Could Plumbwest obtain more gross receipts tax deductions with NTTCs produced after the deadline or reopen a completed hearing to hire counsel?

Plain-English summary

Plumbwest Plumbing & Heating could not use additional NTTCs after the statutory deadline or reopen its completed hearing merely because the owner later wanted an attorney. The AHO upheld the remaining gross receipts tax, withholding tax, penalty, and interest.

The Department originally assessed Plumbwest for January 2006 through March 2012:

• Gross receipts tax: $30,956.13 tax, $6,396.41 penalty, and $8,695.30 interest; and
• Withholding tax: $1,600.31 tax, $320.04 penalty, and $157.98 interest.

Plumbwest supplied some nontaxable transaction certificates, and the Department reduced the gross receipts tax principal to $27,897.33 with corresponding adjustments to penalty and interest. The decision did not state the revised additions.

Additional certificates were too late

Section 7-9-43 said a taxpayer should possess required NTTCs when the receipts were due and disallowed certificate-dependent deductions when the taxpayer failed to produce them within 60 days of Department notice. Regulation 3.2.201.8(D) also required the proper form and type.

Plumbwest still lacked the additional certificates at the September 2014 hearing, roughly a year after the assessment. Because the deadline's “shall” language was mandatory, the AHO had no discretion to allow further NTTC-based deductions.

The former bookkeeper was not subpoenaed

The owner believed his former wife, who had been the bookkeeper during the assessed periods, should bear some responsibility. He hoped to bring her into the proceeding.

But the right to subpoena witnesses had been explained at the January scheduling conference, and the owner never requested a subpoena. The hearing therefore proceeded without her testimony.

The owner knowingly proceeded without counsel

The owner confirmed at both the scheduling conference and merits hearing that he understood the right to representation and chose to represent the business himself.

After the hearing, he requested 60 more days to hire counsel. More than 60 days passed without an attorney entering an appearance or any further submission. The AHO treated the right as knowingly waived, refused to continue a hearing that had already occurred, and issued the decision.

Penalty and interest remained

The decision held that lack of knowledge or an erroneous belief that tax was not owed constituted negligence. Interest was mandatory on tax not paid by the due date and compensated the state for the time value of unpaid revenue.

Result: protest DENIED. The Department's partial NTTC abatement remained, but the rest of the assessment was upheld.

What this means for you

Contractors and service businesses

Collect the correct NTTCs when transactions occur and keep them with the tax records. Producing some certificates can reduce an assessment, but certificates still missing after the 60-day audit window cannot support further deductions under the rule applied here.

Self-represented taxpayers

Use hearing procedures before the record closes. If a necessary witness will not appear voluntarily, request a subpoena; if you want counsel, arrange representation before choosing to proceed with the merits hearing.

Accountants and tax professionals

When an audit involves multiple tax programs, reconcile them separately. Plumbwest obtained partial gross receipts tax relief, but the decision still upheld withholding tax and the remaining additions.

Common questions

Q: Did Plumbwest receive any relief?
A: Yes. The Department reduced gross receipts tax principal from $30,956.13 to $27,897.33 based on NTTCs already provided.

Q: Could Plumbwest submit more NTTCs after the hearing?
A: No. The decision held that additional certificates would be outside the mandatory 60-day deadline.

Q: Why wasn't the former bookkeeper required to attend?
A: Plumbwest never requested a subpoena even though the procedure had been explained.

Q: Why didn't the post-hearing request for an attorney delay the decision?
A: The owner had knowingly proceeded without counsel, and nothing further was filed during the more than 60 days after his request.

Citations and references

Statutes and regulation:

• NMSA 1978, §§ 7-1-17 and 7-1-3 — assessment presumption and definition of tax
• NMSA 1978, § 7-9-43 — NTTC possession and 60-day deadline
• NMSA 1978, § 7-1-67(A) — mandatory interest
• Regulation 3.2.201.8(D) NMAC — proper NTTC form and type

Cases cited:

• Marbob Energy Corp. v. New Mexico Oil Conservation Commission, 2009-NMSC-013 — mandatory effect of “shall”
• State v. Perlman, 1981-NMCA-076 — knowing waiver of a statutory right to counsel
• Tiffany Construction Co. v. Bureau of Revenue, 1976-NMCA-127 — lack of knowledge or erroneous belief as negligence

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Plumbwest Plumbing & Heating
• Decision PDF: D&O 15-01

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
PLUMBWEST PLUMBING & HEATING, No. 15-1
TO ASSESSMENT ISSUED UNDER
ID NO. L0764680656

DECISION AND ORDER

A formal hearing on the above-referenced protest was held September 25, 2014, before

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

represented by Ms. Elena Morgan, Staff Attorney. Ms. Milagros Bernardo, Auditor, also appeared

on behalf of the Department. Mr. Christopher West, owner of Plumbwest Plumbing and Heating

(Taxpayer), appeared for the hearing and represented the Taxpayer. Ms. Bernardo was given

until October 10, 2014 to provide updated information regarding the assessment. The Taxpayer

was given until October 17, 2014 to provide a response. 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. On September 20, 2013, the Department assessed the Taxpayer for gross receipts tax,

withholding tax, penalty, and interest for the tax periods from January 31, 2006 to March

31, 2012. The assessment for gross receipts tax was $30,956.13, penalty of $6,396.41,

and interest $8,695.30. The assessment for withholding tax was $1,600.31, penalty of

$320.04, and interest of $157.98.

2. On November 12, 2013, the Taxpayer filed a formal protest letter.
3. On December 23, 2013, the Hearings Bureau was first notified of the protest when the

Department filed a Request for Hearing asking that the Taxpayer’s protest be scheduled

for a formal administrative hearing.

4. On December 23, 2013, the Hearings Bureau issued a notice of hearing for a telephonic

scheduling conference on January 27, 2014. The hearing date was set within ninety days

of the protest.

5. On January 27, 2014, the scheduling conference was held. The Taxpayer confirmed on

the record at the scheduling conference that the Taxpayer did not have representation.

6. On February 12, 2014, the scheduling order and notice of hearing was issued.

7. On August 29, 2014, the amended notice of hearing was issued.

8. The Taxpayer was informed on the record of its right to representation at the hearing.

The Taxpayer acknowledged and understood that right, but went forward with the

hearing representing itself.

9. The Taxpayer was conducting business in New Mexico during the tax periods.

10. The Taxpayer obtained non-taxable transaction certificates (NTTCs) for some of the

receipts at issue.

11. The Taxpayer felt that its bookkeeper, Mr. West’s ex-wife, during the tax periods should

be responsible for part of the tax assessed.

12. The Department partially abated the assessment based on NTTCs provided by the

Taxpayer.

13. After the hearing, the Taxpayer filed a request for a 60-day continuance of the hearing so

that it could obtain representation.

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Letter ID No. L0764680656
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14. On January 2, 2015, more than 60 days after the Taxpayer’s request was made, nothing

further had been submitted by the Taxpayer or by an attorney on the Taxpayer’s behalf.

DISCUSSION

The issue to be decided is whether the Taxpayer is liable for tax, penalty, and interest for

the tax periods from January 31, 2006 through March 31, 2012.

Burden of Proof.

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 Department, 1989-NMCA-

070, 108 N.M. 795. Therefore, the assessment issued to the Taxpayer is presumed to be correct,

and it is the Taxpayer’s burden to present evidence and legal argument to show that it is entitled

to an abatement of the assessment.

Assessment.

The Taxpayer acknowledged doing business in New Mexico and having a CRS number.

The Taxpayer argued that he was given some credit on the NTTCs and that he intended to obtain

more 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 (2005). An NTTC must

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

taxpayer should be in possession of NTTCs when the receipts from the transaction are due. See

NMSA 1978, § 7-9-43. If the taxpayer is not in possession of NTTCs within sixty days of the

notice from the Department requiring possession of NTTCs, “deductions claimed by the seller or

lessor that require delivery of these nontaxable transaction certificates shall be disallowed.” Id.

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Letter ID No. L0764680656
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(emphasis added). The word “shall” indicates that the disallowance of the deduction is mandatory,

not discretionary. See Marbob Energy Corp. v. N.M. Oil Conservation Comm’n., 2009-NMSC-

013, ¶ 22, 146 N.M. 24. The Taxpayer was notified of the assessment in September 2013. The

Taxpayer was still not in possession of the NTTCs at the hearing. Therefore, any deductions

based on the NTTCs would be disallowed as they were not provided timely.

The Taxpayer hoped to bring the owner’s ex-wife in, but was unable to do so. The right

to subpoena witnesses was explained to the Taxpayer at the scheduling hearing on January 27,

2014. The Taxpayer understood that it would have to request a subpoena for anyone that it

wanted to be present at the hearing. The Taxpayer never requested a subpoena.

The Department provided information by the October 10, 2014 deadline that the amount

of gross receipts tax had been adjusted from $30,956.13 down to $27,897.33 based on NTTCs

provided by the Taxpayer. The Department also adjusted penalty and interest accordingly. The

Taxpayer responded on October 15, 2014 that it would like to request a 60-day continuance so it

could try to obtain legal counsel. The Taxpayer knew of its right to an attorney. The Taxpayer

confirmed at the scheduling conference that it did not have representation. The Taxpayer

confirmed at the merits hearing that it understood its right to be represented. The Taxpayer knew

of its right to have counsel, but failed to avail itself of that right when the hearing was held. A

party may be denied a statutory right to counsel when the party knowingly waived that right. See

State v. Perlman, 1981-NMCA-076, ¶ 9, 96 N.M. 779. The Taxpayer was informed on the

record of the statutory right to representation, and the Taxpayer went forward with the hearing by

representing itself. Moreover, more than 60 days passed after the Taxpayer’s request, and there

was still no entry of appearance from an attorney, and the Taxpayer did not submit anything

further. The hearing will not be continued as it has already been conducted, and the decision will

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not be stayed any longer since the Taxpayer’s requested time has elapsed with no further action

by the Taxpayer.

Assessment of Penalty.

A taxpayer’s lack of knowledge or erroneous belief that the taxpayer did not owe tax is

considered to be negligence for purposes of assessment of penalty. See Tiffany Const. Co., Inc.

v. Bureau of Revenue, 1976-NMCA-127, 90 N.M. 16. Therefore, penalty was properly assessed.

Assessment of Interest.

Interest “shall be paid” on taxes that are not paid on or before the date on which the tax is

due. NMSA 1978, § 7-1-67 (A). Again, the word “shall” indicates that the assessment of interest

is mandatory, not discretionary. See Marbob Energy Corp. v. N.M. Oil Conservation Comm’n,

2009-NMSC-013, ¶ 22, 146 N.M. 24. The assessment of interest is not designed to punish

taxpayers, but to compensate the state for the time value of unpaid revenues. Because the tax

was not paid when it was due, interest was properly assessed.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely written protest to the Notice of Assessment of taxes

issued under Letter ID number L0764680656, and jurisdiction lies over the parties and the subject

matter of this protest.

2. The Department abated part of the assessment of gross receipts tax based on NTTCs

provided by the Taxpayer. Further NTTCs would not be timely. See NMSA 1978, § 7-9-43. The

Taxpayer failed to overcome the presumption of correctness as to the remainder of the assessment.

See NMSA 1978, § 7-1-17.

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3. The Taxpayer was properly assessed for gross receipts tax, withholding tax,

penalty, and interest for the tax periods from January 31, 2006 through March 31, 2012.

For the foregoing reasons, the Taxpayer's protest is DENIED.

DATED: January 7, 2015.

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

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