSA 1978, § 7-1-67 (2007), interest continues to accrue until tax principal is paid.

DATED: May 17, 2013.

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 Alan Moya, page 10 of 10