News and Insights

New Mexico Deduction Denied Due to Untimely Nontaxable Transaction Certificate

Tax Development Feb 19, 2016

In July 2014, the New Mexico Department of Revenue (“Department”) audited a New Mexico seller (“Taxpayer”) of consulting services and construction materials. During the relevant audit period, the Taxpayer claimed deductions for some of its sales. The Taxpayer was unable to provide a nontaxable transaction certificate (“NTTC”) to support those deductions; however, it did provide evidence in the form of a communication from its customer stating the customer did provide them with an NTTC.

In August 2015, the Department provided the Taxpayer with a notice stating it had 60 days to obtain an executed NTTC for any deductions claimed. The Taxpayer failed to produce the requisite NTTCs within the 60-day deadline. It did obtain the necessary NTTCs seven months later, but the Department ruled they were untimely and did not allow the deduction. The Taxpayer appealed, and a protest hearing occurred to determine whether the Department’s denial of the deduction was proper.

Under New Mexico law, taxpayers should be in possession of NTTCs by the return due date.  However, the Chief Hearing Officer explained that the 60-day notice acts as a second chance mechanism, offering taxpayers additional time to obtain NTTCs. He further stated that “customers who rely on this second chance provision run the risk of having their deductions disallowed if they are unable to meet the 60-day deadline set by the Legislature.”

Ultimately, because the Taxpayer did not present timely executed NTTCs to support the claimed deductions either at the time of filing the returns or within the 60-day notice, the Department’s denial of the deduction was upheld, and the Taxpayer was liable for the assessed gross receipts tax, penalty, and interest.

While we have highlighted this issue as a New Mexico decision, it applies to every taxpayer to obtain all documentation in a timely manner to support either an exemption claimed or provided by a customer to a vendor for every state that a company does business within.


Jeremiah T. Lynch