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New Mexico: Proper Proof of Nontaxable Transactions Required

  • Mar 6, 2014 | Gail Cole

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A business in New Mexico was recently handed a bill for over $7,200, including penalty and interest, for not properly filing its gross receipts returns for specific tax periods and for not being able to properly support certain nontaxable transactions. Most goods sold and services performed in the State of New Mexico are subject to state and local gross receipts tax.

The Taxpayer, a provider of painting services for heavy equipment, was asked by the New Mexico Taxation and Revenue Department to provide evidence that it was entitled to a deduction from gross receipts tax for certain transactions. When businesses are audited and found somehow wanting, the burden is on the Taxpayer to “present evidence and legal argument to show that it is entitled to an abatement, in full or in part, of the assessment issued against it.” Only when taxpayers are able to do this does the burden of proof to show the assessment is correct shift to the department (NM tax ruling).

According to the Taxation Department , “Receipts from selling a service that are resold are deductible if all the statutory conditions are met.” Proof of the deduction must also be furnished: “Regulation NMAC requires Taxpayer to be in possession of the correct type of NTTC (nontaxable transaction certificate).” [Emphasis mine].

Wrong form

The Taxpayer’s deductions for services sold to one customer should have been supported by a Type 5 NTTC. Instead, the Taxpayer used a Type 7 NTTC. As a result, “the deduction was properly disallowed by the Department.”

Too late

The proper NTTCs for two of the Taxpayer’s buyers were provided to the Taxation and Revenue Department. However, since those NTTCs were not in the Taxpayer’s possession within 60 days of the notice from the department, the nontaxable transactions are considered invalid:

“All nontaxable transaction certificates of the appropriate series executed by buyers or lessees should be in the possession of the seller or lessor for nontaxable transactions at the time the return is due for receipts from the transactions. If the seller or lessor is not in possession of the required nontaxable transaction certificates within sixty days from the date that the notice requiring possession … deductions shall be disallowed.” [Emphasis theirs].

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.