Could an electrical contractor rely on the wrong type of NTTC when it accepted the completed certificate on time and in good faith for otherwise deductible construction work?

Plain-English summary

Rio Grande Electric's good-faith acceptance of the wrong NTTC type still protected $23,857.61 of otherwise deductible electrical-contracting receipts. But another certificate failed because the company could not connect it to any specific invoices or deposits.

Rio Grande installed wiring, lighting, telephone lines, wall plugs, and related electrical components. The 2004-2006 audit originally assessed $21,177.32 in tax, $2,117.74 in penalty, and $7,369.92 in interest.

Before and during the hearing process, the Department allowed many deductions. Immediately before the hearing, it agreed to deduct another $30,359.05 of receipts from Elite Custom Builders, State Farm Insurance, and GBY Construction, reducing the assessment by $2,759.45.

Only two customer groups remained in dispute: President Homes and Associated Home.

President Homes: good-faith safe harbor applied

President Homes hired Rio Grande to install electrical components while refurbishing manufactured homes for resale. Rio Grande presented seven invoices totaling $23,857.61 and a timely Type 2 NTTC.

The Department agreed that:

• Rio Grande accepted the certificate in good faith;
• it was completed and signed on a Department form; and
• the transactions would have qualified for a deduction if supported by the correct NTTC type.

Section 7-9-43(A) made a timely, properly executed certificate accepted in good faith conclusive evidence for the seller. Applying Leaco, the hearing officer treated “properly executed” as filled out, signed, and completed—not necessarily the correct numbered type.

Because the underlying work was otherwise deductible, the buyer's issuance of the wrong type was a matter between the buyer and the Department. Denying safe harbor whenever the type was wrong would make the statutory good-faith protection meaningless.

Associated Home: the certificate could not be tied to receipts

Associated Home, doing business as Enchantment RV, gave Rio Grande a timely Type 5 NTTC that the company accepted in good faith. The same legal safe-harbor theory likely could have applied.

The evidentiary problem was different. Rio Grande supplied no specific Associated Home invoices, and the audit records listed no deposits under Associated Home or Enchantment RV. Its representative said Shannon and Pauline Curry operated the business, but Rio Grande itself did not testify and the registration record did not establish that connection.

Without admissible, competent evidence linking particular receipts to the certificate, Rio Grande did not carry its burden for the claimed $25,800 deduction.

Delay and denial of a continuance caused no proven prejudice

The protest remained unresolved for years, but Rio Grande had been asked repeatedly for invoices and had opportunities to collect documents while Associated Home was still operating. The Hearings Bureau gave about five weeks' notice and denied a continuance requested five days before the hearing.

The decision found adequate notice and an opportunity to be heard. More time would not have cured the absence of records from a business that had already closed.

Result: protest granted in part and denied in part. The Department had to allow the $23,857.61 President Homes deduction and abate the related tax, penalty, and interest. The decision did not calculate the final remaining liability after that additional abatement.

What this means for you

Sellers accepting NTTCs

Timeliness, completion, and good faith can matter independently from the certificate type when the underlying transaction is otherwise deductible. Preserve evidence showing all three.

Contractors claiming customer-based deductions

A valid certificate still must be connected to identifiable receipts. Keep invoices, deposit records, customer registrations, and transaction-level cross-references.

Businesses in long-running protests

Continue preserving and producing records during the delay. The age of the case did not shift the burden of substantiating deductions.

Common questions

Q: Was the Type 2 NTTC the correct type for President Homes?
A: No. But it was timely, completed, accepted in good faith, and related to otherwise deductible transactions, so the safe harbor applied.

Q: Why didn't Associated Home receive the same treatment?
A: Rio Grande could not prove which receipts belonged to Associated Home or connect the certificate to specific transactions.

Q: How much additional deduction did the decision allow?
A: $23,857.61 for President Homes receipts.

Q: Did the hearing officer calculate the resulting tax reduction?
A: No. The Department was directed to abate the corresponding tax, penalty, and interest.

Q: Did the years of delay invalidate the assessment?
A: No. The decision found no proven prejudice from the delay or the denied continuance.

Citations and references

Statutes and regulation:

• NMSA 1978, § 7-1-17(C) — presumption of assessment correctness
• NMSA 1978, §§ 7-9-4, 7-9-3.3, and 7-9-5 — gross receipts tax and taxable-receipts presumption
• NMSA 1978, §§ 7-9-51 and 7-9-52 — construction materials and services deductions
• NMSA 1978, § 7-9-43(A) — good-faith NTTC safe harbor
• NMSA 1978, § 7-1-24(D) and Regulation 3.1.8.9 NMAC — hearing scheduling and continuances

Cases cited:

• Leaco Rural Telephone Cooperative v. Bureau of Revenue, 86 N.M. 629 (Ct. App. 1974)
• McKinley Ambulance Service v. Bureau of Revenue, 92 N.M. 599 (Ct. App. 1979)
• Gas Co. v. O'Cheskey, 94 N.M. 630 (Ct. App. 1980)
• Chavez v. City of Albuquerque, 1997-NMCA-111
• Wing Pawn Shop v. Taxation and Revenue Department, 111 N.M. 735 (Ct. App. 1991)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Rio Grande Electric Co. Inc.
• Decision PDF: D&O 13-16

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
RIO GRANDE ELECTRIC CO. INC. No. 13-16
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L1447715200

DECISION AND ORDER

A protest hearing occurred on the above captioned matter on May 7, 2013 before Brian

VanDenzen, Esq., Tax Hearing Officer, in Santa Fe. Mr. Richard Eisen, CPA, appeared

representing Rio Grande Electric Co. Inc., (“Taxpayer”). Staff Attorney Susanne Roubidoux

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

(“Department”). Protest Auditor Thomas Dillon appeared as a witness for the Department.

Taxpayer Exhibits #1, #8, and #9 were admitted into the record. Department Exhibits D, E1-5,

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

Administrative Exhibit Log. At the beginning of the hearing, the Department agreed to make

numerous abatements. After the hearing, on May 8, 2013, the Department submitted a filing

updating the alleged liabilities in light of those last-minute, pre-hearing abatements. Based on the

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

FINDINGS OF FACT

1. On December 31, 2007, the Department assessed Taxpayer $21,177.32 in gross

receipts tax principal, $2,117.74 in penalty, and $7,369.92 in interest for a total assessment of

$30,664.98 for the reporting periods of January 31, 2004 through December 31, 2006. [Letter id.

no. L1447715200].

2. On January 29, 2008, Taxpayer protested the Department’s assessment.

3. On February 8, 2008, the Department acknowledged receipt of Taxpayer’s

protest.

4. In 2007, the Department selected Taxpayer for an audit of gross receipts tax

reporting periods January 31, 2004 through December 31, 2006. [Department Ex. J-5].

5. On February 22, 2007, the Department provided Notice of Audit to Taxpayer,

including notice that Taxpayer must present any necessary nontaxable transaction certificates

(“NTTCs or NTTC”) and other supporting documents to substantiate any claimed deductions

before expiration of 60-days on April 23, 2007. [Department Ex. J-5].

6. As a result of the audit, the Department disallowed numerous of Taxpayer’s

claimed deductions and issued the above-referenced assessment.

7. On December 31, 2008, Taxpayer paid $20,000.00 towards the assessed liability.

[Department Ex. D-1].

8. On November 19, 2009, the Department’s Linda Palmer, CPA, sent Taxpayer’s

representative a letter asking for detailed invoices for the receipts/deposits where the Department

had disallowed claimed deductions. [Department Ex. E.1].

9. On November 21, 2012, the Department’s Thomas J. Dillon, CPA, sent

Taxpayer’s representative a letter asking for detailed invoices for the receipts/deposits where the

Department had disallowed claimed deductions. [Department Ex. E.2].

10. On January 2, 2013, Mr. Dillon again sent Taxpayer’s representative a letter

asking for detailed invoices for the receipts/deposits where the Department had disallowed

claimed deductions. [Department Ex. E.3].

In the Matter of the Protest of Rio Grande Electric Co. Inc., page 2 of 18

11. On February 18, 2013, Mr. Dillon sent Taxpayer’s representative another letter

asking for detailed invoices for the receipts/deposits where the Department had disallowed

claimed deductions. Mr. Dillon also informed Taxpayer that the Department would be requesting

a hearing in this matter. [Department Ex. E.4].

12. On March 27, 2013, the Department filed a Request for Hearing in this matter.

13. On March 27, 2013, the Hearing Bureau sent Notice of Administrative Hearing,

scheduling the protest hearing in this matter on May 7, 2013.

14. Taxpayer filed a request for continuance in this matter on May 2, 2013.

15. On May 3, 2013, the Hearing Bureau issued an Order Denying Continuance.

16. During a pre-hearing conference with Taxpayer on the date of the hearing, the

Department agreed to make numerous abatements of gross receipts tax. [CD 5-7-13, 19:27-

19:48].

17. On May 8, 2013, the day after the hearing, the Department submitted a summary

of receipts (totaling $30,359.05) where it now agreed that Taxpayer was entitled to previously

disallowed deductions:

a. The December 2, 2005 and June 22, 2006, receipts from Elite Custom

Builders totaling $25,000.

b. The February 13, 2006 and March 9, 2006 receipts from State Farm

Insurance totaling $359.05.

c. The August 3, 2004 receipts from GBY Construction totaling $5000.00.

[Department’s May 8, 2013 filing, Ex. A-1].

18. After the hearing, the Department determined that the auditor had already allowed

$133,740.94 in claimed deductions for receipts from DRH Southwest Construction, B Jar

In the Matter of the Protest of Rio Grande Electric Co. Inc., page 3 of 18
Construction, and Miller Homes and therefore made no further abatement for those previously

substantiated deductible receipts. [Department’s May 8, 2013 filing, Ex. A-1].

19. As a result of these pre-hearing adjustments, the Department agreed to abate

$2,019.72 in gross receipts tax, $201.98 in penalty, and $537.75 in interest for a total abatement

of $2,759.45. [Department’s May 8, 2013 filing].

20. At hearing, Taxpayer only protested two series of disallowed deductions: those

receipts totaling $23,858.00 attributable to President Homes, Inc. (“President Homes”) and those

receipts totaling $25,800.00 attributable to Associated Home & RV Sales, Inc. (“Associated

Home”). [CD 5-7-13, 14:06-14:49].

21. Taxpayer is an electrical contractor that installs lighting fixtures, wiring,

telephone lines, wall plugs, etc. on behalf of customers. [CD 5-7-13, 37:59-38:16].

22. President Homes and Associated Home hired Taxpayer to retrofit homes or repair

damaged electrical items in homes that President Homes and Associated Home intended to resell

upon completion of the refurbishment. [CD 5-7-13, 38:11-38:37].

23. President Homes is a manufacturer or retailer that sells manufactured homes and

recreational vehicles. [CD 5-7-13, 16:53-17:14].

24. President Homes is not a construction contractor. [CD 5-7-13, 17:49-17:58].

25. For President Homes, Taxpayer claimed the following invoices/receipts totaling

$23,857.61 were deductible from gross receipts tax:

a. An October 3, 2005 invoice totaling $2,411.64 for electrical and lighting

on a heated 1,766 square-foot property. [Taxpayer Ex. #1.2].

b. A June 7, 2005 invoice totaling $4,956.64 for electrical and lighting on a

heated 3,382 square-foot property. [Taxpayer Ex. #1.3].

In the Matter of the Protest of Rio Grande Electric Co. Inc., page 4 of 18
c. A February 18, 2005 invoice totaling $4,438.08 for electrical and lighting

on a 3,301 square-foot property. [Taxpayer Ex. #1.4].

d. A March 30, 2005 invoice totaling $5,492.00 for electrical and lighting on

a 4,169 square foot property. [Taxpayer Ex. #1.5].

e. An April 22, 2005 invoice totaling $1,823.89 for electrical and lighting on

a heated 1,750 square foot property. [Taxpayer Ex. #1.6].

f. An October 14, 2005 invoice totaling $2,413.26 for electrical and lighting

on a heated 1,770 square foot property. [Taxpayer Ex. #1.7].

g. An October 20, 2005 invoice totaling $2,322.10 for electrical and lighting

on a heated 1,560 square-foot property. [Taxpayer Ex. #1.8].

26. Taxpayer timely received an executed Type 2 NTTC from President Homes on

May 18, 2005. [Taxpayer Ex. 1.1].

27. The Department stipulated that Taxpayer accepted the Type 2 NTTC from

President Homes in good faith. [CD 5-7-13, 18:46-19:25].

28. If Taxpayer had possessed the correct type of NTTC, the construction materials

and services Taxpayer provided in installing and selling electrical components to President

Homes otherwise would qualify for a recognized deduction. [CD 5-7-13, 47:46-48:23].

29. Associated Home is a retailer in the business of selling recreational vehicles. [CD

5-7-13, 17:15-17:29].

30. Associated Home is not a construction contractor. [CD 5-7-13, 17:49-17:58].

31. According to its CRS registration, Associated Home does business as

Enchantment RV. [Taxpayer Ex. #8.2].

In the Matter of the Protest of Rio Grande Electric Co. Inc., page 5 of 18

32. For Associated Home, Taxpayer did not present any specific invoices where

Taxpayer claimed a deduction.

33. There is not a single bank deposit referencing Associated Home or Enchantment

RV in the Department’s Computation of Gross Receipts per Audit. [Department Ex. J.16 –J.24].

34. Taxpayer’s representative Mr. Eisen testified that Taxpayer told him Shannon and

Pauline Curry operated Associated Home. [CD 5-7-13, 33:30-36:50].

35. There are two references to bank deposits from Shannon and Pauline Curry in the

Department’s Computation of Gross Receipts per Audit:

a. Shannon & Pauline Curry, June 22, 2005, $6,000. [Department Ex. J.19].

b. Shannon & Pauline Curry, September 26, 2005, $3,000. [Department Ex.

J.19].

36. There is insufficient, admissible, and competent evidence to establish that

Shannon and Pauline Curry are affiliated with Associated Home d/b/a Enchantment RV.

37. Taxpayer timely received an executed Type 5 NTTC from Associated Home with

an execution date of January 21, 2005. [Taxpayer Ex. #8.1].

38. The Department stipulated that Taxpayer accepted the Type 5 NTTC from

Associated Home in good faith. [CD 5-7-13, 18:46-19:25].

39. If Taxpayer had possessed the correct type of NTTC, the construction materials

and services Taxpayer provided in installing and selling electrical components to Associated

Home otherwise would qualify for a recognized deduction. [CD 5-7-13, 47:46-48:23].

40. Without specific invoices from Associated Home, Enchantment RV, or some

other proof such as Taxpayer testimony that Shannon & Pauline Curry are affiliated with

In the Matter of the Protest of Rio Grande Electric Co. Inc., page 6 of 18
Associated Home, Taxpayer did not establish which receipts might qualify for a deduction under

the Associated Home NTTC.

41. At the hearing, Taxpayer submitted a written argument into the record objecting

to the denial of the continuance. [CD 5-7-13, 04:28-10:40].

42. As of the May 7, 2013, including the Department’s pre-hearing abatements,

Taxpayer owed $19,157.60 in gross receipts tax, $1,915.76 in penalty, and $6,832.17 in interest

for a total of $27,905.53. Crediting Taxpayer’s May 6, 2011 $20,000.00 payment against this

outstanding amount, Taxpayer owed a total of $7,905.53 under the assessment as of May 7,

2013. [Department May 8, 2013 filing, Ex. A-2].

DISCUSSION

There are three issues in this protest. First, whether Taxpayer is entitled to the claimed

deductions for its receipts from President Homes. Second, whether Taxpayer is entitled to the

claimed deductions for its receipts from Associated Home. Finally, whether Taxpayer was

prejudiced by the delay in the protest proceedings and the denial of the continuance.

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

In the Matter of the Protest of Rio Grande Electric Co. Inc., page 7 of 18
Department, 111 N.M. 735, 740, 809 P.2d 649, 654 (Ct. App. 1991); See also TPL, Inc. v. N.M.

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, NTTCs, and Good Faith.

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’s receipts during the audit

period were presumed subject to gross receipts tax under NMSA 1978, Section 7-9-5 (2002).

For the relevant President Homes and Associated Home transactions in dispute, Taxpayer

was engaged in business as an electrician repairing and retrofitting manufactured homes for resale.

Taxpayer also sold President Homes and Associated Home light fixtures. Department witness

Protest Auditor Thomas Dillon testified that the receipts from the construction materials and

services Taxpayer provided and performed were potentially deductible. The Department conceded

that Taxpayer timely possessed NTTCs from both President Homes and Associated Home. The

Department further stipulated that Taxpayer accepted the NTTCs in good faith. However, the

Department argued that transactions in dispute were not deductible because the Type 2 NTTC

President Homes executed to Taxpayer and the Type 5 NTTC Associated Home executed to

In the Matter of the Protest of Rio Grande Electric Co. Inc., page 8 of 18
Taxpayer were not the correct types of NTTCs for construction materials and constructions services

deductions under NMSA 1978, Section 7-9-51 (2001) and NMSA 1978, Section 7-9-52 (2000).

NMSA 1978, §7-9-43(A) (2011) establishes a conclusive evidence, safe harbor protection

for taxpayers who accept a NTTC in good faith:

[w]hen the seller or lessor accepts a nontaxable transaction certificate within
the required time and in good faith that the buyer or lessee will employ the
property or service transferred in a nontaxable manner, the properly executed
nontaxable transaction certificate shall be conclusive evidence, and the only
material evidence, that the proceeds from the transaction are deductible from
the seller's or lessor's gross receipts.

In other words, the statute grants the seller of the service safe harbor from taxation when the seller

timely accepts a properly executed NTTC in good faith from the buyer.

In Leaco Rural Tel. Coop. v. Bureau of Revenue, 86 N.M. 629, 632, 526 P.2d 426, 429

(N.M. Ct. App. 1974), the New Mexico Court of Appeals considered what requirements must be

met “before an NTTC becomes conclusive evidence that proceeds of a transaction are deductible.”

While the Leaco Court of Appeals was considering NMSA 1978, §7-9-43(A) (2011)’s predecessor

statue, NMSA 1953, Section 72-16A-13(A), the good faith, safe harbor provision of both statutes is

substantially the same. In Leaco, a buyer had executed a NTTC to a seller for a transaction held to

be subject to tax. The Leaco court found that a seller-taxpayer must satisfy three statutory

requirements before good faith, conclusive evidence safe harbor protection attaches to the

transaction. See id. As the Leaco Court of Appeals expounded, those three “requirements are

timeliness of acceptance of the NTTC, good faith acceptance of the NTTC and a properly executed

NTTC.” id. By “properly executed” the Leaco Court of Appeals—relying on the Black’s Law

Dictionary—meant only that the NTTC forms were filled out and signed. See id. If these three

conditions are met, then the Leaco Court of Appeals found that the NTTC becomes the only

material and conclusive evidence establishing that the seller-taxpayer is entitled to the claimed

In the Matter of the Protest of Rio Grande Electric Co. Inc., page 9 of 18
deduction even when the buyer improperly issued the NTTC to the seller. See id; See also Rainbo

Baking Co. v. Commissioner of Revenue, 84 N.M. 303, 305 502 P.2d 406, 408 (N.M. Ct. App.

1972) (absent a claim of bad faith, some other issue of good faith, or a claim of improper execution

of the NTTC, a taxpayer’s presentation of the NTTC established that taxpayer’s claim with

conclusive evidence). The Leaco Court of Appeals found no relevance to the fact that the buyer had

improperly issued a NTTC to the seller by stating that was an issue between the Department and the

buyer. See Leaco at 632, 429.

While Leaco found no relevance to whether the buyer improperly issued a NTTC to the

seller, the Court of Appeals modified that stance somewhat when it found in McKinley Ambulance

Serv. v. Bureau of Revenue, 92 N.M. 599, 601, 592 P.2d 515, 517 (N.M. Ct. App. 1979) that the

good-faith, conclusive evidence provision did not protect a seller from taxation “unless the

certificate covered the receipts in question.” That is, since there was “no certificate applicable” for

the type of services that taxpayer provided, the McKinley Ambulance Serv. Court of Appeals upheld

the Department’s denial of the deduction. id. at 602, 58. Similarly (although perhaps in dicta), the

Court of Appeals in Gas Co. v. O'Cheskey, 94 N.M. 630, 632, 614 P.2d 547, 549 (N.M. Ct. App.

1980) stated that “[t]he issuance of a ‘Nontaxable Transaction Certificate’ does not operate to

transform an otherwise taxable transaction into a nontaxable transaction.” However, the Gas Co.

Court of Appeals expressly noted that Leaco remained an exception1. See Gas Co. at 632, 549.

Since Gas Co. was decided after McKinley Ambulance Serv., Gas Co.’s subsequent reaffirmation of

Leaco meant that Leaco remained good law even after McKinley Ambulance Serv. In Arco

Materials v. Taxation & Revenue Dep't, 118 N.M. 12, 15-16, 878 P.2d 330, 333-334 (N.M. Ct. App.

1994), rev’d on other grounds, 118 N.M. 647, 884 P.2d 803 (1994), the Court of Appeals cited

1
Although in practical effect, Leaco did exactly what Gas Co. sought later to prohibit: through its good faith
acceptance of an improperly executed NTTC, the seller in Leaco was able to convert a taxable transaction not
otherwise subject to any valid deduction into a nontaxable transaction.

In the Matter of the Protest of Rio Grande Electric Co. Inc., page 10 of 18
Regulation 3.2.201.15 NMAC (05/31/01) favorably in finding that a taxpayer was not protected by

its acceptance of an executed NTTC when a change in law rendered the executed NTTC invalid for

the transaction in question. See also Proficient Food Co. v. New Mexico Taxation & Revenue Dep't,

107 N.M. 392, 397, 758 P.2d 806, 811 (N.M. Ct. App. 1988) (taxpayer not entitled to a deduction

when the nontaxable transaction form presented was not in the NTTC form proscribed by the

Department).

Leaco and not McKinley Ambulance Serv., Arco, Proficient Food Co., or Gas Co. control

the outcome of this protest both because those other cases are distinguishable from the transactions

at issue in this protest and because NMSA 1978, §7-9-43(A) (2011) must be read to give full effect

to that statute’s good-faith, safe harbor provision. Based on the testimony of Mr. Dillon, the

Department does not dispute that Taxpayer was eligible for deduction for these transactions,

presumably under NMSA 1978, Section 7-9-51 (2001) and NMSA 1978, Section 7-9-52 (2000).

McKinley Ambulance Serv. is distinguishable from the facts of this protest because the fact that no

certificate could have covered the transaction (because that taxpayer’s services did not qualify for a

deduction) was an important part of the Court of Appeals finding in McKinley Ambulance Serv. See

id. at 602, 518. Unlike here, the Court of Appeals in McKinley Ambulance Serv. found the

transaction at issue in that case was taxable and not covered by the claimed deduction. See

McKinley Ambulance Serv. at 601, 517. This protest is not the McKinley Ambulance Serv. or Gas

Co. scenario where Taxpayer is attempting to convert a taxable transaction not covered by any

relevant deduction into a nontaxable transaction by virtue of NMSA 1978, §7-9-43(A) (2011)’s

good faith, conclusive evidence, safe harbor provision. Nor is this the Arco case, where a statutory

change rendered the executed NTTC invalid for the underlying transaction. Moreover, this is also

In the Matter of the Protest of Rio Grande Electric Co. Inc., page 11 of 18
not the Proficient Food Company case because all the NTTCs executed in this matter were on a

form proscribed by the Department.

The other reason McKinley Ambulance Serv., Arco, and Regulation 3.2.201.15 NMAC

(05/31/01) do not control the outcome of this protest has to do with giving full effect to NMSA

1978, §7-9-43 (A) (2011)’s good faith, conclusive evidence, safe harbor provision. Statutes are to be

interpreted in a manner to give the entire statute effect and not render portions of the statute

superfluous. See Regents of the Univ. of New Mexico v. New Mexico Fed'n of Teachers, 1998-

NMSC-20, ¶28, 125 N.M. 401, 411, 962 P.2d 1236, 1246 (N.M. 1998). If Taxpayer is not entitled

to the statute’s good-faith safe harbor protection merely because the buyers timely and properly

executed an incorrect type of NTTC to Taxpayer, then the safe-harbor protection of NMSA 1978,

§7-9-43 (A) (2011) would be superfluous. That is so because if the good faith safe harbor only

applied to instances where the buyer timely executed a proper type of NTTC to a seller-taxpayer for

a legitimately deductable transaction, a seller-taxpayer would have already qualified for the

deduction under the first portion of NMSA 1978, §7-9-43 (A) (2011) without ever having to

consider that statute’s safe harbor provision. In other words, there would be no purpose in creating a

good faith, safe harbor exception to the statute’s NTTC requirements if the only way a taxpayer

could ever qualify for the exception is by otherwise satisfying the statute’s primary NTTC

requirements. In simplest form, this principal is best stated as there is no meaningful exception to

the rule if the exception itself requires full compliance with the rule. Therefore, in order to give full

effect to NMSA 1978, §7-9-43 (A) (2011), the good-faith, safe harbor provision must be considered

for an otherwise nontaxable taxable transaction even though the buyers executed improper types of

NTTCs to Taxpayer.

In the Matter of the Protest of Rio Grande Electric Co. Inc., page 12 of 18
Applying Leaco to Taxpayer’s President Homes receipts, Taxpayer is entitled to the claimed

deductions on those receipts. Taxpayer timely accepted the Type 2 NTTC from President Homes,

satisfying the first part of the Leaco test. See Leaco at 632, 429. The Department stipulated that

Taxpayer accepted the Type 2 NTTC in good faith from President Homes, satisfying the second

prong of Leaco. See Leaco at 632, 429. The other factor under Leaco is whether there was a

properly executed NTTC. See Leaco at 632, 429. Again, by “proper execution”, the Leaco court

meant only that the NTTC was filled out, signed, and completed. See id. In this case, the Type 2

NTTC was completed and signed by President Homes in a form developed by the Department.

While President Homes’ executed an incorrect type of NTTC to support the transaction at issue,

under Leaco that is an issue between the Department and President Homes. See Leaco at 632, 429.

Taxpayer’s timely, good faith acceptance of the Type 2 NTTC for an otherwise deductible

transaction is conclusive evidence that Taxpayer is entitled to the deduction of President Homes’

receipts pursuant to NMSA 1978, §7-9-43 (A) (2011) and Leaco.

While the same good-faith, Leaco legal rationale would likely apply to Taxpayer’s

acceptance of the Type 5 NTTC from Associated Home, the problem is that Taxpayer did not

present sufficient evidence to establish which receipts were related to Associated Home. Unlike

President Homes, Taxpayer did not present actual invoices from Associated Home. There are no

deposits listed as disallowed in the audit from Associated Home d/b/a Enchantment RV.

Taxpayer’s Representative Mr. Eisen testified that Taxpayer told him that Shannon and

Pauline Curry were affiliated with Associated Home. However, Taxpayer did not appear and

testify to substantiate that claim at hearing. Associated Home’s CRS registration information

does not reference Shannon or Pauline Curry. While Associated Home apparently went out of

business in 2008, Taxpayer still could have appeared to testify directly on the alleged Curry

In the Matter of the Protest of Rio Grande Electric Co. Inc., page 13 of 18
connection or presented detailed Associated Home invoices that connected to the Curry deposits.

Without some other evidence, like specific invoices or the direct testimony of Taxpayer, hearsay

testimony is insufficient to establish that the deposited checks of Shannon and Pauline Curry had

some relation to the Associated Home NTTC. See Chavez v. City of Albuquerque, 1997-NMCA-

111, ¶4,124 N.M. 239, 241, 947 P.2d 1059, 1061 (N.M. Ct. App. 1997) (legal residuum rule

requires that an agency’s administrative decision be “supported by some evidence that would

admissible under the rules” of evidence). Ultimately, when claiming a deduction, Taxpayer has the

burden to substantiate that it is entitled to the claimed deduction. See Wing Pawn Shop at 740, 654;

See also TPL, Inc. at ¶9, 451, 478. By not producing evidence of which receipts were affiliated with

Associated Home, Taxpayer did not carry that burden to show Taxpayer was entitled to claimed

deductions under the Associated Home NTTC.

Timeliness, Delay in the Protest Process, and the Denial of the Continuance.

Taxpayer made two arguments broadly related to the timeliness and delay in the hearing

process. First, Taxpayer argues that the Department’s delay in bringing this protest to resolution

hampered Taxpayer’s ability to substantiate the Associated Home claimed deductions because

Associated Home went out of business in 2008 or 2009. Second, Taxpayer objected to the denial of

the continuance in this matter as unfair in light of the Department’s lengthy delay in addressing this

protest.

Even with the Department’s delay in addressing this protest, Taxpayer had opportunities to

obtain the necessary documentation from Associated Home before it went out of business. The

transactions at issue occurred in 2005 or 2006, a time when Taxpayer was still actively engaged in a

business relationship with Associated Home and could have probably obtained copies of invoices or

other documentation related to the transaction. While Associated Home may have gone of business

In the Matter of the Protest of Rio Grande Electric Co. Inc., page 14 of 18
in 2008 or 2009, the Department’s audit in this matter occurred in early 2007. On February 22,

2007, the Department notified Taxpayer that it had 60-days to obtain the relevant substantiation for

any claimed deductions. If Associated Home did not go out of business until 2008 or 2009, then the

entire audit (including the 60-day period for Taxpayer to gather substantiating evidence) occurred at

a time before Associated Home went out of business. Moreover, the assessments were issued on

December 31, 2007, possibly giving Taxpayer more time to obtain necessary documentation from

Associated Home before Associated Home went out of business in 2008 or 2009. Again, any

taxpayer seeking a deduction has the obligation to substantiate that deduction. See Wing Pawn Shop

at 740, 654; See also TPL, Inc. at ¶9, 451, 478. It is difficult to find any prejudice in the delay

where Taxpayer did not produce any documentation despite having had an obligation initially to

substantiate the deductions, had clear notice that he was required to substantiate the claimed

deductions as part of the audit process, and was assessed when Associated Homes was still in

business.

At the beginning of the hearing, Taxpayer filed a written objection to the Hearing Bureau’s

Order Denying Continuance, particularly in light of the Department’s delay in addressing

Taxpayer’s protest. Taxpayer believed that denial of the continuance was unreasonable.

The Department cited turn-over and a significant backlog in the protest office as the reason

for the delay. Although there was a significant delay, the Department sent Taxpayer four letters

requesting additional substantiation for the claimed deductions on November 19, 2009, on

November 21, 2012, on January 2, 2013, and on February 18, 2013. When the Department received

no additional information, it requested a hearing, just as it warned Taxpayer it would in the February

18, 2013 letter.

In the Matter of the Protest of Rio Grande Electric Co. Inc., page 15 of 18
The Hearing Bureau first learned of this matter upon the Department’s filing of a request for

hearing on March 27, 2013. That same day, in compliance with NMSA 1978, Section 7-1-24 (D)

(2003) and in recognition of the age of this protest, the Hearing Bureau made this a priority case and

promptly mailed Notice of Administrative Hearing, scheduling this matter for a protest hearing

more than five-weeks later on May 7, 2013. Five-days before the scheduled hearing, Taxpayer

moved to continue this matter so that Taxpayer could obtain documentation out of storage for the

hearing. Given the constraints of the Hearing Bureau’s docket, a forthcoming legislative change in

statute under NMSA 1978, §7-1-242 likely to constraint the docket further, and the five-day notice

of Taxpayer’s request for continuance, Taxpayer’s request for a continuance was denied. See

Regulation 3.1.8.9 NMAC (08/30/01) (granting Hearing Officer independent authority to avoid

delay in the proceeding and to rule on continuances).

In this case, Taxpayer had adequate notice of hearing and a reasonable opportunity to be

heard. See Matthew v. Eldridge, 424 U.S. 319 (1976) (“the fundamental requirement of due

process is the opportunity to be heard at a meaningful time and in a meaningful manner”); see

also Mills v. New Mexico State Bd. of Psychologist Exam'rs, 123 N.M. 421, 426 (N.M. 1997)

(“[p]rocedural due process requires notice and an opportunity to be heard…”). See also Cordova

v. Taxation & Revenue, Prop. Tax Div., 2005 NMCA 9, ¶22, 136 N.M. 713, 719 104 P.3d 1104,

1110 (N.M. Ct. App. 2004). Five-weeks is hardly an inadequate amount of notice to prepare for a

protest hearing. At the protest hearing, Taxpayer was represented by a CPA, had an opportunity to

present evidence, witness testimony, cross examine the Department’s witness, and make argument.

The only evidence that Taxpayer did not produce were the invoices related to Associated Home,

which Taxpayer also argued were now difficult to track down because Associated Home went out

2
2013 N.M. Laws, ch. 27, §7, codified at NMSA 1978, §7-1-24.1(A) (2013) (requiring setting of hearing within 90-
days of the protest).

In the Matter of the Protest of Rio Grande Electric Co. Inc., page 16 of 18
of business. A continuance would not have remedied the fact that Associated Home is now out of

business. Taxpayer was not prejudiced by the denial of the continuance.

In summary, Taxpayer is entitled to the claimed deduction for $23,857.61 in its President

Homes’ receipts and the Department should abate gross receipts tax, penalty, and interest

accordingly. However, because Taxpayer did not establish which receipts were related to the

Associated Home NTTC, Taxpayer is not entitled to the Associated Home claimed deductions.

Taxpayer also did not demonstrate prejudice for the delay in the protest process or for the denial of

the continuance. Taxpayer’s protest is granted in part and denied in part.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely, written protest to the assessment of gross receipts tax,

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

B. Taxpayer timely accepted a completed and executed Type 5 NTTC from President

Homes in good faith.

C. Taxpayer’s timely, good faith acceptance of an executed Type 5 NTTC is conclusive

evidence under NMSA 1978, §7-9-43(A) (2011) that Taxpayer was entitled to the claimed

deduction for the President Homes’ receipts. See Leaco Rural Tel. Coop. v. Bureau of Revenue, 86

N.M. 629, 632, 526 P.2d 426, 429 (N.M. Ct. App. 1974).

D. Taxpayer did not clearly demonstrate that it was entitled to any further deductions

under the Associated Home NTTC because it could not connect which other receipts were related to

the Associated Home NTTC with admissible, competent evidence. See Wing Pawn Shop at 740,

654; See also TPL, Inc. at ¶9, 451, 478; See also Chavez, ¶4, 241,1061.

For the foregoing reasons, the Taxpayer's protest IS GRANTED IN PART AND DENIED

IN PART. The Department shall allow an additional $23,857.61 in deductions for Taxpayer’s

In the Matter of the Protest of Rio Grande Electric Co. Inc., page 17 of 18
President Homes receipts and abate gross receipts tax, penalty, and interest accordingly. Otherwise,

Taxpayer shall pay any remaining liabilities under the assessment in this matter.

DATED: June 10, 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 Rio Grande Electric Co. Inc., page 18 of 18