Continental Land Resources

20-04

On April 27, 2017, the Department assessed the Taxpayer for $1,101,453.53 in gross receipts tax, penalty and interest. On July 24, 2017, the Taxpayer filed a formal protest. The issues to be decided in the protest were whether the Taxpayer was entitled to the exemption for services performed outside New Mexico, the product of which is initially used inside New Mexico, and whether the Taxpayer was entitled to a deduction for sales of certain services to an out-of-state buyer. The Taxpayer, who is based outside New Mexico and has clients located outside the state, provides services evaluating land and negotiating leases of land that are oil and gas prospects, some of which are located inside New Mexico. The Taxpayer uses contractors with specialized knowledge of the field to perform these activities. The Taxpayer claimed that these services were covered under the exemption available for services performed outside New Mexico, the product of which is initially used inside New Mexico. The Department argued that the product of the service was the hiring of contractors and the work which those contractors did in New Mexico and so the exemption did not apply. But the Hearing Officer determined that the product of the service was the benefit received by the buyer of the service and agreed with the Taxpayer that in the this case the product of the service was the reports and analysis provided to its clients to aid their decision-making and the acquisition of leases. That the product of the service is related to property in New Mexico does not immediately mean, as the Department argued, that the product is necessarily being used inside the state. This benefit, the Hearing Officer concluded, can be received outside the state, as in this case, and so be exempt. Also in dispute was the fact that Taxpayer had not obtained a non-taxable transaction certificate to support the deduction for sales to an out-of-state buyer. But statute does allow for alternative evidence to support a deduction when a certificate is not available. The evidence presented by the Taxpayer was determined to be acceptable support for the deduction. This having been decided the Hearing Officer ordered the assessment be adjusted to reflect only the tax owed on receipts that were not exempt or deductible and the protest was granted to that extent.