The state gave me 60 days to produce exemption certificates but assessed the tax before the 60 days ran out — right before the statute of limitations expired. Was that allowed?

Subject

Ken Miller Real Estate (D&O 98-37)

Plain-English summary

Ken Miller is a real estate broker in Roswell who runs his business as a sole proprietor. A limited-scope audit flagged a gap between the business income on his 1994 federal return and the receipts he reported on his New Mexico gross receipts tax returns. On November 3, 1997, the Department sent Miller a notice giving him 60 days — until January 2, 1998 — to get the nontaxable transaction certificates (NTTCs) and other documents needed to support the deductions he had claimed, warning that otherwise the deductions "will be disallowed."

Here's the catch: the Department's power to assess the 1994 tax was about to expire. The statute of limitations ran on January 1, 1998. So on December 31, 1997 — before the 60-day certificate window closed — the Department issued a $3,575.55 assessment. Miller moved for summary judgment, arguing that the Department jumped the gun: his deductions, he said, were "presumed correct" until the 60 days expired, so the Department couldn't assess before then and was estopped from doing so.

Hearing Officer Margaret B. Alcock denied the motion:

• No presumption protected undocumented deductions. Under Section 7-9-5, all business receipts are presumed taxable, and under the deduction statutes a seller's right to a deduction doesn't even exist until the buyer delivers an NTTC. Deductions are read strictly in favor of the taxing authority (Wing Pawn Shop, Security Escrow). So there was no "presumption of correctness" for deductions Miller hadn't yet documented.
• The 60-day notice is not mandatory. The Department could have assessed without giving any 60-day notice at all. Choosing to send the notice didn't take away its authority to assess, and — importantly — assessing early didn't take away Miller's right to still produce certificates within the 60 days.
• Forcing the Department to wait would be absurd. Requiring it to let the statute of limitations run on the mere possibility Miller might produce documents "would lead to an absurd and unjust result."
• Estoppel failed. Section 7-1-60 estops the Department only when a taxpayer relied on a regulation or a written ruling addressed to him. Miller pointed to neither. And the Department expressly said it would honor any NTTCs Miller produced within the 60 days even after the assessment — so it hadn't violated the notice rule.

What this means for you

• The state can issue a "protective" assessment before your document deadline to preserve the statute of limitations. If the clock is about to run, expect an assessment even while your 60-day NTTC window is still open. That early assessment is lawful.
• An early assessment does not shorten your time to produce certificates. You still get the full 60 days from the notice to deliver NTTCs, and the Department must adjust the assessment for any you provide in time. Keep gathering and submitting your certificates.
• Undocumented deductions carry no presumption of correctness. In New Mexico, receipts are presumed taxable; a deduction exists only once you hold the required certificate. The burden is always on you to establish the deduction clearly.
• The 60-day notice is a tool, not a shield. The Department isn't required to send it at all. Getting one doesn't mean the Department can't act until it expires — it just fixes a firm cutoff for your documentation.
• Estoppel needs a regulation or a written ruling to you. A general belief about how the process should work won't estop the Department. Only reliance on a specific regulation or a personal written ruling counts under Section 7-1-60.

Key questions answered

Could the Department assess the tax before the 60-day certificate period ended?
Yes. The 60-day notice is not mandatory and does not suspend the Department's authority to assess. It could have assessed with no notice at all, so issuing the assessment during the 60-day window was permitted — especially with the statute of limitations about to expire.

Were Miller's deductions "presumed correct" until the deadline?
No. Section 7-9-5 presumes all receipts are taxable, and a deduction does not exist until the buyer delivers an NTTC. There is no presumption of correctness for deductions the seller hasn't documented.

Did the early assessment cut off Miller's chance to submit certificates?
No. He kept the full 60 days to produce NTTCs, and the Department said it would honor any delivered within that period and adjust the assessment accordingly. The early assessment only preserved the Department's ability to collect if he didn't.

Why did the estoppel argument fail?
Section 7-1-60 estops the Department only when a taxpayer relied on a regulation effective at the time or a written ruling addressed to him personally. Miller identified neither, so estoppel did not apply.

Verbatim citations

Why no presumption protected the undocumented deductions:

Construing Section 7-9-43 to create a presumption of correctness for deductions taken by a seller who does not have the required documents is inconsistent with the language of the statutes granting those deductions.... Until delivery and acceptance of documents required to support his deductions, the seller's receipts are presumed to be taxable. Section 7-9-5 NMSA 1978 (Repl.Pamp.1995)

The 60-day notice is not mandatory, and assessing early preserved the limitations period:

The Department's decision to issue the 60-day notice had no effect on the Department's right to issue an assessment. Nor did the assessment have any effect on Miller's right to dispute his liability for tax by producing additional evidence to substantiate his deductions within the 60-day period. To require the Department to let the statute of limitations run on Miller's gross receipts tax liability based on the possibility that Miller would produce documents to support his unsubstantiated deductions within the 60-day period would lead to an absurd and unjust result that could not have been intended by the legislature.

The holding (Conclusions of Law 2–4):

No presumption of correctness applied to Miller's gross receipts tax deductions during the 60-day notice period provided in Section 7-9-43 NMSA 1978. The Department was not prohibited from assessing Miller for gross receipts tax, interest and penalty prior to the expiration of the 60-day notice period.... The Department was not estopped from assessing Miller....

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Ken Miller Real Estate
• Decision PDF: D&O 98-37

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 KEN MILLER REAL ESTATE 98-37
ID. NO. 01-806391-00 8
ASSESSMENT NO. 2204815

DECISION AND ORDER
ON MOTION FOR SUMMARY JUDGMENT

Ken Miller ("Miller"), sole proprietor of Ken Miller Real Estate, moved for summary

judgment on his protest to the Taxation and Revenue Department's assessment of $3,575.55 in gross

receipts tax, interest and penalty for the period January 1-December 31, 1994. Miller was

represented by R. "Trey" Arvizu, III, his attorney. The Taxation and Revenue Department

("Department") was represented by Frank D. Katz, Chief Counsel. The matter was submitted to

Margaret B. Alcock, Hearing Officer, on June 22, 1998. Based on the facts and arguments

presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. Miller is a real estate broker in Roswell, New Mexico. Statement A, Motion for

Summary Judgment.

2. Miller is registered with the Department under tax identification number 01-806391-

00 8. Statement B, Motion for Summary Judgment.

3. On November 3, 1997, the Department mailed notice of a limited scope audit to

Miller and his wife, Betty Miller, based on a discrepancy between the business income reported on

their 1994 federal income tax return and the receipts reported on Miller's New Mexico gross receipts
tax returns for the period January 1-December 31, 1994. Statement C and Exhibit A, Motion for

Summary Judgment.

4. The Department's notice stated that unless nontaxable transaction certificates

("NTTCs") and other documents required to support deductions from gross receipts were in Miller's

possession within 60 days from the date of the notice, the deductions "will be disallowed." Exhibit A,

Motion for Summary Judgment.

5. The 60-day period within which Miller could obtain NTTCs or other documents to

support deductions taken from gross receipts expired January 2, 1998. Exhibit A, Motion for

Summary Judgment.

6. On December 31, 1997, the Department issued Assessment No. 2204815 to Miller in

the amount of $3,575.55, representing gross receipts tax, penalty and interest due for the period

January 1-December 31, 1994. Statement D and Exhibit B, Motion for Summary Judgment.

7. The statute of limitations for assessing the tax at issue expired January 1, 1998.

Statement E, Motion for Summary Judgment.

8. On January 30, 1997, Miller filed a protest to the Department's assessment.

DISCUSSION

The sole issue presented is whether the Department wrongfully assessed or was estopped

from assessing Miller for gross receipts tax prior to the expiration of the 60-day notice period

provided in Section 7-9-43 NMSA 1978 (1997 Supp.).1

A. Authority to Assess. Subsection B of Section 7-9-43 provides that NTTCs and other

documents required to support deductions from gross receipts

1
The 1997 amendment to Section 7-9-43 applies to audits where the 60-day notice expired after the amendment's
effective date of July 1, 1997. All references to Section 7-9-43 are to the version set forth in the 1997 cumulative

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should be in the possession of the seller at the time the return is due for
receipts from the transactions. If the seller is not in possession of these
documents within sixty days from the date that the notice requiring
possession of these documents is given to the seller by the department,
deductions claimed by the seller or lessor that require delivery of these
documents shall be disallowed.

Miller argues that Section 7-9-43(B) prohibits the Department from assessing gross receipts tax prior to

the expiration of the 60-day notice period.2 Miller asserts that his gross receipts tax deductions "were

presumed to be correct until January 2, 1998." Only after this date could the Department determine that

Miller did not have possession of the documents required to support his deductions and issue an

assessment. Motion of Summary Judgment, pages 3-4.

It is a rule of statutory construction that statutes in pari materia should be read together to

ascertain legislative intent. Quintana v. New Mexico Dep't of Corrections, 100 N.M. 224, 225, 668

P.2d 1101, 1102 (1983); See also, Runyan v. Jaramillo, 90 N.M. 629, 631, 567 P.2d 478, 480 (1977)

(statutes on the same general subject should be construed by reference to each other). In this case,

Miller's proposed construction of Section 7-9-43 conflicts with the overall statutory scheme governing

deductions from gross receipts. Section 7-9-5 NMSA 1978 (1995 Repl. Pamp.) creates a statutory

presumption "that all receipts of a person engaging in business are subject to the gross receipts tax."

Sections 7-9-46 through 7-9-75 NMSA 1978 (1995 Repl. Pamp.) set out specific requirements that

must be met before a taxpayer is entitled to claim a deduction from gross receipts. For example:

supplement; references to other sections of the Gross Receipts and Compensating Tax Act are to the versions of
those statutes in effect during the tax period January-December 1994.
2
Miller later argues that the Department's assessment is estopped by the 60-day notice requirement in Section 7-9-
43(A). See, Motion for Summary Judgment at 4. Subsection B of Section 7-9-43 applies to deductions taken under
Sections 7-9-57, 7-9-58 and 7-9-74 NMSA 1978. Subsection A applies to all other deductions requiring possession
of NTTCs. Although the facts submitted by the parties do not indicate which statutory deductions Miller claimed
during the audit period, the language in Subsections A and B concerning application of the 60-day period is virtually
identical, and the outcome of this matter would be the same regardless of which subsection applies to Miller's
deductions.

3
Section 7-9-47 provides a deduction for receipts from selling tangible personal property

"if the sale is made to a person who delivers a nontaxable transaction certificate to the seller."

Section 7-9-48 provides a deduction for receipts from selling services for resale "if the

sale is made to a person who delivers a nontaxable transaction certificate to the seller."

Section 7-9-57 provides a deduction for receipts from selling services the product of

which is delivered and initially used out-of-state if the buyer "delivers to the seller either a nontaxable

transaction certificate or other evidence acceptable to the secretary...."

In each case, the seller's right to a deduction does not exist until the buyer delivers an NTTC or

other acceptable documentation to the seller. Construing Section 7-9-43 to create a presumption of

correctness for deductions taken by a seller who does not have the required documents is inconsistent

with the language of the statutes granting those deductions. Such a construction also conflicts with the

established rule that where a deduction from tax is claimed, the statute must be construed strictly in

favor of the taxing authority, the right to the deduction must be clearly and unambiguously expressed in

the statute, and the right must be clearly established by the taxpayer. Wing Pawn Shop v. Taxation &

Revenue Department, 111 N.M. 735, 740-41, 809 P.2d 649, 654-55 (Ct. App. 1991); Security Escrow

Corp. v. State Taxation and Revenue Department, 107 N.M. 540, 543, 760 P.2d 1306, 1309 (Ct. App.

1988).

Nothing in Section 7-9-43 indicates that the legislature intended to reverse established

presumptions in favor of the taxability of receipts and create a new presumption of correctness for

unsubstantiated deductions from gross receipts. To the contrary, the last sentence of Section 7-9-43(B)

confirms that the right to a deduction arises "[w]hen the seller accepts these documents within the

required time and in good faith that the buyer will employ the property or service transferred in a

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nontaxable manner..." Until delivery and acceptance of documents required to support his deductions,

the seller's receipts are presumed to be taxable. Section 7-9-5 NMSA 1978 (Repl.Pamp.1995)

The 60-day notice provision allows the Department to give some finality to its audit findings

and prevent surprise at any hearing held on the taxpayer's protest. The notice provision is not

mandatory. In this case, the Department could have completed its audit and issued an assessment

without giving Miller a 60-day notice. Under those circumstances, Miller would have the right to

produce additional documentation to support his deductions from gross receipts right up to the date of

the hearing on his protest. Rather than leaving the matter open, the Department elected to use the 60-

day notice provided in Section 7-9-43 to limit the time within which Miller could demonstrate timely

possession of NTTCs and other required documents. The Department's decision to issue the 60-day

notice had no effect on the Department's right to issue an assessment. Nor did the assessment have any

effect on Miller's right to dispute his liability for tax by producing additional evidence to substantiate

his deductions within the 60-day period. To require the Department to let the statute of limitations run

on Miller's gross receipts tax liability based on the possibility that Miller would produce documents to

support his unsubstantiated deductions within the 60-day period would lead to an absurd and unjust

result that could not have been intended by the legislature.

B. Estoppel. Miller argues that Section 7-1-60 NMSA 1978 (1995 Repl. Pamp.) estops

the Department from enforcing its assessment of gross receipts tax. Section 7-1-60 states:

In any proceeding pursuant to the provisions of the Tax Administration Act, the
department shall be estopped from obtaining or withholding the relief requested
if it is shown by the party adverse to the department that the party's action or
inaction complained of was in accordance with any regulation effective during
the time the asserted liability for tax arose or in accordance with any ruling
addressed to the party personally and in writing by the secretary.... (emphasis
added).

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Miller has not identified any Department regulation on which he relied in failing to pay gross receipts

tax or in failing to provide documentation to support deductions taken during the audit period. Nor has

Miller shown that he ever requested or received a Department ruling. Accordingly, the estoppel

provisions of Section 7-1-60 do not apply in this case.

The sole basis for Miller's estoppel argument is that he was not given the full 60 days to

respond to the notice issued pursuant to Section 7-9-43. It is undisputed that Miller had not produced

documentation to support his deductions when the Department issued its assessment on December 31,

1997. The record is silent on whether Miller produced additional documents after the assessment was

issued but prior to expiration of the 60-day notice period. In its response brief, the Department states

that "[a]ny NTTCs obtained by the Taxpayer within the 60 day period, i.e., by January 3, 1998, could

be used by the Taxpayer to support deductions taken from gross receipts...." Response to Taxpayer's

Motion for Summary Judgment, page 2. This statement, which has not been challenged by Miller,

indicates the Department's willingness to honor all documents produced by Miller during the 60-day

period, even if production occurred after the assessment was issued. In the absence of any evidence

that the Department refused to adjust Miller's assessment to reflect documents provided within the 60-

day period, Miller has no basis for arguing that the Department failed to follow the requirements of

Section 7-9-43.

CONCLUSIONS OF LAW

1. Miller filed a timely, written protest to Assessment No. 2204815 pursuant to Section 7-

1-24 NMSA 1978, and jurisdiction lies over the parties and the subject matter of this protest.

2. No presumption of correctness applied to Miller's gross receipts tax deductions during

the 60-day notice period provided in Section 7-9-43 NMSA 1978.

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3. The Department was not prohibited from assessing Miller for gross receipts tax, interest

and penalty prior to the expiration of the 60-day notice period provided in Section 7-9-43 NMSA 1978.

4. The Department was not estopped from assessing Miller for gross receipts tax, interest

and penalty prior to the expiration of the 60-day notice period provided in Section 7-9-43 NMSA 1978.

For the foregoing reasons, Miller's Motion for Summary Judgment is denied.

DONE this 15th of July 1998.

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