Does a private trucking company hauling U.S. mail owe New Mexico's petroleum products loading fee on all the fuel it pumps into its trucks in New Mexico, or only the fuel actually burned in-state?

Plain-English summary

Alan Ritchey, Inc. is a privately owned company that, among other businesses (farming, dairy, animal-feed manufacturing), runs a trucking operation hauling mail for the U.S. Postal Service. It imports special fuel into New Mexico, stores it in above-ground tanks at a facility in Deming, and pumps it into its own trucks — which pass through New Mexico while carrying mail between points outside the state. Under its Postal Service contracts, the fuel cost is passed through to and repaid by the Postal Service. The Department assessed the petroleum products loading fee (about $14,368 in fees, plus penalty and interest) for January 1993 through July 1995.

The Hearing Officer denied the protest on every issue:

• Not a federal instrumentality (no exemption). The Act exempts petroleum products "sold to the United States government or any agency or instrumentality thereof" (§ 7-13A-4(B)). But under United States v. New Mexico, a private contractor isn't immune from state tax just because the government bears the economic cost or the tax affects the United States. Immunity requires the entity be so closely tied to the government that the two can't be seen as separate. Ritchey is privately owned, operates commercially for profit, the government doesn't run it, and most of its revenue comes from non-federal sources — so it is not an instrumentality and doesn't get the exemption.
• The fee applies to the full tank load, not just in-state gallons. The company argued it should pay only on fuel actually burned inside New Mexico. Reading the Act as a whole, fuel is either exported for resale and consumption elsewhere (exempt under § 7-13A-4(A)) or imported for consumption in New Mexico (taxed under § 7-13A-3(B)) — there's no third category. Because Ritchey pumped the fuel into its own trucks in New Mexico (a "consumption," not a resale, and not an export as cargo), the fee applies to the entire quantity loaded at Deming. The taxpayer's reading would produce unequal, absurd results (the fee would depend on whether the importer burned the fuel itself or resold it), so it was rejected.
• Negligence penalty upheld. The company said it simply hadn't known the fee existed. That's the problem: every taxpayer has a duty to learn the taxes that apply to its operations (Tiffany Construction), so being unaware of the fee is itself negligence under § 7-1-69(A). No bad faith is required for the penalty.
• Interest is mandatory. Section 7-1-67 requires interest on unpaid tax, with no exceptions ("shall" is mandatory; § 12-2-2(I); State v. Lujan).

What this means for you

Fuel importers pumping into their own vehicles

If you import gasoline or special fuel into New Mexico and load it into fuel supply tanks here, the petroleum products loading fee applies to the full quantity you load, not just the portion burned while the vehicle is inside the state. The only carve-out is fuel that leaves the state as cargo for resale and consumption elsewhere (§ 7-13A-4(A)). "Consumption in this state" includes using fuel in your own trucks, so there's no reduction for miles driven out of state on that tank.

Government contractors are not tax-immune

Doing work for a federal agency — even under contract, even where the agency reimburses your costs dollar-for-dollar — does not make you a federal instrumentality exempt from New Mexico tax. Unless you are so integrated with the government that the two can't realistically be viewed as separate, you're a private taxpayer. Price your government contracts assuming you, not the agency's immunity, bear state taxes and fees on your inputs.

"I didn't know about the tax" is negligence, not a defense

New Mexico treats a taxpayer's failure to learn the taxes that apply to its business as negligence, which supports a penalty even with no bad faith. If you operate in a new industry, state, or activity, affirmatively identify every tax and fee that could apply — fuel fees, excise taxes, specialty levies — because ignorance of an obscure fee will still cost you a penalty plus mandatory interest.

Accountants and tax professionals

Three durable points: (1) the loading fee is measured by the full quantity of fuel loaded into vehicle supply tanks in New Mexico for in-state consumption, with the only reduction being genuine export as cargo under § 7-13A-4(A); (2) federal-contractor status does not confer § 7-13A-4(B) instrumentality immunity under the United States v. New Mexico test; and (3) the § 7-1-69(A) negligence penalty attaches to unawareness of an applicable tax, and § 7-1-67 interest is mandatory regardless of good faith.

Common questions

Q: My trucks only burn part of the tank in New Mexico. Why pay the fee on the whole load?
A: Because the fee is on fuel imported for consumption in New Mexico, measured by the full amount loaded into your trucks here. The Act reads as a whole to tax all imported fuel except what's exported as cargo for use elsewhere — there's no partial credit for out-of-state miles on that tank.

Q: The Postal Service pays for my fuel. Doesn't that make me tax-exempt?
A: No. A private contractor isn't a federal instrumentality just because the government reimburses its costs. Under United States v. New Mexico, immunity requires being essentially inseparable from the government, which a for-profit private company is not.

Q: My storage tanks are above ground, not underground. Does the leaking-tank cleanup purpose still apply to me?
A: Yes. The fee's proceeds weren't limited to groundwater cleanup — during this period they were split between a local-government road fund and the corrective-action fund — so the above-ground location of your tanks doesn't exempt you.

Q: I honestly didn't know this fee existed. Why the penalty?
A: Because you're expected to know the taxes that apply to your business. Failing to learn about the fee is negligence under § 7-1-69(A), which supports the penalty even without bad faith — and interest is mandatory on top.

Q: Does this decision apply to my situation?
A: Not directly. A Decision and Order resolves one taxpayer's protest on its specific facts and the law in effect at the time. It illustrates how New Mexico applies the petroleum products loading fee and federal-immunity rules, but your facts may differ.

Citations and references

Statutes and regulations:

• § 7-13A-3(A),(B) NMSA 1978 — imposes the petroleum products loading fee on loading gasoline/special fuel from a rack in New Mexico and on importing gasoline/special fuel into New Mexico for resale or consumption in the state
• § 7-13A-4(A) NMSA 1978 — exempts fuel exported from New Mexico for resale and consumption outside the state
• § 7-13A-4(B) NMSA 1978 — exempts petroleum products sold to the United States or any agency or instrumentality thereof for its exclusive use
• § 7-1-69(A) NMSA 1978 — penalty for failure to pay due to negligence or disregard of rules; Regulation TA 69:1 — the taxpayer bears the burden of negating negligence
• § 7-1-67 NMSA 1978 — mandatory interest on unpaid tax; § 12-2-2(I) NMSA 1978 — "shall" and "must" are mandatory in construing statutes

Cases cited:

• United States v. New Mexico, 455 U.S. 720 (1982) — a private contractor is not a federal instrumentality immune from state tax merely because the government bears the economic burden; immunity requires the entity be inseparable from the government
• Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16, 558 P.2d 1155 (Ct. App. 1976) — taxpayers have a duty to familiarize themselves with the tax laws applicable to their operations
• State v. Lujan, 90 N.M. 103, 560 P.2d 167 (1977) — "shall" is mandatory unless a contrary intent is clear
• State ex rel. Klineline v. Blackhurst, 106 N.M. 732 (1988); Junge v. John D. Morgan Construction Co., 118 N.M. 457 (Ct. App. 1994); Quintana v. N.M. Dept. of Corrections, 100 N.M. 224 (1983); Westgate Families v. County Clerk of Los Alamos County, 100 N.M. 146 (1983) — statutes are read as a whole to effect legislative intent and avoid absurd results

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Alan Ritchey, Inc.
• Decision PDF: D&O 97-23

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
ALAN RITCHEY, INC. No. 97-23
ID NO. 02-090340-00 5,
PROTEST TO ASSESSMENT NO. 25444

DECISION AND ORDER

This matter came on for hearing on May 9, 1997, before Ellen Pinnes, Hearing Officer.

Alan Ritchey, Inc. ("the Taxpayer") was represented by its chief executive officer, Alan Ritchey,

and its tax manager, Dan O'Rear. The Taxation and Revenue Department ("the Department") was

represented by Frank D. Katz, Special Assistant Attorney General. The matter was submitted for

decision based upon the stipulations and written submissions of the parties and oral argument

presented at the hearing. Following the hearing, the record remained open until May 23, 1997 for

submission of supplemental stipulations.

Based upon the evidence and arguments presented, IT IS HEREBY DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. Assessment No. 25444 was originally issued by the Department on November 15, 1995
   for fees due under the Petroleum Products Loading Fee Act ("the Act"), §7-13A-1 et seq. NMSA

1978, for January 1993 through July 1995. That assessment contained an error as to the amount of
the fee due, and a corrected assessment was issued on November 17, 1995. The total amount of

the assessment was $19,174.14, including $14,367.92 in fees, plus penalty in the amount of

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$1,414.27 and interest of $3,391.95 to the time of the assessment.

2. By a letter dated November 20, 1995 from Dan O'Rear, the Taxpayer filed a timely

protest of the assessment. In that letter, Mr. O'Rear stated that the failure to file returns under the

Petroleum Products Loading Fee Act was unintentional and that the Taxpayer was not aware of the

Act or that it was subject to the fee imposed by that statute. The Taxpayer acquiesced in

imposition of the fee insofar as it applied to gallons of fuel placed into the fuel supply tanks of its

trucks and used to propel the vehicles within New Mexico, but contested imposition of the fee on

gallons placed into the fuel supply tanks in this state but burned by the vehicles outside the
boundaries of New Mexico. Based on this position, the Taxpayer calculated that the amount of the

fee due was $1,503.23 and remitted that amount to the Department. The Taxpayer challenged the

remainder of the amount assessed, including the balance of the fee, penalty and interest.

3. By a letter dated September 19, 1996 from Mr. O'Rear to Debbie Martinez of the

Department's Protest Office, the Taxpayer amended its protest to challenge assessment of the

petroleum products loading fee on the grounds that the Taxpayer is an instrumentality of the United

States government and therefore exempt from the fee by virtue of §7-13A-4(B) NMSA 1978.

4. Assessment No. 25444 arose in connection with the Taxpayer's business operations as a

trucker, transporting mail for the United States Postal Service.

5. In addition to its trucking for the Postal Service, the Taxpayer provides trucking services
   to other clients. The Taxpayer is also engaged in other lines of business, specifically

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farm and dairy operations and manufacturing of animal feed. The Taxpayer derives approximately

one-third of its revenues from its trucking business. The proportion of this amount that arises from

its contracts with the Postal Service, as opposed to other trucking business, does not appear in the

record.

6. The Taxpayer imports special fuel into New Mexico and places that fuel into storage

tanks at a facility it owns in Deming. The fuel is then put into the fuel supply tanks of motor

vehicles owned and operated by the Taxpayer. These trucks pass through New Mexico as they

travel between points outside the state in the course of hauling mail for the Postal Service. The
trucks and fuel involved in these proceedings are used only in transporting mail for the Postal

Service and not in other parts of the Taxpayer's business operations.

7. The storage tanks at the Taxpayer's Deming facility are located above ground, on

concrete pads.

8. The Taxpayer's mail transportation work is performed pursuant to contracts with the

Postal Service. By the terms of those contracts, fuel costs incurred by the Taxpayer are a

pass-through item that is ultimately paid by the Postal Service.

9. The Taxpayer does not resell special fuel.

10. The Taxpayer does not load special fuel into the cargo tanks of trucks for export from

New Mexico.

11. The Taxpayer participates in the International Fuel Tax Agreement (IFTA). See 49

U.S.C. §31701 et seq. Pursuant to IFTA, the Taxpayer maintains detailed records regarding its
trucks, including the number of miles traveled in each state, the locations at which fuel is loaded

into each truck's fuel supply tank, the amount of fuel loaded into the truck, and the mileage per
gallon for each vehicle.

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12. The miles traveled by the trucks, the vehicles' mileage per gallon, and the fuel used in

traveling through New Mexico during the time period at issue here were verified by the New

Mexico Fuel Tax Audit.

13. The Taxpayer has submitted, as an attachment to the Stipulation of Facts submitted by

the parties, detailed schedules showing gallons used to propel the Taxpayer's vehicles in New

Mexico. The parties agree that, if the Taxpayer is ultimately held to be liable for the fee only on

gallons used in its trucks while traveling within New Mexico, these schedules accurately reflect the

amount of the fee owed by the Taxpayer.

DISCUSSION

The Taxpayer argues, initially, that it is not subject to the petroleum products loading fee

because it is an instrumentality of the United States government and therefore exempted from the

fee by the express provisions of the Act. If the Taxpayer is liable for the fee, it contends that the

amount of the fee must be based on the quantity of fuel actually used to propel its trucks within the

state of New Mexico and not on the full amount of fuel loaded into the trucks' fuel supply tanks at

the Deming facility.1

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The Taxpayer's November 20, 1995 protest letter also challenged imposition of penalty and
interest on the fees; these issues have not been addressed by the parties in subsequent proceedings
but have not been explicitly relinquished by the Taxpayer.

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Exemption for instrumentalities of the United States government

The New Mexico Petroleum Products Loading Fee Act, §7-13A-1 et seq. NMSA 1978,

imposes a fee on the loading of gasoline or special fuel from a rack at a refinery or pipeline terminal

in New Mexico into a cargo tank and on the importing of gasoline or special fuel into New Mexico

for resale or consumption in this state. §7-13A-3(A),(B) NMSA 1978. Petroleum products sold

to the United States government or "any agency or instrumentality thereof" for its exclusive use are

expressly exempted from the fee. §7-13A-4(B). The Taxpayer here contends that it is exempt
from the fee because it is an instrumentality of the federal government.

The Taxpayer transports mail for the United States Postal Service, pursuant to contracts

with that agency. The fuel on which the loading fee was imposed here is used by the Taxpayer for

the sole purpose of performing services under those contracts. The cost of the fuel is passed

through to the Postal Service, which repays the Taxpayer for those costs.

The United States Supreme Court has held, in United States v. New Mexico, 455 U.S. 720

(1982), that the state cannot impose a tax directly on the federal government. However, the Court

noted that an entity is not immune from state tax merely because the tax has an effect on the United

States or even because the federal government ultimately bears the entire economic burden of the

tax. 455 U.S. at 733-34. In order to support immunity from tax, it must be shown that the tax
falls either on the United States itself, or on an agency or instrumentality so closely connected to the

government that the two cannot realistically be viewed as separate entities, at least as to the activity
being taxed. Id. at 735. A contractor is not an instrumentality of the United States, and thus is not

immune from state tax, when its services to the government are performed in connection with its
own commercial activities, even if those activities are for the benefit of the government. Id. at 739.

Like the contractors in United States v. New Mexico, the Taxpayer here is a privately owned

corporation, in which the federal government has no ownership interest. The Taxpayer engages in

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commercial activities carried on for profit, and the government does not run the Taxpayer's

day-to-day operations. The majority of the Taxpayer's revenues are derived from sources other

than the federal government. As in United States v. New Mexico, the congruence of interests

between the Taxpayer and the United States is not complete; rather, the Taxpayer's relationship

with the federal government is for limited purposes only. See U.S. v. New Mexico, 455 U.S. at

740-41.

The Taxpayer is not an instrumentality of the United States government and therefore is not

exempt from imposition of the petroleum products loading fee pursuant to §7-13A-4(B) NMSA
1978.

Quantity of fuel subject to the petroleum products loading fee

Because the Taxpayer is not exempted from the fee as an instrumentality of the federal

government, the amount of fuel subject to the fee must be determined.

The Petroleum Products Loading Fee Act provides for imposition of a fee:

A. For the privilege of loading gasoline or special fuel from a rack at a refinery or pipeline
terminal in this state into a cargo tank, ... .

B. For the privilege of importing gasoline or special fuel into this state for resale or
consumption in this state ... .

§7-13A-3(A),(B) NMSA 1978, emphasis added.

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The Act exempts fuel exported from New Mexico.

Petroleum products that are either loaded into cargo tanks in New Mexico and exported for
resale and consumption outside New Mexico or are imported into New Mexico and
subsequently exported for resale and consumption outside New Mexico are exempt
from the imposition of the petroleum products loading fee.

§7-13A-4(A) NMSA 1978, emphasis added.

The parties agree that the fee at issue here is that provided in §7-13A-3(B), on fuel imported

for resale or consumption. They also stipulate that the Taxpayer does not resell the fuel it brings

into New Mexico, so that the fee to which it is subject is that on fuel imported for "consumption in
this state". §7-13A-3(B). The Taxpayer contends that the fee is imposed only on the quantity of

fuel actually burned to propel its vehicles within the state of New Mexico; the Department argues

that the fee is imposed on the full amount of fuel placed into the trucks' fuel supply tanks.

Certain rules of statutory construction guide interpretation of the Act to determine its

application. The goal of statutory interpretation is to determine and give effect to legislative intent.

State ex rel. Klineline v. Blackhurst, 106 N.M. 732, 735, 749 P.2d 1111 (1988); Junge v. John D.

Morgan Construction Co., 118 N.M. 457, 463, 882 P.2d 48 (Ct.App. 1994). Determination of the

Legislature's intent is based both on the language of the statute and on its history and background.

State ex rel. Klineline, supra. In order to ascertain and effectuate the legislative intent, a statute

must be read in its entirety and in conjunction with related statutory provisions. Quintana v. N.M.

Dept. of Corrections, 100 N.M. 224, 225 (1983). The statute is to be interpreted to mean what the

Legislature intended it to mean and to accomplish the ends sought to be accomplished by it.

Westgate Families v. County Clerk of Los Alamos County, 100 N.M. 146, 148, 667 P.2d 453

(1983).

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The Department argues that the proceeds of the petroleum products loading fee go toward

cleaning up groundwater polluted by leaking underground storage tanks (LUST), so that the

legislative intent was to impose the fee on all fuel placed in storage tanks in New Mexico. The

Taxpayer counters that its tanks are located above ground, so that any legislative goals regarding

underground tanks do not support imposition of the fee. However, the proceeds of the fee do not go

entirely to groundwater remediation. During the time period at issue here, the proceeds were

divided between the local governments road fund and the corrective action fund created to fund

remediation of groundwater pollution caused by LUST, with the monies split evenly between the
two funds.2 Thus, the legislative goal was not limited to funding of groundwater remediation.

Review of the language of the statute helps to elucidate the intent of the Legislature and the

application of the fee. It is true, as the Taxpayer notes, that the Act imposes the fee on fuels

imported into New Mexico "for resale or consumption in this state". §7-13A-3(B), emphasis

added. However, as noted above, this provision cannot be read in isolation, but must be construed

along with other provisions of the Act. Thus, this portion of §7-13A-3(B) should be read along

with the exemption set out in §7-13A-4(A), for fuel exported from New Mexico. The latter section

refers to fuel "exported for resale and consumption outside of New Mexico".

When the Act is read as a whole, it appears that the Legislature intended to provide for all

cases. Fuel is either exported from the state for resale and consumption elsewhere and comes

under §7-13A-4(A), or it falls within §7-13A-3(B) as fuel imported for resale or consumption in

New Mexico. The Taxpayer (which does not claim that it is exempt under subsection A of

§7-13A-4) would create a third category by implication -- fuel that is not exempt as exported fuel

under §7-13A-4(A) but is not subject to §7-13A-3(B). There is no indication of a legislative intent

to do so.

2
The Act was amended in 1996, to provide that a flat $40 per load goes to the roads fund, with
the balance of the fees going into the corrective action fund. The amount of the fee, and thus the
portion paid into the latter fund, varies depending on the balance remaining in the corrective action
fund.

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In enacting §§7-13A-3 and 7-13A-4, the Legislature distinguished between interstate and

intrastate transactions. Fuel exported from New Mexico for resale and consumption elsewhere is

subject to taxation in other states and therefore is exempt from the New Mexico fee, thus avoiding

improper multiple taxation of goods in interstate commerce. Where the final transaction involving

the fuel occurs in New Mexico, the fee is imposed on the full quantity involved in the transaction.

This interpretation promotes equal treatment of all persons loading fuel from storage tanks

into the fuel supply tanks of vehicles in New Mexico. As the Department points out, the

Taxpayer's interpretation would apply the fee differently depending on whether fuel is placed into
vehicles owned by the fuel importer or is resold for use in vehicles owned by another party. In the

latter instance, the fee would be imposed on the full amount of fuel put into the fuel supply tank

(regardless of where it is burned up in propelling the vehicle), while in the former case, the fee

would apply only to that part of the fuel used in moving the vehicle within New Mexico. An

interpretation such as this, which may superficially comport with the statutory language but would

lead to an absurd or unjust result at odds with legislative intent, must be rejected. Junge v. John D.

Morgan Construction Co., supra, 118 N.M. at 463.

When the Act is read as a whole, the words "resale or consumption in New Mexico" evince

a legislative intent to impose the fee in all cases (other than those expressly exempted by the Act)

where fuel imported into New Mexico is placed in the fuel supply tanks of vehicles. By including
"consumption" as well as "resale", the Legislature expressed its intent to impose

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the fee in cases such as this one, where an entity imports fuel for use in its own vehicles, so that no

"resale" takes place.

The fee provided by the Petroleum Products Loading Fee Act applies to the full quantities

of fuel placed into the Taxpayer's trucks at the Deming facility, and not only to those gallons of fuel

actually burned by the vehicles within New Mexico.

Penalty

The Tax Administration Act provides that a penalty will be imposed in certain

circumstances when a taxpayer does not pay tax at the time it is due. The penalty is not based

simply on failure to make payment on time. Rather, such failure must be due to negligence or

disregard of rules and regulations. §7-1-69(A) NMSA 1978. The Taxpayer has the burden of

presenting evidence negating the existence of negligence. Regulation TA 69:1.

Here, the Taxpayer presented no evidence specifically addressing the issue of penalty.

However, it acknowledged in its protest letter that it had simply been unaware of the existence of

the fee and the obligation to pay. (See O'Rear letter dated 11/20/95.)

There is no suggestion here of bad faith on the Taxpayer's part or of any intent to avoid

payment of fees to which it was properly subject. No such showing is required to sustain
imposition of the penalty provided for by §7-1-69(A). All taxpayers have a reasonable duty to

familiarize themselves with the requirements imposed on their operations by the tax laws of this
state. See Tiffany Construction Co., Inc. v. Bureau of Revenue, 90 N.M. 16, 558 P.2d 1155, cert.

den. 90 N.M. 255, 561 P.2d 1348 (Ct.App. 1976). The Taxpayer's failure to acquaint itself with
the taxes applicable to its operations in New Mexico, including the petroleum products

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loading fee, was negligent within the meaning of §7-1-69(A), and the penalty was properly

imposed.

Interest

Section 7-1-67 NMSA 1978 provides for the imposition of interest on tax deficiencies:
A. If any tax imposed is not paid on or before the day on which it becomes due, interest
shall be paid to the state on such amount from the first day following the day on
which the tax becomes due ... until it is paid ... . (Emphasis added.)

It is a well settled rule of statutory construction that the word "shall" is mandatory rather

than discretionary, unless a contrary legislative intent is clearly demonstrated. State v. Lujan, 90

N.M. 103, 560 P.2d 167 (1977). The New Mexico Legislature has expressly reiterated this general

rule in §12-2-2(I) NMSA 1978 (in construing statutory provisions, the words "shall" and "must" are

to be construed as mandatory unless this would be inconsistent with manifest legislative intent or

repugnant to the context of the statute).

Section 7-1-67 requires that interest be imposed on the amount of any unpaid taxes. No

exceptions to this rule are provided for. Interest therefore was properly imposed on the tax

deficiency here.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely protest of Assessment No. 25444. Jurisdiction thus lies

over the parties and the subject matter of this protest.

2. The Taxpayer is subject to the fee provided by the Petroleum Products Loading Fee Act,

§7-13A-3(B) NMSA 1978. That fee is imposed based on the full quantity of fuel imported by the

Taxpayer into New Mexico and loaded into the fuel supply tanks of its vehicles, and not only on the

amount of fuel burned in propelling the trucks within the boundaries of this state.

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3. The Taxpayer is not an instrumentality of the United States government and therefore is

not exempt from the fee pursuant to §7-13A-4(B) NMSA 1978.

4. The Taxpayer's failure to pay the fees at the time they were due was the result of

negligence, and penalties were properly imposed on the unpaid amounts.

5. Because the Taxpayer did not pay the tax owed at the time it was due, interest was

properly imposed on the deficiency at the statutory rate.

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

DONE, this 19th day of June, 1997.

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