Did a Multistate Tax Commission certificate protect Caleb Dutton's New Mexico diesel-repair receipts when the buyer resold the services and parts?

Plain-English summary

A timely Multistate Tax Commission certificate did not protect Dutton Diesel Repair's New Mexico repair-service receipts because the Department recognized those certificates only for tangible-personal-property sales. The hearing officer upheld all three assessments for 2009 through 2011.

Caleb Dutton operated a repair shop that primarily repaired vehicles and sold parts to UPS Oasis. Oasis resold the services and parts to its parent corporation.

Dutton asked Oasis for the appropriate New Mexico tax documents when their relationship began. Oasis supplied an MTC certificate in January 2009, and Dutton accepted it in good faith and treated large portions of his receipts as deductible.

A multistate certificate works only when New Mexico authorizes it

The Multistate Tax Compact generally gives a good-faith seller safe-harbor protection for an exemption certificate authorized by the relevant state.

Section 7-9-43(A) treated a recognized MTC certificate like a New Mexico NTTC. But Regulation 3.2.201.13 limited New Mexico recognition to sales of tangible personal property.

Dutton's assessed receipts involved repair services. The certificate's footnotes indicated that New Mexico did not recognize it for service sales, though Dutton testified that he did not understand those footnotes.

Because the state had not authorized the MTC for services, the broad good-faith protection discussed in Siemens did not apply. The certificate did not receive the same treatment as a properly executed NTTC covering the transaction.

Buyer assurances did not establish the deduction

Dutton relied on Oasis to send the correct document. Oasis also supplied a letter saying it paid New Mexico gross receipts tax when reselling Dutton's services to its parent.

Those facts did not change the certificate-type rule. Dutton was responsible for establishing a deduction clearly and for knowing whether the certificate legally covered the transaction.

He also argued that assessed gross receipts exceeded the amounts shown on his late-filed CRS returns. He presented no evidence or explanation supporting those calculations, so he did not overcome the assessment amounts.

Penalty and interest remained

Dutton did not timely file CRS returns for the assessed periods and finally filed them in January 2015 after the limited-scope audit.

His lack of knowledge and erroneous belief that the MTC removed liability constituted negligence under the cited authority. Interest was mandatory because the tax was not paid when due.

Result: protest DENIED. The assessments remained:

• 2009: $3,836.77 tax, $767.35 penalty, and $671.32 interest;
• 2010: $10,696.62 tax, $2,139.32 penalty, and $1,449.69 interest; and
• 2011: $14,511.92 tax, $2,902.38 penalty, and $1,442.29 interest.

The PDF caption lists “Caleb Dutton” and “Dutton Diesel Repair” on separate lines. This page uses a slash to make that party identification clear while preserving the official source text below.

What this means for you

Repair businesses accepting resale certificates

Separate parts from labor and verify that each certificate type covers the specific receipt category. A document valid for property may not protect service receipts.

Multistate sellers

The same certificate can have different legal effect by state. Read state-specific footnotes and confirm whether the state has authorized the form for property, services, or both.

Taxpayers challenging an audit calculation

Provide reconciliations, invoices, bank records, returns, and a transaction-level explanation. A lower number on a late-filed return does not by itself rebut an assessment.

Common questions

Q: Did Dutton obtain the MTC certificate on time?
A: Yes, and he accepted it in good faith.

Q: Why did it fail?
A: New Mexico recognized MTC certificates only for tangible-personal-property sales, not the repair services at issue.

Q: Did Oasis say it paid tax on resale?
A: Yes, in a letter included with the protest, but that did not make the service certificate valid.

Q: Could a proper NTTC have protected the receipts?
A: The decision discussed possible NTTC protection but held that this MTC did not receive that treatment for services.

Q: Why were the Department's dollar calculations upheld?
A: Dutton presented no evidence explaining his alternative gross-receipts amounts.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-9-43(A) and 7-5-1 Article V — recognized multistate certificates and the Compact safe harbor
• NMSA 1978, §§ 7-1-17 and 7-1-67 — assessment presumption and mandatory interest
• Regulations 3.2.201.13 and 3.2.201.8(D) NMAC — New Mexico's MTC recognition and proper certificate type
• Regulation 3.2.1.18(A) NMAC — New Mexico services generally subject to gross receipts tax

Cases cited:

• Siemens Energy & Automation v. New Mexico Taxation and Revenue Department, 1994-NMCA-173 — good-faith MTC safe harbor when the certificate is state-authorized
• McKinley Ambulance Service v. Bureau of Revenue, 1979-NMCA-026 — certificate must cover the transaction at issue
• Arco Materials, Inc. v. New Mexico Taxation and Revenue Department, 1994-NMCA-062 — taxpayer responsibility for an insufficient certificate
• Tiffany Construction Co. v. Bureau of Revenue, 1976-NMCA-127 — erroneous belief as negligence
• Marbob Energy Corp. v. New Mexico Oil Conservation Commission, 2009-NMSC-013 — mandatory interest language

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Caleb Dutton Dutton Diesel Repair
• Decision PDF: D&O 15-19

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
CALEB DUTTON
DUTTON DIESEL REPAIR, No. 15-19
TO ASSESSMENTS ISSUED UNDER
LETTER ID NOS. L1769170896, L0426993616, and L1500735440

DECISION AND ORDER

A formal hearing on the above-referenced protest was held May 28, 2015, before Dee

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

represented by Ms. Elena Morgan, Staff Attorney. Mr. Tom Dillon, Auditor, also appeared on

behalf of the Department. Mr. Caleb Dutton (Taxpayer) appeared for the hearing with his

attorneys, Mr. James Burns and Mr. John Lieuwen. 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 February 11, 2015, the Department assessed the Taxpayer for gross receipts tax,

penalty, and interest for the tax period of June 30, 2009 through December 31, 2009. The

assessment was for $3,836.77 tax, $767.35 penalty, and $671.32 interest. [L1769170896]

2. On February 11, 2015, the Department assessed the Taxpayer for gross receipts tax,

penalty, and interest for the tax period of April 1, 2010 through December 31, 2010. The

assessment was for $10,696.62 tax, $2,139.32 penalty, and $1,449.69 interest.

[L0426993616]

3. On February 11, 2015, the Department assessed the Taxpayer for gross receipts tax,

penalty, and interest for the tax period of April 1, 2011 through December 31, 2011. The
assessment was for $14,511.92 tax, $2,902.38 penalty, and $1,442.29 interest.

[L1500735440]

4. On April 3, 2015, the Taxpayer filed a formal protest letter.

5. On May 1, 2015, the Department filed a Request for Hearing asking that the Taxpayer’s

protest be scheduled for a formal administrative hearing.

6. On May 4, 2015, the Hearings Bureau issued a notice of hearing. The hearing date was

set within ninety days of the protest.

7. On May 27, 2015, the Taxpayer requested a continuance of the hearing because he had

just received notice, was interested in a settlement, and his attorney had just entered his

appearance.

8. On May 28, 2015, the request for continuance was denied as it was filed the day before

the hearing and did not involve an extraordinary circumstance.

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

assessed (tax periods). The Taxpayer runs a repair shop. The Taxpayer primarily does

repairs and sells parts to UPS Oasis (Oasis).

10. Oasis resells the Taxpayer’s repair services and parts to its parent corporation.

11. The Taxpayer failed to file timely CRS reports for the tax periods.

12. The Department conducted a limited scope audit on the Taxpayer.

13. The Taxpayer then filed CRS reports in January 2015 for the tax periods that were

assessed.

14. The Taxpayer claimed deductions for large portions of his gross receipts based on his

acceptance of a multistate jurisdiction sales and use tax certificate (MTC) from Oasis.

Caleb Dutton
Dutton Diesel Repair
Letter ID Nos. L1769170896, L0426993616, and L1500735440
page 2 of 8

15. The Taxpayer requested the appropriate tax documents for New Mexico from Oasis when

he began doing business with them.

16. In response to his request, Oasis provided the Taxpayer with the MTC in January 2009.

17. The Taxpayer relied upon the MTC and believed that his gross receipts were not taxable.

18. The Taxpayer was also doing some business with other entities. The Taxpayer did not

pay or file gross receipts tax on those transactions.

19. The Taxpayer argued that his gross receipts were less than those assessed and should be

limited to the amounts reported in his late filed CRS reports.

DISCUSSION

The issue to be decided is whether the Taxpayer is for gross receipts tax, penalty, and

interest for the tax periods.

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 he is entitled

to an abatement. The burden is on the Taxpayer to prove that he is entitled to an exemption or

deduction. See Public Services Co. v. N.M. Taxation and Revenue Dep’t., 2007-NMCA-050, ¶

32, 141 N.M. 520. See also Till v. Jones, 1972-NMCA-046, 83 N.M. 743. “Where 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
Caleb Dutton
Dutton Diesel Repair
Letter ID Nos. L1769170896, L0426993616, and L1500735440
page 3 of 8
expressed in the statute, and the right must be clearly established by the taxpayer.” Sec. Escrow

Corp. v. State Taxation and Revenue Dep’t., 1988-NMCA-068, ¶ 8, 107 N.M. 540. See also

Wing Pawn Shop v. Taxation and Revenue Dep’t., 1991-NMCA-024, ¶ 16, 111 N.M. 735. See

also Chavez v. Commissioner of Revenue, 1970-NMCA-116, ¶ 7, 82 N.M. 97.

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 Taxpayer admitted that he was engaged in a service

business performing repairs. There was no dispute that the Taxpayer’s services would ordinarily

be subject to gross receipts tax. The Taxpayer argued that he was entitled to deduct his gross

receipts based on his timely acceptance of a MTC and that the amount of gross receipts tax that

he owed was actually less than the amount assessed. The Taxpayer failed to provide any

evidence to support or to explain his calculations of the gross receipts tax. Therefore, the

Taxpayer failed to overcome the presumption that the amounts assessed were correct.

MTCs.

The Taxpayer accepted a timely MTC in good faith and argued that he was entitled to

deduct his gross receipts. A MTC that is recognized by the Department is treated the same as a

nontaxable transaction certificate (NTTC). See NMSA 1978, § 7-9-43 (A). See also Siemens

Energy and Automation v. N.M. Taxation and Revenue Dep’t., 1994-NMCA-173, ¶ 16, 119 N.M.

316 (indicating that MTCs and NTTCs serve the same purpose). The Department has elected to

recognize MTCs only in reference to the sales of tangible personal property. See 3.2.201.13

NMAC. The Department argued that the MTC was totally inapplicable to the Taxpayer’s gross

receipts because they were for services and not tangible property.

Caleb Dutton
Dutton Diesel Repair
Letter ID Nos. L1769170896, L0426993616, and L1500735440
page 4 of 8
The Taxpayer explained that he read the face of the MTC and did not understand the

footnotes in the MTC that indicated that the MTC was not recognized in New Mexico for the

sale of services. The Taxpayer was also relying on the representations made by Oasis and

believed that Oasis would have sent him the correct tax documents when he requested them.

Oasis provided a letter, which was included with the protest, that indicated that Oasis paid the

New Mexico gross receipts tax on the Taxpayer’s services when they were resold to the parent

corporation.

The issuance and acceptance of MTCs are part of the Multistate Tax Compact. See

NMSA 1978, 7-5-1. Article V of that section provides that a seller who accepts an exemption

certificate in good faith is “relieved of liability for a sales or use tax with respect to the

transaction.” Id. That language has been interpreted to offer the seller a safe harbor with

absolute relief from tax liability when the seller accepted a MTC in good faith, regardless of

whether the underlying transaction qualified for the exemption. See Siemens, 1994-NMCA-173,

¶ 15. Interpretations that would strip MTCs of their value in promoting uniformity and

convenience are not favored. See id. at ¶ 24. Requiring “sellers to make a factual inquiry, and

then make such a sophisticated legal decision on each MTC…would totally eviscerate any

purpose for the MTC certificate and render the Compact a sham in this area.” Id. at ¶ 25.

However, MTCs must be “authorized by the appropriate state”. NMSA 1978, § 7-5-1, Article V.

Even if the MTC could be treated as a NTTC, it is not clear that the Taxpayer would be

entitled to take the deduction. According to the Department, a NTTC must be in the proper form

and of the proper type to be valid. See 3.2.201.8 (D) NMAC (2001). There is caselaw that

indicates that a NTTC will protect a taxpayer from liability even when the transaction could not

properly be deducted. See Leaco, 1974-NMCA-076. See also Continental Inn of Albuquerque v.
Caleb Dutton
Dutton Diesel Repair
Letter ID Nos. L1769170896, L0426993616, and L1500735440
page 5 of 8
N.M. Taxation and Revenue Dep’t., 1992-NMCA-030, 113 N.M. 588. However, there is also

caselaw that indicates that a taxpayer is only protected from liability if the NTTC provided

actually covered the transaction at issue and that a taxpayer is responsible for knowing when a

NTTC is not sufficient to justify taking a deduction. See McKinley Ambulance Service v. Bureau

of Revenue, 1979-NMCA-026, 92 N.M. 599. See also Arco Materials, Inc. v. State of N.M.

Taxation and Revenue Dep’t., 1994-NMCA-062, 118 N.M. 12. Moreover, “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.” Sec. Escrow Corp. v. State Taxation and Revenue Dep’t., 1988-NMCA-068, ¶ 8,

107 N.M. 540. See also Wing Pawn Shop v. Taxation and Revenue Dep’t., 1991-NMCA-024, ¶

16, 111 N.M. 735. See also Chavez v. Commissioner of Revenue, 1970-NMCA-116, ¶ 7, 82

N.M. 97. The statute clearly indicates that MTCs are treated as NTTCs only when the

Department has deemed them to be so treated. See NMSA 1978, § 7-9-43. Again, the

Department has authorized MTCs only in reference to the sales of tangible personal property.

See 3.2.201.13 NMAC. See also NMSA 1978, § 7-9-43 (A) (giving the Department the

authority to determine which MTCs will be deemed as NTTCs). Therefore, a MTC will only be

treated as a NTTC when the MTC is for the sale of tangible property. Since the MTC in this

case was for the sale of services, it does not afford the Taxpayer the same protections as a

properly executed NTTC would.

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.
Caleb Dutton
Dutton Diesel Repair
Letter ID Nos. L1769170896, L0426993616, and L1500735440
page 6 of 8
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). 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

A. The Taxpayer filed a timely written protest to the assessments issued under Letter

ID numbers L1769170896, L0426993616, and L1500735440, and jurisdiction lies over the parties

and the subject matter of this protest.

B. The timely MTC provided to the Taxpayer did not afford the same protection as a

NTTC because the Department has authorized the use of MTCs only for sales involving tangible

personal property. See NMSA 1978, § 7-9-43. See 3.2.201.13 NMAC.

C. The Taxpayer failed to overcome the presumption of correctness on the

assessments of gross receipts tax, penalty, and interest. See NMSA 1978, § 7-1-17.

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

DATED: June 22, 2015.

Dee Dee Hoxie
DEE DEE HOXIE
Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Caleb Dutton
Dutton Diesel Repair
Letter ID Nos. L1769170896, L0426993616, and L1500735440
page 7 of 8
Santa Fe, NM 87504-0630

Caleb Dutton
Dutton Diesel Repair
Letter ID Nos. L1769170896, L0426993616, and L1500735440
page 8 of 8