Weil Construction Inc.

16-42

On November 25, 2014, the Taxpayer filed an application for refund of gross receipts tax for the periods from October 1, 2012 through December 31, 2013.  The Department took no action on the request for refund within 120 days of its filing.  On June 15, 2015, the Taxpayer filed a protest.  The Taxpayer is engaged in the construction business in New Mexico.  During the period in question, the Taxpayer was involved in a construction project for Santa Fe County, building a new fire station for the city of Edgewood.  The Taxpayer issued Type 6 nontaxable transaction certificates (NTTCs) to its vendors for items that were included in the construction project.  The Taxpayer paid gross receipts tax on its receipts from the county for the construction of the fire station, including on items of tangible personal property that were incorporated into the fire station.  At the behest of the county, a firm was hired to perform a cost segregation study on the construction of the fire station.  They concluded that many items of tangible personal property that were incorporated into the station were items that could be classified as 3-year, 5-year, 7-year, 10-year, and 15-year property under Section 168 of the Internal Revenue Code (depreciable property).  The firm agreed to represent the Taxpayer to try and obtain tax refunds and reduce the county’s expenses.  The Taxpayer is seeking a refund on the gross receipts tax paid on the items of tangible personal property incorporated into the fire station that could be classified as depreciable property.  Since the protest was filed, the Department granted a partial refund, but the majority of the refund request remains outstanding.  The portion of the refund that was granted was for items easily removed from the fire station and not permanently affixed, such as window treatments, appliances and fire extinguishers, among other items.  The remaining items include cabinets and countertops, flooring, piping and ventilation, and other similar items.  The Department denies that these items are eligible for refund because they are permanent structural components of the building or permanently affixed.  The Taxpayer argues that the depreciable property is tangible personal property sold to a government agency and should be deductible.  The Department made several arguments, mainly that receipts from performing a construction project for a governmental agency are receipts derived from performing a service and are not deductible (Regulation 3.2.212.10 NMAC).  The Department acknowledged that depreciable property might be deducted in a sale to a government agency, but only when there is a bond project with a third party acting as an agent for the government, which was not the case here.  Receipts from the sale of construction materials to government agencies are not able to be deducted, and construction materials include any items incorporated into a construction project.  The Taxpayer was performing construction services for a government agency and the items they are attempting to claim a deduction for were items incorporated into the construction project.  The hearing officer found that the deductions were properly denied.  The Taxpayer’s protest was denied.