Tucson Electric Power Company

16-29

On December 19, 2014, the Taxpayer applied for a refund of compensating tax for the period July 1, 2011 through December 31, 2011.  On June 17, 2015, the Department denied the claim for refund, initially because a managed audit was performed for that time frame, but the reason was later clarified to be that no deduction applied.  The Taxpayer protested the denial of refund on July 29, 2015.  The Taxpayer paid compensating tax on the purchase of natural gas during the period in question.  The natural gas was purchased and delivered via pipeline to a facility owned by the Taxpayer and others that used natural gas to produce a chemical reaction to convert natural gas into electricity.  The Taxpayer purchased the natural gas from several out of state companies that do not have nexus in New Mexico.  The Taxpayer argues that it is not subject to compensating tax on the use of the natural gas because if the seller was subject to the gross receipts tax, the transactions would have been deductible under Section 7-9-65 or 7-9-46 NMSA 1978.  The Taxpayer argued that Section 7-9-65 NMSA 1978 applies because it purchased chemicals or reagents in lots in excess of eighteen tons, for which the Section provides a deduction.  The hearing officer found that the Taxpayer failed to present sufficient evidence that the natural gas or chemicals or reagents it purchased was purchased in lots.  The Taxpayer then argued that Section 7-9-46, which provides a deduction for the receipts from the sale of tangible personal property to a manufacturer would apply.  The hearing officer found that the Taxpayer is in the business of processing natural gas to produce electricity and is not in the business of manufacturing.  The Taxpayer’s protest was denied.