New Mexico: Special Industry Apportionment Regulation Does Not Fairly Represent in-State Activity

A New Mexico Hearing Officer recently concluded that a taxpayer established by clear and cogent grounds that the special industry apportionment regulation for trucking companies did not fairly represent its business in New Mexico. The taxpayer first argued that it was not a “trucking company” at all because it did not simply transport property by motor vehicle. Rather, the taxpayer argued that it was a package delivery company because only 13 percent of its activities involved transportation via motor vehicle while the remainder of the time, it was engaged in sorting and loading its packages and other hub operations. The Hearing Officer rejected the taxpayer’s position, noting that that the transportation of packages from point A to point B was the predominate source of the taxpayer’s income generation, despite the fact that most of the taxpayer’s resources were spent on ancillary activities. After concluding that the taxpayer was subject to the trucking company regulation, the Hearing Officer noted that equitable relief was available despite the fact that the trucking regulation was a special industry regulation. The key question was whether the taxpayer had established by clear and cogent evidence that the regulation did not fairly represent the extent of the taxpayer’s activities in the state. In this instance, the taxpayer was able to prove that use of the mileage method in the trucking regulation was distortive in a state like New Mexico that had a low population and a large geographic area. In other words, the taxpayer had to drive a lot longer distance to deliver fewer packages, meaning use of the mileage method overstated its business activity in New Mexico. The mileage formula, the taxpayer demonstrated,  increased revenue attributed to New Mexico by 1,113 percent, 1,083 percent, and 1,328 percent,  respectively above actual known revenues generated in New Mexico for the tax years at issue. Finally, the Hearing Officer concluded that the “state to state volume method” that the taxpayer had historically used on its returns and that the Multistate Tax Commission and the Department had previously accepted on audit, was a reasonable alternative method. The state to state volume method looks to the maximum shipping cost that would be charged on an interstate transaction and assigns 50 percent of the receipts to the origin state and 50 percent to the destination state. It has been used by the taxpayer in several large geography, low population density jurisdictions for a considerable period of time. Please contact Nick Palmos at 214-840-4076 with questions on Matter of the Protest of United Parcel Service, Inc.