My school teaches in New Mexico but develops its curriculum and runs job placement out of state — can I apportion my tuition so New Mexico only taxes the in-state part?

Plain-English summary

ITT Educational Services — then the largest for-profit college in the country — operated a vocational campus, ITT Tech, in Albuquerque, one of dozens it ran nationwide. Students paid tuition to earn technical degrees (electronics engineering and computer-aided drafting), attending class four hours a day, five days a week, for 18 months to two years. ITT paid gross receipts tax on its bookstore sales (books, tool kits, memorabilia) but had never paid gross receipts tax on tuition. A 1995 Department audit caught this and assessed $832,963.14 — $569,423.69 tax, $55,493.16 penalty, and $208,046.29 interest — for January 1989 through March 1995.

ITT didn't dispute that teaching in New Mexico is taxable. Instead it argued that tuition really pays for three services, some performed out of state at its Indianapolis headquarters, and asked the Department to apportion the tax — abating about 37% of it. The out-of-state pieces it identified were:

• Curriculum development (~25%) — its standardized, nationally-developed curriculum, written and updated by specialists at HQ;
• Job placement — a nationwide placement network run largely from HQ; and
• Financial-aid processing (~2%) — applications reviewed and disbursed through HQ and out-of-state contractors.

ITT also argued the U.S. Commerce Clause required apportionment between its in-state and out-of-state activities. Hearing Officer Gerald B. Richardson denied the protest and upheld tax on 100% of tuition:

• The service students buy is the teaching, and it happens in New Mexico. Gross receipts tax reaches receipts from "performing services in New Mexico" (§ 7-9-4; § 7-9-3(F)). What a student pays tuition for is having the curriculum taught to them in Albuquerque — instructors delivering lessons, grading exams, running labs, monitoring progress. That service is performed wholly in state.
• Curriculum development is a component of the in-state service, not a separable out-of-state transaction. Although the curriculum is written out of state, "it is delivered and taught to the Taxpayer's students in New Mexico." No part of tuition is separately billed for curriculum, and even if it were, the "reality of the transaction" would control. (The Department analogized to a scholar who spent years at Harvard preparing a lecture but is taxed on delivering the speech in New Mexico.)
• Placement and financial aid are incidental support for the in-state education. Both are dwarfed by the classroom time, aren't sold separately, give no tuition discount to students who don't use them, and benefit ITT itself (as recruitment and guaranteed tuition collection). They resemble general and administrative expenses, which under Regulation 3(F):65 are the taxpayer's own expenses of performing services in New Mexico and are not deductible from gross receipts.
• The controlling cases favor the Department. Advance Schools (an out-of-state correspondence school with no New Mexico teachers) was distinguished; Mountain States Advertising (billboards built in Colorado but displayed — and fully taxed — in New Mexico) and United States v. New Mexico (out-of-state G&A that was merely a component of in-state contract work) governed. Under Dravo Contracting, out-of-state preparatory work is immaterial when the materials are used to perform the contract in the taxing state.
• No Commerce Clause violation. Applying the four-part Complete Auto Transit test, the tax is fairly apportioned because it is both internally consistent (no other state could tax these same New Mexico teaching receipts) and externally consistent (New Mexico taxes only tuition for teaching done in New Mexico). Oklahoma Tax Commission v. Jefferson Lines (full tax on a bus ticket sold in-state for out-of-state travel) confirmed that no mileage-style split was required. There was "simply no possibility of double taxation."

What this means for you

Tax follows where the service is actually delivered — not where the back-office work happens

New Mexico's gross receipts tax sources a service to where it is performed for the customer. If you deliver the service in New Mexico, the fact that you designed it, developed the underlying product, or ran support functions in another state generally doesn't carve out a piece of the receipts. Identify what your customer is actually paying for and where that thing is delivered.

"Incidental" and preparatory activities don't create an apportionable out-of-state service

ITT's curriculum, placement, and aid work were real and valuable, but the Hearing Officer treated them as components of, or support for, the taxable in-state service. To be excluded, an activity generally must be a separable out-of-state transaction — something the customer separately bargained and paid for, performed out of state — not preparation, overhead, or a benefit that also serves your own business. Merely labeling costs "out-of-state services" won't do it.

You usually can't deduct out-of-state overhead from New Mexico gross receipts

Regulation 3(F):65 treats out-of-state general, administrative, travel, and similar expenses allocated to in-state work as your own cost of performing services here — and the gross receipts tax has no deduction for the expenses of performing a service. Gross receipts means the full amount received, before your costs.

Apportionment is possible only when the same service is genuinely performed in two states

Contrast the attorney in Revenue Ruling 410-90-2, who did legal work in both Texas and New Mexico and could apportion by hours actually worked in each. The difference is that the same service was performed in two places. Where the customer's service is delivered in one state and the other-state activity is just preparation or support, apportionment isn't available.

The Commerce Clause won't rescue a full in-state tax that can't be duplicated elsewhere

A tax on a service performed and sold entirely in one state is fairly apportioned under Complete Auto Transit because no other state can tax the same transaction — so there's no risk of double taxation to cure. Don't count on the Commerce Clause to force a split when the taxable event happens wholly within New Mexico.

Common questions

Q: My business delivers services in New Mexico but does design or admin work in another state. Can I apportion the tax?
A: Usually not. New Mexico taxes the full receipts from a service performed for the customer here. Out-of-state design, development, or overhead is generally treated as a component of, or support for, the in-state service — not a separable transaction that can be split out.

Q: I develop my product (curriculum, software, plans) out of state. Isn't that a taxable service somewhere else?
A: The Hearing Officer said the development is inseparable from delivering the finished service to the customer in New Mexico. Even separately billing for it wouldn't change the result, because the tax looks at the reality of what the customer is paying for and where it's delivered.

Q: Can I deduct my out-of-state overhead from New Mexico gross receipts?
A: No. Under Regulation 3(F):65, out-of-state general and administrative and similar expenses are your own cost of performing services in New Mexico, and the gross receipts tax allows no deduction for the expenses of performing a service.

Q: When is apportionment actually allowed?
A: When the same service is genuinely performed in more than one state — like the attorney who did legal work in both Texas and New Mexico and apportioned by hours worked in each. That's different from delivering the service in one state while doing preparation or support elsewhere.

Q: Doesn't the Commerce Clause require New Mexico to tax only its "share"?
A: Not here. Under the Complete Auto Transit test, a tax on a service performed and sold wholly within New Mexico is fairly apportioned because no other state can tax the same transaction, so there's no double taxation to prevent.

Citations and references

Statutes and regulations:

• § 7-9-4 NMSA 1978 — imposes the gross receipts tax on the privilege of engaging in business in New Mexico
• § 7-9-3(F) NMSA 1978 — "gross receipts" includes receipts from performing services in New Mexico (and, from July 1, 1989, from out-of-state services whose product is initially used in New Mexico); § 7-9-3(K) — broad definition of "service"
• § 7-9-13.1 NMSA 1978 — exempts receipts from selling out-of-state services whose product is initially used in New Mexico, except certain research and development
• Regulation 3(F):65 — out-of-state general, administrative, travel, and other incidental expenses allocated to in-state work are the taxpayer's expenses of performing services in New Mexico; no deduction is allowed for the expenses of performing a service
• Revenue Ruling 410-90-2 (distinguished) — an attorney performing legal services in both Texas and New Mexico apportions receipts by actual hours worked in each state

Cases cited:

• Advance Schools, Inc. v. Bureau of Revenue, 89 N.M. 79, 547 P.2d 562 (1976) (distinguished) — an out-of-state correspondence school with no New Mexico teachers performed its educational service out of state
• Mountain States Advertising, Inc. v. Bureau of Revenue, 89 N.M. 331, 552 P.2d 233 (Ct. App. 1976) — billboards fabricated in Colorado but displayed in New Mexico were fully taxable where the service (display) was performed
• United States v. New Mexico, 581 F.2d 803 (10th Cir. 1978) — out-of-state general and administrative reimbursements were merely a component of the price for services performed in New Mexico; the legal incidence of the gross receipts tax is on the seller
• Dravo Contracting Co. v. James, 114 F.2d 242 (4th Cir. 1940) — out-of-state preparation of materials is immaterial when they are used to perform the contract in the taxing state; income is excluded only when it arises from a separable out-of-state transaction
• Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) — four-part test for taxing interstate commerce (substantial nexus, fair apportionment, non-discrimination, fair relation to state services)
• Container Corp. of America v. Franchise Tax Board, 463 U.S. 159 (1983), and Goldberg v. Sweet, 488 U.S. 252 (1989) — fair apportionment requires internal and external consistency
• Oklahoma Tax Commission v. Jefferson Lines, Inc., 514 U.S. 175 (1995) — full state tax on a bus ticket sold in-state for out-of-state travel was externally consistent and required no mileage apportionment

Source

• Listing: New Mexico Decisions & Orders
• Decision post: ITT Educational Services, Inc.
• Decision PDF: D&O 97-02

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
ITT EDUCATIONAL SERVICES, INC., NO. 97-02
I.D. NO. 02-133184-00 7, PROTEST
TO ASSESSMENT NO. 1940766

DECISION AND ORDER

This matter came on for formal hearing on August 22, 1996 before Gerald B. Richardson,

Hearing Officer. ITT Educational Services, Inc., hereinafter, "Taxpayer," was represented by Curtis

W. Schwartz, Esq. The Taxation and Revenue Department, hereinafter, "Department," was

represented by Frank D. Katz, Chief Counsel. At the close of the hearing the record was held open to

allow the parties to submit briefs and proposed findings of fact and conclusions of law. Briefing was

completed on November 21, 1996 and the matter was considered submitted for decision at that time.

The parties have agreed that the Hearing Officer may have until January 15, 1997 to render his

decision herein. Based upon the evidence and the arguments submitted, it is decided and ordered as

follows:

FINDINGS OF FACT

1. The Taxpayer is a Delaware corporation whose corporate headquarters and principal

place of business are located in Indianapolis, Indiana.

2. During the audit period the Taxpayer owned and operated approximately 54

educational facilities which will be referred to as "ITT Technical Institutes."

3. During the audit period the ITT Technical Institutes were located in approximately 25

states.

4. At present, the Taxpayer operates 59 ITT Technical Institutes in 26 states.

5. The Taxpayer is the largest proprietary (private, for profit) college in the United

States.

6. One of the ITT Technical Institutes, ITT Tech, is located in Albuquerque, New

Mexico.

7. ITT Tech is the only ITT Technical Institute in New Mexico.

8. ITT Tech began operations in Albuquerque in December, 1989.

9. In late 1989, the Taxpayer obtained authority to do business in New Mexico from the

State Corporation Commission, obtained the necessary business license from the City of Albuquerque

and registered with the Department of Labor.

10. In late 1989, the Taxpayer applied for a tax identification number with the

Department.

11. As part of its operations in Albuquerque, the Taxpayer sells text books, kits with

tools, components and other materials necessary for classes the student is taking and miscellaneous

clothing and other items of school memorabilia. These items are sold separately from and are not

included in the tuition paid by the students.

12. The Taxpayer has always paid gross receipts tax on its receipts derived from the sale

of the items described in paragraph 11, above, which would typically be associated with the operation

of a campus bookstore.

13. Beginning in April, 1995, the Department conducted an audit of the Taxpayer.

14. The Department's audit determined that the Taxpayer had reported and paid gross

receipts tax on the sales of the bookstore related items, but that the Taxpayer had not reported or paid

gross receipts tax on its receipts from providing educational services at its Albuquerque campus, ITT

Tech.

15. As a result of the Department's audit, the Department issued Assessment No.

1940766, dated June 21, 1995, to the Taxpayer.

16. The total amount assessed pursuant to Assessment No. 1940766 is $832,963.14 That

amount consists of gross receipts tax in the amount of $569,423.69, penalty in the amount of

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$55,493.16 and interest in the amount of $208,046.29, calculated through June 25, 1995.

17. The audit period covered by Assessment No. 1940766 is January 1, 1989 through

March 31, 1995.

18. The Taxpayer requested an extension of time of 60 days in which to file its protest to

Assessment No. 1940766. The Department granted the Taxpayer's request for a 60 day extension on

July 13, 1995.

19. On September 6, 1995, the Taxpayer timely filed its protest to Assessment No.

1940766.

20. ITT Tech leases a building containing approximately 21,500 square feet located at

5100 Masthead Street, N.E., Albuquerque, New Mexico 87109.

21. The facility houses classrooms, lecture rooms,laboratories, a learning resource center

and its own parking area. The annual rent for the building is approximately $200,000. The

computer lab contains approximately 25 computers with CAD (computer aided drafting) software,

costing $335,000 loaded on them.

22. During the relevant periods, ITT Tech had an administrative staff of approximately 15

employees assigned to five departments: recruitment, finance, placement, education and

maintenance.

23. During the relevant periods, ITT Tech employed the following number of instructors:

Year Instructors
1991 5
1992 11
1993 10
1994 10
1995 10

24. From 1991 through 1995, ITT Tech instructors held the following post-secondary

degrees:

Year No Degree AAS BA or BS
1991 3 0 2

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1992 4 1 6
1993 5 1 4
1994 5 2 3
1995 2 3 5

During 1991, one instructor employed also had a master's degree and another instructor also had a

PH.D. In 1992, one of the instructors employed also had a master's degree.

25. During the relevant periods ITT Tech had approximately 223 students enrolled each

quarter.

26. The payroll for ITT Tech during 1993 was $831,000. Current payroll is

approximately $1 million.

27. When ITT Tech commenced in 1989 it offered only one technical post-secondary

degree program. That program was electronics engineering technology.

28. From the fall of 1990 to the present, ITT Tech has offered two technical

post-secondary degree programs. The second degree program added in 1990 was in computer-aided

drafting technology.

29. Prior to 1994, ITT Tech offered only one degree, as Associate of Specialized

Technology.

30. The program leading to the Associate of Specialized Technology degree was a one (1)

year program.

31. From 1994 to the present, ITT Tech has awarded Associate of Applied Science

degrees in both Electronics Engineering Technology and Computer-Aided Drafting Technology.

32. From 1993 to the present, the electronics engineering technology program has been a

two (2) year program.

33. From 1993 to the present, completion of the electronics engineering technology

program has required a minimum of eight quarters of class work (2 years).

34. From 1993 to the present, the computer-aided drafting program has been an eighteen

(18) month program.

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35. From 1993 to the present, completion of the computer-aided drafting technology

program has required a minimum of six quarters of class work (18 months).

36. Students attend class four hours a day, five days a week. Class sessions run from

8:00 A.M. to 12:00 P.M, 1:00 P.M. to 5:00 P.M, and 6:00 P.M. to 10:00 P.M.

37. Integrated into both programs are "lifelong learning courses" which teach the students

oral communications, written communications, economics, critical thinking, problem-solving, how to

write resumés, how to handle interviews, proper attire and the like.

38. The staff at ITT Tech also offer the students various support services, such as assisting

students in locating housing, part-time employment and car-pooling arrangements, and providing

extra tutoring, financial aid services and placement services.

39. Tuition for each program was as follows:

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Year Electronics Program Drafting Program
1990 $10,922 $10,922
1991 $11,568 $11,568
1992 $11,568 $11,568
1993 $15,359 $13,530
1994 $16,032 $14,136
1995 $17,690 $15,599

40. ITT Tech is fully accredited by the Accrediting Commission of Career Schools and

Colleges of Technology (the "ACCSCT").

41. ACCSCT is a national accrediting body located in the Washington, D.C. area. It has

responsibility for the accreditation of approximately 750 career school and colleges of technology.

42. The bases for the full accreditation include, among other things, ITT Tech's

curriculum, its facilities and its faculty.

43. Accreditation functions are handled at the Taxpayer's corporate headquarters with the

exception of occasional site visits by representatives of ACCSCT.

44. ITT Tech has a detailed, standardized curriculum for each of the programs it teaches.

45. The standardized curriculum includes objectives to be taught and mastered each

week, weekly lesson plans, lab experiments that must be completed and exams with answer keys.

46. The standardized curriculum utilized by ITT Tech and ITT Technical Institutes

throughout the country is developed at the Taxpayer's corporate headquarters by curriculum

specialists.

47. The curriculum specialists have either masters or doctorate degrees.

48. To maintain the timeliness and relevancy of its curriculum, the Taxpayer employs a

national advisory committee for each of its curriculum areas. These national advisory committees

are made up of employer representatives. These representatives allow the Taxpayer to gather

information on new developments in technology, new industry trends and practices and on industry

needs so that the Taxpayer can modify its curriculum to meet employer needs.

49. The various curricula and related materials are continually reviewed and revised by

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these curriculum specialists.

50. Updates to the curriculum for a particular class may be sent to ITT Tech throughout

the semester.

51. The uniformity of the Taxpayer's curriculum and its ability to meet employer needs

are very important in establishing and maintaining the Taxpayer's excellent reputation for providing a

quality education.

52. Because of the uniformity in the curriculum, a student can transfer between the

Taxpayer's campuses around the country.

53. The uniformity of the curriculum allows national employers to confidently hire a

graduate from any of the Taxpayer's campuses.

54. The Taxpayer's staff at its corporate headquarters chooses the text books that will be

used by the students at ITT Tech and in all ITT Technical Institute locations throughout the country.

55. The text books used are text books used in courses taught by others than the Taxpayer

and are generally available.

56. The Taxpayer's policies for grades and attendance are developed and implemented on

a nationwide basis from the Taxpayer's corporate headquarters.

57. The instructor's job is to teach the curriculum, answer questions with regard to lab

experiments and other teaching materials and other curriculum related matters. The instructor must

cover the material in the curriculum within the curriculum time deadlines (broken down into material

to be covered each week), but the instructor has flexibility with regard to how they choose to cover

the material, whether it be by lecture, group discussion, question and answer, class field trips, etc.

Instructors also work individually with students, assisting them in selecting their final projects and

advising them in the course of their projects, assessing whether the student has weak areas and needs

additional tutoring, etc. The instructors are also responsible for grading student projects and

examinations and for determining the student's final grade. Instructors spend approximately six

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hours a day in contact with students.

58. ITT Tech instructors also administer standardized tests provided from the Taxpayer's

corporate headquarters.

59. The tests are designed to be graded by using a template or an electronic scanner.

60. During the audit period tests were graded in New Mexico by ITT Tech employees

using a template showing the correct answers.

61. A benefit of a degree from the Taxpayer at any of its technical institutes is education

pursuant to the Taxpayer's uniform curriculum.

62. The Taxpayer has never licensed its curriculum. Other institutions sometimes license

their curriculum for twenty to twenty-five percent of gross tuition revenue.

63. The Taxpayer spends about $1 million annually on curriculum development and on

updating its curriculum.

64. Approximately one percent of the Taxpayer's national enrollment attend its

Albuquerque campus.

65. The apportioned cost of curriculum development and maintenance attributable to the

Taxpayer's Albuquerque campus is approximately $10,000 per year.

66. When a student enrolls at ITT Tech, ITT Tech personnel gather necessary

documentation related to the student's eligibility for financial aid.

67. Applications for government loans and other financial aid are prepared by ITT Tech

students with assistance from employees of ITT Tech.

68. ITT Tech employees spend about forty-five minutes with each student who they assist

in filling out applications for financial aid.

69. The Taxpayer's staff at corporate headquarters spend, on average, about twenty

minutes reviewing each student application for financial aid.

70. The applications are then forwarded to Edtech, a private contractor who runs the

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applications through a computerized rating program. The Taxpayer pays Edtech about $65,000 per

year to process the applications for all of the Taxpayer's students. Since about one percent of the

Taxpayer's students attend ITT Tech, this amounts to a cost of about $650 per year for ITT Tech

students.

71. Applications for government loans for ITT Tech students are submitted from the

Taxpayer's corporate headquarters on behalf of ITT Tech.

72. Approximately ninety percent of the students at ITT Tech receive some form of

financial aid to enable them to attend ITT Tech.

73. The Taxpayer does not charge a separate fee to its students for the assistance it

renders in obtaining and processing financial aid applications for its students. Similarly, there is no

tuition credit or rebate to those students who do not use the financial aid assistance provided by the

Taxpayer.

74. The financial aid assistance offered by the Taxpayer is not available to those who are

not students at any of the ITT Technical Institutes.

75. ITT Tech has no direct involvement in the financial aid process other than providing

assistance in information gathering and application completion.

76. All government loan applications from ITT Tech students are processed by Bank One

in Arizona pursuant to an agreement with the Taxpayer.

77. Payments to or on behalf of ITT Tech students under financial aid programs are sent

to the Taxpayer's corporate headquarters.

78. Financial aid services such as disbursing of funds and collection of funds from the

funding sources are all provided by the Taxpayer outside of New Mexico.

79. If a federal financial aid grant is received by a student, the Taxpayer receives the

payment directly from the federal government at its corporate headquarters.

80. It is to the Taxpayer's financial interest to assist its students with applying for and

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receiving financial aid. Otherwise, the Taxpayer would have substantially fewer students able to

attend its educational programs. Because the financial aid is paid directly to the Taxpayer, it also

ensures that tuition is paid.

81. The Taxpayer is a member of the National Association of Colleges and Employers.

82. Upon completion of the curriculum at ITT Tech, the Taxpayer assists in the job

placement of students who wish to avail themselves of that service.

83. ITT Tech graduates, as well as the graduates from any of the Taxpayer's technical

institutes, can use the placement service offered by the Taxpayer at any time, anywhere in the country

and as many times as the graduate desires, free of charge.

84. The placement services offered by the Taxpayer are not offered or sold separately.

Similarly, there is no rebate or tuition credit for students who either do not use the Taxpayer's

placement services or who do not find employment through the Taxpayer's placement services.

85. The Taxpayer employs over 50 placement employees throughout the country. Only

three of the placement employees are located at the Taxpayer's corporate headquarters.

86. The Taxpayer employs one placement employee at ITT Tech.

87. The great majority (at least 70%) of the students at ITT Tech only desire to locate jobs

in the local (New Mexico) job market.

88. Placement employees continually work with employers nationwide to identify job

opportunities for the Taxpayer's graduates.

89. The Taxpayer maintains a national database of employers and a career search

database for potential job openings at the Taxpayer's corporate headquarters. This database may be

used by any of the Taxpayer's graduates.

90. Career search materials are prepared at the Taxpayer's corporate headquarters and are

made available to all of the Taxpayer's students around the country.

91. The Taxpayer provides its students job placement services from its corporate

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  headquarters via electronic mail.

92. The Taxpayer provides packets of information regarding its technical institutes to

potential employers. This assists the Taxpayer's students in obtaining employment with those

potential employers.

93. The Taxpayer also maintains a national alumni association from its headquarters.

The alumni association produces a periodic newsletter which keeps graduates abreast of new

developments in their fields and of job opportunities.

94. The Director of Placement located at ITT Tech in Albuquerque acts as a liaison to

assist ITT Tech students use the Taxpayer's national placement services and to also provide local job

search assistance.

95. The job placement services offered by the Taxpayer and the success of its efforts to

place its graduates in jobs are a significant factor in the Taxpayer's effort to recruit potential students

to attend its technical institutes. Thus, these services benefit the Taxpayer as well as the graduates

receiving the placement services.

DISCUSSION

The Taxpayer operates a vocational school in Albuquerque, which is one of 59 schools it

operates nationally. After an audit by the Department, it was determined that although the Taxpayer

had reported and paid gross receipts tax on the books and other tangible personal property it sold from

its bookstore operation, the Taxpayer had never paid or reported gross receipts tax upon the tuition it

received from its students for the educational services provided to them at the Taxpayer's

Albuquerque campus. This resulted in an assessment of over $800,000 in gross receipts tax, penalty

and interest for the period from January, 1989 through March, 1995.

The Taxpayer has protested the assessment. While the Taxpayer does not argue that it is not

subject to gross receipts tax for the educational services it provides at its Albuquerque campus, it

argues that the tuition payments it receives may be broken down into payment for various types of

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  services, some of which are performed in New Mexico, and some of which are performed out-of-state

at the Taxpayer's Indianapolis, Indiana corporate headquarters. The Taxpayer argues that it provides

three types of services to its New Mexico students: educational services, financial aid services and job

placement services. It argues that its educational services may be further broken down into three

components, the sale of tangible personal property (books and other educational materials), the

provision of instruction, and the preparation of curriculum. The Taxpayer presented evidence that its

curriculum preparation, and a portion of its job placement and financial aid services are performed at

its corporate headquarters and the Taxpayer presented evidence in support of its contention that these

services represent 37% of the services it provides its Albuquerque students. Accordingly, the

Taxpayer has requested an apportionment of the tax assessed to reflect an abatement of 37% of the

tax, with a corresponding abatement of the penalty and interest to reflect an apportionment of the

Taxpayer's receipts between its taxable in-state activities and its non-taxable out-of-state activities.

The Department does not dispute that it is without authority to impose tax on the performance

of services which occurs out-of-state, but it disputes the Taxpayer's characterization that the tuition

payments it receives from its students represent compensation for the performance of job placement,

financial aid or curriculum development services which are separable from the overall educational

services which it provides to its New Mexico students. The Department contends that all of the

Taxpayer's tuition receipts are receipts from performing educational services in New Mexico and they

are thus subject to tax in New Mexico.

The gross receipts tax is imposed, pursuant to NMSA 1978, § 7-9-4, which imposes the tax

"for the privilege of engaging in business" upon gross receipts. "Gross receipts" is defined, in

pertinent part, at NMSA 1978, § 7-9-3(F) (1995 Repl. Pamp.) as follows:
"gross receipts" means the total amount of money or the value of other consideration
received from selling property in New Mexico, from leasing property 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. (Emphasis
added.)

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  This definition includes in gross receipts the receipts of taxpayers not only from performing services

in New Mexico, but from performing services out-of-state, if the product of the services is initially

used in New Mexico. Arguably, this portion of the definition would appear to cover the services the

Taxpayer attempts to exclude from taxation in this case, curriculum development, financial aid

services and placement services. This part of the definition, however, was enacted by Laws 1989, ch.

262, § 1, effective July 1, 1989, so it would not cover the first six months of the audit period.

Additionally, at the same time that this amendment to the definition of gross receipts was enacted, the

legislature also enacted NMSA 1978, § 7-9-13.1 which exempts from gross receipts tax the receipts

from selling services performed outside New Mexico the product of which is initially used in New

Mexico. See, Laws 1989, ch. 262, § 4. This exemption from gross receipts tax covers all but a

narrow group of research and development services which are not relevant to this inquiry. See,

NMSA 1978, § 7-9-13.1 (B) (1995 Repl. Pamp.). Because the Department argues that the services

the Taxpayer performs are performed in New Mexico and thus fall under the portion of the definition

of gross receipts which covers receipts from performing services in New Mexico, and since the first

six months of the audit period would not be affected by the amendment to the definition of gross

receipts, it will still need to be determined whether all of the Taxpayer's tuition receipts from its New

Mexico students can properly be characterized as receipts from the performance of services in New

Mexico. Thus, the determination of this matter will still turn upon how the Taxpayer's tuition

receipts are characterized. The Taxpayer has also argued that it is performing educational services in

interstate commerce and that the Commerce Clause also requires apportionment of its gross receipts

to reflect an apportionment between its in-state and its out-of-state activities. As with the first issue,

the characterization of the Taxpayer's activities and the location of those activities is critical to the

analysis of taxability under the Commerce Clause.

Both parties rely upon the Supreme Court decision in Advance Schools, Inc. v. Bureau of

Revenue, 89 N.M. 79, 547 P.2d 562 (1976). In that case, the taxpayer, Advance Schools, Inc.

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  ("ASI") was a vocational correspondence school based in Chicago, Illinois. It maintained two offices

in New Mexico with two to six sales representatives who contacted prospective students and assisted

them with filling out application forms and retail installment contracts to pay for tuition. After the

students were accepted into ASI's program, virtually all contact between ASI and the New Mexico

student was conducted by mail or telephone from the taxpayer's offices in Illinois. ASI mailed each

student course materials. Exams were mailed to students and mailed back to ASI for grading. ASI

monitored the time each student took to complete each course segment and handled problems by

correspondence or telephone. Students received counselling by phone from Illinois. After course

completion, ASI assisted the students with job placement by recommending them to employers from

its Chicago offices. The tuition paid by the students covered the course materials and all of the

services related to ASI's correspondence courses the student signed up for.

ASI paid gross receipts tax to the Department on the value of its course materials. The

Department assessed ASI gross receipts tax on the entire tuition paid, on the theory that the entire

tuition payments represented gross receipts from the sale of tangible personal property in New

Mexico. The Commissioner of Revenue and the Court of Appeals upheld the Department's

assessment on the basis that the primary activity of ASI was selling educational materials to students

within the state and that the services provided were merely incidental to the sale of property in New

Mexico. Advance Schools, Inc. v. Bureau of Revenue, 89 N.M. 133, 548 P.2d 95 (Ct. App. 1975).

The Supreme Court reversed that decision, ruling that the Commissioner's Decision and Order was

not supported by substantial evidence because the court determined that ASI was primarily

performing a service, virtually all of which was performed out-of-state.

The Taxpayer relies upon Advance Schools, claiming that its provision of educational

services is little different than the provision of educational services by ASI, and citing it for evidence

of the apportionability of receipts from providing educational services. Taxpayer Brief in Chief, P. 6.

As the Department correctly points out, however, the facts in this case are readily distinguishable

• 14 -
  from the manner in which ASI delivered its educational services. ASI had no schools and no

teachers in New Mexico and it handled virtually all aspects concerning the delivery of its educational

services, including grading papers, monitoring student progress, correction of homework, counseling

of students, etc., from its Chicago offices. In this case, the Taxpayer's school and teachers are located

in New Mexico, the classes and laboratories are taught here, student progress is monitored here,

students are counselled here, and homework and tests are graded here. Although the curriculum is

developed out-of-state, it is delivered and taught to the Taxpayer's students in New Mexico.

Additionally, I do not find the Supreme Court decision in Advance Schools to support the

apportionment of tuition receipts for educational services. ASI itself had apportioned its tuition

receipts by paying gross receipts tax on the value of the materials it sold to its students in New

Mexico, thus apportioning its tuition between the in-state sale of property and the performance of

educational services out-of-state. This determination was not at issue in the case.1 The Supreme

Court, however, did not make any attempt to apportion the remaining tuition receipts to reflect an

apportionment for ASI's in-state activities, such as the assistance given students in New Mexico by

ASI employees with applying for admission, and filling out installment contracts. While the Court's

decision provides no guidance as to why apportionment was not considered for these in-state

activities, it appears that the Court did not consider that ASI had receipts from providing application

and school financing assistance, but rather, that its tuition receipts reflected payment for the

educational services being provided by ASI. The other possibility is that the court believed the

in-state assistance rendered to be merely incidental to the educational services ASI provided

out-of-state. In any event, Advance Schools supports the Department's position in this case that the

Taxpayer's tuition receipts are not subject to apportionment on the basis that there are receipts for

services which the Taxpayer performs out-of-state.

1
Similarly, in this case, the Taxpayer has paid gross receipts tax on its receipts from selling
books and tool kits to its students, although those materials are bought separately and are not included
in the cost of tuition charged by the Taxpayer.

• 15 -
  Also instructive is the decision in Mountain States Advertising, Inc. v. Bureau of Revenue,

89 N.M. 331, 552 P.2d 233 (Ct. App.), cert. denied 90 N.M. 8, 558 P.2d 620 (1976). In that case, a

Colorado corporation had receipts from displaying advertising messages on billboards it erected and

maintained in New Mexico. The sign face was constructed in Colorado and brought to New Mexico

for erection. The taxpayer argued that it had no offices, warehouses, salesmen, storage yards,

construction facilities or telephone listing in New Mexico and that only ten percent of its cost of doing

business was attributable to sign maintenance. It therefore requested an apportionment of ninety

percent of its receipts as exempt from gross receipts tax on the basis that this represented receipts for

services performed out-of-state. The Court of Appeals denied any apportionment on the basis that

the entire service of displaying the advertising was performed in New Mexico. No consideration was

given for the work done out-of-state which facilitated or enabled the activity for which the taxpayer

charged its customers. In this case, the court focused upon what service was being sold, and where

the sale occurred. Undoubtedly, it was of little consequence to the advertisers who sought to have

their messages displayed to New Mexico residents that the billboards were fabricated elsewhere than

New Mexico. The service being sold was the display of advertising in New Mexico, and that sale

took place where the service was performed.

A similar line of reasoning, which focuses on the service contracted for and where it is

performed has been developed with respect to the treatment of general and administrative expenses

incurred with respect to performing services in New Mexico. In United States v. New Mexico, 581

F.2d 803 (10th Cir. 1978), the United States challenged New Mexico's imposition of gross receipts tax

upon Lockheed Electronics Company and RCA Service Company who had cost-plus contracts with

the United States for the performance of research and development services at White Sands Missile

Range in New Mexico. The primary issue in the case was whether the imposition of New Mexico's

tax fell impermissibly upon the United States, in violation of the federal government's immunity from

state taxation. The court ruled that the legal incidence of the gross receipts tax was upon the

• 16 -
  contractors, and not the United States, and upheld the tax even though the United States bore the

economic burden of the tax because it became a reimbursable expense under its contracts. Because

the tax was upheld, the United States attempted to shield itself from a portion of cost of the gross

receipts tax, contending that a portion of the contract payments were for reimbursement of its

contractors' general and administrative ("G&A") expenses which were incurred at Lockheed's

headquarters in Arizona or at RCA's headquarters in New Jersey. The United States made the

identical argument being made in this case, that there must be an apportionment of gross receipts tax

to prevent the imposition of tax upon the portion of the contractors' gross receipts for services which

they performed out-of-state. The contracts recognized G&A expenses as a separately reimbursable

item and G&A was separately stated on the invoices to the government. The G&A costs were

reimbursable under a contract "pool" ratio formula, the reimbursement representing a percentage of

the direct reimbursement for work performed in New Mexico. The parties stipulated that the

allowable G&A expenses were "the cost of services or items such as management, personnel,

financial, marketing, contracting, industrial relations, legal, accounting, payroll, computer and

administration." Id. at 805. The Tenth Circuit rejected the government's argument. It held that:
In this case, the United States has not demonstrated that the G&A reimbursements are for
services performed for the United States out-of-state. On the contrary, G&A expenses
appear merely to be a component of the price for services performed under the contracts
in New Mexico.

Id. at 811.

In arriving at this determination, the Tenth Circuit relied upon the Mountain States

Advertising decision of the Court of Appeals, and it found Advance Schools to be distinguishable.

The Tenth Circuit also found Dravo Contracting v. James, 114 F.2d 242 (4th Cir. 1940), cert. denied,

312 U.S. 678, 61 S.Ct 450, 85 L.Ed. 1117 (1941) to be particularly persuasive, quoting from it for the

proposition that:
Only where income arising from a contract performed within the state accrues upon a
separable out-of-state transaction should it be excluded, as not being income arising
from contracting within the state. (Emphasis added.)

• 17 -
  Id. 114 F.2d at 247. In the Dravo Contracting case, the taxpayer was an engineering and contracting

firm based in Pennsylvania. It had contracts with the federal government for construction of locks

and dams in West Virginia. The taxpayer argued that West Virginia's tax must be apportioned to take

into account that it did much work in Pennsylvania, fabricating parts and preparing structural steel and

other materials for incorporation into the locks and dams. In rejecting the taxpayer's argument, the

court stated:
The fact that the contractor may have prepared materials in other states for use under the
contract is immaterial, if they were used in the performance of the contract in West
Virginia and payments made the contractor were dependent upon such use.

Id. 114 F.2d at 246. This language strongly supports the argument made by the Department with

respect to the Taxpayer's curriculum development activities which occur at its home office. The

Department has argued that the Taxpayer's concept of where a service is provided is fundamentally

flawed because if fails to distinguish between the actual provision of the service, which is the activity

being taxed, and the activities which are merely preparatory or in support of the provision of the

service. The Department argues that curriculum development is merely preparatory to the delivery

of educational services in New Mexico. It offers the analogy of a renowned scholar from out-of-state

who is paid an honorarium to speak at a university in New Mexico. Even though the scholar may

have spent years of study at Harvard gathering the knowledge and information from which her speech

was drawn, and even though she may have thought about the contents of her speech during her airline

flight to New Mexico, New Mexico is imposing its tax upon the performance of her services in New

Mexico, which is the delivery of the speech in New Mexico.

The Department has also promulgated a regulation, which embodies the concepts endorsed in

the United States v. New Mexico and Mountain States Advertising decisions, Regulation 3(F):65. It

provides as follows:
General administrative and overhead expenses incurred outside New Mexico and
allocated to operations in this state for bookkeeping purposes, costs of travel outside New
Mexico which travel was an incidental expense of performing services in New Mexico,

• 18 -
  employee benefits, such as retirement, hospitalization insurance, life insurance and the
  like, paid to insurers or others doing business outside New Mexico for employees
  working in New Mexico, and other expenses incurred outside New Mexico which are
  incidental to performing services in New Mexico, all constitute the taxpayer's expenses of
  performing services in New Mexico.

No provision of the Gross Receipts and Compensating Tax Act allows a deduction for
expenses incurred in performing services to determine gross receipts subject to tax.
Therefore, the total amount of money or reasonable value of other consideration derived
from performing services in New Mexico is subject to the gross receipts tax. (Emphasis
added.)

As the emphasized language indicates, although the regulation speaks of general and administrative

expenses, it is not limited to just expenses which can be so characterized. Any expenses which are

incidental to the performance of services in New Mexico are not deductible.

The Taxpayer has strenuously argued that this regulation and the reasoning of United States v.

New Mexico does not apply because it asserts that the services for which is requests apportionment

are not general and administrative expenses. It also argues that its curriculum development, job

placement and financial aid services are separate and non-incidental services which are being

performed out-of-state. Taxpayer's Reply Brief, p.10. I do not agree. Regardless of whether they

are examined under the criteria which looks at whether they are incidental to the service upon which

tax is being imposed, or whether they are examined under the criteria of being a separable out-of-state

transaction, they cannot be sufficiently separated from the Taxpayer's service of providing educational

services in New Mexico to require apportionment. The services at issue will each be examined.

The Taxpayer has requested an apportionment of twenty-five percent of its tuition receipts as

attributable to its curriculum development activities, which unquestionably occur out-of-state. The

Taxpayer supported its percentage allocation by the testimony of its Comptroller, Mr. Gene Baugh,

who based that allocation upon his estimate of what other similar institutions charge to sell or

franchise their curriculum to others. The Taxpayer does not sell its tuition to any other institutions, it

does not sell its curriculum separately to any students and it and does not earmark or differentiate any

portion of the tuition it charges for its curriculum development services. Thus, the valuation is

• 19 -
  somewhat speculative. The Department points out that the Taxpayer's cost of curriculum

development for its Albuquerque campus is only about $10,000 per year, based upon the Taxpayer's

estimate of $1 million a year for curriculum development and updating and the fact that only about

one percent of the Taxpayer's students are in New Mexico. While I agree with the Taxpayer that the

apportioned cost is not necessarily an accurate indicator of the value of the curriculum to the

Taxpayer's students, the cost of performing a service is an indicator of value which may be

considered, along with other evidence of value. I also found the evidence of value presented by the

Taxpayer to be somewhat speculative. There is no need to resolve this discrepancy, however,

because I find that there is no separable out-of-state transaction whereby New Mexico is imposing a

tax upon the Taxpayer's out-of-state curriculum development activities. 2 The service which the

Taxpayer is performing in New Mexico in return for the payment by its students of tuition is the

teaching of its curriculum. Although I have no doubt that the Taxpayer's curriculum is excellent and

very current, it is but one component of the educational services being delivered by the Taxpayer to its

students in New Mexico. For the students, it is doubtful that it is of any consequence where their

curriculum was developed or maintained. What is of consequence to them is that it is available to

them at the Taxpayer's Albuquerque campus, where it is taught by instructors who will personally

deliver it in such a manner that they can understand it, who will grade their exams, oversee their

laboratory work and otherwise monitor their learning process to ensure a meaningful educational

experience. It is the teaching of its curriculum in New Mexico which is the service the Taxpayer's

students are paying for, and which is the service being performed wholly in New Mexico upon which

2
In this regard, it has been noted above that no portion of the tuition charged is earmarked or
invoiced for curriculum development. This is indicative that it is incidental to or a component of the
services the Taxpayer is delivering in New Mexico. Even if the Taxpayer were to charge separately
for it, however, it would not change the reality of this transaction. In United States v. New Mexico,
the contractors also separately invoiced their charges for out-of-state G&A expenses. Nonetheless,
the court looked at the reality of the transaction and concluded that these expenses were merely a
component of or incidental to the performance of the research and development services which were
being performed in New Mexico.

• 20 -
  New Mexico imposes its tax. There is no prohibited taxation of services performed out-of-state by

New Mexico.

The Taxpayer's job placement services are clearly incidental to its teaching activities with

respect to its New Mexico students. The students spend four hours a day, five days a week, for either

eighteen months or two years being taught at the Taxpayer's Albuquerque campus, receiving training

for their prospective jobs. The Taxpayer's job placement services represent a small fraction of the

time and resources committed to their students, teaching them the curriculum. Additionally, the

performance of these services are not a separable out-of-state transaction. The amount of tuition the

student pays is not dependent upon whether the student uses the services, or uses the services only to

locate an in-state job which may have taken little or no involvement of the staff at the Taxpayer's

headquarters. While I have no doubt of the benefit which the Taxpayer's job placement services

represent, it is a benefit which inures to both the Taxpayer and the student. Not only does the student

benefit by the link provided to potential employers, but the success of the Taxpayer's job placement

services make it a powerful recruitment tool in attracting students to its program. In this regard, it

can be likened to a general and administrative expense which is important to the overall success of the

Taxpayer's nationwide business. As such, however, it is merely incidental to the service the

Taxpayer is performing for its New Mexico students at its Albuquerque campus, which is teaching

them and preparing them for the work force.

The same can be said for the financial aid services rendered by the Taxpayer for its students.

Even the Taxpayer's allocation of two percent of its tuition revenues3 serves as an acknowledgement

of how incidental these services are to the overall educational services it is providing. In view of the

rather minimal amount of time spent at corporate headquarters handling each student's financial aid

transactions when compared to the amount of time teaching the Taxpayer's curriculum to each

3
I believe even this two percent allocation to be grossly overstated when one compares the time
and resources committed to teaching the curriculum as opposed to processing financial aid
applications.

• 21 -
  student, this service is indeed incidental to the overall educational services being provided students in

New Mexico. As with the placement services the Taxpayer provides, the financial aid services also

benefit both the student and the Taxpayer. Nearly ninety percent of the Taxpayer's students receive

financial aid to enable them to attend ITT Tech. Not only do the students benefit from the financial

aid, but the Taxpayer assures itself of a much larger number of students, and since it handles the

collection and disbursement of financial aid, it ensures the Taxpayer timely and dependable payment

of tuition. In this sense, these activities are also in the nature of a general and administrative expense

which, while it is important to the overall functioning of the Taxpayer's business, is incidental to the

provision of educational services to the Taxpayer's New Mexico students. Additionally, there is no

separable taxable event represented by the provision of these services. The ten percent of students

who do not receive financial aid receive no break on their tuition because they do not use these

services and the Taxpayer does not offer these services to any persons other than its students. This

service is simply included in the overall educational services the Taxpayer provides to its students.

The Taxpayer argues that failure to recognize its curriculum development, job placement and

financial aid services as separable and apportionable activities would be contrary to the Department's

own treatment of the provision of legal services in Revenue Ruling 410-90-2. This ruling concerned

an attorney whose place of business was in Texas and who was licensed to practice law in both New

Mexico and Texas. The attorney had recently begun taking cases on contingency fee in New Mexico

and in those cases, some work was performed in New Mexico and some in Texas. The Department's

ruling was that the attorney was liable for gross receipts tax on the services performed in New Mexico

and was exempt for the services performed in Texas. It required the attorney to keep records of the

actual time spent on each case and to apportion his receipts to New Mexico based on the actual hours

in which service was performed in New Mexico as a percentage of the total hours spent in the

performance of legal services on each case.

This ruling is distinguishable from the facts of this case. The service being provided by the

• 22 -
  attorney is legal services, which were performed both in Texas and in New Mexico, and were

properly apportionable. In this case, the service being provided by the Taxpayer is the teaching of its

curriculum in New Mexico. As noted above, it is the delivery of the education to the student in New

Mexico which is the service the student contemplates when paying tuition. All of this occurs in New

Mexico and is subject to tax by New Mexico.

The Taxpayer has also cited to the definition of service in support of its argument that its

services must be apportioned to reflect those performed out-of-state. Specifically, the Taxpayer

relies upon the broad and inclusive definition of service:
"Service" means all activities engaged in for other persons for a consideration, which
activities involve predominantly the performance of a service as distinguished from
selling of leasing property.... (Emphasis added.)

NMSA 1978, § 7-9-3(K) (Repl. Pamp. 1995) for the proposition that in identifying services, the

performance of which are subject to gross receipts tax, each aspect or component of a service must be

identified as to what was performed and where it was performed. Taxpayer's Reply Brief, pp. 2-5.

The Taxpayer has cited to no authority which supports this interpretation and I have found none.

Since enactment, the Gross Receipts and Compensating Tax Act has defined service in this inclusive

manner. Service was initially defined, in pertinent part as follows:
"Service" means all activities engaged in for other persons for a consideration, which
activities involve primarily the performance of a service as distinguished from selling
property....

Laws 1966, ch. 47, § 3, compiled at NMSA 1953, § 72-16A-3(J). This, or a similarly

indistinguishable definition of service was in place when the Advance Schools, Mountain States

Advertising and U.S. v. New Mexico cases were decided and none of those decisions adopted the

analysis the Taxpayer urges today. This argument is simply without merit.

The final issue to be determined is whether the application of an unapportioned gross receipts

tax to the Taxpayer's tuition receipts runs afoul of the Commerce Clause of the United States

Constitution, art. I, § 8, cl. 3. A tax imposed on an activity in interstate commerce will be sustained

• 23 -
  if it can pass the four part test announced by the Supreme Court in Complete Auto Transit v. Brady,

430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977), which requires that the tax be applied to an

activity with a substantial nexus with the taxing state, be fairly apportioned, not discriminate against

interstate commerce and be fairly related to the services provided by the state.

The Taxpayer argues that New Mexico's tax fails the second prong of the Complete Auto

Transit test because New Mexico has failed to apportion it between the Taxpayer's in-state and

out-of-state activities. The purpose for the requirement that taxes be fairly apportioned is to ensure

that each state taxes only its fair share of an interstate transaction so as to prevent the possibility that a

transaction or activity will be subjected to multiple taxation by the various states. A tax satisfies the

requirement of fair apportionment if it meets standards of both internal and external consistency.

Container Corp. of America v. Franchise Tax Board, 463 U.S. 159, 168, 103 S.Ct 2933, 2942

(1983); Goldberg v. Sweet, 488 U.S. 252, 261, 109 S.Ct. 582, 589 (1989).

Internal consistency is met if an identically structured tax imposed by every state on the same

taxable event will result in no multiple taxation. Container Corp., 463 U.S at 169, 103 S.Ct. at 2942;

Goldberg, 488 U.S. at 261, 109 S.Ct. at 589. New Mexico's tax meets the test of internal

consistency. It is taxing the Taxpayer's receipts from its New Mexico students for the performance of

educational services within New Mexico. No other state may impose this same tax. They may tax

the Taxpayer's receipts from students in their own state for services performed within their state, but

they cannot tax the Taxpayer's receipts from its New Mexico students. Nor may Indiana impose a tax

upon the Taxpayer's receipts from its New Mexico students. There is no sale of educational services

which occurs in Indiana. These services are sold in New Mexico when the students pay their tuition

in order to be taught in New Mexico. The teaching occurs in New Mexico and this is the only place

where it may be taxed. There is simply no possibility of double taxation and the taxpayer has failed

to demonstrate that such may occur.

External consistency requires that each state tax only that portion of the revenues which

• 24 -
  "reasonably reflects the in-state component of the activity being taxed." Goldberg, 488 U.S. at 262,

109 S.Ct. at 589. External consistency is met in this case because New Mexico is taxing the

Taxpayer's receipts from its New Mexico students which they pay in order to be taught at the

Taxpayer's Albuquerque facility. All of the teaching occurs in New Mexico and, appropriately, all of

it may be taxed by New Mexico.

Particularly instructive with respect to meeting the requirements for external consistency is

the Supreme Court's recent decision in Oklahoma Tax Commission v. Jefferson Lines, Inc., 115

S.Ct 1331 (1995). The issue in that case was whether Oklahoma would be allowed to impose its tax

on 100 percent of the taxpayer's revenues from selling bus tickets in Oklahoma for travel to out-of

state destinations. The taxpayer had argued that such a tax must be apportioned in proportion to the

in-state versus out-of-state mileage of the travel to satisfy the fair apportionment requirement of the

Commerce Clause. The Court, however, did not require a segregation of the tax to differentiate the

in-state component of the bus line's services from the out-of-state component and it found Oklahoma's

tax to be externally consistent. The Court found that the tax was imposed on the purchase of

transportation services and the purchase transaction occurred wholly in Oklahoma. The fact that no

other state could impose a tax on the same transaction satisfied the court that apportionment was not

required.

In this case, the Department is taxing the Taxpayer's receipts from the performance of

educational services in New Mexico. These services are performed wholly in New Mexico when the

Taxpayer teaches its curriculum to its New Mexico students at its Albuquerque facility. This is what

the New Mexico students are paying for and this is what is delivered in return for such payment. The

development of curriculum is not separable from the delivery of that curriculum when it is taught, and

that teaching occurs in New Mexico. The placement services and financial aid services represent an

insignificant part of the total educational services which the Taxpayer provides to its students at its

New Mexico campus and are incidental to the provision of an excellent education, which is what the

• 25 -
  Taxpayer's students are paying their tuition for. The imposition of New Mexico's gross receipts tax

on all of the Taxpayer's tuition receipts is upheld.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to Assessment No. 1940766 and

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

2. New Mexico's gross receipts tax applies to receipts from services performed in New

Mexico.

3. The services which the Taxpayer provides to its students in return for the payment of

tuition at its Albuquerque campus is the teaching of its curriculum. These services are provided

entirely in New Mexico and are subject to gross receipts tax.

4. The development of the Taxpayer's curriculum is but a component of and is not a

separable transaction from the teaching of that curriculum to the Taxpayer's students in New Mexico.

5. The job placement services and financial aid services provided by the Taxpayer to its

New Mexico students are merely incidental to and in support of the educational services the Taxpayer

provides when it teaches its curriculum in New Mexico.

6. The imposition of New Mexico's gross receipts tax upon 100% of the taxpayer's

tuition receipts from its New Mexico students does not violate the Commerce Clause of the United

States Constitution.

For the foregoing reasons, the Taxpayer's protest IS HEREBY DENIED.

DONE, this 15th day of January, 1997.

• 26 -