Rainbo Baking Co. of El Paso, Tex. v. Commissioner of Revenue

• Decision Date: 13 October 1972
• Docket Number: No. 915,915
• Citation: 84 N.M. 303,1972 NMCA 139,502 P.2d 406
• Parties: RAINBO BANKING COMPANY OF EL PASO, TEXAS, Plaintiff-Appellant, v. COMMISSIONER OF REVENUE of the State of New Mexico, Defendant-Appellee.
• Court: Court of Appeals of New Mexico

Page 406

502 P.2d 406

84 N.M. 303

RAINBO BANKING COMPANY OF EL PASO, TEXAS, Plaintiff-Appellant, v. COMMISSIONER OF REVENUE of the State of New Mexico,

Defendant-Appellee.

No. 915.

Court of Appeals of New Mexico.

Oct. 13, 1972.

Howard F. Houk, Houk & Stiff, Albuquerque, for plaintiff-appellant

David L. Norvell, Atty. Gen., John C. Cook, Bureau of Revenue, Asst. Atty. Gen., Santa Fe, for defendant-appellee.

Robert E. Poulson, J. J. Monroe, Iden & Johnson, Albuquerque, S. B. Christy IV, Jennings, Christy & Copple, Roswell, amicus curiae.

OPINION

WOOD, Chief Judge.

This appeal involves nontaxable transaction certificates (§ 72--16A--13, N.M.S.A.1953 (Repl.Vol. 10, pt. 2, Supp.1971)) and a regulation of the Commissioner of Revenue providing a specified time when the certificates were to be in the possession of the taxpayer.

The Bureau of Revenue audited the books and records of Rainbo (Rainbo Baking Company of El Paso, Texas). On the basis of the audit the Bureau issued a notice of assessment of taxes. A portion of the assessment was compromised. Section 72--13--34, N.M.S.A.1953 (Repl.Vol. 10, pt. 2, Supp.1971). Rainbo protested the assessment for the audit period January 1, 1970 to February 28, 1971. This protest was denied. Rainbo appeals directly to this court. Section 72--13--39, N.M.S.A.1953 (Repl.Vol. 10, pt. 2, Supp.1971).

During the time period involved, Rainbo '* * * regularly sold and delivered its bakery products in the State of New Mexico to various buyers who resold the bakery products. * * *' The Bureau has assessed gross receipts tax, municipal tax and penalty and interest relating to these taxes on these transactions. Rainbo claims the transactions were not taxable because of a statutory deduction. The deduction is that authorized by § 72--16A--14.2, N.M.S.A.1953 (Repl.Vol. 10, pt. 2, Supp.1971). It reads:

'Receipts from selling tangible personal property may be deducted from gross receipts if the sale is made to a person who delivers a nontaxable transaction certificate to the seller. The buyer delivering the nontaxable transaction certificate must resell the tangible personal property * * * in the ordinary course of business.'

The Commissioner ruled Rainbo was not entitled to the deduction, relying on G.R. Regulation 13--2. That regulation reads:

"A taxpayer must be in possession of all nontaxable transaction certificates for the period of an audit prior to the time the audit begins. A nontaxable transaction certificate acquired by the taxpayer after the audit begins will not be honored by the Bureau of Revenue for the period under audit. However, the Commissioner may, in appropriate cases, after completion of the audit, permit deductions where certificates were acquired after the audit commenced.

However, in the absence of an audit, the taxpayer is granted a reasonable time to obtain possession of nontaxable transaction certificate."

It is stipulated that nontaxable transaction certificates were not in Rainbo's possession at the time the audit began, or at any time during the audit. The Commissioner disallowed a deduction under § 72--16A--14.2, supra, because Rainbo '* * * did not have the required nontaxable transaction certificates in his possession at the time audit began * * *' as required by the above quoted regulation.

Section 72--16A--14.2, supra, does not state a time when the nontaxable transaction certificates must be in the taxpayer's possession. That section authorizes the deduction if in fact the certificates were delivered to Rainbo by its customers. The fact that the certificates exist and were delivered to Rainbo is not disputed. Rather, it is stipulated that certificates have been obtained by Rainbo from all of the buyers involved and copies of the certificates have been furnished the Bureau.

The last sentence of § 72--16A--13, supra, states: '* * * When the seller * * * accepts the nontaxable transaction certificate in good faith that the buyer * * * will employ the property * * * transferred in a nontaxable manner, the properly executed nontaxable transaction certificate shall be conclusive evidence that the proceeds from the transaction are * * * deductible from the seller's * * * gross receipts.' The Commissioner does not claim either that Rainbo accepted the certificates in bad faith or that the certificates were improperly executed. Absent an issue concerning good faith or proper execution of the certificates, Rainbo has established its claimed deduction by conclusive evidence.

The Commissioner, however, asserts he has authority to disregard the statutory provisions for the deduction. He relies on the first sentence of § 72--16A--13, supra, which reads: 'A nontaxable transaction certificate executed by the buyer * * * shall be in the possession of the seller * * * for a nontaxable transaction when regulations require. * * *' He asserts the regulation, under which the deduction was disallowed, was issued pursuant to this statutory authority. He also asserts...