Did a Texas wooden-pallet manufacturer owe New Mexico gross receipts tax when New Mexico business customers traveled to its Texas location and picked up the pallets there?

Plain-English summary

Eduardo Aguirre did not owe New Mexico gross receipts tax on wooden pallets sold from his Texas business to customers who picked them up in Texas. The Department conceded that he was not doing business in New Mexico, and the AHO abated the assessment in full.

Aguirre lived and worked in Texas a few miles from the New Mexico border. He manufactured wooden pallets that business customers used as packaging when shipping their products. A few New Mexico businesses became customers, but they traveled to his Texas location to buy and take possession of the pallets.

Aguirre owned trucks, but the evidence showed that they hauled wood and other manufacturing inputs rather than delivering finished pallets to customers. He lacked separate delivery-location records because customers procured the pallets at his shop.

The sales occurred through the Texas operation

New Mexico imposed gross receipts tax on anyone engaging in business in New Mexico under Section 7-9-4. After hearing the testimony, the Department conceded that Aguirre conducted his business in Texas and was not presently engaging in business in New Mexico.

That concession resolved the assessment. The final conclusions stated that Aguirre was not presently subject to New Mexico gross receipts tax.

The NTTCs supplied a second ground for relief

Aguirre also produced two nontaxable transaction certificates from customers. The Department agreed that even if he had been doing business in New Mexico, those certificates showed that the pallet sales were deductible as sales for resale under Sections 7-9-43 and 7-9-47. The customers used the pallets as packaging for products they shipped onward.

The December 2018 assessment totaled $42,363.61: $31,148.91 of tax, $6,229.79 of penalty, and $4,984.91 of interest.

The Department was late in requesting a hearing

The decision also found that the Department did not refer the protest for hearing within the applicable 45-day period. The AHO could still set the initial hearing within 90 days of the Department's acknowledgment, and Aguirre later requested a continuance and waived that deadline.

The statute supplied no separate consequence for the Department's late referral. The AHO treated the issue as moot because Aguirre won on the tax merits.

Result: protest GRANTED. The $42,363.61 assessment was abated in full.

What this means for you

Document where customers take possession

For an out-of-state seller near New Mexico, invoices, pickup records, and delivery terms can help establish where a sale was completed and whether the seller was conducting business in New Mexico.

Separate delivery trucks from supply-hauling vehicles

The testimony that Aguirre's trucks hauled production materials rather than delivered finished pallets supported the Texas-only business facts.

Obtain and retain valid NTTCs for resale sales

The certificates gave Aguirre an independent deduction argument because the customers incorporated the pallets into packaging for their own product shipments.

Do not assume agency delay automatically cancels tax

The decision applied the rule that public-officer tardiness is not a defense when the statute provides no consequence. Aguirre prevailed because of the sales facts and NTTCs, not merely because the referral was late.

Common questions

Q: Did New Mexico tax apply simply because the buyers were New Mexico businesses?
A: No. The buyers traveled to the Texas location and picked up the pallets there, and the Department conceded Aguirre was not doing business in New Mexico.

Q: Did Aguirre deliver pallets into New Mexico?
A: The evidence said no. His trucks were used to haul wood and other materials used to manufacture pallets.

Q: Why were the pallet sales treated as resale transactions?
A: The business customers used the pallets as packaging when shipping their products, and they supplied NTTCs supporting the deduction.

Q: Would the NTTCs have mattered if Aguirre were doing business in New Mexico?
A: Yes. The Department conceded that the certificates would make the sales deductible even under that alternative assumption.

Q: How much was abated?
A: $31,148.91 of tax, $6,229.79 of penalty, and $4,984.91 of interest, totaling $42,363.61.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-9-4 — gross receipts tax on persons engaging in business in New Mexico
• NMSA 1978, §§ 7-9-43 and 7-9-47 — deductions supported by NTTCs for resale transactions
• NMSA 1978, §§ 7-1-17 and 7-1-3 — assessment presumption, civil penalty, and interest
• NMSA 1978, §§ 7-1-24 and 7-1B-8 — protest and hearing timing
• Regulations 22.600.1.12(H), 22.600.3.8, and 3.1.4.10 NMAC — filing date, acknowledgment, and hearing deadlines

Case:

• Ranchers-Tufco Limestone Project Joint Venture v. Revenue Division, 1983-NMCA-126 — public-officer tardiness is not a defense when the statute provides no consequence

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Eduardo Aguirre
• Decision PDF: D&O 19-22

Original ruling text

1 STATE OF NEW MEXICO
2 ADMINISTRATIVE HEARINGS OFFICE
3 TAX ADMINISTRATION ACT

4 IN THE MATTER OF THE PROTEST OF
5 EDUARDO AGUIRRE
6 TO THE ASSESSMENT ISSUED UNDER
7 LETTER ID NO. L1436242096

8 v. AHO No. 19.04-077A, D&O No. 19-22

9 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

10 DECISION AND ORDER

11 On July 18, 2019, Hearing Officer Dee Dee Hoxie, Esq. conducted a hearing on the

12 merits of the protest to the assessment. The Taxation and Revenue Department (Department) was

13 represented by Peter Breen, Staff Attorney. Angelica Rodriguez, Auditor, and Alma Lucero,

14 Revenue Agent, also appeared on behalf of the Department. Eduardo Aguirre (Taxpayer) was

15 present and represented himself. Luis Aguirre, the Taxpayer’s brother, also appeared for the

16 hearing. Mr. Aguirre, the Taxpayer, and Ms. Rodriguez testified. The Hearing Officer took

17 notice of all documents in the administrative file. The Taxpayer’s exhibits #1 (business

18 licenses), #2 (tax in Texas), and #3 (letter, return, and 1099s) were admitted. The Department’s

19 exhibit A (assessment information) was admitted. A more detailed description of exhibits

20 submitted at the hearing is included on the Administrative Exhibit Coversheet.

21 The main issue to be decided is whether the Taxpayer is liable for New Mexico’s gross

22 receipts taxes for his sale of wooden pallets to customers who are doing business in New

23 Mexico. The Department conceded at the hearing that the Taxpayer was not doing business in

24 New Mexico. In light of the concession and considering all of the evidence and arguments

25 presented, the Hearing Officer finds in favor of the Taxpayer. IT IS DECIDED AND

26 ORDERED AS FOLLOWS:

Eduardo Aguirre
Case #19.04-077A
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1 FINDINGS OF FACT

2 1. On December 13, 2018, the Department assessed the Taxpayer for gross receipts

3 taxes. The assessment was for $31,148.91 in tax, $6,229.79 in penalty, and $4,984.91 in interest,

4 for a total liability of $42,363.61. [L1436242096]

5 2. On January 28, 2019, the Taxpayer filed a formal protest of the assessment.

6 [Administrative file]

7 3. On February 20, 2019, the Department acknowledged its receipt of the

8 Taxpayer’s protest. [Administrative file]

9 4. On April 30, 2019, the Department filed a Request for Hearing asking that the

10 Taxpayer’s protest be scheduled for a formal administrative hearing. [Administrative file]

11 5. The Taxpayer requested a continuance of the initial setting and waived the 90-day

12 requirement of the statute. [Administrative file]

13 6. On June 24, 2019, the Taxpayer filed his supplemental grounds for the protest and

14 moved to withdraw his previous waiver of the 90-day requirement. [Administrative file]

15 7. The supplemental grounds had two nontaxable transaction certificates (NTTCs)

16 attached to it. [Administrative file]

17 8. The Taxpayer lives and works in Texas. [Administrative file, Testimony of Mr.

18 Aguirre, Testimony of Taxpayer, Testimony of Ms. Rodriguez]

19 9. The Taxpayer manufactures wooden pallets and sells them to businesses that use

20 the pallets as part of their packaging when those businesses ship their products to their

21 customers. [Testimony of Mr. Aguirre, Testimony of Taxpayer, Testimony of Ms. Rodriguez]

22 10. Packaging materials are considered to be items that are resold when they are used

23 in this manner. [Testimony of Ms. Rodriguez]

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Case #19.04-077A
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1 11. The Taxpayer’s business is located a few miles from the border with New

2 Mexico. [Testimony of Mr. Aguirre, Testimony of Taxpayer]

3 12. Recently, a couple of New Mexico businesses have become customers of the

4 Taxpayer. [Administrative file, Testimony of Mr. Aguirre]

5 13. The Taxpayer’s customers come to his location to make purchases of his wooden

6 pallets. The Taxpayer has a couple of trucks, but they are not for delivery; they are used to haul

7 the wood and materials that the Taxpayer uses in his manufacturing of the pallets. [Testimony of

8 Mr. Aguirre, Testimony of Taxpayer]

9 14. The Taxpayer did not have records to show where delivery of the pallets occurred,

10 ostensibly because his customers come to his location to purchase and procure the pallets.

11 [Testimony of Mr. Aguirre, Testimony of Ms. Rodriguez]

12 15. The Department concedes that the testimony presented at the hearing in

13 conjunction with the NTTCs produced are sufficient to show that the Taxpayer is conducting his

14 business in Texas and is not subject to the New Mexico gross receipts taxes. [Department’s

15 closing argument]

16 DISCUSSION

17 Burden of Proof.

18 Assessments by the Department are presumed to be correct. See NMSA 1978, § 7-1-17.

19 Tax includes, by definition, the amount of tax principal imposed and, unless the context

20 otherwise requires, “the amount of any interest or civil penalty relating thereto.” NMSA 1978, §

21 7-1-3. See also El Centro Villa Nursing Ctr. v. Taxation and Revenue Department, 1989-NMCA-

22 070, 108 N.M. 795. Therefore, the assessment issued to the Taxpayer is presumed to be correct,

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Case #19.04-077A
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1 and it is the Taxpayer’s burden to present evidence and legal argument to show that he is entitled

2 to an abatement.

3 Gross Receipts Tax.

4 Anyone engaging in business in New Mexico is subject to the gross receipts tax. See

5 NMSA 1978, § 7-9-4. After testimony and evidence was presented, the Department conceded

6 that it appears that the Taxpayer is engaged in business in Texas. The Taxpayer makes sales to

7 his customers at his location in Texas, and the customers get the pallets there. The Department

8 also conceded that even if the Taxpayer were doing business in New Mexico, the NTTCs

9 provided show that his sales would be deductible as sales for resell. See NMSA 1978, § 7-9-43

10 and § 7-9-47.

11 90-day requirement.

12 The Taxpayer argued that the Department failed to comply with the statute because it

13 referred the protest for hearing more than 45 days after the protest was filed. The Taxpayer

14 argued that the referral also occurred more than 90 days after the protest was filed and that

15 requiring the Taxpayer to waive the 90-day requirement in its request for continuance of the

16 initial setting was unfair since the 90-day deadline had already passed.

17 It is not clear whether the statutory requirement is intended to be jurisdictional as the

18 statute does not provide any remedy or relief for a failure to comply. See NMSA 1978, § 7-1B-8

19 (2015) 1. A hearing is required 90 days from the date of the “receipt of a protest filed pursuant to

20 Section 1-7-24 NMSA 1978.” Id. Protests are filed with the Department, and the Department

21 files a request for hearing with the Administrative Hearings Office. See id. See also NMSA

22 1978, § 7-1-24. Although the Taxpayer mailed his protest on January 18, 2019, the Department

1
The statute in effect at the time this protest was filed. The statute has since been amended.
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1 received it and filed it on January 28, 2019. See 22.600.1.12 (H) NMAC (noting that date of

2 receipt is the date of filing). See also 3.1.4.10 NMAC (using the postmark to determine

3 timeliness of submission). The Department acknowledged its receipt of the Taxpayer’s protest

4 on February 20, 2019. [Administrative file]. The Department did not offer any explanation for

5 the delay in the acknowledgement. However, the regulations allow for the deadlines to

6 commence upon the Department’s acknowledgement of the protest. See 22.600.3.8 NMAC.

7 Even using the acknowledgement date of February 20, 2019, the Department was in violation of

8 the statute by failing to refer the protest for hearing within 45 days. See id. See also NMSA

9 1978, § 7-1B-8. The Department did not offer any explanation for its tardiness. The

10 Administrative Hearings Office was still able to set the initial hearing on May 17, 2019, which

11 was within 90 days of the Department’s acknowledgment of the protest. See 22.600.3.8 NMAC.

12 Therefore, the Taxpayer’s waiver of the 90-day requirement was appropriate when he requested

13 a continuance of the initial setting.

14 Another taxpayer previously argued that the Department denied it the statutory right to a

15 prompt hearing on its protest. See Ranchers-Tufco Limestone Project Joint Venture v. Revenue

16 Div., 1983-NMCA-126, ¶ 12, 100 N.M. 632. That argument ultimately failed. See id. at ¶ 13.

17 The court found that the general rule is that the tardiness of public officer’s is not a defense to an

18 action by the state. See id. The court noted that the statute did not provide a consequence for

19 failure to comply with the requirements of a prompt hearing. See id. Therefore, “[t]he general

20 rule is applicable in these cases unless [the statute] makes it inapplicable.” Id. The statute here

21 does not provide a consequence for failure to comply with its requirements. See NMSA 1978, §

22 7-1B-8. Therefore, there is no defense based on the Department’s failure to comply with the

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1 statute. See Ranchers-Tufco, 1983-NMCA-126. Given that the Taxpayer has prevailed on the

2 merits of the protest, this timeliness issue is moot and need not be decided.

3 CONCLUSIONS OF LAW

4 A. The Taxpayer filed a timely, written protest of the Department’s assessment and

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

6 B. As the Department conceded at the hearing, the Taxpayer is doing business in Texas,

7 is not presently doing business in New Mexico, and is not presently subject to the New Mexico

8 gross receipts taxes. See NMSA 1978, § 7-9-4.

9 For the foregoing reasons, the Taxpayer’s protest IS GRANTED. IT IS ORDERED that

10 the assessment is hereby abated in full.

11 DATED: August 30, 2019.

12 Dee Dee Hoxie
13 Dee Dee Hoxie
14 Hearing Officer
15 Administrative Hearings Office
16 P.O. Box 6400
17 Santa Fe, NM 87502

18 NOTICE OF RIGHT TO APPEAL

19 Pursuant to NMSA 1978, Section 7-1-25 (2015), the parties have the right to appeal this

20 decision by filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the

21 date shown above. If an appeal is not timely filed with the Court of Appeals within 30 days, this

22 Decision and Order will become final. Rule of Appellate Procedure 12-601 NMRA articulates

23 the requirements of perfecting an appeal of an administrative decision with the Court of Appeals.

24 Either party filing an appeal shall file a courtesy copy of the appeal with the Administrative

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Case #19.04-077A
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1 Hearings Office contemporaneous with the Court of Appeals filing so that the Administrative

2 Hearings Office may begin preparing the record proper. The parties will each be provided with a

3 copy of the record proper at the time of the filing of the record proper with the Court of Appeals,

4 which occurs within 14 days of the Administrative Hearings Office receipt of the docketing

5 statement from the appealing party. See Rule 12-209 NMRA.

6 CERTIFICATE OF SERVICE

7 On September 3, 2019, a copy of the foregoing Decision and Order was submitted to the

8 parties listed below in the following manner:

9 First Class Mail Interdepartmental Mail
INTENTIONALLY BLANK

10
11 John Griego
12 Legal Assistant
13 Administrative Hearings Office
14 P.O. Box 6400
15 Santa Fe, NM 87502

Eduardo Aguirre
Case #19.04-077A
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