Could vehicle washers deduct receipts when their truck-rental-company customer gave them a timely service-resale NTTC but withheld its customer invoices?

Plain-English summary

James Otero and Tanja Ford owed no gross receipts tax on their vehicle-washing receipts because they timely held a properly executed NTTC for services sold for resale and accepted it in good faith. The Department therefore had to abate both assessments, including penalty and interest.

The taxpayers operated a vehicle-washing service in 2005 and 2006. A truck-rental company hired them to wash trucks too large for its own wash bays. The taxpayers knew that the company offered vehicle washing to its customers and believed it charged gross receipts tax when reselling their work.

The NTTC was conclusive evidence

The buyer gave the taxpayers an NTTC for resale of services. There was no dispute that it was timely, properly executed, the correct type, and sufficient to cover all receipts in the assessments.

Section 7-9-43 made a properly executed NTTC conclusive evidence that the seller's receipts were deductible when accepted in good faith. The hearing officer found the taxpayers credible and concluded that they believed the buyer was reselling their services subject to gross receipts tax.

That evidence overcame the assessments' presumption of correctness and shifted the burden to the Department.

The sellers did not need the buyer's customer invoices

An auditor had told the taxpayers that the assessments would be abated if they obtained one of the buyer's invoices showing a separately stated, taxable resale. The buyer refused because its customer information was confidential, although it supplied an email indicating that particular vehicles had been contracted to receive washes.

The Department argued that the taxpayers needed more proof of the buyer's resale and tax treatment. The decision rejected that position. Proper issuance of the NTTC was the buyer's responsibility, and the Department—not the sellers—had statutory authority to demand the buyer's records.

The Department did not show that it contacted the buyer and did not rebut the taxpayers' credible evidence. If the buyer failed to resell the service subject to gross receipts tax, the cited regulation placed compensating-tax consequences on the buyer.

Entire assessments abated

The 2005 assessment consisted of $2,070.74 tax, $414.15 penalty, and $919.94 interest. The 2006 assessment consisted of $1,994.36 tax, $398.88 penalty, and $587.85 interest.

Because the receipts were deductible, no gross receipts tax was due and penalty and interest did not apply. The protest was granted and both assessments were fully abated.

What this means for you

Sellers accepting NTTCs

Confirm that a certificate is timely, properly completed, the correct type for the transaction, and accepted in good faith. Those facts were decisive here.

Service subcontractors

A service may qualify as a sale for resale when the buyer resells that same service in its ordinary business and the resale is subject to gross receipts tax.

Buyers issuing NTTCs

The decision placed responsibility for proper issuance on the buyer. A buyer that does not make the required taxable resale may face compensating tax.

Common questions

Q: Were vehicle-washing services normally taxable?
A: Yes. The taxpayers relied on the resale deduction supported by the NTTC.

Q: Was the certificate late, incomplete, or the wrong type?
A: No. The parties did not dispute its timing, execution, type, or coverage.

Q: Did the taxpayers have to obtain the buyer's confidential customer invoices?
A: No. Their valid NTTC was conclusive evidence, and the Department had authority to seek the buyer's records itself.

Q: What happened to the penalty and interest?
A: Both were abated because no gross receipts tax remained due.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-1-17 and 7-1-3 — assessment presumption and definition of tax
• NMSA 1978, § 7-9-43 and Regulation 3.2.201.8(D) NMAC — NTTC form, timing, good faith, and conclusive effect
• NMSA 1978, § 7-9-48 and Regulation 3.2.206.8(A) NMAC — services sold for resale
• NMSA 1978, § 7-1-11 — Department authority to require taxpayer records
• Regulation 3.2.1.18(A) NMAC — services performed in New Mexico

Cases cited:

• McKinley Ambulance Service v. Bureau of Revenue, 1979-NMCA-026
• MPC Ltd. v. New Mexico Taxation and Revenue Department, 2003-NMCA-021
• Proficient Food Co. v. New Mexico Taxation and Revenue Department, 1988-NMCA-042
• Leaco Rural Telephone Cooperative v. Bureau of Revenue, 1974-NMCA-076
• Continental Inn v. New Mexico Taxation and Revenue Department, 1992-NMCA-030
• Gas Co. v. O'Cheskey, 1980-NMCA-085

Source

• Listing: New Mexico Decisions & Orders
• Decision post: James Otero and Tanja Ford
• Decision PDF: D&O 13-31

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
JAMES OTERO AND TANJA FORD (f/k/a TANJA KERR) No. 13-31
TO ASSESSMENTS ISSUED UNDER
ID NOS. L1493654592 and L0390683712

DECISION AND ORDER

A formal hearing on the above-referenced protest was held September 19, 2013, before

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

represented by Ms. Susanne Roubidoux, Staff Attorney. Ms. Jennifer Carlisle, Auditor, also

appeared on behalf of the Department. Mr. James Otero and Ms. Tanja Ford (Taxpayers)

appeared for the hearing and represented themselves. Mr. Clay Kerr was also present during the

hearing at the Taxpayers’ request. The Hearing Officer took notice of all documents in the

administrative file. Based on the evidence and arguments presented, IT IS DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayers were engaged in business in New Mexico in 2005 and 2006. The

Taxpayers’ business was a vehicle washing service.

2. The Department determined that the Taxpayers were a non-filer on gross receipts tax for

2005 and 2006.

3. On May 25, 2010, the Department assessed the Taxpayers for gross receipts tax, penalty,

and interest for the tax period ending on December 31, 2005. The assessment was for

$2,070.74 tax, $414.15 penalty, and $919.94 interest.

4. On May 25, 2010, the Department assessed the Taxpayers for gross receipts tax, penalty,

and interest for the tax period ending on December 31, 2006. The assessment was for

$1,994.36 tax, $398.88 penalty, and $587.85 interest.

5. On June 16, 2010, the Taxpayers filed a formal protest letter.

6. The Taxpayers produced a properly executed and timely nontaxable transaction

certificate (NTTC) for services.

7. The buyer who issued the NTTC was a truck rental company.

8. The Taxpayers were aware that the buyer was also contracting with other truck

companies to provide services and maintenance.

9. One of the services that the buyer was selling was vehicle washing.

10. The buyer subcontracted the Taxpayers to provide vehicles washes on trucks that were

too large to fit into the buyer’s wash bays.

11. The Taxpayer accepted the NTTC in good faith.

12. The Taxpayers’ testimony was credible.

13. On September 5, 2013, the Department filed a Request for Hearing asking that the

Taxpayers’ protest be scheduled for a formal administrative hearing.

14. On September 5, 2013, the parties were sent a Notice of Hearing. On September 9, 2013,

the parties were sent an amended notice that corrected the time of the hearing.

DISCUSSION

The issue to be decided is whether the Taxpayers are liable for gross receipts tax, penalty,

and interest for the tax periods ending in December 2005 and December 2006 or whether the

Taxpayers were entitled to deduct their gross receipts based upon their acceptance of a NTTC.

Burden of Proof.

James Otero and Tanja Ford
Letter ID Nos. L1493654592 and L0390683712
page 2 of 8
Assessments by the Department are presumed to be correct. See NMSA 1978, § 7-1-17.

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

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

7-1-3. See also El Centro Villa Nursing Ctr. v. Taxation and Revenue Dep’t., 1989-NMCA-070,

108 N.M. 795. Therefore, the assessment issued to the Taxpayers is presumed to be correct, and

it is the Taxpayers’ burden to present evidence and legal argument to show that they are not

liable for the tax and are entitled to an abatement of penalty and interest.

Gross Receipts Tax.

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

See 3.2.1.18 (A) NMAC (2003). The Taxpayers admitted that they were engaged in a service

business performing vehicle washes in 2005 and 2006. There was no dispute that the Taxpayers’

services would ordinarily be subject to gross receipts tax. The Taxpayers argued that they were

entitled to deduct their gross receipts based on their acceptance of a NTTC. The Taxpayers

argued that since they were entitled to deduct their gross receipts, they did not owe any tax.

NTTCs.

A taxpayer engaged in business may be able to deduct certain gross receipts when they

are provided with NTTCs from buyers. See NMSA 1978, § 7-9-43 (2011). An NTTC must be

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

McKinley Ambulance Serv. v. Bureau of Revenue, 1979-NMCA-026, 92 N.M. 599 (noting that a

NTTC is conclusive evidence only if the NTTC applies to the transaction at issue). A taxpayer

should be in possession of NTTCs when the receipts from the transaction are due, but may also

produce NTTCs within a deadline set by the Department. See NMSA 1978, § 7-9-43. The seller

must accept the NTTC in good faith. See id. The Taxpayers produced a timely, properly

James Otero and Tanja Ford
Letter ID Nos. L1493654592 and L0390683712
page 3 of 8
executed NTTC for services. There was no dispute that the NTTC was of the right type and

properly executed. There was no dispute that the NTTC would cover the amount of gross

receipts taxes in the assessments.

NTTCs for services.

“Receipts from selling a service for resale may be deducted from 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 course of

business and the resale must be subject to the gross receipts tax[.]” NMSA 1978, § 7-9-48. The

Taxpayers were selling their vehicle washing service to the buyer, and the Taxpayers were aware

that the buyer was reselling their service to accommodate customers with vehicles that were too

large to fit into the buyer’s wash bays. The buyer delivered a NTTC to the Taxpayers. The

NTTC was of the proper type, for resale of services. The Taxpayers were in timely possession of

the NTTC. To the best of the Taxpayers’ knowledge, the buyer was charging gross receipts tax

on the resale of their services. Therefore, the Taxpayers accepted the NTTC in good faith. A

properly executed NTTC “shall be conclusive evidence, and the only material evidence, that the

proceeds from the transaction are deductible[.]” NMSA 1978, § 7-9-43 (A) (emphasis added).

The word “shall” indicates that the provision is mandatory, not discretionary. See State v. Lujan,

1977-NMSC-010, 90 N.M. 103, 105. Consequently, the Taxpayers have overcome the

presumption and have provided conclusive evidence that the transactions are deductible.

Burden shifted.

When a taxpayer presents evidence sufficient to rebut the presumption, the burden shifts

to the Department to show that the assessment is correct. See MPC Ltd. v. N.M. Taxation and

Revenue Dep’t., 2003-NMCA-021, ¶ 13, 133 N.M. 217 (filed October 2, 2002). The Department

James Otero and Tanja Ford
Letter ID Nos. L1493654592 and L0390683712
page 4 of 8
argued that the Taxpayers were responsible for providing documentation to show that the buyer

was satisfying its responsibilities in issuing the NTTC. The Department cited Regulation

3.2.206.9. See 3.2.206.9 NMAC (2000) (indicating that the requirement for separate billing on

pre-July 1, 2000 transactions can be satisfied by an attachment). The Department also cited

Ruling 401-00-1, which basically discusses the different types of NTTCs and gives examples of

when they may and may not be used. The Department essentially argued that the Taxpayers’

testimony was not sufficient and that the Taxpayers were required to provide additional proof

that the buyer was reselling their services, that the buyer was taxing those resells, and that the

buyer was separately stating the resells on its invoices.

An auditor with the Department told the Taxpayers that if they obtained an invoice from

the buyer showing the separately stated resale of their services subject to tax then the Department

would abate the assessments. The Taxpayers requested an invoice from the buyer on its resale of

their services, but the buyer refused to provide one because their customer information is kept

confidential. The Taxpayers produced an email from the buyer indicating that certain vehicles

were no longer contracted to receive washes and to cease washing those vehicles. The

Taxpayers argued that the email was sufficient documentation to show that the washing services

were separately contracted. The Taxpayers also argued that they had the NTTC, that they trusted

that the buyer was adhering to its responsibilities in issuing the NTTC, and that the Department

should go after the buyer if something was not done properly.

I found the Taxpayers to be credible. The Department did not challenge the evidence that

NTTC was properly executed and timely. The Department also failed to rebut the testimony that

the buyer was reselling the services subject to the gross receipts tax. The Department has the

authority to require buyers issuing NTTCs to provide the records and books on their accounts.

James Otero and Tanja Ford
Letter ID Nos. L1493654592 and L0390683712
page 5 of 8
See NMSA 1978, § 7-1-11 (granting the Department the authority to require production of

records from all taxpayers). There was no evidence that the Department even attempted to

contact the buyer on the issue. The Taxpayers did contact the buyer, but the buyer refused to

provide their records to the Taxpayers. Moreover, the Taxpayers’ argument coincides with the

clear language of the statutes and regulations.

A properly executed NTTC is conclusive proof that the seller is entitled to the

deductions. See NMSA 1978, § 7-9-43. “The buyer delivering the nontaxable transaction

certificate must resell the service in the ordinary course of business and the resale must be

subject to the gross receipts tax[.]” NMSA 1978, § 7-9-48 (emphasis added). The regulation

also indicates that the seller is entitled to deduct when a buyer has delivered a NTTC, and if the

buyer does not resell the service subject to tax, then the buyer “is subject to the compensating

tax[.]” 3.2.206.8 (A) NMAC (2001). Several cases also indicate that a properly executed NTTC

delivered to the seller is conclusive proof that the seller is entitled to the deductions. See

Proficient Food Co. v. N.M. Taxation and Revenue Dep’t., 1988-NMCA-042, 107 N.M. 392, 396

(holding that a properly executed NTTC is conclusive evidence that the transaction is

deductible). See also Leaco Rural Tel. Coop. v. Bureau of Revenue, 1974-NMCA-076, 86 N.M.

269 (holding that proper issuance of an NTTC is the responsibility of the buyer and that an

accepted NTTC is conclusive evidence that the deduction is allowed). See also Continental Inn

v. N.M. Taxation and Revenue Dep’t., 1992-NMCA-030, ¶ 12-13, 113 N.M. 588 (holding that

proper issuance of an NTTC is a matter between the buyer who issued it and the Department, and

that a timely delivery of an NTTC by a buyer conveys that the seller is entitled to deduction).

See also Gas Co. v. O’Cheskey, 1980-NMCA-085, ¶ 12, 94 N.M. 630 (indicating that when a

James Otero and Tanja Ford
Letter ID Nos. L1493654592 and L0390683712
page 6 of 8
seller accepts a NTTC in good faith, the burden of the tax shifts to the buyer who issued the

NTTC, even if the buyer wrongfully issued it).

CONCLUSIONS OF LAW

1. The Taxpayers filed a timely written protest to the Notice of Assessment of 2005

and 2006 gross receipts taxes issued under respective Letter ID numbers L1493654592 and

L0390683712, and jurisdiction lies over the parties and the subject matter of this protest.

2. The Taxpayers had a properly executed and timely NTTC for the sale of their

services and believed that the buyer was reselling their services subject to the gross receipts tax.

The Taxpayers were entitled to deductions for 2005 and 2006.

3. The Taxpayers successfully rebutted the presumption of correctness as an NTTC is

conclusive evidence, and the Department failed to establish that the assessments were correct.

4. As the Taxpayers were entitled to deduct the gross receipts, they owed no gross

receipts taxes. Therefore, penalty and interest do not apply.

For the foregoing reasons, the Taxpayers' protest is GRANTED and the assessments are

hereby ABATED.

DATED: October 28, 2013.

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

NOTICE OF RIGHT TO APPEAL

James Otero and Tanja Ford
Letter ID Nos. L1493654592 and L0390683712
page 7 of 8
Pursuant to NMSA 1978, § 7-1-25, the parties have the right to appeal this decision by

filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the date

shown above. See Rule 12-601 NMRA. If an appeal is not filed within 30 days, this Decision

and Order will become final. A copy of the Notice of Appeal should be mailed to John Griego,

P. O. Box 630, Santa Fe, New Mexico 87504-0630. Mr. Griego may be contacted at 505-827-

0466.

CERTIFICATE OF SERVICE

I hereby certify that I mailed the foregoing Order to the parties listed below this _ day of
___, 20__ in the following manner:

First Class Mail Interoffice Mail

James Otero Susanne Roubidoux
6 King Court Taxation and Revenue Department, Legal
Los Lunas, NM 87031-7195 1100 S. St. Francis
Santa Fe, NM 87504
And

Tanja Ford
40 Lopez Loop
Belen, NM 87002

James Otero and Tanja Ford
Letter ID Nos. L1493654592 and L0390683712
page 8 of 8