Could New Mexico assess extra weight-distance tax by comparing PC Miler with ProMiles and choosing whichever mileage was higher in each period?

Plain-English summary

New Mexico could not calculate JKL Transportation's weight-distance tax by comparing two legitimate mapping programs and always choosing the higher mileage. JKL's consistent PC Miler records were adequate, and the Department failed to show that software differences represented actual unreported travel.

JKL was a Phoenix freight carrier serving airlines. For every job, it entered origin and destination ZIP codes into PC Miler, which generated the route, itinerary, and miles by state. Those records fed the company's customer invoices, driver pay, and tax reporting.

The Department initially assessed $2,621.12 tax, $524.22 civil penalty, $182.04 interest, and $5,500.00 underreporting penalty, totaling $8,827.38. After JKL identified two mileage-credit errors in its protest, the Department revised the assessment to $5,502.78.

JKL used one consistent industry-standard method

PC Miler was the oldest and most widely accepted routing and mileage software in the transportation industry. The decision cited use by federal agencies, 98% of top motor carriers, and 96% of top North American freight firms.

JKL used it exclusively and supplied complete PC Miler records for the sampled vehicles. Because every trip began and ended outside New Mexico, the ZIP-to-ZIP routes captured its border-to-border New Mexico mileage.

Neither PC Miler nor the Department's ProMiles system measured actual odometer miles. Both generated map mileage from routing data, and legitimate differences existed between them.

The audit always selected the larger number

The auditor used JKL's reported PC Miler total when it exceeded ProMiles and used ProMiles whenever ProMiles was higher.

The record identified 11 truck-period examples where the Department accepted JKL's mileage because it was higher than its own program. But JKL never received an offset when ProMiles was lower; it remained stuck with the higher result from either system.

That methodology created an apparent 6.66710% variance without showing a real difference in miles traveled.

The decision said the Weight Distance Tax Act aimed to tax actual New Mexico travel, not maximize or minimize map mileage by selecting among programs. A consistent method allowed individual high and low mapping variances to offset toward a more accurate total.

Complete records defeated alternative estimation

JKL filed the Department-approved return and provided consistent trip mileage records. No statute, regulation, form, or instruction required actual mileage, a specific map, or a named software system.

Alternative estimation was available only when taxpayer records did not exist or were inadequate. The Department never established that JKL's PC Miler records were inadequate and itself relied on them whenever they produced higher mileage.

JKL therefore rebutted the assessment presumption. The Department did not carry the shifted burden to validate its mixed methodology.

Mileage accuracy was within the protest

The Department argued that JKL had challenged only penalties. But its protest requested credit for 30,438 miles, implicitly contesting audited mileage, and the Department itself made a mileage-related prehearing abatement.

The underreporting penalty also required proof that JKL reported fewer miles than actually traveled. Once the audit total failed, that prerequisite disappeared.

Finally, the Taxpayer Bill of Rights entitled JKL to abatement of an incorrectly or erroneously made assessment.

Result: protest GRANTED. The revised assessment—$595.12 tax, $303.17 civil penalty, $104.49 interest, and $4,500.00 underreporting penalty, totaling $5,502.78—was fully abated.

What this means for you

Trucking companies using mapping software

Use one defensible system consistently across routing, billing, driver pay, and tax. Preserve the underlying trip records and document why the method reasonably measures state mileage.

Businesses challenging an audit methodology

Show whether the agency applies its comparison symmetrically. A method that captures only upward differences while ignoring downward ones may not reliably measure the actual tax base.

Taxpayers with complete records

The Department may verify records, but alternative reconstruction authority depends on proving that the existing records are absent or inadequate.

Common questions

Q: Did the decision declare PC Miler always more accurate than ProMiles?
A: No. It treated both as credible and held that JKL's consistent use was more reliable than mixing them to choose only higher results.

Q: Did either program report actual odometer miles?
A: No. Both calculated map mileage from route data.

Q: Why did the Department sometimes use PC Miler?
A: It used JKL's reported number whenever PC Miler was higher than ProMiles.

Q: How much was ultimately abated?
A: The entire revised $5,502.78 assessment.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-15A-1 through 7-15A-8 and Regulation 3.12.9.9 NMAC — weight-distance tax, New Mexico mileage, and return form
• NMSA 1978, § 7-1-17(C) — assessment presumption and burden shifting
• NMSA 1978, § 7-1-11(D) and Regulation 3.1.5.8 NMAC — alternative methods when records are inadequate
• NMSA 1978, § 7-15A-16 — mileage-underreporting penalty
• NMSA 1978, §§ 7-1-24 and 7-1-4.2(I) — protest grounds and right to abatement of an incorrect assessment

Case cited:

• MPC Ltd. v. New Mexico Taxation and Revenue Department, 2003-NMCA-021 — burden shifts after taxpayer rebuts assessment presumption

Source

• Listing: New Mexico Decisions & Orders
• Decision post: JLK Transportation, LLC
• Decision PDF: D&O 14-05

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
JKL TRANSPORTATION, LLC No. 14-5
TO ASSESSMENTS ISSUED UNDER LETTER
ID NO. L0155042624

DECISION AND ORDER

A protest hearing occurred on the above captioned matter on January 7, 2014 before

Brian VanDenzen, Esq., Hearing Officer, in Santa Fe. Kevin Johnson, owner, appeared

representing JKL Transportation, LLC (“Taxpayer”). Staff Attorney Elena Morgan-Romero

appeared representing the State of New Mexico Taxation and Revenue Department

(“Department”). Protest Auditor Mary Griego appeared as a witness for the Department.

Taxpayer Exhibits 1-5, Department Exhibits D-G, and Administrative Notice Exhibits 1-2 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 January 26, 2012, the Department selected Taxpayer for a Weight Distance

Tax Audit for the reporting periods from January 1, 2009 through December 31, 2011.

[Department Ex. D, AN1.1].

2. During the audit, the Department determined that Taxpayer had a 6.66710%

variance between its reported mileage and the audited New Mexico miles. [Department Ex. D,

AN1.3].

3. Under letter id. #L1408947520, the Department assessed Taxpayer on November

9, 2012 for $2,621.12 in weight distance tax, $524.22 in civil penalty, $182.04 in interest, and

$5,500.00 in weight distance tax underreporting penalty.

4. On November 26, 2012, Taxpayer protested the Department’s assessment.

Taxpayer’s protest letter articulated two specific instances where it had not been provided credit

for previously paid and/or overpaid Weight Distance Tax. Taxpayer specifically asked that “fines

& penalties be waived and a credit for 30,438 miles be processed.”

5. The Department’s protest auditor Mary Griego was assigned Taxpayer’s case. Ms.

Griego reviewed Taxpayer’s protest letter, and made abatements to the assessment in light of

Taxpayer’s two reported mileage discrepancies. [01-07-14 CD 35:14-51].

6. Listing the original assessment date of November 9, 2012, under letter id. no.

L0155042624, the Department issued a revised assessment reflecting the abatements for $595.12

in weight distance tax, $303.17 in civil negligence penalty, $104.49 in interest, and $4,500.00 in

weight distance tax underreporting penalty. [01-07-14 CD 35:50-58].

7. Taxpayer is a company located in Phoenix, AZ that provides transportation freight

services to airline companies.

8. Upon receiving a job, Taxpayer uses a computer program called PC Miler to

generate a mileage log and itinerary, starting with the origin of the shipment zip code and ending

with the destination zip code1. The mileage log generates a miles traveled per state. The mileage

log generated by PC Miler serves as a foundation for Taxpayer’s integrated invoicing, payroll,

and tax reporting software systems.

1
While the start point and end point zip codes are not as accurate as a door-to-door routing mileage, since
Taxpayer’s shipments always started and ended in zip codes outside of New Mexico, PC Miler is reporting all
border-to-border New Mexico mileage.

In the Matter of the Protest of JKL Transportation, LLC, page 2 of 15

9. Taxpayer’s drivers are provided PC Miler’s route description and itinerary.

Taxpayer pays its drivers based on the PC Miler reported route mileage.

10. PC Miler is the oldest and most widely-accepted mileage and routing software

system in the transportation industry. PC Miler is used by the United States Department of

Defense, the United States General Services Division, the Federal Motor Carrier Safety

Administration, 98% of the top motor carriers, and 96% of the top freight transportation firms in

North America. [Taxpayer Ex. #2; Administrative Notice Ex. #1].

11. PC Miler is based on mapping and data information from Rand McNally. [01-07-

14 CD 53:50-54:20].

12. Taxpayer relies exclusively on PC Miler to generate mileage totals for customer

invoices, for payment of Taxpayer’s drivers, and for tax reporting purposes.

13. Taxpayer provided complete PC Miler mileage records for the sampled vehicles

during the audit period. [Department Ex. D, AN1.3; 01-07-14 CD 01:25:30-01:26:10].

14. Rather than relying on Taxpayer’s reported mileage obtained from PC Miler,

during the audit the Department also used mileage and routing data from a software system

called ProMiles to determine Taxpayer’s traveled New Mexico mileage. [Department Ex. D,

AN1.3].

15. ProMiles is also an accepted mileage and routing software system in the

transportation industry.

16. Neither Taxpayer’s records derived from PC Miler nor the Department’s use of

ProMiles determines the actual odometer mileage traveled in New Mexico, as both software

systems rely on mapping route data to generate a map mileage total.

In the Matter of the Protest of JKL Transportation, LLC, page 3 of 15

17. There are some variances between routing and reported mileage in some routes in

PC Miler and ProMiles. [Taxpayer Ex. #1; Department Ex. F].

18. During the hearing, all three sample trips discussed in detail showed a variance

between what PC Miler and ProMiles reported as total New Mexico traveled mileage. Two of the

three samples showed that ProMiles reported a higher mileage total than what PC Miler reported:

a. For Trip #2049, from Phoenix, AZ (with stop for gas in Gallup, NM), to

Bloomington, IL, and back to Phoenix, AZ (with stop for gas in Gallup, NM), PC

Miler and Taxpayer reported 746.5 miles traveled in New Mexico while ProMiler

reported 752 miles. [Taxpayer Ex. 3; Department Ex. D, F1.17].

b. For Trip #277, from Phoenix, AZ (with stop for gas in Albuquerque, NM), to

Wood Dale, IL, and back to Phoenix, AZ, ProMiler reported 751 miles traveled in

New Mexico. The information Taxpayer entered into PC Miler at hearing reported

940 miles. However, in the reporting period ending 3/31/09 for truck unit #102

encompassing when trip #277 occurred, the Department still used the ProMiles total

mileage because it was higher overall than Taxpayer’s reported mileage in the period

despite the variance of trip #277. [Taxpayer Ex. 4; Department Ex. D, F1.2].

c. For Trip #812, from Phoenix, AZ (with stop for gas in Lordsburg, NM), to

Kenosha, WI, and back to Phoenix, AZ (with stop for gas in Tucumcari, NM), PC

Miler and Taxpayer reported 814 miles traveled in New Mexico while ProMiler

reported 869 miles. [Taxpayer Ex. 5; Department Ex. D, F1.7].

19. As cited in the Audit Narrative, the auditor used the higher of the Taxpayer’s

reported mileage (which was derived from PC Miler), or the mileage report generated from

In the Matter of the Protest of JKL Transportation, LLC, page 4 of 15
ProMiles to determine the audited mileage total. [Department Ex. D, AN1.3; 01-07-14 CD

01:22:50-01:23:49].

20. In the instances where there was no difference in Taxpayer’s reported mileage and

the Department’s audited mileage by truck unit and reporting period, the auditor expressly noted

that she “accepted [Taxpayer’s reported] New Mexico weight distance mileage as audited

miles.” [Department Ex. D, F1.3-19; Department Ex. G; 01-07-14 CD 01:13:50-01:23:49].

These instances demonstrate that the Department’s audit methodology relied on picking the

higher of Taxpayer’s reported mileage or the mileage from ProMiles to determine the audited

mileage:

a. Truck Unit #9 for the reporting period ending 6/30/09, Taxpayer reported 9,714

total New Mexico miles, ProMiles reported 9,170 total New Mexico miles. The

Department adopted Taxpayer’s higher reported mileage rather than use the

ProMiles total for the audited miles. [Department Ex. D, F1.3].

b. Truck Unit #21 for the reporting period ending 6/30/09, Taxpayer reported 4,275

total New Mexico miles, ProMiles reported 4,244 total New Mexico miles. The

Department adopted Taxpayer’s higher reported mileage rather than use the

ProMiles total for the audited miles. [Department Ex. D, F1.4].

c. Truck Unit #20 for the reporting period ending 9/30/09, Taxpayer reported 10,430

total New Mexico miles, ProMiles reported 9,867 total New Mexico miles. The

Department adopted Taxpayer’s higher reported mileage rather than use the

ProMiles total for the audited miles. [Department Ex. D, F1.5].

d. Truck Unit #20 for the reporting period ending 12/31/09, Taxpayer reported 9,847

total New Mexico miles, ProMiles reported 9,841 total New Mexico miles. The

In the Matter of the Protest of JKL Transportation, LLC, page 5 of 15
Department adopted Taxpayer’s higher reported mileage rather than use the

ProMiles total for the audited miles. [Department Ex. D, F1.8].

e. Truck Unit #106 for the reporting period ending 3/31/10, Taxpayer reported 7,128

total New Mexico miles, ProMiles reported 7,074 total New Mexico miles. The

Department adopted Taxpayer’s higher reported mileage rather than use the

ProMiles total for the audited miles. [Department Ex. D, F1.9].

f. Truck Unit #104 for the reporting period ending 6/30/10, Taxpayer reported 1,502

total New Mexico miles, ProMiles reported 1,495 total New Mexico miles. The

Department adopted Taxpayer’s higher reported mileage rather than use the

ProMiles total for the audited miles. [Department Ex. D, F1.10].

g. Truck Unit #9 for the reporting period ending 12/31/10, Taxpayer reported 9,342

total New Mexico miles, ProMiles reported 9,017 total New Mexico miles. The

Department adopted Taxpayer’s higher reported mileage rather than use the

ProMiles total for the audited miles. [Department Ex. D, F1.12-13].

h. Truck Unit #102 for the reporting period ending 12/31/10, Taxpayer reported

6,288 total New Mexico miles, ProMiles reported 5,928 total New Mexico miles.

The Department adopted Taxpayer’s higher reported mileage rather than use the

ProMiles total for the audited miles. [Department Ex. D, F1.14-15].

i. Truck Unit #7 for the reporting period ending 6/30/11, Taxpayer reported 792

total New Mexico miles, ProMiles reported 705 total New Mexico miles. The

Department adopted Taxpayer’s higher reported mileage rather than use the

ProMiles total for the audited miles. [Department Ex. D, F1.17].

In the Matter of the Protest of JKL Transportation, LLC, page 6 of 15
j. Truck Unit #11 for the reporting period ending 6/30/11, Taxpayer reported 4,577

total New Mexico miles, ProMiles reported 4,117 total New Mexico miles. The

Department adopted Taxpayer’s higher reported mileage rather than use the

ProMiles total for the audited miles. [Department Ex. D, F1.17].

k. Truck Unit #21 for the reporting period ending 12/31/11, Taxpayer reported 5,726

total New Mexico miles, ProMiles reported 5,722 total New Mexico miles. The

Department adopted Taxpayer’s higher reported mileage rather than use the

ProMiles total for the audited miles. [Department Ex. D, F1.18-19].

21. Despite finding Taxpayer’s reported mileage derived from PC Miler more

accurate the eleven times it was higher than the ProMiles total mileage, in all other reporting

periods by specific truck number the Department used the ProMiles total mileage for the audited

miles because it was higher. [Department Ex. D, F1.1-19].

22. The discrepancy in mileage between what Taxpayer reported using one consistent

method of relying on PC Miler and what Department found in the audit is attributable to

variations in the competing software’s mileage reporting and the Department’s intermixing of

Taxpayer’s reported mileage from PC Miler and the mileage found in ProMiler, depending on

which was higher, rather than a real variance in miles traveled in New Mexico.

DISCUSSION

The Department audited Taxpayer under the Weight Distance Tax Act. As a result of that

audit, the Department found an apparent 6.66710% variance between Taxpayer’s reported

mileage and the Department’s audited mileage. The Department issued an assessment. Taxpayer

protested that assessment, asking that fines & penalties be waived and a credit for 30,438 miles

be granted. The Department made a prehearing abatement on the assessment. At hearing, it

In the Matter of the Protest of JKL Transportation, LLC, page 7 of 15
became clear that this matter fundamentally entails a dispute of reported traveled mileage

attributable to discrepancies in two valid software mapping programs and the audit methodology

rather than any real underreporting of traveled mileage in New Mexico.

Presumption of Correctness.

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.

See Archuleta v. O'Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428. 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.

Taxpayer Met the Presumption of Correctness for Weight Distance Tax Act Mileage Reporting.

The Weight Distance Tax Act imposes a tax per mile traveled within this state on the

owners of motor vehicles with a declared gross weight above 26,000 pounds. See NMSA 1978, §7-

15A-1 to 8 (1988). NMSA 1978, Section 7-15A-6 (A) (2004) establishes the base tax rates for all

registered vehicles based on the vehicles’ declared gross weight and on the mileage traveled on

state highways. Under NMSA 1978, Section 7-15A-8 (A) (1988), the total number of miles

traveled on New Mexico roads is the basis of computing Weight Distance Tax liability. The

owner of the vehicle must report to the Department total mileage traveled in New Mexico in the

manner required by the Department. See § 7-15A-8 (B). Regulation 3.12.9.9 NMAC (11/15/01)

requires that a taxpayer submit the weight distance tax return form provided and approved by the

Department. No other regulation specifies the logging method, the software, or mapping method

required for a taxpayer to calculate and report the total New Mexico mileage traveled during a

reporting period.

In the Matter of the Protest of JKL Transportation, LLC, page 8 of 15
Here, there was no dispute that Taxpayer completed the Weight Distance Tax return on an

approved Department form, as required by Regulation 3.12.9.9 NMAC (11/15/01). Taxpayer

reported its total New Mexico traveled mileage to the Department consistently using the trip

mileage reports generated from PC Miler. Taxpayer rebutted the presumption of correctness by

showing it relied entirely on the industry-standard PC Miler software to create trip routes, create

invoices, and report its New Mexico traveled mileage to New Mexico. PC Miler is the industry

standard reporting software used by the federal government, 98% of the top motor carriers, and 98%

of the top freight carriers. Taxpayer relied on the routing, mapping, and mileage information

generated by PC Miler to invoice clients, to pay its drivers, and to report its Weight Distance Tax

traveled mileage to New Mexico. In other words, Taxpayer always relied on PC Miler for all

mileage determinations. This evidence established that Taxpayer accurately reported its New

Mexico traveled mileage during the audit period and on the proper forms.

Once the burden shifted to the Department, the Department did not present sufficient

evidence to support the audit. There is no regulatory requirement specifying which method (such as

actual mileage, map mileage, which map is the standard map, etc.) a taxpayer must use to calculate

their total traveled mileage. The Department did not present any forms or instructions specifying

which mapping software must be used in reporting total traveled mileage. There is no basis to

conclude that Taxpayer’s reliance on PC Miler was improper or resulted in an inaccurate total

traveled mileage report.

Both PC Miler and ProMiles appear to be credible mapping programs, though PC Miler

appears to be used by a majority of the transportation industry. Neither PC Miler nor ProMiles is

reporting actual miles traveled, but rather reporting route map mileage derived from sophisticated

mapping systems (both of which incorporate GPS data). As the audit and the audit narrative makes

In the Matter of the Protest of JKL Transportation, LLC, page 9 of 15
clear, the Department had no issue with the reliability of PC Miler when Taxpayer’s reported

mileage, derived from PC Miler, exceeded the reported mileage from ProMiles.

While Taxpayer’s reported mileage was always based on the totals from PC Miler, the

Department in effect intermixed the mileage data from both programs depending on which one

reported a higher map mileage. The corollary to this is that the Department recognized in some

instances that ProMiles reported less mileage for a specific trip than Taxpayer reported using PC

Miler. But because the Department would then take Taxpayer’s higher reported mileage derived

from PC Miler rather than consistently adhere to the ProMiles’ lower reported map mileage,

Taxpayer never received any of the offset of the lower mileage reporting from ProMiles despite

being stuck under the Department’s methodology with the instances where ProMiles reported a

higher total. In other words, while Taxpayer reporting methodology was consistent, the

Department’s methodology always left Taxpayer stuck with the higher number from either program

even if the Department’s own preferred program showed a lower traveled mileage.

The point of the Weight Distance Tax Act is to ensure that taxpayers are paying a tax for

miles traveled in New Mexico, not to find either the highest possible or lowest possible map

mileage from competing software mapping programs. Neither taxpayers nor the Department are free

to pick and choose mileage from different mapping software in order to find the highest or the

lowest reported mileage number in an effort to artificially maximize or minimize tax liability. They

must both rely on a consistent methodology in order to report and find an accurate traveled mileage

total. In this case, Taxpayer relied exclusively on PC Miler at all times, while the Department relied

on whichever mapping software program generated the higher mileage total. Because Taxpayer

relied consistently on the same map mileage from PC Miler, any of that software’s higher or lower

variances in mileage would be offset to something much closer to actual traveled mileage than what

In the Matter of the Protest of JKL Transportation, LLC, page 10 of 15
the Department found at audit with its more inconsistent approach. In this circumstance, Taxpayer’s

credible reported mileage systematically derived from the industry-standard PC Miler is more

reliable than the Department’s audit that intermixed the two programs.

In the face of Taxpayer meeting the presumption of correctness given its consistent reliance

on the mileage totals from the industry-leading PC Miler, the Department did not reestablish the

accuracy of its audit and assessment. The audit paperwork clearly illustrates the consistency

problems with the Department’s audit approach. Finding of Fact #20 shows 11 instances where the

Department accepted Taxpayer’s higher reported mileage for a specific vehicle and reporting period

than what it found through its use of ProMiles. The Department argued these were illustrations of

PC Miler and ProMiles reaching the same mileage calculation. However, looking carefully at the

audit paperwork and the auditor’s footnote in each instance, these instances are not examples of

where PC Miler and ProMiles mileage totals matched but instances where the Department relied on

Taxpayer’s reported mileage from PC Milers because it was higher than what the Department found

using ProMiles. If Taxpayer’s consistently reported mileage derived from PC Miler was reliable

enough for the Department to accept in instances when it represented the higher mileage, then

Taxpayer’s total mileage figures derived from PC Miler over the entire audit were reliable.

During the hearing, Taxpayer and the Department carefully examined three specific trips,

trip #’s 2049, 277, and 812, using Taxpayer’s PC Miler software on his laptop. These samples are of

less weight than the 11 instances described under Finding of Fact #20 because the auditor ultimately

determined which mileage total to use based on the entire reporting period by truck unit’s mileage

total rather than on any one specific trip. Nevertheless, these sample trip reports again show that

Taxpayer’s consistent mileage reporting was more accurate than the Department’s mixed approach.

Two of the three trips (trip #’s 2049 and 812) illustrated that ProMiles returned higher mileage than

In the Matter of the Protest of JKL Transportation, LLC, page 11 of 15
what Taxpayer reported using PC Miler. In trip # 277, PC Miler returned a much higher mileage

than ProMiles, which the Department argued showed that Taxpayer’s software reporting variances

argument was not justified. The Department’s argument about trip #277 was not persuasive. The

audit cleared showed that on occasion, PC Miler returned a higher trip mileage than ProMiles; that’s

why the Department ultimately adopted Taxpayer’s higher mileage total in 11 separate reporting

periods. And trip #277 occurred in a reporting period where the total ProMiles mileage still

exceeded Taxpayer’s reported aggregate PC Miler mileage despite the odd mileage variance seen on

trip #277, causing the Department to use the ProMiles total mileage in that period. Rather than an

actual difference in traveled mileage, the mileage variance in software and the Department’s

inconsistent use of the software to pick the higher mileage total are more likely the cause of the

variance in this audit.

Taxpayer Had Adequate Records.

Taxpayer’s consistent reporting of mileage derived from PC Miler provided the Department

with adequate records to conduct its audit without relying on alternative methods to reconstruct

records. Under NMSA 1978, Section 7-1-11 (D) (2007), if a taxpayer’s records do not exist or are

insufficient to determine taxpayer’s tax liability, then the Department is authorized to use any

reasonable method, including industry information, to estimate a taxpayer’s tax liabilities. Similarly,

Regulation 3.1.5.8 NMAC (12/29/00) allows the Department to use alternative methods to

determine tax liability when a taxpayer’s records are inadequate. However, in this case, the

Department did not establish that Taxpayer’s records from PC Miler—the industry leader—were

inadequate to determine traveled mileage and required the Department to employ the alternative

ProMiles software. In fact, the Department relied on Taxpayer’s records when they reported higher

mileage than what the Department could find using ProMiles. While the Department certainly was

In the Matter of the Protest of JKL Transportation, LLC, page 12 of 15
free to verify the reported mileage using ProMiles, if the only difference between the reported

mileage is attributable to differences in the equally legitimate software mapping programs rather

than a variance in actual traveled mileage, there was no basis to use the alternative method. In

particular, an alternative method that always chooses the software program that reports the highest

mileage rather than consistently using the same software is not a reasonable or reliable alternative

method. Without establishing the inadequacy of Taxpayer’s, the Department could not rely on

Section 7-1-11 (D) or Regulation 3.1.5.8 NMAC to use alternative methods.

The Protest encompassed the accuracy of the audited miles and the software variance issue.

The Department argued in closing that the consideration of the variance in software reported

mileage and the accuracy of the audited miles total was beyond the scope of the protest. It is correct

that pro se Taxpayer only explicitly challenged the imposition of a Weight Distance Tax penalty

during its opening statement, and both the Department and the Hearing Officer initially focused on

the penalty issue at hearing. However, the hearing quickly evolved into a much broader

consideration of accuracy of the reported mileage and the discrepancies between the two software

programs. In fact, the Department on its own initiative proposed remanding/continuing the matter

while it researched whether the software mileage variances caused the mileage reporting

discrepancy, an issue that would only be relevant if the protest included the accuracy of the audited

mileage. Only after the Department had been granted a limited continuance to research the exact

question of the competing software mileage totals during the audit, did the Department argue that

the matter was outside the scope of Taxpayer’s protest.

There are three reasons why the audit’s mileage total determination was a proper

consideration at hearing. First, the audited mileage was an issue raised in Taxpayer’s protest letter.

The protest letter establishes the grounds of protest under NMSA 1978, Section 7-1-24 (2003).

In the Matter of the Protest of JKL Transportation, LLC, page 13 of 15
Taxpayer’s protest letter challenged the imposition of “fines & penalties” and asked for a credit of

30,438 miles. Implicit in asking for a credit of 30,438 is Taxpayer’s belief that the audit did not

properly calculate and credit Taxpayer’s traveled mileage during the audit period. In fact, the

Department acted on that protest letter to make a prehearing abatement related to the audit mileage

total, suggesting that even the Department believed the audited mileage was part of the protest

process. Therefore, the accuracy of the reported mileage and the Department’s determination at

audit of the traveled mileage was a proper subject of the protest hearing.

Secondly, the Weight Distance Tax penalty under NMSA 1978, Section 7-15A-16 (2009)

that Taxpayer challenged in its opening statement is predicated on a determination that the person

reported less mileage than actually traveled during the tax period. In this case, given the problems

with the audit’s total mileage determination, no such determination can be made. Without such a

determination, penalty is not appropriate under Section 7-15A-16.

Finally, the Taxpayer Bill of Rights, codified by NMSA 1978, Section 7-1-4.2 (I) (2003),

grants Taxpayer the right to an abatement of an assessment of taxes incorrectly or erroneously

made. Since the audited mileage total is not supported, the assessment is incorrect and must be

abated under Section 7-1-4.2 (I) of the Taxpayer Bill of Rights.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely, written protest to the assessment. Jurisdiction lies over the

parties and the subject matter of this protest.

B. By establishing that it relied on a consistent mileage reporting methodology based

on the industry leading PC Miler software, Taxpayer met the presumption of correctness and shifted

the burden back to the Department to establish the validity of the audit and the assessment. See

MPC Ltd. v. N.M. Taxation & Revenue Dep't, 2003 NMCA 21, ¶13, 133 N.M. 217.

In the Matter of the Protest of JKL Transportation, LLC, page 14 of 15
C. Since the difference in the total mileage traveled that Taxpayer reported and

Department found at audit is attributable to the variances between two legitimate mapping programs

and the Department’s method of always picking the higher map mileage between Taxpayer’s

reported mileage and ProMiles rather than an actual difference in traveled mileage, the Department

did not reestablish the validity of the audit or the assessment.

D. The Department had no basis to use alternative methods under Section 7-1-11 (D) or

Regulation 3.1.5.8 NMAC as a substitute for Taxpayer’s complete mileage traveled records derived

systematically from the industry-leading mapping software.

E. The accuracy of the Department’s determination of traveled miles during the audit

was an issue at protest in light of Taxpayer’s request for credit on 30,438 miles in the protest letter.

Moreover, under the Taxpayer Bill of Rights, NMSA 1978, Section 7-1-4.2 (I) (2003), Taxpayer

has a right to abatement of an incorrect assessment.

F. Weight Distance Tax Act underreporting penalty pursuant to NMSA 1978, Section

7-15A-16 (2009) is not supported because it cannot be determined that Taxpayer underreported its

total New Mexico mileage.

For the foregoing reasons, Taxpayer's protest IS GRANTED. The assessment is abated.

DATED: February 24, 2014.

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

In the Matter of the Protest of JKL Transportation, LLC, page 15 of 15