Could Saiz Trucking deduct dirt, gravel, hauling, and grading receipts from Albuquerque park projects as government sales, and which audit periods remained timely?

Plain-English summary

Saiz Trucking could not deduct receipts for supplying and installing dirt and gravel on Albuquerque parks and ballfields because the work was part of construction projects. But the AHO abated every assessed amount for January 2004 through November 2005 because even the extended six-year limitation period had expired.

Saiz primarily moved and hauled dirt or gravel and graded sites. Its main customer was the City of Albuquerque parks department, which managed, renovated, and constructed parks and landscape projects.

City contracts described the work as equipment rental with operator or spoil and miscellaneous hauling. In practice, Saiz often supplied dirt and gravel and installed those materials at project sites.

Government sales did not cover construction materials or services

Section 7-9-54(A) allowed a deduction for tangible personal property sold to a government agency without requiring an NTTC. But the deduction did not apply when property was sold as construction material or as part of a service.

Saiz argued that it sold deductible landscaping materials. City witnesses likewise characterized much of the work as providing and installing dirt and gravel, including at a ballfield.

The statutory definition of construction expressly included building or altering a park, trail, athletic field, golf course, or similar facility. Construction material included tangible property incorporated or intended for incorporation into such a project.

Regulation 3.2.212.14(A) allowed certain landscape-item sales and installation but expressly denied the deduction when those items were part of a construction project. The AHO therefore treated Saiz's park and ballfield receipts as taxable.

More than 25% underreporting allowed six years

Saiz argued that older periods were barred by the ordinary limitation period. The Department relied on Section 7-1-18(D), which allowed six years when reported tax liability was more than 25% too low.

Because the claimed City deductions were invalid, Saiz had underreported liability by more than 25%, and the six-year rule applied.

Some periods were late even under the extended rule

Gross receipts tax was due on the 25th day of the month after each transaction. Applying that due-date rule by calendar year:

• January through November 2004 taxes were due during 2004, so the six-year period ended in 2010.
• December 2004 through November 2005 taxes were due during 2005, so the six-year period ended in 2011.
• December 2005 through November 2006 taxes were due during 2006, so a 2012 assessment was timely.

The February 2012 assessment was therefore too late for January 2004 through November 2005. Tax, penalty, and interest for those periods were abated. December 2005 through March 2010 remained timely.

Penalty and interest remained for timely periods

The AHO treated Saiz's erroneous belief that City receipts were deductible as negligence. Penalty therefore remained on December 2005 through March 2010.

Interest was mandatory on unpaid tax and remained for those same timely periods.

Result: protest GRANTED IN PART AND DENIED IN PART. January 2004-November 2005 tax, penalty, and interest were abated; December 2005-March 2010 amounts remained. The decision did not provide a recalculated balance after the time-barred periods were removed.

What this means for you

Contractors working for government agencies

Government-customer status does not make every receipt deductible. Separate standalone property sales from materials incorporated into construction and from service receipts.

Landscapers, haulers, and grading companies

Work on parks, ballfields, trails, and similar facilities may be statutory construction even when invoices emphasize dirt, gravel, hauling, equipment, or installation.

Taxpayers reviewing long audit periods

Calculate the limitation period separately for each reporting month using the actual tax due date. An extended audit period can still leave the oldest months barred.

Common questions

Q: Why did sales to the City remain taxable?
A: Saiz's materials and services were part of building or altering parks, ballfields, and similar construction projects.

Q: Did calling dirt and gravel landscaping materials create a deduction?
A: No. The landscape-item regulation denied the deduction when the items were part of a construction project.

Q: Why did the six-year period apply?
A: Invalid deductions caused Saiz to underreport gross receipts tax liability by more than 25%.

Q: Which periods were abated?
A: January 2004 through November 2005, including their tax, penalty, and interest.

Q: Which periods remained?
A: December 2005 through March 2010.

Q: What was the remaining dollar balance?
A: The decision did not recalculate the assessment after removing the time-barred periods.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-9-54(A) and 7-9-3.4 — government-property sales and construction definitions
• NMSA 1978, §§ 7-1-18(D), 7-9-11, and 7-1-28 — six-year assessment period, gross-receipts-tax due dates, and abatement
• NMSA 1978, §§ 7-1-67 and 7-1-17 — mandatory interest and assessment presumption
• Regulation 3.2.212.14(A) NMAC — landscape-item deduction unavailable for construction projects

Cases cited:

• Arco Materials v. New Mexico Taxation and Revenue Department, 1994-NMCA-062 — construction-project terminology and statutory construction definition
• Blaze Construction Co. v. Taxation and Revenue Department, 1995-NMSC-110 — later treatment of Arco Materials noted by the AHO
• 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: Saiz Trucking and Earthmoving
• Decision PDF: D&O 15-27

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
SAIZ TRUCKING AND EARTHMOVING, No. 15-27
TO ASSESSMENT ISSUED UNDER
LETTER ID NO. L0680042816

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on May 29, 2015 and on July 2, 2015,

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

represented by Ms. Elena Morgan, Staff Attorney. Mr. Mark Wachter, Auditor, and Ms. Mary Beth Bailey,

Legal Assistant, also appeared on behalf of the Department. For the first day of the hearing, Mr. Tom

Dillon, Auditor, also appeared for the Department. On the last day of the hearing, Mr. Jesse Muniz also

appeared as a witness for the Department. Mr. Larry Saiz, owner of Saiz Trucking and Earthmoving

(Taxpayer), appeared for the hearing with his attorney, Mr. Wayne Chew. Ms. DiAnne Thompson,

bookkeeper for the Taxpayer, also appeared. For the first day of hearing, Mr. John Casados and Ms.

Colleen Frenz appeared as witnesses on behalf of the Taxpayer. 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 9, 2012, the Department assessed the Taxpayer for gross receipts tax, penalty, and

interest for the tax periods from January 31, 2004 through March 31, 2010. The assessment was

for $606,943.41 tax, $121,388.71 penalty, and $175,418.66 interest.

2. On February 13, 2012, the Taxpayer filed a formal protest letter.

3. On June 11, 2014, the Department filed a Request for Hearing asking that the Taxpayer’s protest

be scheduled for a formal administrative hearing.

4. On June 17, 2014, the Hearings Office issued a scheduling order and notice of hearing. As the

protest was filed in 2012, the current statutory requirements for setting a hearing within 90 days

of the protest did not apply.

5. On March 5, 2015, the Taxpayer requested a continuance of the hearing.

6. On March 9, 2015, the request for continuance was granted, and the delay of the hearing was

attributable to the Taxpayer. The continuance order also contained the amended notice hearing.

7. The hearing was commenced on May 29, 2015. Due to the number of witnesses and volume of

documents, the parties were unable to complete their presentation of evidence on that date.

Therefore, a second day of hearing was set for July 2, 2015 and announced on the record.

Written notice of the second hearing date was also sent to the parties.

8. The Taxpayer was engaged in business in New Mexico from 2004 through 2010.

9. The Taxpayer seems to have been engaged in business primarily consisting of moving and

hauling dirt or gravel and performing grading at sites.

10. The Taxpayer’s main customer during that time was the City of Albuquerque (City).

11. The Taxpayer won several contracts to provide services for the City. The contracts characterized

the work to be performed as “equipment rental with operator” or for “spoil and misc. hauling”.

12. The Taxpayer worked primarily for the City’s parks department.

13. The parks department was engaged in managing, renovating, and constructing landscape and park

projects.

14. The Taxpayer provided services under contract for the City for various parks department projects.

The Taxpayer often hauled or provided dirt and gravel, and often installed those items on the

projects as well.

15. In 2010, the Department commenced an audit of the Taxpayer.

16. The audit was completed in 2011, and the Taxpayer was assessed in 2012.

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Letter ID No. L0680042816
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17. The Taxpayer filed its protest and argued that part of the assessment was barred by the statute of

limitations and that the Taxpayer was entitled to deduct most of its gross receipts in dealing with

the City.

DISCUSSION

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

assessed and whether any part of the assessment is barred by the statute of limitations.

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.

The burden is on the Taxpayer to prove that it 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 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.

Construction projects.

Receipts of sales of tangible personal property to a government agency are deductible and do not

require a nontaxable transaction certificate. See NMSA 1978, § 7-9-54 (A) (2003). However, this

deduction does not apply to property that is sold as construction material or as part of a service. See id.

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Letter ID No. L0680042816
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Landscaping items and their installation may be deducted under this statute “[e]xcept when the landscape

items are part of a construction project”. 3.2.212.14 (A) NMAC (2000).

The Taxpayer argued that it was entitled to deduct most of its gross receipts from the City

because it was really engaged in selling tangible personal property in the form of landscaping materials.

The Department argued that the Taxpayer was really selling a service as provided in its contracts with the

City. The Department argued that the Taxpayer’s profit and loss statements did not reflect it was stocking

up on or selling any tangible personal property. The Department also argued that, in any event, the

Taxpayer was engaged in work that was part of various construction projects and was not entitled to be

deducted.

Ms. Frenz and Mr. Casados worked for the City’s parks department and dealt with the Taxpayer

during part of the audit period. Ms. Frenz described the work done by the City’s parks department as

managing and constructing landscaping projects, which included medium-sized projects as well as

renovation of existing facilities and construction of new park projects. It was in the execution of this

work that the Taxpayer’s services were performed for the City. Ms. Frenz and Mr. Casados characterized

the Taxpayer’s role on many projects as providing and installing landscaping materials, usually dirt and

gravel. Ms. Frenz explained that she researched the Taxpayer’s invoices to the City, matched them to

individual projects, and then determined how much of the Taxpayer’s paid invoices should be subject to

gross receipts based on the items that were used in the individual projects. Ms. Frenz gave a specific

example regarding a ballfield. Ms. Frenz determined that the Taxpayer could deduct 100% of its gross

receipts on that project because the ballfield consisted mainly of dirt, gravel, grass, and a sloped area.

Ms. Frenz believed that the Taxpayer’s work on that project should be characterized as providing

landscaping materials and installation, which would be deductible.

The term “construction project” is not defined, but “construction” includes “the building, altering,

repairing, or demolishing in the ordinary course of business any: … (d) park, trail, athletic field, golf

course or similar facility”. NMSA 1978, § 7-9-3.4 (2003). “Construction material” is any tangible

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Letter ID No. L0680042816
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personal property that is incorporated into or intended to be incorporated into any construction project.

See id. See also Arco Materials v. State of New Mexico Taxation and Revenue Dep’t., 1994-NMCA-062,

¶ 6, 118 N.M. 12 (holding that “construction project” was not distinguishable from the statutory definition

of “construction” under the tax code), partially overruled on other grounds by Blaze Constr. Co. v.

Taxation and Revenue Dep’t., 1995-NMSC-110, 118 N.M. 647. “Receipts from selling and installing

these landscape items as part of a construction project may not be deducted”. 3.2.212.14 (A) NMAC

(2000). Based upon the totality of the evidence, the Taxpayer’s work for the City, and any tangible

personal property provided thereto, was part of a construction project as the work was directly related to

building or altering parks, ballfields, and other similar facilities. Therefore, the Taxpayer’s gross receipts

were not deductible. See id.

Timeliness of the Assessment.

Generally, assessments must be made within three years of the end of the calendar year in which

the tax was due. See NMSA 1978, § 7-1-18. The Department argued that the Taxpayer was

underreporting its gross receipts tax liability by more than 25%, and that there was additional time to

assess. When a taxpayer underreports its tax liability by more than 25%, the Department has to assess

“within six years from the end of the calendar year in which payment of the tax was due.” NMSA 1978,

§ 7-1-18 (D) (2013). This was true under the previous statute as well. See NMSA 1978, § 7-1-18 (D)

(1994). The Taxpayer argued that it was not underreporting its tax liability by more than 25% because it

was entitled to deduct most of its transactions with the City. As determined in the previous section of this

decision, the Taxpayer was not entitled to take those deductions. Therefore, the Taxpayer was

underreporting its tax liability by more than 25%. Consequently, the Department had six years from the

end of the year in which the taxes were due to assess.

Gross receipts taxes are due on the twenty-fifth day of the month following the month when the

transaction occurred. See NMSA 1978, § 7-9-11 (1969). Therefore, gross receipts taxes for the periods

of January through November 2004 were due in 2004. Six years from 2004 was 2010. Therefore, the

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Letter ID No. L0680042816
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assessments as to the periods from January 2004 through November 2004 were not timely and were

barred by the statute of limitations. Gross receipts taxes for the periods of December 2004 through

November 2005 were due in 2005. Six years from 2005 was 2011. Therefore, the assessments as to the

periods from December 2004 through November 2005 were not timely and were barred by the statute of

limitations. Gross receipts taxes for the periods of December 2005 through November 2006 were due in

2006. Six years from 2006 was 2012. Therefore, the assessments as to the periods from December 2005

through November 2006 were timely. Consequently, the assessments for all periods after that time frame

were also timely.

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. Penalty was properly assessed on the tax periods from

December 2005 through March 2010.

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 on the tax periods from December 2005 through March 2010.

CONCLUSIONS OF LAW

A. The Taxpayer filed a timely written protest to the Notice of Assessment of gross receipts

taxes from January 2004 through March 2010 issued under Letter ID number L0680042816, and jurisdiction

lies over the parties and the subject matter of this protest.

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Letter ID No. L0680042816
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B. The Taxpayer was providing materials and services to the City on various construction

projects involving parks, ballfields, and other similar facilities. See NMSA 1978, § 7-9-3.4 (2003).

C. The Taxpayer was not entitled to deduct its gross receipts from the City. See NMSA 1978,

§ 7-9-54 (A) (2003). See also 3.2.212.14 (A) NMAC (2000).

D. The Taxpayer was underreporting its gross receipts taxes by more than 25% from January

2004 through March 2010; therefore, the Department had six years to assess. See NMSA 1978, § 7-1-18 (D)

(2013).

E. The assessments of gross receipts taxes from January 2004 through November 2005

occurred more than six years after the tax was due. Consequently, those assessments are not timely and are

barred by the statute of limitations. See NMSA 1978, § 7-9-11 (1969). See NMSA 1978, § 7-1-18 (D)

(2013).

F. As the assessments of gross receipts taxes from January 2004 through November 2005 were

barred by the statute of limitations, those assessments of tax, penalty, and interest are HEREBY ABATED.

See NMSA 1978, § 7-1-18 (D) (2013). See NMSA 1978, § 7-1-28 (2013).

G. The assessments of gross receipts taxes from December 2005 through March 2010 were

made within six years of when the tax was due. Therefore, those assessments were timely and were

properly made. See NMSA 1978, § 7-1-18 (D) (2013).

H. The Taxpayer is liable for the gross receipts taxes, penalty, and interest that were

assessed from December 2005 through March 2010. See id.

For the foregoing reasons, the Taxpayer's protest is DENIED IN PART and GRANTED IN

PART.

DATED: July 27, 2015.

Dee Dee Hoxie
DEE DEE HOXIE
Hearing Officer
Administrative Hearings Office
Saiz Trucking and Earthmoving
Letter ID No. L0680042816
page 7 of 8
Post Office Box 6400
Santa Fe, NM 87502

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Letter ID No. L0680042816
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