Which sales, rentals, repair, training, and rigging receipts of Texas-based Permian Machinery Movers were subject to New Mexico gross receipts tax?

View original ruling (PDF)

Plain-English summary

Permian Machinery Movers won partial abatement for Texas-only transactions but remained liable for receipts tied to services, deliveries, and equipment use in New Mexico. The Department was ordered to remove tax, penalty, and interest attributable to $325,221.47 of receipts.

Permian was a Texas corporation operating from El Paso, Odessa, and San Antonio. It sold, rented, traded, and repaired forklifts and scissor lifts; sold parts; trained equipment operators; and moved heavy equipment through rigging services.

The Department assessed:

• $143,464.78 gross receipts tax, $28,342.22 penalty, and $17,531.56 interest; and
• $6,285 corporate income tax, $1,233.14 penalty, and $822.99 interest.

Permian withdrew the corporate-income-tax protest, so that $8,341.13 assessment remained. The decision then analyzed the gross receipts assessment transaction by transaction.

Texas-only services were not New Mexico gross receipts

The AHO abated assessed receipts for:

• forklift-operator training performed exclusively at Permian's El Paso location;
• rigging services that neither began nor ended in New Mexico;
• maintenance and repair performed at out-of-state jobsites; and
• maintenance and repair performed at Permian's El Paso shop.

Customer billing addresses in New Mexico did not change where the services were performed.

For the El Paso shop work, $290 of pickup and delivery services in New Mexico remained taxable, but the underlying Texas repair work did not.

Customer-pickup sales in Texas were not New Mexico sales

Customers bought parts, accessories, and forklifts at Permian's El Paso location and took possession there.

The orders were consummated in Texas, the seller was in Texas, and the buyers received the property in Texas. Even when buyers had New Mexico billing addresses or later intended New Mexico use, those completed Texas transactions were not sales in New Mexico.

The AHO abated the affected parts and forklift-sale receipts.

Rentals not shown employed in New Mexico were not taxable here

Rental receipts were taxable when the leased property was employed in New Mexico.

Permian proved that one group of forklifts was delivered to non-New Mexico locations and normally used where delivered. It also showed that another group was picked up by customers in El Paso, with no evidence that the equipment was later employed in New Mexico.

The Department could not rely solely on New Mexico billing addresses or speculation about later use. Those rental receipts were abated.

Five categories remained taxable

The AHO upheld gross receipts treatment for:

• $42,570.50 of interstate rigging services that began or ended in New Mexico, because Permian supplied no evidence allocating the services inside and outside the state;
• $54,704.23 of maintenance and repair performed at New Mexico jobsites;
• $23,376.13 from parts Permian delivered to New Mexico customers;
• $149,409.91 from forklift sales delivered to New Mexico; and
• $1,220,820.46 from forklift rentals delivered for use at New Mexico locations.

Under the destination principle, goods delivered to and consumed in New Mexico were New Mexico sales. Equipment delivered for rental use here was presumed employed here absent contrary evidence.

Permian left about one-third of the assessed receipts unaddressed

The audit identified $3,378,257.60 of unreported receipts and treated $2,963,811.42 as taxable.

Permian's invoice exhibits did not address $1,148,029.63 of the taxable receipts supporting the assessment. Because it presented no evidence or argument about that amount, the assessment presumption remained unrebutted.

Texas tax paid in error did not create a New Mexico credit

Permian had remitted every collected tax to Texas, including amounts separately identified for New Mexico.

Section 7-9-79(A) allowed a credit against New Mexico compensating tax for qualifying tax paid to another state by the person acquiring property for use here. Permian was the seller or lessor, not the acquiring user, and the record did not show Texas had properly levied tax on these New Mexico transactions.

The AHO would not convert tax mistakenly paid to another state into a credit against gross receipts tax due New Mexico.

Penalty and interest remained on the taxable balance

Permian did not act in bad faith, but it believed New Mexico had no sales tax and did not understand gross receipts tax. It had not obtained informed professional advice.

That inadvertence and erroneous belief met the civil-negligence standard. Interest was mandatory, and penalty remained on the liability left after the partial abatement.

Result: gross receipts protest GRANTED IN PART and DENIED IN PART. The Department had to abate tax, penalty, and interest attributable to $325,221.47 of receipts and recompute the remaining balance. The separate corporate-income-tax protest was denied after withdrawal.

Text note: The Category 4 analysis says $290 of New Mexico pickup and delivery remained taxable and that Permian rebutted the rest of that category. But the final $325,221.47 abatement amount mathematically includes the full Category 4 amount, including that $290. This summary reports both statements rather than resolving the decision's internal inconsistency.

What this means for you

Out-of-state sellers serving New Mexico

Classify each transaction by where services occur, where goods are delivered, and where leased property is employed. Billing address alone may not control.

Equipment dealers and rental companies

Maintain delivery, pickup, jobsite, and use-location records. Customer pickup in another state and delivery into New Mexico produced opposite results here.

Interstate service providers

If a service is performed partly inside and outside New Mexico, document a defensible allocation. Permian lost the entire disputed interstate-rigging category because it supplied no allocation evidence.

Businesses paying tax to the wrong state

Do not assume the erroneous payment offsets New Mexico liability. Seek the proper refund from the other state and separately satisfy New Mexico rules.

Common questions

Q: Were services performed entirely in Texas taxable in New Mexico?
A: No, even when the customer had a New Mexico billing address.

Q: Were goods picked up by customers in El Paso taxable as New Mexico sales?
A: No. The transactions were completed in Texas.

Q: What about parts and forklifts Permian delivered into New Mexico?
A: Those receipts were taxable under the destination principle.

Q: When were forklift rentals taxable?
A: When the equipment was employed in New Mexico; delivery to a New Mexico use location supported that inference.

Q: Why were interstate rigging receipts upheld?
A: The services touched New Mexico, and Permian supplied no evidence to allocate the New Mexico and out-of-state portions.

Q: How much assessed receipt value was abated?
A: $325,221.47.

Q: Did Texas tax payments offset New Mexico gross receipts tax?
A: No. The cited credit provision did not apply to a seller's tax paid in error to another state.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-9-2, 7-9-3.5(A)(1), and 7-9-4 — purpose, gross receipts, and tax
• NMSA 1978, §§ 7-9-6 and 7-9-55 — separately stated tax and interstate-commerce deduction
• NMSA 1978, § 7-9-79(A) — other-state tax credit against compensating tax
• NMSA 1978, §§ 7-1-3, 7-1-17(C), and 7-1-18(C) — tax, assessment presumption, and seven-year period for unfiled returns
• NMSA 1978, §§ 7-1-67 and 7-1-69 — interest and negligence penalty
• Regulations 3.2.1.14, 3.2.1.17, and 3.2.1.18 NMAC — property sales, leases, and services
• Regulations 3.2.6.8 and 3.2.6.9 NMAC — separately stated gross receipts tax

Cases cited:

• Dell Catalog Sales, LP v. New Mexico Taxation & Revenue Department, 2009-NMCA-001 — destination principle and wholly out-of-state transactions
• Kmart Corp. v. New Mexico Taxation & Revenue Department, 2006-NMSC-006 — multistate gross receipts analysis
• Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) — Commerce Clause test for state taxation
• New Mexico Taxation & Revenue Department v. Casias Trucking, 2014-NMCA-099 — taxpayer's burden to present countervailing proof
• MPC Ltd. v. New Mexico Taxation & Revenue Department, 2003-NMCA-021 — unsubstantiated assertions do not overcome an assessment

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Permian Machinery Movers Inc.
• Decision PDF: D&O 17-37

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF 17-37
PERMIAN MACHINERY MOVERS INC.
TO ASSESSMENTS
ISSUED UNDER LETTERS ID NOs.
L0975076400 and L0284286000

DECISION AND ORDER

A hearing occurred in the above-captioned protest on June 1, 2017 and June 2, 2017 before

Chris Romero, Esq., Hearing Officer, in Santa Fe, New Mexico. At the hearing, Mr. Oscar J.

Ornelas, Esq., represented Permian Machinery Movers, Inc. (“Taxpayer”). Mr. Ramon “Ray”

Chavez (Treasurer), Mr. Roy Chavez (Vice-President), and Ms. Rosemary Chavez (Secretary),

appeared and testified on Taxpayer’s behalf. Staff Attorney, Mr. Peter Breen, appeared

representing the State of New Mexico Taxation and Revenue Department (“Department”). Protest

Auditor, Mr. Andrick Tsabetsaye, appeared as a witness for the Department. Taxpayer Exhibits

1, #2, and #4 – #18, and Department Exhibits A – D were admitted into the record. Taxpayer did

not proffer an exhibit #3. All exhibits are more thoroughly described in the Administrative Exhibit

Coversheet. The Hearing Officer provided the parties through June 30, 2017 to submit proposed

findings of fact and conclusions of law. The Taxpayer submitted proposed findings and

conclusions on June 30, 2017. The Department did not submit proposed findings or conclusions.

Based on the evidence and arguments presented, IT IS DECIDED AND ORDERED AS

FOLLOWS:

FINDINGS OF FACT

1. On December 17, 2015, under Letter ID No. L0284286000, the Department

assessed Taxpayer for $6,285.00 in corporate income tax, $1,233.14 in penalty, and $822.99 in
interest for a total assessment of $8,341.13 for the reporting periods from December 31, 2008

through December 31, 2014.

2. On December 17, 2015, under Letter ID No. L0975076400, the Department

assessed Taxpayer for $143,464.78 in gross receipts tax, $28,342.22 in penalty, and $17,531.56 in

interest for a total assessment of $189,338.56 for the reporting periods ending January 31, 2008

through May 31, 2015.

3. On March 16, 2016, counsel for Taxpayer executed Formal Protests of both

assessments on Taxpayer’s behalf. The Department received the protests on March 21, 2016. The

protests were accompanied by Tax Information Authorization forms which authorized counsel to

act on Taxpayer’s behalf in reference to the matters in protest.

4. On March 24, 2016, the Department’s Protest Office acknowledged receipt of both

valid protests in this matter.

5. On May 3, 2016, the Department filed requests for hearings in these matters with

the Administrative Hearings Office. The Administrative Hearings Office consolidated the protests

for the purpose of administrative efficiency and economy.

6. On May 3, 2016, the Administrative Hearings Office issued a Notice of Telephonic

Scheduling Hearing, setting the consolidated matters for a scheduling hearing on June 3, 2016.

7. On June 3, 2016, within 90-days of the Department’s receipt and acknowledgement

of Taxpayer’s protests, the Administrative Hearings Office conducted a scheduling hearing in the

above-captioned matter. Neither party objected that conducting the scheduling hearing satisfied

the 90-day hearing requirement under the statute while also allowing for discovery, motions, and

other prehearing activities intended to allow the parties to prepare for an ample and fair

In the Matter of the Protest of
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presentation of their respective cases pursuant to NMSA 1978, Sec. 7-1-24.1 and NMSA 1978,

Sec. 7-1B-6 (D) (2016).

8. On June 3, 2016, the Administrative Hearings Office issued a Scheduling Order

and Notice of Administrative Hearing, setting various deadlines for discovery and motions, and

setting the matter for a hearing on the merits on February 15 – 16, 2017.

9. On October 26, 2016, the Administrative Hearings Office received a Certificate of

Service and two compact discs. The compact discs were promptly returned to counsel for the

Taxpayer after explaining that the Administrative Hearings Office does not accept for filing any

evidentiary exhibits addressing the merits of a protest, which should be proffered during the

hearing. The Certificate of Service that accompanied the compact discs was filed on October 26,

2016.

10. On January 17, 2017, the Taxpayer filed its witness list.

11. On February 1, 2017, Taxpayer filed a Motion for Continuance. The Department

did not oppose the Taxpayer’s request.

12. On February 6, 2017, the Administrative Hearings Office issued a Continuance

Order, Notice of Reassignment, Amended Scheduling Order, and Amended Notice of

Administrative Hearing, which in addition to establishing various deadlines, set a hearing on the

merits of Taxpayer’s protests for June 1 – June 2, 2017.

13. On May 17, 2017, the Department filed the Department’s Pretrial Statement.

14. On May 17, 2017, the Taxpayer filed its Motion to Exclude Witness Testimony.

15. On May 18, 2017, the Taxpayer filed Taxpayer’s Pretrial Statement.

16. On May 18, 2017, the Taxpayer filed Taxpayer’s Second Amended Pretrial

Statement.

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17. On May 26, 2017, the Department filed its Response to Motion to Exclude

Witnesses.

18. On May 26, 2017, Taxpayer filed Taxpayer’s Reply to Department’s Response to

Taxpayer’s Motion to Exclude Witness Testimony.

19. On June 30, 2017, Taxpayer filed Taxpayer’s Proposed Findings of Fact and

Conclusions of Law.

20. Taxpayer is a corporation organized under Texas law. It engages in business from

three locations in Texas: El Paso, Odessa, and San Antonio. [Testimony of Ramon Chavez].

21. Taxpayer rents, sells, buys, trades, and services lift equipment, including forklifts

and scissor lifts. It also sells replacement parts and accessories for lift equipment and provides

training in the proper operation of such equipment. Taxpayer also provides rigging services which

consist of relocating heavy equipment between locations. [Testimony of Ramon Chavez;

Testimony of Roy Chavez].

22. The Taxpayer maintains record of its business transactions in the form of invoices.

[Testimony of Ramon Chavez; Testimony of Roy Chavez; Taxpayer Exs. 1 – 15].

23. Due to the proximity of El Paso, Texas to the New Mexico-Texas border,

Taxpayer’s El Paso business location benefits from business from customers in New Mexico. Mr.

Roy Chavez, in addition to other responsibilities for Taxpayer, manages the El Paso, Texas

business location. [Testimony of Ramon Chavez; Testimony of Roy Chavez].

24. Taxpayer does not maintain employees, agents, business locations, inventory, or

financial accounts in New Mexico, nor does Taxpayer advertise in New Mexico or otherwise

actively solicit New Mexico business. [Testimony of Ramon Chavez; Testimony of Roy Chavez].

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25. Taxpayer’s sale’s territory covers portions of southcentral and southeastern Texas

including El Paso, Odessa, and San Antonio. Taxpayer’s territory extends north into New Mexico

to Albuquerque. [Testimony of Roy Chavez].

26. Taxpayer occasionally travels into New Mexico to deliver, pickup, service, inspect,

or transport equipment for New Mexico-based and non-New Mexico-based customers doing

business in New Mexico. [Testimony of Ramon Chavez; Testimony of Roy Chavez].

27. During the relevant periods of time, Taxpayer paid tax on New Mexico transactions

to the State of Texas with the understanding that New Mexico did not impose a sales tax. Taxpayer

was not aware of New Mexico’s gross receipts tax. [Testimony of Ramon Chavez; Testimony of

Rosemary Chavez].

28. The Department conducted a detailed field audit for the periods ending between

January 1, 2008 and May 31, 2015. The detailed audit required that the field auditors review every

invoice generated in every month within the period subject of audit. [Testimony of Andrick

Tsabetsaye].

29. The audit at issue in the protest occurred in El Paso, Texas. [Testimony of Ramon

Chavez; Testimony of Roy Chavez].

30. In response to the requests of the auditors conducting the audit of Taxpayer’s

business activities, the Taxpayer provided invoices of its transactions for the relevant periods of

time. The auditors made no further inquiries of the Taxpayer. [Testimony of Ramon Chavez].

31. The Department did not present the testimony of any witnesses having personal,

first-hand knowledge of the procedures employed by the field auditors, as well as interactions

between the Taxpayer and the auditors regarding any documents under review.

In the Matter of the Protest of
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32. Taxpayer presented thousands of pages of invoices divided into several separate

categories of transactions, with each category containing examples of transactions the Department

determined were taxable. [Taxpayer Exs. 1 – 15].

33. During the relevant periods of time, Taxpayer generated income from providing

instructional services to forklift operators, also called “licensing” services. Instructional services,

or licensing services, included classroom and behind-the-wheel training. Upon the successful

conclusion of the course, students received certificates of completion. [Testimony of Roy Chavez;

Taxpayer Ex. 1].

34. Taxpayer Exhibit 1 established that its receipts from providing licensing services,

were $4,995.19, including any taxes that it may have collected and remitted to the State of Texas.

From those invoices contained in Taxpayer Exhibit 1, the Department identified $2,865.00 in

unreported taxable gross receipts. [Testimony of Roy Chavez; Taxpayer Ex. 1; Dept. Ex. C.].

35. Although invoices for licensing services may indicate a shipping method of “PMI

Truck” to an address in New Mexico, the shipping method indicated resulted from a default setting

in the Taxpayer’s invoicing computer system. Instruction occurred exclusively in El Paso at

Taxpayer’s business location. Instruction services are not, nor have they ever been provided in

New Mexico. [Testimony of Roy Chavez; Taxpayer Ex. 1].

36. During the audit period, Taxpayer generated income from rigging services. Rigging

services consist of relocating equipment between locations. The services may occur between New

Mexico locations, between a New Mexico location and a location in another state, or exclusively

between out-of-state locations. In each example, the customer for whom services are provided may

or may not have had a billing address in New Mexico. However, the address where a customer

In the Matter of the Protest of
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was to be billed was not an accurate indicator of where the service was provided. [Testimony of

Roy Chavez].

37. Taxpayer Exhibit 2 represents income generated from rigging services performed

for customers having a billing address in New Mexico. The services were provided between two

non-New Mexico locations. [Testimony of Roy Chavez; Taxpayer Ex. 2].

38. Although Taxpayer invoices contained in Taxpayer Exhibit 2 may refer to a New

Mexico customer in the “Bill To” or “Ship To” section of a given invoice, the description of

services provided on each invoice in Taxpayer Exhibit 2 explain the nature of the services in more

detail, including the non-New Mexico locations where equipment was picked up and delivered.

[Testimony of Roy Chavez; Taxpayer Ex. 2].

39. Taxpayer Exhibit 2 reveals that the total sum of receipts generated from non-New

Mexico rigging services, meaning services provided between two non-New Mexico locations,

during the audit period were $26,044.00 including tax collected and paid to the State of Texas.

From those invoices contained in Taxpayer Ex. 2, the Department identified $6,119.00 as

unreported taxable gross receipts. [Testimony of Roy Chavez; Taxpayer Ex. 2; Dept. Ex. C].

40. Taxpayer generated income from providing out-of-state, on-site service and repairs

to non-New Mexico customers. Those services consisted of a technician traveling to the site where

equipment was located to perform maintenance or repairs. In each invoice within this category of

transactions, the services were provided outside of New Mexico. The location of the service was

established by referencing the contact information contained on the invoice which directed the

technician to the location where the services were provided, or by referring to the description of

service provided on each invoice which described the location where the repairs were performed.

[Testimony of Roy Chavez; Taxpayer Ex. 4].

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41. Taxpayer Exhibit 4 contains invoices from non-New Mexico, on-site service and

repairs in the amounts of $18,986.80 including taxes that were collected and paid to the State of

Texas. Of those invoices contained in Taxpayer Exhibit 4, the Department identified $15,020.76

in unreported taxable gross receipts. [Testimony of Roy Chavez; Taxpayer Ex. 4; Dept. Ex. C].

42. Taxpayer generated income from providing service and repairs to New Mexico

customers at its facility in El Paso, Texas. These types of services occurred at Taxpayer’s facility,

in contrast to service and repairs occurring at a customer’s jobsite. [Testimony of Roy Chavez;

Taxpayer Ex. 5].

43. Taxpayer Exhibit 5 contains invoices from such services in the amounts of

$67,997.36 including taxes that were collected and paid to the State of Texas. Of those invoices

contained in Taxpayer Exhibit 5, the Department identified $25,673.47 in unreported taxable gross

receipts of which $290 was generated from separately charging for pickup or delivery services in

New Mexico. [Testimony of Roy Chavez; Taxpayer Ex. 5; Dept. Ex. C].

44. Taxpayer generated income from selling goods, such as parts, which were sold and

picked up from its business location in El Paso, Texas. Goods sold and picked up from its shop

included sales to customers having billing addresses in New Mexico. [Testimony of Roy Chavez;

Taxpayer Ex. 6].

45. Taxpayer Exhibit 6 contains invoices from sales of goods from Taxpayer’s shop

which buyers picked up from the shop. Taxpayer Exhibit 6 established total receipts in the amount

of $24,360.78 including taxes that were collected and paid to the State of Texas. Invoices in this

category of transactions indicate a shipping method of “Cust. Pickup” meaning that the goods were

picked up by the customer. Of those invoices contained in Taxpayer Exhibit 6, the Department

In the Matter of the Protest of
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identified $9,897.94 in unreported taxable gross receipts. [Testimony of Roy Chavez; Taxpayer

Ex. 6; Dept. Ex. C].

46. Similar to the sale of other goods addressed in Taxpayer Exhibit 6, Taxpayer

generated receipts from the sales of forklifts which the customer picked up from the Taxpayer’s

business location in El Paso, Texas. Taxpayer does not maintain any locations in New Mexico

where customers may purchase or pickup forklifts. Receipts from forklift sales as illustrated from

Taxpayer Exhibit 7 in this category of transactions were $187,528.81, including taxes that were

collected and remitted to the State of Texas. The Department identified $95,445.41 in unreported

taxable gross receipts. [Testimony of Roy Chavez; Taxpayer Ex. 7; Dept. Ex. C].

47. Taxpayer generated income from forklift rentals. Taxpayer Exhibit 8 contained

invoices of transactions for forklift rentals to customers having billing addresses both within and

without New Mexico which were delivered to non-New Mexico locations. Rentals within this

category of transactions were delivered consistent with the information contained in the “Ship To”

section of the invoice. None of the invoices indicate a New Mexico delivery site. Taxpayer Exhibit

8 illustrates $143,756.01 in receipts from this category of transactions, including taxes collected

and paid to the State of Texas. The Department identified $98,945.64 in unreported taxable gross

receipts. [Testimony of Roy Chavez; Taxpayer Ex. 8; Dept. Ex. C].

48. Taxpayer generated income from forklift rentals which the customer picked up

from the Taxpayer’s El Paso, Texas business location. Each invoice in this category of transactions

indicated that the customer, some of whom had a billing address within New Mexico and some of

whom did not, picked up the rental equipment from the Taxpayer’s business location. Taxpayer

Exhibit 9 illustrated that Taxpayer generated $88,950.81 from such rentals including taxes that

were collected and remitted to the State of Texas. From those invoices contained in Taxpayer

In the Matter of the Protest of
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Exhibit 9, the Department identified $70,964.25 in unreported taxable gross receipts tax.

[Testimony of Roy Chavez; Taxpayer Ex. 9; Dept. Ex. C].

49. Taxpayer generated income from rigging services between New Mexico and other

out-of-state locations. Invoice descriptions in this category of transactions provide further

elaboration regarding the locations of pickup and delivery. Services in this category of transactions

either originated or terminated in New Mexico. Taxpayer Exhibit 10 illustrated receipts in the

amount of $42,755.50 in including taxes collected and paid to the State of Texas. From those

invoices contained in Taxpayer Exhibit 10, the Department identified $42,570.50 in unreported

taxable gross receipts. [Testimony of Roy Chavez; Taxpayer Ex. 10; Dept. Ex. C].

50. Taxpayer generated income from providing service and repairs in New Mexico. In

each transaction within this category, Taxpayer’s technicians traveled to, and performed services

in, New Mexico. Taxpayer Exhibit 11 contained invoices totaling $56,177.52 in receipts, including

taxes collected and remitted to the State of Texas. Of those invoices contained in Taxpayer Exhibit

11, the Department identified $54,704.23 in unreported taxable gross receipts. [Testimony of Roy

Chavez; Taxpayer Ex. 11; Dept. Ex. C].

51. Taxpayer generated income from selling parts that it hand-delivered to customers

in New Mexico. In each transaction within this category, Taxpayer sold parts and delivered the

items to buyers in New Mexico. In each instance, the Taxpayer collected and paid sales taxes to

the State of Texas. Taxpayer Exhibit 12 contained invoices totaling $9,746.00 in receipts including

taxes collected and paid to the State of Texas. Of those invoices contained in Taxpayer Exhibit 12,

the Department identified $9,454.50 in unreported taxable gross receipts, including taxes collected

and paid to the State of Texas. [Testimony of Roy Chavez; Taxpayer Ex. 12; Dept. Ex. C].

In the Matter of the Protest of
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52. Similar to Taxpayer Exhibit 12, Taxpayer Exhibit 13 establishes that Taxpayer

generated additional income from selling parts that it hand-delivered to customers in New Mexico.

In each transaction within this category, Taxpayer sold parts and delivered the items to buyers in

New Mexico. In each instance, the Taxpayer collected and paid sales taxes to the State of Texas.

Taxpayer Exhibit 13 contained invoices totaling $17,057.00 in gross receipts including taxes

collected and paid to the State of Texas. Of those invoices contained in Taxpayer Exhibit 13, the

Department identified $13,921.63 in unreported taxable gross receipts, including taxes collected

and paid to the State of Texas. [Testimony of Roy Chavez; Taxpayer Ex. 13; Dept. Ex. C].

53. Taxpayer generated income from selling forklifts which Taxpayer delivered to New

Mexico. In each transaction within this category, Taxpayer collected and paid taxes to the State of

Texas. Taxpayer Exhibit 14 contained invoices totaling $306,281.53 in receipts including taxes

collected and paid to the State of Texas. Of those invoices contained in Taxpayer Exhibit 14, the

Department identified $149,409.91 in unreported taxable gross receipts, including taxes collected

and remitted to the State of Texas. [Testimony of Roy Chavez; Taxpayer Ex. 14; Dept. Ex. C].

54. Taxpayer generated income from renting forklifts that it delivered to locations in

New Mexico. Taxpayer Exhibit 15 contained invoices totaling $1,365,240.95 in receipts including

taxes collected and paid to the State of Texas. Of those invoices contained in Taxpayer Exhibit 15,

the Department identified $1,220,820.46 in unreported taxable gross receipts, including taxes

collected and paid to the State of Texas. [Taxpayer Ex. 15].

55. On occasion, and observed frequently among the invoices contained in Taxpayer

Exhibit 15, the Taxpayer charged a tax that was typically itemized as “New Mexico Sales Tax

(Voluntary).” The amounts of taxes collected pursuant to that itemization were paid to the State of

In the Matter of the Protest of
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Texas, not New Mexico. [Testimony of Roy Chavez; Testimony of Rosemary Chavez; Taxpayer

Exs. 1 – 15].

56. In the majority of circumstances, equipment was employed at the location where

Taxpayer also delivered the equipment. Taxpayer was less knowledgeable regarding the location

where its equipment was being employed when the customer picked up the equipment from its

place of business. [Testimony of Roy Chavez].

57. Taxpayer occasionally visited sites where its leased equipment was being utilized

for the purpose of inspecting, servicing, and performing maintenance. Such inspections usually

occurred every 250 to 300 hours of operation or every three months depending on the duration of

the lease. [Testimony of Roy Chavez].

58. Taxpayer reports and pays taxes on a monthly frequency to the State of Texas and

all taxes collected during the audit period, whether or not designated for New Mexico, were paid

to the State of Texas. [Testimony of Rosemary Chavez; Taxpayer Ex. 17; Taxpayer Ex. 18].

59. Taxpayer has not sought a refund for any taxes Taxpayer could potentially assert

were erroneously paid to the State of Texas for any transactions occurring during the audit period.

[Testimony of Rosemary Chavez].

60. Taxpayer did not consult or rely on the advice of competent tax professionals in

evaluating its New Mexico tax obligations or liabilities for the periods subject of the audit and

assessment subject of this protest. [Testimony of Rosemary Chavez].

61. Taxpayer was not aware of the New Mexico gross receipts tax. Taxpayer researched

sales taxes in New Mexico, but because Taxpayer specifically inquired about a “sales tax” rather

than a “gross receipts tax,” the information Taxpayer obtained and acted upon was that New

Mexico did not have a “sales tax.” [Testimony of Ramon Chavez].

In the Matter of the Protest of
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62. Taxpayer did not file CRS returns for any period in protest. Since Taxpayer was a

non-filer, the Department was allowed to assess taxes seven years from the end of the calendar

year in which the taxes were originally due, which was December 31, 2008. [Testimony of Andrick

Tsabetsaye].

63. The Department conducted a detailed audit of Taxpayer. Department auditors

reviewed every invoice from every month at issue and identified $3,378.257.60 in unreported

taxable gross receipts of which $2,963,811.42 were deemed to be taxable. [Testimony of Andrick

Tsabetsaye; Dept. Ex. C]

64. The Department did not make any adjustment to the audit to provide Taxpayer with

a credit with respect to taxes it paid to Texas. The Department was unable to locate any authority

for such an adjustment under the circumstances of this assessment. [Testimony of Andrick

Tsabetsaye].

65. Mr. Tsabetsaye did not participate in the field audit. His role was limited to

reviewing the detailed field audit subject of the protest. [Testimony of Andrick Tsabetsaye].

66. Mr. Tsabetsaye reviewed all of Taxpayer invoices against the information

contained in the Department’s Computation of Audited Gross Receipts [Dept. Ex. C] but due to

computer issues, was unable to testify at the hearing regarding the details of his review of

Taxpayer’s invoices and any comparison he conducted to Department Exhibit C. [Testimony of

Andrick Tsabetsaye].

67. Taxpayer was aware that some of the invoices included in Taxpayer’s Exhibits 1 –

15 did not result in assessment of tax. [Testimony of Roy Chavez].

68. By and through its counsel of record, the Taxpayer withdrew its protest in reference

to Letter ID No. L0284286000 in which the Department assessed Taxpayer for $6,285.00 in

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 13 of 47
corporate income tax, $1,233.14 in penalty, and $822.99 in interest for a total assessment of

$8,341.13 for the reporting periods from December 31, 2008 through December 31, 2014.

Consequently, the Taxpayer presented no evidence or argument in dispute of that assessment.

DISCUSSION

At the onset of the hearing, Taxpayer advised that it no longer disputed the assessment

issued under Letter ID No. L0284286000 for $6,285.00 in corporate income tax, $1,233.14 in

penalty, and $822.99 in interest for a total assessment of $8,341.13 for the reporting periods from

December 31, 2008 through December 31, 2014. Consequently, the following discussion will

address the remaining assessment for gross receipts tax, penalty, and interest under Letter ID No.

L0975076400.

The Taxpayer is engaged in the business of selling goods, services, and leasing equipment

from its El Paso, Texas business location. Although Taxpayer operates from two additional

locations in Texas, only those operations in El Paso, Texas were relevant to this proceeding.

Some goods and services were delivered in New Mexico, and some were not, and the

Taxpayer, for the most part, denied through its counsel that it had knowledge of where its leased

equipment was employed. If the Taxpayer collected tax on a transaction that was potentially

taxable in New Mexico, then the tax was remitted to the State of Texas in reliance on the fact that

New Mexico did not have a state “sales tax.” Taxpayer was admittedly unaware of New Mexico’s

Gross Receipts and Compensating Tax Act. Consequently, Taxpayer never filed returns in New

Mexico for any period subject of its protest.

The Department conducted a detailed field audit of the Taxpayer’s El Paso, Texas

transactions and identified $3,378,257.60 in unreported gross receipts of which it concluded that

$2,963,811.42 were taxable among no less than 1,828 transactions. [Dept. Ex. C]. Taxpayer

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 14 of 47
disputed the Department’s audit and presented thousands of pages of invoices distributed among

several categories of transactions which it asserted were not, or should not be taxable to New

Mexico, and claimed that Taxpayer was entitled to receive a credit for taxes it paid to Texas on

the same transactions.

The Taxpayer argued, with respect to at least a portion of the assessment, that the

Department’s assessment was barred by the statute of limitations. Otherwise, the issue to be

decided in this case is whether a Texas-based Taxpayer owes gross receipts tax on the sale of

goods, services, and lease payments on transactions with customers in New Mexico, and whether

Taxpayer was entitled to receive a credit for taxes it paid to Texas on the same transactions under

NMSA 1978, Sec. 7-9-79 (A).

Statute of Limitations

Taxpayer asserted that a portion of the assessment should be precluded by the statute of

limitations. NMSA 1978, Section 7-1-18 (C) provides “[i]n case of the failure by a taxpayer to

complete and file any required return, the tax relating to the period for which the return was

required may be assessed at any time within seven years from the end of the calendar year in

which the tax was due, and no proceeding in court for the collection of such tax without the prior

assessment thereof shall be begun after the expiration of such period.” In this case, the evidence

established that Taxpayer never filed a required return, which in turn, provided the Department

with seven years to assess Taxpayer from the end of the calendar year in which the tax was due.

The earliest period at issue in this protest was that ending January 31, 2008, meaning that

the assessment of that period and every period following, was timely if issued at any point within

seven years from the end of the calendar year in which the tax was due.

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 15 of 47
In this instance, gross receipts tax for the period ending January 31, 2008 would have

been due “on or before the twenty-fifth day of the month following the month in which the

taxable event occurs[,]” or specifically, February 25, 2008. See NMSA 1978, Sec. 7-9-11. The

end of the calendar year, in which the tax was due, was therefore December 31, 2008.

Consequently, the deadline in which to assess the Taxpayer for the earliest period at issue was

seven years from December 31, 2008, which was December 31, 2015. The assessment at issue in

this protest was issued on December 17, 2015 which was before December 31, 2015 and

therefore within the applicable 7-year statute of limitations. Consequently, the assessment, dated

December 17, 2015, was timely and within the period required by Section 7-1-18 (C).

Taxpayer’s assertions that the statute of limitations precludes any periods contained in the

assessment are rejected in favor of this longstanding, plain-language interpretation of Section 7-

1-18 (C).

Prehearing Motion to Exclude Department Witnesses

On May 17, 2017, the Taxpayer filed a motion to exclude all Department witnesses except

Mr. Tsabetsaye. The Department opposed the motion. The basis for the Taxpayer’s motion was

that the Department had not specifically disclosed the names of witnesses other than Mr.

Tsabetsaye prior to filing its prehearing statement.

At the onset of the hearing, the Department indicated that the only witness it actually

intended to present was Mr. Tsabetsaye. The Hearing Officer reserved ruling on the Taxpayer’s

motion finding that the issue was not ripe until the Department indicated an actual intention to call

one or more of the witnesses subject of the Taxpayer’s motion.

Because the Department never attempted to call any witnesses subject of the Taxpayer’s

motion, the motion became moot without requiring the Hearing Officer to rule.

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 16 of 47
The Department’s Ongoing Evidentiary Objection

The Department objected at the hearing to the admission of any invoice for which the

Taxpayer did not also present the live testimony of a witness having personal knowledge of the

contents of that invoice. In other words, the Department asserted that a witness should be required to

testify to each of the 1,872 invoices, individually. The Taxpayer claimed it would have been unduly

burdensome to present testimony on each individual invoice. Rather, Taxpayer chose to separate its

invoices into separate categories of transactions, present testimony to authenticate the records in that

category of transactions, and present testimony regarding only a sample of documents from each

category of transactions. The Hearing Officer recognized the Department’s ongoing objections to

Taxpayer’s method of admitting its documents, which were all overruled.

Although the Rules of Evidence are not applicable in administrative hearings under the

Administrative Hearing Office Act, the Hearing Officer considered their application for purposes of

the legal residuum rule. See Anaya v. New Mexico State Personnel Board, 107 N.M. 622, 626, 762

P.2d 909, 913 (Ct.App. 1988).

The Department, in reference to several of the exhibits, stipulated to their authenticity and the

fact that they were records maintained in the normal course of business. In circumstances where the

Department did not offer such a stipulation, the Taxpayer presented the testimony of a competent

witness who was able to identify and authenticate the documents consistent with the requirements of

Rule 11-901, NMRA 2017 and establish that they were records of a regularly conducted activity

consistent with Rule 11-803 (6), NMRA 2017.

Therefore, it was not necessary that Taxpayer present live testimony for every single one of

the 1,872 invoices it offered. The records, having been properly identified and authenticated pursuant

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 17 of 47
to 11-901, spoke for themselves under a well-established and recognized exception to the rule against

hearsay provided by 11-803 (6).

Presumption of Correctness

Under NMSA 1978, Sec. 7-1-17 (C) (2007), the assessment issued in this case is presumed

correct. Consequently, Taxpayer has the burden to overcome the assessment. See Archuleta v.

O'Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428. Unless otherwise specified, for the purposes of the

Tax Administration Act, “tax” is defined to include interest and civil penalty. See NMSA 1978, Sec.

7-1-3 (X) (2013). Under Regulation 3.1.6.13 NMAC, the presumption of correctness under Sec. 7-

1-17 (C) extends to the Department’s assessment of penalty and interest. See Chevron U.S.A., Inc.

v. State ex rel. Dep't of Taxation & Revenue, 2006-NMCA-50, ¶16, 139 N.M. 498, 503 (agency

regulations interpreting a statute are presumed proper and are to be given substantial weight).

Because Taxpayer is also claiming a deductions, exemptions or credits from gross receipts

tax, for taxes it paid to Texas for transactions that were taxable in New Mexico, or for transaction in

interstate commerce, Taxpayer must establish its right to claim the deduction, exemption, or credit.

“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.”

Wing Pawn Shop v. Taxation and Revenue Department, 1991-NMCA-024, ¶16, 111 N.M. 735

(internal citation omitted); See also TPL, Inc. v. N.M. Taxation & Revenue Dep't, 2003-NMSC-7, ¶9,

133 N.M. 447.

Taxpayer also has the burden of establishing entitlement to a credit. The New Mexico Court

of Appeals has found that tax credits are legislative grants of grace to a taxpayer that must be

narrowly interpreted and construed against a taxpayer. See Team Specialty Prods. v. N.M. Taxation

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 18 of 47
& Revenue Dep't, 2005-NMCA-020, ¶9, 137 N.M. 50 (internal citations omitted). Under the

rationale of Team Specialty, Taxpayer carries the burden of proving that it is entitled to the claimed

credit. Nevertheless, although a credit must be narrowly interpreted and construed against a

taxpayer, it still should be construed in a reasonable manner consistent with legislative language.

See Sec. Escrow Corp. v. State Taxation & Revenue Dep't, 1988-NMCA-068, ¶9, 107 N.M. 540

(although construed narrowly against a taxpayer, deductions and exemptions—similar to credits—

are still to be construed in a reasonable manner).

Gross Receipts Tax

For the privilege of engaging in business, New Mexico imposes a gross receipts tax on the

receipts of any person engaged in business. See NMSA 1978, Sec. 7-9-4 (2002). Under NMSA

1978, Sec. 7-9-3.5 (A) (1) (2007), the term “gross receipts” is broadly defined to mean

the total amount of money or the value of other consideration received from selling
property in New Mexico, from leasing or licensing property employed in New
Mexico, from granting a right to use a franchise employed in New Mexico, from
selling services performed outside New Mexico, the product of which is initially
used in New Mexico, or from performing services in New Mexico.

“Engaging in business” is defined as “carrying on or causing to be carried on any activity with the

purpose of direct or indirect benefit.” See NMSA 1978, Sec. 7-9-3.3 (2003). Under the Gross

Receipts and Compensating Tax Act, there is a statutory presumption that all receipts of a person

engaged in business are taxable. See NMSA 1978, Sec. 7-9-5 (2002).

Categories Business Transactions

Taxpayer proffered 1,872 invoices, consisting of several thousand pages, among several

categories of transactions. Taxpayer’s counsel claimed that those invoices represented all of the

transactions upon which the Department assessed tax in this matter.

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 19 of 47
A comprehensive review and comparison of every invoice contained in Taxpayer Exhibits 1

– 15, with Department Exhibit C, could not substantiate that assertion. No less than 600 invoices

referenced in Department Exhibit C could not be traced to a corresponding invoice in Taxpayer

Exhibits 1 – 15. This finding was consistent with the testimony of Mr. Roy Chavez who credibly

testified that some of the invoices contained in Taxpayer’s exhibits did not actually contribute to the

assessment.

In total, the invoices contained in Taxpayer’s Exhibits 1 – 15 which could be matched to

taxable a transaction contained in Department Exhibit C represented $1,815,781.79 in taxable gross

receipts. In contrast, Department Exhibit C identified the total sum of unreported gross receipts in the

amount of $3,378,257.60, of which it concluded that $2,963,811.42 was taxable.

Therefore, the Taxpayer has failed to address approximately one-third of the total assessment

representing $1,148,029.63 in unreported taxable gross receipts. The result is that the Taxpayer has

failed to present evidence that would rebut the presumption of correctness with respect for that amount

of unreported taxable gross receipts.

Because the Taxpayer bears the burden of overcoming the presumption of correctness that

attached to the assessment in this case, the remainder of this decision will focus exclusively upon on

the invoices presented by Taxpayer, provided in Taxpayer Exhibits 1 – 15, which the Department

actually determined to be taxable when compared to Department Exhibit C.

The Taxpayer provided records in reference to the following categories of business

transactions:

Category 1 (Taxpayer Exhibit 1) – Licensing Services Performed in Texas

Taxpayer Exhibit 1 contains 12 invoices for licensing services. The term “licensing services”

is intended to describe the training and instructional programs that Taxpayer provides to customers in

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 20 of 47
the safe and proper operation of forklifts. Training includes classroom instruction and behind-the-

wheel lessons, all of which occured exclusively at Taxpayer’s place of business in El Paso, Texas. At

no relevant time did Taxpayer provide such services in New Mexico. Despite information on the

invoices in Taxpayer Exhibit 1 which indicates that “licensing services” were delivered by Taxpayer

to addresses in New Mexico, Mr. Roy Chavez convincingly testified that all services within this

category of transactions were provided in El Paso, Texas. Mr. Chavez credibly testified that

information contained in the invoices which may have been interpreted otherwise was the product of

the Taxpayer’s invoicing software’s default settings.

A comparison of Department Exhibit C to Taxpayer Exhibit 1 established that between July

13, 2009 and March 17, 2015, the Taxpayer generated approximately $4,995.19 from licensing

services, including tax, of which the Department identified $2,865.00 as unreported taxable gross

receipts. [Taxpayer Ex. 1; Dept. Ex. C].

However, since the licensing services subject of Taxpayer Exhibit 1 represent services

performed exclusively in the State of Texas, they are excluded from the definition of “gross receipts”

and are not taxable. See NMSA 1978, Sec. 7-9-3.5 (A) (1).

Regulation 3.2.1.18 (A) and (E) NMAC also provide that only receipts derived from

performing services in New Mexico are subject to gross receipts, with exceptions for research and

development services, which do not apply under the circumstances of this protest.

Therefore, with respect to those transactions subject of Taxpayer Exhibit 1, the Hearing

Officer was persuaded that the Taxpayer overcame the presumption of correctness and established

that the audit and resulting assessment incorrectly identified $2,865.00 as unreported taxable gross

receipts, when in fact, that amount was not taxable because it represented services performed in Texas.

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 21 of 47
The Department offered no evidence to thereafter reestablish the correctness of this portion of its

assessment.

Category 2 (Taxpayer Exhibit 2) – Out-of-State Rigging Services (Non-New Mexico)

Taxpayer Exhibit 2 contains 15 invoices for rigging services. The term “rigging services” is

intended to describe the service of relocating heavy equipment from one location to another. Such

services may occur between locations exclusively within New Mexico, an out-of-state location and a

location within New Mexico, or exclusively between out-of-state, non-New Mexico, locations. The

invoices contained in Taxpayer Exhibit 2 were exclusively for out-of-state rigging services, which

neither originated nor concluded in New Mexico. Although invoices in Taxpayer Exhibit 2 may have

provided billinges address in New Mexico, the details of each invoice and the credible testimony of

Mr. Roy Chavez established that the services were not provided in New Mexico. [Testimony of Roy

Chavez; Taxpayer Ex. 2; Dept. Ex. C].

A comparison of Department Exhibit C to Taxpayer Exhibit 2 established that between

August 18, 2009 and May 18, 2015, the Taxpayer generated $26,044.00 from out-of-state rigging

services, of which the Department identified $6,119.00 as unreported taxable gross receipts.

[Taxpayer Ex. 2; Dept. Ex. C].

However, since the rigging services subject of Taxpayer Exhibit 2 represent services not

performed in New Mexico, they are excluded from the definition of “gross receipts” and are not

taxable in the same manner discussed in the previous category of transactions. See NMSA 1978, Sec.

7-9-3.5 (A) (1); Regulation 3.2.1.18 (A) & (E) (1) NMAC.

Therefore, the Hearing Officer was persuaded that Taxpayer Exhibit 2 established that the

audit and resulting assessment incorrectly identified $6,119.00 as unreported taxable gross receipts

when in fact, that amount was not taxable because it represented services performed in other states.

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 22 of 47
Although such services may have been performed for customers having a billing address in New

Mexico, that alone was insufficient to establish that the receipts from those services were taxable as

gross receipts because Section 7-9-3.5 (A) (1) requires that the services be performed in New Mexico.

Having rebutted the presumption of correctness, the Department did not offer any evidence to

reestablish the correctness of its assessment with respect to this category of transactions.

Category 3 (Taxpayer Exhibit 4) – Services and Repairs Not Performed in New

Mexico

Taxpayer Exhibit 4 contains 30 invoices for services and repairs that the Taxpayer provided

at out-of-state, non-New Mexico jobsites. This category of transactions involves Taxpayer’s

technician traveling to the location of equipment to be maintained, serviced, and repaired. Mr. Roy

Chavez credibly testified that services within the category of transactions subject of Taxpayer Exhibit

4 were provided at a non-New Mexico location. In fact, except for one invoice, none of the remaining

29 invoices contain any references to New Mexico. As for the invoice which did contain a “Bill To”

address in New Mexico, that invoice could not be located among the invoices the Department

determined should be taxable in Department Exhibit C. [Taxpayer Ex. 4; Dept. Ex. C].

A comparison of Department Exhibit C to Taxpayer Exhibit 4 established that between March

5, 2008 and May 27, 2015, the Taxpayer generated $18,986.80 from out-of-state maintenance and

repair services, of which the Department identified $15,020.76 as unreported taxable gross receipts.

[Taxpayer Ex. 4; Dept. Ex. C].

Since the maintenance and repair services subject of Taxpayer Exhibit 4 represent services

not performed in New Mexico, they are excluded from the definition of “gross receipts” and are not

taxable. See NMSA 1978, Sec. 7-9-3.5 (A) (1); Regulation 3.2.1.18 (A) & (E) NMAC.

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 23 of 47
Therefore, Taxpayer rebutted the presumption of correctness in reference to this category of

transactions and the Department offered no evidence to reassert the correctness of the assessment.

Consequently, Taxpayer Exhibit 4 established that the audit and resulting assessment incorrectly

identified $15,020.76 as unreported taxable gross receipts when in fact, that amount was not taxable

as services performed in New Mexico.

Category 4 (Taxpayer Exhibit 5) – Services and Repairs Performed at Taxpayer’s

Business Location in El Paso, Texas

Taxpayer Exhibit 5 contains 46 invoices for services and repairs that the Taxpayer provided

at its El Paso, Texas business location. In four of those transactions, the invoices demonstrated that

the Taxpayer picked up and delivered equipment to New Mexico before or after it was serviced and

repaired in El Paso. However, in this category of transactions, Mr. Roy Chavez credibly testified that

services, except for pickup or delivery services in New Mexico, were provided in El Paso, Texas.

Although the invoices contained in Taxpayer Exhibit 5 refer to customers having a New Mexico

address, either in the “Bill To” or “Ship To” fields, the descriptions of services provided established

that the actual services were performed in El Paso, Texas, not New Mexico. [Testimony of Roy

Chavez; Taxpayer Ex. 5].

A comparison of Department Exhibit C to Taxpayer Exhibit 5 established that between March

28, 2008 and May 16, 2015, the Taxpayer generated $67,997.36 from providing maintenance and

repair services at its El Paso shop, of which the Department identified $25,963.47 as unreported

taxable gross receipts. [Taxpayer Ex. 5; Dept. Ex. C]. Except for income generated from pickup and

delivery in New Mexico, in the total amount of $290.00, all maintenance and repairs in this category

of transactions occurred in Texas, not New Mexico. Since the services were performed in Texas, they

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 24 of 47
are excluded from the definition of “gross receipts” and are not taxable. See NMSA 1978, Sec. 7-9-

3.5 (A) (1); Regulation 3.2.1.18 (A) and (E) NMAC.

However, with respect for pickup and delivery to or from a New Mexico location, Regulation

3.2.1.18 (B) NMAC, provides that pickup and delivery is a service provided in New Mexico.

Consequently, the receipts from that portion of the overall service is taxable in New Mexico. In this

instance, that amount would be $290.00. See Regulation 3.2.1.15 (D) (3) NMAC.

With respect for the category of transactions subject of Taxpayer Exhibit 5, the Taxpayer

rebutted the presumption of correctness for all but $290 representing charges for pickup and delivery

in New Mexico. The Department did not offer any evidence to reestablish the correctness of its

assessment as to the remaining portions of this category of transactions.

Category 5 (Taxpayer Exhibit 6) – Sales of Goods Picked Up from Taxpayer’s Business

Location in El Paso, Texas

Taxpayer Exhibit 6 contains 90 invoices for the sales of goods that the Taxpayer sold and

delivered from its shop in El Paso, Texas. Mr. Roy Chavez credibly testified that in all circumstances

within category of transitions, customers took possession of the goods at the Taxpayer’s business

location in El Paso, including customers with a billing address in New Mexico. [Testimony of Roy

Chavez; Taxpayer Ex. 6]. The types of goods subject of this category of transactions represent

replacement parts or accessories. Although Taxpayer also sells forklifts which could also come within

this category of transactions, forklift sales are addressed as a separate category of transactions

consistent with the method in which Taxpayer presented its protest.

A comparison of Department Exhibit C to Taxpayer Exhibit 6 established that between

January 10, 2008 and May 20, 2015, the Taxpayer generated $24,360.78 in sales, including tax, from

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 25 of 47
its El Paso location, of which the Department identified $9,897.94 as unreported taxable gross

receipts. [Taxpayer Ex. 6; Dept. Ex. C].

However, since the sales of goods did not occur in New Mexico, Taxpayer Exhibit 6

represents sales of goods in Texas which are excluded from the definition of “gross receipts” and are

not taxable in New Mexico. See NMSA 1978, Sec. 7-9-3.5 (A) (1); Regulation 3.2.1.14 (A) (1)

NMAC.

When an interstate transaction occurs, Kmart Corp. v. N.M. Taxation & Revenue Dep’t., 2006-

NMSC-006, ¶11, 139 N.M. 172, 131 P.3d 22 should be applied to the transaction to determine

whether the sale is taxable in New Mexico. In Kmart the New Mexico Supreme Court set out a two-

part analysis to determine whether the gross receipts tax applies in multistate transactions. The first

part of the test is whether the Legislature intended to tax the sale of products from Taxpayer, an out-

of-state corporation, to customers in New Mexico.

Generally speaking NMSA 1978, Section 7-9-2 (1966) provides that the gross receipts tax is

intended to “provide revenue for public purposes by levying a tax on the privilege of engaging in

certain activities within New Mexico and to protect New Mexico businessmen from the unfair

competition that would otherwise result from the importation into the state of property without

payment of a similar tax.”

“Gross receipts” is defined as “the total amount of money or the value of other consideration

received from selling property in New Mexico.” See NMSA 1978, Section 7-9-3.5 (A) (1) (2007). In

Dell Catalog Sales, LP v. N.M. Taxation & Revenue Dep’t., 2009-NMCA-001, ¶30, 145 N.M. 419,

199 P.3d 863, the court held that for purposes of determining whether an interstate transaction is a

taxable sale under gross receipts tax law, the “destination principle” applies. The “destination

principle” is defined as taxing the sale of goods that cross state lines at the point of destination or

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 26 of 47
where the goods are consumed, which may be different from the point of delivery and where title is

transferred. Jerome R. Hellerstein & Walter Hellerstein, State Taxation ¶18.02[1]. In Dell, the

assumption was that the goods are consumed at their destination. Dell Catalog Sales, LP, 2009-

NMCA-001, ¶28. It was clear from Dell that if an out-of-state seller sells goods that are delivered in

New Mexico, and consumed in New Mexico, then gross receipts tax applies on the sale of the goods.

However, the Dell court also found that its analysis did not “apply in cases where the entire

transaction occurs out-of-state and the parties are present out-of-state at the time and place of the

transaction.” See Dell Catalog Sales, LP, 2009-NMCA-001, ¶25. The court concluded that “in those

circumstances, the transaction is clearly not a sale ‘in NM’ for purposes of the Act.” See Dell Catalog

Sales, LP, 2009-NMCA-001, ¶25.

In this category of transactions, subject of Taxpayer Exhibit 6, goods were picked up in El

Paso, Texas. Taxpayer did not deliver goods in New Mexico. The leading treatise on state and local

taxation argues that the crucial factor is where the buyer takes possession of the goods. Jerome R.

Hellerstein & Walter Hellerstein, State Taxation ¶18.02[1]. The courts are somewhat split over these

interstate transactions where the use or consummation of tangible personal property is different from

the destination. In Williams Rentals, Inc. v. Tidwell, 516 S.W.2d 614, 616 (Tenn. 1974) (quoting

Central Transport Co. v. Atkins, 202 Tenn 512, 305 SW 940, 942 (1956), cert. denied, 355 U.S. 912,

78 S. Ct. 343 (1958) the Tennessee court upheld a sales tax on rental receipts from a lease of

construction equipment where the equipment was delivered in Tennessee and the lease agreement

was entered into in Tennessee.

However, the equipment was transported for use in job sites in Arkansas and Mississippi. The

court held that the sale occurred in Tennessee because the equipment was delivered in Tennessee and

the lease agreements were entered in Tennessee. But see, Commercial Leasing, Inc. v. Johnson, 160

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 27 of 47
Me. 32, 197 A.2d 323, 329 (1964) (the lease payments are only taxable to the state where the trailers

were used and not purchased, but if the trailers are returned to the originating state for repairs, then

the lease payments are taxable to the originating state).

New Mexico allows a deduction for receipts from transactions in interstate commerce if the

tax would be unlawful under the United States Constitution. See NMSA 1978, Sec. 7-9-55 (1993).

However, goods cannot be sold in more than one state. In this category of transactions, the orders

were consummated in Texas, the seller was situated in Texas, and the buyers took possession of their

newly acquired goods in Texas. Therefore, the Hearing Officer was persuaded that the sales occurred

in Texas. Therefore, the receipts generated from the sale of goods in Texas are receipts from sales

occurring in Texas.

The Hearing Officer was persuaded that Taxpayer Exhibit 6 established that the audit and

resulting assessment incorrectly identified $9,897.94 as unreported taxable gross receipts when in

fact, that amount was not taxable as property sold in New Mexico. Consequently, the Taxpayer

rebutted the presumption of correctness with respect for invoices within this category of transactions

and the Department did not introduce evidence upon which to reestablish the correctness of the

assessment.

Category 6 (Taxpayer Exhibit 7) – Sales of Forklifts Picked Up by Buyer from

Taxpayer’s Business Location in El Paso, Texas

Taxpayer Exhibit 7 contains 9 invoices for the sales of forklifts that the customers picked up

at Taxpayer’s business location in El Paso, Texas. Mr. Roy Chavez credibly testified that in all

circumstances within this category of transactions, the forklifts were purchased with the buyer taking

possession at the Taxpayer’s place of business in El Paso, Texas. A majority of the invoices establish

the purchasers of the forklifts were customers having a billing address in New Mexico. However,

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 28 of 47
despite the customer’s billing address, the forklifts were nevertheless purchased and delivered in

Texas in similar fashion to other goods discussed in the prior category of transactions. [Testimony of

Roy Chavez; Taxpayer Ex. 7].

In this category of transactions, a comparison of Department Exhibit C to Taxpayer Exhibit 7

established that between May 29, 2012 and May 12, 2015, the Taxpayer generated $187,528.81 in

sales of forklifts, including tax, from its El Paso location, of which the Department identified

$95,445.41 as unreported taxable gross receipts after allowing permissible deductions. [Taxpayer Ex.

7; Dept. Ex. C]. At least one invoice even contained a notation that the buyer intended to pay

compensating tax in New Mexico.

The same analysis applies to the sale of forklifts as in the preceding category of transactions.

The Hearing Officer was persuaded that the orders were consummated in Texas, the seller was

situated in Texas, and the buyers took possession of their forklifts in Texas. Therefore, the Hearing

Officer is also persuaded that the sales occurred in Texas. For that reason, the receipts generated from

the sale of forklifts in Texas are receipts from sales occurring in Texas. Since the sales of forklifts in

this category of transactions did not occur in New Mexico, but rather Texas, the invoices within this

category of transactions represent the sale of goods in Texas, not New Mexico. The receipts from the

sale of forklifts in Texas are therefore excluded from the definition of “gross receipts” and are not

taxable. See NMSA 1978, Sec. 7-9-3.5 (A) (1); Regulation 3.2.1.14 (A) (1) NMAC.

Therefore, Taxpayer Exhibit 7 established that the audit and resulting assessment incorrectly

identified $95,445.41 as unreported taxable gross receipts when in fact, that amount was not taxable

as property sold in New Mexico. The Taxpayer rebutted the presumption of correctness with respect

to the invoices within this category of transactions and the Department did not offer any evidence to

reestablish the correctness of its assessment.

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 29 of 47
Category 7 (Taxpayer Exhibits 8) – Rentals of Forklifts Delivered by Taxpayer to Non-

New Mexico Delivery Locations

Taxpayer Exhibit 8 contains 105 invoices for the lease of forklifts that the Taxpayer delivered

to non-New Mexico locations. Mr. Roy Chavez credibly testified that although many of the invoices

established that the customer had a New Mexico billing address, deliveries were not made in New

Mexico. Rather deliveries were made to non-New Mexico locations and there is nothing contained

on the face of the invoices to establish otherwise. The majority of invoices subject of this category of

transactions were for leases of forklifts for periods usually one month or less. [Testimony of Roy

Chavez; Taxpayer No. 8].

A comparison of Department Exhibit C to Taxpayer Exhibit 8 established that between

January 13, 2008 and May 12, 2015, the Taxpayer generated $143,756.01 in forklift rentals, including

tax, that it delivered to its customers at locations not within New Mexico, of which the Department

identified $98,945.64 as unreported taxable gross receipts. [Taxpayer Ex. 8; Dept. Ex. C].

Although the customers compensating the Taxpayer for the use of the forklifts had a New

Mexico billing address, Mr. Roy Chavez credibly testified that forklifts under normal circumstances

were employed at the location where they were also delivered. Mr. Roy Chavez credibly testified that

the forklifts in this category of transactions were not delivered in New Mexico.

Regulation 3.2.1.17 NMAC establishes that “receipts derived from the rental or leasing of

property employed in New Mexico are subject to gross receipts tax.” Regulation 3.2.1.17 (A) (1)

NMAC interprets the general provision under Section 7-9-3.5 (A) (1) that gross receipts includes

leasing property employed in New Mexico. Both Section 7-9-3.5 and Regulation 3.2.1.17 (A) (1)

require that the leased property be employed in New Mexico.

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 30 of 47
The evidence established that the forklifts subject of this category of transactions were not

employed in New Mexico. Mr. Roy Chavez credibly testified that under normal circumstances, the

forklifts were utilized at the point they were delivered. In this category of transactions, the forklifts

were delivered to non-New Mexico jobsites and there was no evidence in the record to suggest that

the forklifts were thereafter relocated for use in New Mexico by the Taxpayer or its customers. The

Hearing Officer was persuaded that the Taxpayer rebutted the presumption of correctness with regard

for this category of transactions. The Department did not introduce evidence to rebut the correctness

of its assessment with concern for this category of transactions.

Because the evidence established that the property subject of the invoices in Taxpayer Exhibit

8 was not employed in New Mexico, the invoices subject of this category of transactions are excluded

from the definition of “gross receipts” and are not taxable. See NMSA 1978, Sec. 7-9-3.5 (A) (1);

Regulation 3.2.1.17 NMAC.

Therefore, Taxpayer Exhibit 8 established that the audit and resulting assessment incorrectly

identified $98,945.64 as unreported taxable gross receipts when in fact, that amount was not taxable

as leased property employed in New Mexico. The Taxpayer successfully rebutted the presumption of

correctness with respect to invoices within this category of transactions and the Department did not

offer any evidence to reestablish the correctness of its assessment.

Category 8 (Taxpayer Exhibit 9) – Rental of Forklifts Picked Up by Customer from

Taxpayer’s Business Location in El Paso, Texas

Taxpayer Exhibit 9 contains 50 invoices for the rental of forklifts that the Taxpayer’s

customers picked up from the Taxpayer’s business location in El Paso, Texas. Mr. Roy Chavez

credibly testified that once a forklift was taken from the Taxpayer’s place of business, it lacked further

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 31 of 47
knowledge regarding its location of use. The majority of leases in this category of transactions were

for periods of one month or less. [Testimony of Roy Chavez; Taxpayer Ex. 9].

A comparison of Department Exhibit C to Taxpayer Exhibit 9 established that between

September 10, 2009 and April 22, 2015, the Taxpayer generated $88,950.81 in leases, including tax,

of forklifts from its El Paso, Texas location, of which the Department identified $70,964.25 as

unreported taxable gross receipts. [Taxpayer Ex. 9; Dept. Ex. C].

In this category of transactions, there was no evidence to suggest that forklifts rented from

Taxpayer’s business location, which customers also picked up from its business location in El Paso,

Texas, were then returned to New Mexico where they were employed. To find otherwise would

require the Hearing Officer to rely on speculation, guess, and conjecture. Consequently, Taxpayer

Exhibit 9 represents the lease of goods that were not employed in New Mexico, and are excluded

from the definition of “gross receipts” and are not taxable. See NMSA 1978, Sec. 7-9-3.5 (A) (1);

Regulation 3.2.1.17 NMAC.

Therefore, Taxpayer Exhibit 9 established that the audit and resulting assessment incorrectly

identified $70,964.25 as unreported taxable gross receipts when in fact, that amount was not taxable

as leased property employed in New Mexico. The Department did not present any evidence to

reestablished the correctness of its assessment

Category 9 (Taxpayer Exhibit 10) – Interstate Rigging Services Originating or

Concluding in New Mexico

Taxpayer Exhibit 10 contains 19 invoices for rigging services in which equipment was

relocated to or from a location in New Mexico, to or from another state. Mr. Roy Chavez credibly

testified that the invoices subject of this category of transactions are similar to those discussed in

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 32 of 47
Category 2 above, except these services either originated or concluded in New Mexico, and crossed

state lines. [Testimony of Roy Chavez; Taxpayer Ex. 10].

A comparison of Department Exhibit C to Taxpayer Exhibit 10 established that between

January 3, 2008 and May 18, 2015, the Taxpayer generated $42,755.50 in rigging services to or from

a New Mexico location and a non-New Mexico location, of which the Department identified

$42,570.50 as unreported taxable gross receipts. [Taxpayer Ex. 10; Dept. Ex. C].

Taxpayer claimed that because the services provided within this category of transactions

crossed state lines, they were non-taxable under the Commerce Clause of the United States

Constitution. New Mexico allows a deduction for receipts from transactions in interstate commerce

if the tax would be unlawful under the United States Constitution. See NMSA 1978, Sec. 7-9-55

(1993). Taxpayer’s argument does not persuade.

In Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (U.S. 1977), the United States

Supreme Court established a four-part test to determine whether a state’s attempts at taxation

impermissibly interferes with the Commerce Clause: (1) whether there is a substantial nexus

between a taxpayer and the taxing State; (2) whether the tax is fairly apportioned; (3) whether the

tax discriminates against interstate commerce; and (4) whether the tax is fairly related to the

services provided by the State.

Applying that test to the facts of this case, the New Mexico Gross Receipts and

Compensating Tax Act does not violate the Commerce Clause. Taxpayer does not dispute having

nexus with New Mexico. The tax is fairly apportioned and fairly related to services provided in

New Mexico. The tax, under this category of transactions, only applies to service performed in

New Mexico. When, as in this category of transactions, a service is performed both within and

without New Mexico, the Department provides for the allocation of receipts from selling services

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 33 of 47
within and without the state so that only the service performed in New Mexico is taxable as gross

receipts. See Regulation 3.2.1.18 B & C NMAC. Further, the plain language of New Mexico’s

Gross Receipts and Compensating Tax Act is neutral and does not discriminate against interstate

commerce and applies equally to both in-state and out-of-state business because it only imposes

taxes uniformly on those transactions coming with Section 7-9-3.5. See Am. Trucking Ass'ns v.

Mich. PSC, 545 U.S. 429, 434 (U.S. 2005) (Supreme Court found that a neutral, non-

discriminatory tax did not offend the Commerce Clause).

The Taxpayer did not rebut the presumption of correctness with regard for this category

of transactions. Nor did the Taxpayer present evidence on the appropriate allocation of services

between New Mexico and other states for any services within this category of transactions as

provided by Regulation 3.2.1.18 (C) NMAC. Because the Hearing Officer will not speculate as

to an appropriate allocation, the Taxpayer failed to rebut the presumption of correctness that

attached to this portion of the Department’s assessment.

Category 10 (Taxpayer Exhibit 11) – Services Provided by Taxpayer at Customers’

Jobsites in New Mexico

Taxpayer Exhibit 11 contains 148 invoices for services that the Taxpayer provided at the

customers’ jobsites. Mr. Roy Chavez credibly testified that in all circumstances subject of this

category of transactions, the equipment was serviced at a location within New Mexico and the

Taxpayer charged and collected tax which it then remitted to the State of Texas. [Testimony of Roy

Chavez; Taxpayer Ex. 11].

A comparison of Department Exhibit C to Taxpayer Exhibit 11 established that between

January 17, 2008 and May 28, 2015, the Taxpayer generated $56,177.52 in jobsite services performed

in New Mexico, including tax, of which the Department identified $54,704.23 as unreported taxable

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 34 of 47
gross receipts. [Taxpayer Ex. 9; Dept. Ex. C]. Two of the invoices were illegible. Similar to other

categories of transactions subject of this protest involving services, the primary inquiry concerns the

location where the service was provided. Taxpayer readily admitted that the services subject of this

category of transactions were provided in New Mexico.

Since the maintenance and repair services subject of Taxpayer Exhibit 11 represent services

performed within New Mexico, they come within the definition of “gross receipts” and are taxable as

such. See NMSA 1978, Sec. 7-9-3.5 (A) (1); Regulation 3.2.1.18 (A) & (E) NMAC.

Category 11 (Taxpayer Exhibits 12 and 13) – Sale of Parts Hand-Delivered by Taxpayer

to New Mexico Location

Because Taxpayer Exhibits 12 and 13 both address the sales of parts that the Taxpayer

delivered to customers in New Mexico, they will be discussed jointly within this category of

transactions. Taxpayer Exhibits 12 and 13 contain 14 invoices for the sale of parts that it delivered to

customers in New Mexico. Taxpayer also emphasized the fact that it collected taxes on the invoices

which it then remitted to the State of Texas. [Testimony of Roy Chavez; Taxpayer Ex. 12; Taxpayer

Ex. 13]. Although forklifts could also be addressed in this category of transactions, they will be

addressed separately consistent with the manner that Taxpayer presented its protest.

A comparison of Department Exhibit C to Taxpayer Exhibits 12 and 13 established that

between March 3, 2008 and May 24, 2012, the Taxpayer generated $26,809.19 from the sale of parts

that it delivered to customers in New Mexico, of which the Department identified $23,376.13 as

unreported taxable gross receipts. [Taxpayer Ex. 12; Taxpayer Ex. 13; Dept. Ex. C].

Applying the analysis and reasoning of Dell, we refer once again to the “destination

principal.” In contrast with the previous discussion in which the Hearing Officer recognized that the

entire transaction occurred out of state, the circumstances in the present category of transactions differ

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 35 of 47
significantly in that the Taxpayer crossed into New Mexico to deliver goods. As in Dell, the

assumption is that the goods are consumed at the destination. Dell, 2009-NMCA-001, at ¶28. It is

clear from Dell that if an out-of-state seller sells goods that are delivered in New Mexico, and

consumed in New Mexico, then gross receipts tax applies on the sale of the goods.

Accordingly, the Taxpayer failed to rebut the presumption of correctness in reference to the

sale of goods that it delivered to customers in New Mexico. The Department properly assessed gross

receipts tax on the sum of $23,376.13 that it identified as unreported taxable gross receipts stemming

from this category of transactions.

Category 12 (Taxpayer Exhibit 14) – Fork Lift Sales Delivered to New Mexico

Taxpayer Exhibit 14 contains 28 invoices for the sale of forklifts that the Taxpayer delivered

to customers in New Mexico. Taxes collected from the sales were remitted to the State of Texas.

[Testimony of Roy Chavez; Taxpayer Ex. 14].

A comparison of Department Exhibit C to Taxpayer Exhibit 14 established that between

January 9, 2008 and October 10, 2014, the Taxpayer generated $306,281.53 from the sale of forklifts

it delivered to New Mexico, including tax, of which the Department identified $149,409.91 as

unreported taxable gross receipts. [Taxpayer Ex. 14: Dept. Ex. C].

Applying the analysis and reasoning of Dell, we refer yet again to the “destination principal.”

Similar to the preceding category of transactions in which the Taxpayer delivered goods to customers

in New Mexico, the Taxpayer in this category of transactions also delivered forklifts to customers in

New Mexico. Once again, consistent with Dell, if an out-of-state seller sells goods that are delivered

in New Mexico, and consumed in New Mexico, then gross receipts tax applies on the sale of the

goods.

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 36 of 47
Accordingly, the Taxpayer failed to rebut the presumption of correctness in reference to the

sale of forklifts that it delivered to customers in New Mexico. The Department properly assessed

gross receipts tax on the sum of $149,409.91 that it identified as unreported taxable gross receipts

stemming from this category of transactions.

Category 13 (Taxpayer Exhibit 15) – Forklift Rentals Delivered by Taxpayer to

Customers in New Mexico

Taxpayer Exhibit 15, the most voluminous of Taxpayer’s exhibits, contains 1,310 invoices

for the rental of forklifts which the Taxpayer delivered to locations in New Mexico. To the extent any

taxes were collected, they were remitted to the State of Texas. [Testimony of Roy Chavez; Testimony

of Rosemary Chavez; Taxpayer Ex. 15].

A comparison of Department Exhibit C to Taxpayer Exhibit 15 established that between

January 7, 2008 and May 19, 2015, the Taxpayer generated $1,365,240.95 from the rental of forklifts

delivered to New Mexico, of which the Department identified $1,220,820.46 as unreported taxable

gross receipts. [Taxpayer Ex. 15; Dept. Ex. C]. Four of the invoices were illegible.

Regulation 3.2.1.17 NMAC provides that the lease payments are taxable gross receipts

where the leased equipment was employed in New Mexico. Regulation 3.2.1.17 (A) (1) states

“receipts derived from the rental or leasing of property employed in New Mexico are subject to

gross receipts tax.” Regulation 3.2.1.17 (A) (1) interprets the general provision under Section 7-9-

3.5 (A) (1) that gross receipts includes leasing property employed in New Mexico. Both Section

7-9-3.5 and Regulation 3.2.1.17 (A) (1) require that the leased property be employed in New

Mexico.

Regulation 3.2.1.17 (D) (2) provides a formula for apportioning the use of leased

equipment in a multistate transaction. Regulation 3.2.1.17 (D) (3) provides that “[t]he department

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 37 of 47
will allow a person engaged in the business of leasing property employed both within and without

New Mexico to use other methods of apportioning the receipts of such leasing activities upon

showing that the other methods more accurately reflect the portion of employment of leased items

within New Mexico.”

Taxpayer’s counsel suggested that Taxpayer lacked knowledge of where its customers

employed the leased equipment. However, Mr. Roy Chavez credibly testified that under usual

circumstances, equipment was employed at the location of delivery. In this category of

transactions, all deliveries were made within New Mexico. [Testimony of Roy Chavez].

Accordingly, a reasonable inference may be drawn that the equipment was also employed in New

Mexico.

Even if counsel’s arguments were supported by evidence that Taxpayer was truly ignorant,

ignorance of facts is insufficient to rebut the presumption of correctness. In fact, if ignorance of

facts were a defense, then ignorance would always prevail. This would lead to absurd results and

contradict the law of this state which places the burden on Taxpayer to present countervailing

evidence or legal argument to show that it is entitled to an abatement, in full or in part, of the

assessments issued against it. See N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-

NMCA-099, ¶8. “Unsubstantiated statements that the assessment is incorrect cannot overcome the

presumption of correctness." See MPC Ltd. v. N.M. Taxation & Revenue Dep't, 2003-NMCA-21,

¶13, 133 N.M. 217; See also Regulation 3.1.6.12 NMAC.

The Hearing Officer does not view ignorance of material facts as countervailing evidence

sufficient to entitle Taxpayer to an abatement of the assessment in this case. Despite any assertions

of ignorance, Mr. Roy Chavez’ testimony established that Taxpayer knew that its leased equipment

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 38 of 47
was usually being employed at the locations where Taxpayer delivered it. In this category of

transactions, all deliveries were to customers in New Mexico.

The invoices within this category of transactions represent the lease of goods employed in

New Mexico. In each instance, the forklifts were delivered to customers in New Mexico, who

employed the equipment in New Mexico. Although, it may be possible that a customer could take

the equipment out of state where it would be employed, that scenario would likely be rare among

the 1,310 invoices the Taxpayer presented in this category of transactions. The Taxpayer did not

rebut the presumption of correctness with concern for this category of transactions.

Credit for Taxes Paid to the State of Texas

When a gross receipts tax is stated separately on the books of a seller or lessor, as observed

on numerous transactions contained in Taxpayer’s invoices, the tax stated on the transactions

within that reporting period shall be included in gross receipts. See NMSA 1978, Sec. 7-9-6;

Regulation 3.2.6.8 NMAC; Regulation 3.2.6.9 NMAC.

However, Taxpayer asserts that it should be entitled to a credit for taxes that it collected on

transactions taxable to New Mexico that it paid to the State of Texas, including those which were

separately stated for New Mexico. Ms. Rosemary Chavez credibly testified that every tax

collected, whether or not expressly designated for New Mexico, was paid to the State of Texas.

Taxpayer relies on NMSA 1978, Section 7-9-79 which provides a credit of compensating

tax if a gross receipts, sales, compensating or similar tax has been levied by another state or political

subdivision on the transaction. Section 7-9-79 (A) provides:

If on property bought outside this state, a gross receipts, sales,
compensating or similar tax has been levied by another state or
political subdivision thereof on the transaction by which the person
using the property in New Mexico acquired the property or a
compensating, use or similar tax has been levied by another state on
the use of the property subsequent to its acquisition by the person using

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 39 of 47
the property in New Mexico and such tax has been paid, the amount
of such tax paid may be credited against any compensating tax due this
state on the same property.

However, the evidence in this protest did not establish that Taxpayer is a person acquiring the

property for use in New Mexico, or that Texas levied a tax on sales or services taxable in New Mexico.

Rather, Taxpayer asserts that Section 7-9-79 (A) should be read to provide a credit for taxes it

erroneously paid to another state.

The Hearing Officer will not attempt to address the complexities of Texas tax law, but the

Hearing Officer notes that Texas exempts taxes on the sales, including leases, of tangible personal

property shipped outside the state by the facilities of the seller, and services performed outside the

State of Texas. See V.T.C.A., Tax Code Section 151.330 (addressing interstate shipments,

common carriers, and services across state lines); 151.105 (defining the term “sale” to include

“leases”).

It would contradict the Legislature’s express intentions to conclude that it intended to

permit a tax credit for taxes due to New Mexico which were paid in error to another state. NMSA

1978 Sec. 7-9-2 expressly provides that the purpose of the Gross Receipts and Compensating Tax

is to “provide revenue for public purposes[.]” A credit for taxes erroneously paid to another state,

which were rightfully due to New Mexico in the first instance, fails to provide revenue for the

purposes intended by the Legislature. Therefore, Taxpayer failed to establish a right to a credit

under Section 7-9-79 (A).

Penalty and Interest

Although Taxpayer’s counsel indicated that Taxpayer does not contest the assessment of

penalty, and did not address interest, the Hearing Officer will nevertheless address imposition of both.

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 40 of 47
When a taxpayer fails to make timely payment of taxes due to the state, “interest shall be

paid to the state on that amount from the first day following the day on which the tax becomes

due...until it is paid.” NMSA 1978, Sec. 7-1-67 (2007) (italics for emphasis). Under the statute,

regardless of the reason for non-payment of the tax, the Department has no discretion in the

imposition of interest, as the statutory use of the word “shall” makes the imposition of interest

mandatory. See Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, ¶22,

146 N.M. 24, 32 (use of the word “shall” in a statute indicates the provision is mandatory absent clear

indication to the contrary). The language of the statute also makes it clear that interest begins to run

from the original due date of the tax and continues until the tax principal is paid in full.

The Department has no discretion under Sec. 7-1-67 and must assess interest against

Taxpayer from the time the tax was due, but not paid, until the tax principal liability is satisfied.

Therefore, the assessment of interest is mandatory and the Department is without legal authority to

abate it despite the Taxpayer’s lack of bad faith.

With concern for penalty, when a taxpayer fails to pay taxes due to the State because of

negligence or disregard of rules and regulations, but without intent to evade or defeat a tax, NMSA

1978 Sec. 7-1-69 (2007) requires that

there shall be added to the amount assessed a penalty in an amount equal to
the greater of: (1) two percent per month or any fraction of a month from
the date the tax was due multiplied by the amount of tax due but not paid,
not to exceed twenty percent of the tax due but not paid.

(italics added for emphasis).

As discussed above, the statute’s use of the word “shall” makes the imposition of penalty

mandatory in all instances where a taxpayer’s actions or inactions meet the legal definition of

“negligence” even if, like here, Taxpayer’s actions or inactions were unintentional.

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 41 of 47
Regulation 3.1.11.10 NMAC defines negligence in three separate ways: (A) “failure to

exercise that degree of ordinary business care and prudence which reasonable taxpayers would

exercise under like circumstances;” (B) “inaction by taxpayer where action is required”; or (C)

“inadvertence, indifference, thoughtlessness, carelessness, erroneous belief or inattention.” In this

case, Taxpayer was negligent under Regulation 3.1.11.10 (A), (B) & (C) NMAC due to inaction in

failing to pay gross receipts tax when due resulting from the erroneous belief that the income derived

from the business activity did not give rise to gross receipts tax obligations.

In instances where a taxpayer might come within the definition of civil negligence

generally subject to penalty, Sec. 7-1-69 (B) provides a limited exception: “[n]o penalty shall be

assessed against a taxpayer if the failure to pay an amount of tax when due results from a mistake

of law made in good faith and on reasonable grounds.” Here, there is no evidence that Taxpayer

made an informed judgment or determination based on reasonable grounds. See C & D Trailer

Sales v. Taxation and Revenue Dep’t, 1979-NMCA-151, ¶8-9, 93 N.M. 697 (penalty upheld where

there was no evidence that the taxpayer “relied on any informed consultation” in deciding not to

pay tax). Consequently, this mistake of law provision of Section 7-1-69 (B) does not provide for

abatement of penalty in this case.

The other grounds for abatement of civil negligence penalty are found under Regulation

3.1.11.11 NMAC. That regulation establishes eight indicators of non-negligence where penalty

may be abated. Based on the evidence presented, none of the factors under Regulation 3.1.11.11

NMAC potentially apply in this proceeding.

The Department did not allege that the Taxpayer’s inaction was with the intent to evade or

defeat a tax. In contrast, there was no dispute that the issue giving rise to this protest was the result

of Taxpayer’s inadvertence, erroneous belief, or inattention. In other words, Taxpayer’s conduct was

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 42 of 47
not in bad faith or with dishonest intentions. Yet, El Centro Villa Nursing established that the civil

negligence penalty is appropriate for inadvertent error and Regulation 3.1.11.11 NMAC does not

provide grounds for abatement of the penalty in this case. Therefore, Taxpayer has not overcome

the presumption of correctness and failed to establish an entitlement to an abatement of penalty in

this matter.

Under New Mexico’s self-reporting tax system, “every person is charged with the reasonable

duty to ascertain the possible tax consequences” of his or her actions. Tiffany Construction Co. v.

Bureau of Revenue, 1976-NMCA-127, ¶5, 90 N.M. 16. Had Taxpayer consulted a tax professional

or made a more thorough inquiry regarding its tax responsibilities, the results might be different.

In conclusion, the Taxpayer rebutted the presumption of correctness with respect to the

unreported taxable gross receipts contained in Taxpayer Exhibits 1, 2, 4, 5, 6, 7, 8, and 9 which also

contributed to the actual assessment as provided in Department Exhibit C, representing a combined

amount of claimed unreported taxable gross receipts of $325,221.47.

Taxpayer’s protest with concern for the remainder of the unreported taxable gross receipts

giving rise to the remainder of the assessment should be denied.

The protest of corporate income tax subject of Letter ID No. L0284286000 should also be

denied because it was withdrawn by Taxpayer.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely, written protests to the Department’s assessments, and

jurisdiction lies over the parties and the subject matter of the protests.

B. A hearing was timely set and held within 90-days of the protests under NMSA 1978,

Sec. 7-1B-8 (2015).

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 43 of 47
C. Taxpayer withdrew its protest of the assessment issued under Letter ID No.

L0284286000.

D. Taxpayer did not overcome the presumption of correctness that attached to the

assessment under NMSA 1978, Sec. 7-1-17 (C) (2007) and Archuleta v. O'Cheskey, 1972-NMCA-

165, ¶11, 84 N.M. 428 with respect to the invoices admitted as Taxpayer Exhibits 10, 11, 12, 13, 14,

and 15 which actually contributed to the assessment in this matter.

E. The Taxpayer did overcome the presumption of correctness that attached to the

assessment under NMSA 1978, Sec. 7-1-17 (C) (2007) and Archuleta v. O'Cheskey, 1972-NMCA-

165, ¶11, 84 N.M. 428 with respect to the invoices admitted as Taxpayer Exhibits 1, 2, 4, 5, 6, 7, 8,

and 9 which actually contributed to the assessment of gross receipts tax, penalty and interest under

Letter ID No. L0975076400.

F. Taxpayer did not qualify for a credit against its outstanding liability under the

assessment issued under Letter ID No. L0975076400 under NMSA 1978, Sec. 7-9-79 because

Taxpayer was not a person acquiring property for use in New Mexico such that it would be entitled

to a credit for compensating tax and because there was no evidence that Texas actually levied a tax

on transactions that were taxable to New Mexico.

G. Taxpayer did not establish that the right to a deduction pursuant to NMSA 1978,

Sec. 7-9-55 because Taxpayer did not prove that the application of the gross receipts tax would

be unlawful under the United States constitution under the circumstances of this protest.

For the foregoing reasons, the Taxpayer’s protest of the assessment issued under Letter ID

No. L0975076400 IS DENIED IN PART AND GRANTED IN PART. The Department shall

abate an amount of gross receipts tax, penalty, and interest on the amount of $325,221.47 that it

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 44 of 47
erroneously concluded were taxable gross receipts. The Taxpayer is order to pay the tax, penalty

and interest remaining after the Department’s abatement.

Furthermore, because Taxpayer withdrew the protest of assessment issued under Letter ID

No. L0284286000, Taxpayer’s protest of that assessment is DENIED.

DATED: September 13, 2017

Chris Romero
Hearing Officer
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 45 of 47
NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, Section 7-1-25 (2015), 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. If an appeal is not timely filed with the Court of Appeals within 30 days, this

Decision and Order will become final. Rule of Appellate Procedure 12-601 NMRA articulates

the requirements of perfecting an appeal of an administrative decision with the Court of Appeals.

Either party filing an appeal shall file a courtesy copy of the appeal with the Administrative

Hearings Office contemporaneous with the Court of Appeals filing so that the Administrative

Hearings Office may begin preparing the record proper. The parties will each be provided with a

copy of the record proper at the time of the filing of the record proper with the Court of Appeals,

which occurs within 14-days of the Administrative Hearings Office receipt of the docketing

statement from the appealing party. See Rule 12-209 NMRA.

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 46 of 47
CERTIFICATE OF SERVICE

In the Matter of the Protest of
Permian Machinery Movers Inc.
Page 47 of 47