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 taxpayer, a retail company operating in New Mexico, purchased catalogs and newspaper inserts from out-of-state coordinators to promote its business. These materials were distributed in New Mexico through local mailing services and newspapers under the taxpayer's contractual arrangements. The taxpayer was assessed compensating tax on the value of these materials, which it disputed, arguing that it did not "use" the materials in New Mexico, among other claims (paras 2-5).
Procedural History
- New Mexico Taxation and Revenue Department: The Department upheld the assessment of compensating tax and a negligence penalty against the taxpayer.
Parties' Submissions
- Appellant (Taxpayer): Argued that (1) contracting for the distribution of catalogs and inserts did not constitute taxable "use" under New Mexico law; (2) the newspaper inserts would not have been subject to gross receipts tax if purchased in New Mexico; (3) the compensating tax base should be limited to 77% of the billed amount, reflecting the cost of printing and manufacturing; and (4) the negligence penalty was improper due to a good faith dispute over taxability (paras 1, 6-7, 9, 14, 17).
- Appellee (New Mexico Taxation and Revenue Department): Contended that (1) the taxpayer exercised control over the distribution of the materials, constituting "use" in New Mexico; (2) the newspaper inserts did not qualify as "newspapers" under the relevant tax exemptions; (3) the full billed amount, including services, was the proper tax base; and (4) the negligence penalty was justified due to the taxpayer's failure to exercise ordinary business care (paras 8, 10-12, 15-16, 18).
Legal Issues
- Was the taxpayer's contracting for the distribution of catalogs and newspaper inserts a taxable "use" under New Mexico law?
- Did the newspaper inserts qualify for gross receipts tax exemptions applicable to newspapers?
- Should the compensating tax base be limited to 77% of the billed amount, excluding charges for services?
- Was the assessment of a negligence penalty proper?
Disposition
- The Court of Appeals affirmed the decision of the New Mexico Taxation and Revenue Department, upholding the compensating tax assessment and the negligence penalty (para 19).
Reasons
Per Alarid J. (Minzner and Apodaca JJ. concurring):
Taxable Use: The court held that the taxpayer's contractual control over the distribution of catalogs and inserts in New Mexico constituted "use" under the compensating tax statute. The taxpayer's lack of physical possession of the materials was irrelevant, as it exercised control through its agreements with local mailing services and newspapers (paras 6-8).
Newspaper Exemption: The court found that the newspaper inserts did not qualify as "newspapers" under the relevant tax exemptions. The inserts were advertising materials, which are explicitly excluded from the definition of "newspaper" in the applicable regulation (paras 9-13).
Tax Base: The court rejected the taxpayer's argument to limit the tax base to 77% of the billed amount. It applied the "predominant ingredient test" and concluded that the services provided by the coordinators were incidental to the sale of tangible property (i.e., the catalogs and inserts). Thus, the full billed amount was subject to tax (paras 14-16).
Negligence Penalty: The court upheld the negligence penalty, finding no evidence that the taxpayer had a good faith basis for disputing the taxability of its transactions. The taxpayer failed to present competent evidence negating the inference of negligence (paras 17-18).