New Mexico: Government Services were Subject to New Mexico GRT

A New Mexico Administrative Hearings Officer recently addressed whether demilitarization and disposal services performed in New Mexico were subject to gross receipts tax. The taxpayer performed demilitarization services that involved removing munitions debris from two Air Force range sites in New Mexico. The taxpayer did not pay gross receipts tax on the services and was subsequently assessed on audit. Under New Mexico law, receipts from selling tangible personal property to a government agency may be deducted from gross receipts, but the portion of those receipts attributable to the performance of a service for a government agency are not deductible. The Department argued that this statute barred a deduction from gross receipts for the sale of services to a government agency. The Hearing Officer disagreed, finding that the statutory language did not express an intent to disallow all deductions for receipts of services sold to government agencies, but rather limited the specific deduction addressed.

The Hearing Officer analyzed the case under another section of law that allows a deduction of gross receipts sales of a service to an out-of-state buyer, unless the buyer of the service or any of the buyer’s employees or agents makes initial use of the product of the service in New Mexico or takes delivery of the product of the service in New Mexico. The Hearing Officer initially determined, per the Department’s own regulations, that the governmental agency was an out-of-state buyer; the fact that the agency had a presence in New Mexico did not disqualify the taxpayer from taking the deduction. However, the initial use or delivery of the product of the service also had to occur outside of New Mexico. The taxpayer argued that, per its contracts, all deliverables were deemed delivered in Virginia. The contract between the parties, the Hearing Officer noted, does not decide the issue of taxation. The Hearing Officer concluded the initial use or delivery location could only be New Mexico because the resulting products of the services performed were in-state demilitarized range sites in New Mexico. Thus, receipts from the services were subject to gross receipts tax. For more information on In re Matter of the Protest of Timberline Environmental Services, LLC please contact Carolyn Owens.