Jason P. Able

10-07

In tax years 2005 and 2006, the Taxpayer had a contract as an oil-well pumper with his father’s business, Able Pumping Service.  The Taxpayer believed that his father’s business was responsible for the payment of gross receipts taxes.  At the time the Taxpayer performed services for Able Pumping services, he did not ask for or possess a nontaxable transaction certificate (NTTC) from that company.  As a result of the information-sharing program with the IRS, the Department found some discrepancies between the Taxpayer’s IRS filing and his New Mexico Combined Reporting System (CRS) filings.  The Department mailed notices to the Taxpayer that it was conducting a limited scope audit of his gross receipts tax reporting for the years 2005 and 2006.  The notices advised the Taxpayer that he must be in possession of all NTTCs required to support his deductions within 60 days from the date of that letter.  The Taxpayer was later sent reminder notices also containing this information.  The Taxpayer contacted Able Pumping Service regarding the NTTCs, so that company applied to the Department for the appropriate NTTCs.  The deadline by which the Taxpayer had to have the NTTCs in possession passed and he still did not have the certificate.  The Taxpayer was issued the Type 5 NTTC forty-seven days after the deadline.  Because the NTTCs are required to support the deductions taken by the Taxpayer, and because he was not in possession of them at the time required by statute, the Department disallowed the deductions and assessed the taxpayer for unpaid gross receipts tax, penalty and interest.  The Taxpayer filed a protest to the assessments arguing that he was prevented from timely possessing the relevant NTTCs as the Department withheld them from Able Pumping Service.  The Department states that statute provides a lawful basis to withhold NTTCs from an applicant when their account is delinquent or shows a non-filing period.  The hearing officer found that the Taxpayer was not entitled to the deductions taken as he did not have the necessary NTTCs in possession.  The law is clear that the deduction is to be disallowed if the NTTCs are not obtained in the designated time period.  The law also requires the Department to impose interest, so this amount may not be waived.  The hearing officer also ordered that the Department waive part of the penalty imposed as the cap on penalty was 10% rather than 20% at the time these taxes were due.  The Taxpayer’s protest was granted in part and denied in part.
NOTE: The New Mexico Court of Appeals has overruled the 10% penalty issue mentioned in this decision.  (Case No. 30,932)