This summary was computer-generated without any editorial revision. It is not official, has not been checked for accuracy, and is NOT citable.
Facts
The case involves Arco Materials, Inc. (Taxpayer), which sold construction materials to the Bureau of Indian Affairs (BIA) and to various state municipalities and counties. The New Mexico Taxation and Revenue Department (Department) disallowed certain tax deductions claimed by the Taxpayer under the Gross Receipts and Compensating Tax Act and assessed penalties for failure to pay taxes. The dispute centers on whether these transactions were taxable under the applicable statutes and amendments (paras 1-2).
Procedural History
- New Mexico Taxation and Revenue Department, Hearing Officer Gerald B. Richardson: Disallowed deductions and assessed penalties for the Taxpayer's sales to the BIA and state municipalities and counties.
Parties' Submissions
- Appellant (Taxpayer): Argued that sales to the BIA were not taxable based on precedent in Blaze Construction Co. v. Taxation & Revenue Dep't and that sales to municipalities and counties were deductible under Section 7-9-54(A). The Taxpayer also claimed reliance on nontaxable transaction certificates (NTTCs) issued by governmental entities and alleged that the Department misled them regarding the taxability of these transactions (paras 3-13).
- Respondent (Department): Contended that the sales to the BIA were taxable and that the Blaze decision was wrongly decided. For sales to municipalities and counties, the Department argued that the 1989 amendment to Section 7-9-54(C) rendered such deductions invalid. It also asserted that the Taxpayer had a duty to stay informed about changes in tax law and could not rely on outdated NTTCs (paras 3-13).
Legal Issues
- Was the Department's assessment of gross receipts tax and penalties on sales of construction materials to the BIA proper?
- Was the Department's assessment of gross receipts tax and penalties on sales of construction materials to state municipalities and counties proper?
- Could the Taxpayer rely on NTTCs issued before the 1989 amendment to Section 7-9-54 to claim deductions?
Disposition
- The Court reversed the Department's disallowance of deductions and penalties for sales to the BIA (para 16).
- The Court affirmed the Department's disallowance of deductions and penalties for sales to state municipalities and counties (para 16).
Reasons
Per Apodaca J. (Flores J. concurring):
Sales to the BIA: The Court relied on its prior decision in Blaze Construction Co. v. Taxation & Revenue Dep't, which held that the State could not impose gross receipts tax on construction funded entirely by the BIA on Indian reservations. Although the Department argued that Blaze was wrongly decided, the Court declined to reconsider its precedent and reversed the disallowance of deductions and penalties for these sales (para 3).
Sales to Municipalities and Counties: The Court found that the 1989 amendment to Section 7-9-54(C) explicitly disallowed deductions for sales of materials incorporated into construction projects. The Court rejected the Taxpayer's argument that the amendment did not apply to repairs or maintenance, citing the broad legislative definition of "construction" in Section 7-9-3(C), which includes repairs and maintenance. The Court also dismissed the Taxpayer's reliance on NTTCs issued before the amendment, holding that taxpayers have a continuing duty to stay informed about changes in tax law. The Department's CRS-1 Filer's Kit clearly communicated the change in law, and the Taxpayer's reliance on outdated NTTCs was deemed negligent (paras 4-13).
Penalties: The Court upheld the penalties for sales to municipalities and counties, finding that the Taxpayer's failure to pay taxes was due to negligence, including erroneous beliefs and inattention. The evidence showed that the Taxpayer was aware of its duty to stay informed about tax law changes but failed to act accordingly (paras 14-15).
Special Concurrence by Black J.:
Judge Black concurred with the majority opinion but expressed reservations about the Blaze decision, suggesting it may not have adequately considered prior New Mexico Supreme Court precedent in Tiffany Construction Co. v. Bureau of Revenue. However, Judge Black emphasized the importance of adhering to Court of Appeals precedent to ensure consistency and predictability in the law (paras 18-19).