Siemens Energy & Automation, Inc. v. New Mexico Taxation and Revenue Dept.

• Decision Date: 30 December 1994
• Docket Number: No. 15398,15398
• Court: Court of Appeals of New Mexico
• Parties: SIEMENS ENERGY & AUTOMATION, INC., Petitioner-Appellant, v. NEW MEXICO TAXATION AND REVENUE DEPARTMENT, Respondent-Appellee.

Page 1238

889 P.2d 1238

119 N.M. 316

SIEMENS ENERGY & AUTOMATION, INC., Petitioner-Appellant, v. NEW MEXICO TAXATION AND REVENUE DEPARTMENT, Respondent-Appellee.

No. 15398.

Court of Appeals of New Mexico.

Dec. 30, 1994.

[119 N.M. 317] Mary E. McDonald, Franklin Jones, Sutin, Thayer & Browne, P.C., Santa Fe, for petitioner-appellant.

Tom Udall, Atty. Gen., Frank D. Katz, Sp. Asst. Atty. Gen., Santa Fe, for respondent-appellee.

OPINION

BLACK, Judge.

Siemens Energy and Automation, Inc. (Siemens) is a manufacturer of various electrical products. In order to coordinate and facilitate the collection of taxes from such national corporations, New Mexico executed a Multistate Tax Compact (the Compact) with several other states, which established the Multistate Tax Commission (MTC). An MTC auditor examined Siemens' sales for compliance with New Mexico gross receipts tax for the period extending from October 1, 1986, through June 30, 1990. Based on the audit results, the New Mexico Taxation and Revenue Department (the Department) assessed Siemens $89,402.11 in gross receipts tax, $8,940.25 in penalty, and $55,085.94 in interest. Pursuant to NMSA 1978, Section 7-1-25 (Repl.Pamp.1993), Siemens appeals that assessment. We affirm in part and reverse in part.

I. FACTS

Although it has no manufacturing facilities in New Mexico, Siemens does maintain a sales office in Albuquerque. A high percentage of Siemens' sales are to national distributors who request that Siemens ship the products directly to their customers. These transactions are referred to as "three-party interstate transactions" or "drop shipments." When three-party interstate transactions involve a New Mexico shipping destination, Siemens may receive a Multistate Tax Commission Uniform Sales and Use Tax Certificate (MTC certificate) from the purchaser. In such an MTC certificate, the purchaser represents that the sale is exempt from New Mexico gross receipts tax.

An invoice of a sale to Westinghouse Electric (Westinghouse) and invoices of three sales to Triangle Electric (Triangle) were included in the assessment as subject to gross receipts tax, even though representatives of Siemens testified that they had in their possession what purported to be MTC certificates from Westinghouse and Triangle. These certificates contained the New Mexico registration numbers of the purchasers in the space provided for that purpose on the face of the certificates.

In other transactions, Siemens sells property directly to New Mexico purchasers for the purchasers' own use. In some of these instances, when Siemens did not add an amount for New Mexico gross receipts tax on the invoice, the purchaser itself remitted compensating use tax to the Department.

The MTC auditor reviewed individually all invoices involving sales of greater than $100,000 for the entire audit period. The MTC auditor chose sample months from which to review all invoices involving sales of less than $100,000. For those invoices, the MTC auditor analyzed the under-$100,000 sales in the sample months to determine whether New Mexico gross receipts tax should have been paid. The MTC auditor determined an error rate for the sample months, which was extrapolated over the entire period. On the basis of this error rate, gross receipts tax, penalty, and interest were assessed on the under-$100,000 sales.

II. STANDARD OF REVIEW

Under the statutory procedure for review of decisions by a hearing officer of the Department we are to set aside the decision only if it is "found to be: (1) arbitrary, capricious or an abuse of discretion; (2) not supported by substantial evidence in the record; or (3) otherwise not in accordance with the law." Section 7-1-25(C). We will discuss this standard further as we apply it in deciding the issues.

III. THE TRIANGLE CERTIFICATES

"The Multistate Tax Commission, in cooperation with various states and taxpayers, has created a uniform sales and use tax exemption certificate. The certificate is filled out by buyers claiming sales tax exemptions and is maintained on file by sellers." 1 State Tax Guide (CCH) p 395, at 434 (Dec. 1993); see generally NMSA 1978, Sec. 7-5-1 (Repl.Pamp.1993) (setting out provisions of the Compact, including provision on tax exemption certificates). The MTC certificate, like a New Mexico Nontaxable Transaction Certificate (NTTC), is delivered by the purchaser to the seller as the documentation required to support the exclusion of the sale from local sales or gross receipts tax.

The hearing examiner determined that the certificate delivered by Triangle to Siemens was not in the proper form required to merit an MTC exemption. On casual examination the certificate appears to be in the usual form, and the hearing examiner made no finding as to why it was invalid.

While an assessment is presumed to be correct, the taxpayer may overcome this presumption by presenting evidence that the assessment is invalid. Floyd & Berry Davis Co. v. Bureau of Revenue, 88 N.M. 576, 577-78, 544 P.2d 291, 292-93 (Ct.App.1975). In the present case, Stephen R. Seabolt, a Certified Public Accountant and Siemens' Manager of Corporate Taxes, testified before the hearing examiner. With regard to the sales to Triangle, Seabolt testified that Siemens attached "copies of two multi-jurisdictional exemption certificates that were made available to the multi-state auditor, one dated 11/24/81 and one dated 01/14/88 from our files and also copies of the three Triangle Electric invoices showing that they are three-party drop shipment type transactions." The Department presented no testimony on this subject and did not even cross-examine Seabolt as to why the Triangle certificates were not valid. The Department now argues, however, that Siemens had the burden of proof and that Seabolt's testimony was insufficient to meet that burden.

The Department's contention that Seabolt's testimony was insufficient because he referred to the certificates as "multi-jurisdictional certificates," rather than "multi-state certificates," is without merit. The form that the Department concedes is valid is entitled "Uniform Sales & Use Tax Certificate/Multijurisdiction." Moreover, nothing in the record indicates that the slight semantic difference in Seabolt's testimony was misunderstood or caused any confusion.

At oral argument on appeal, the Department also maintained that the MTC certificates introduced by Siemens deleted the instructions on the back of the page. Although the copy in the record contains no instructions on the back, this alleged defect was not raised below. If the issue had been raised, perhaps Siemens could have established that the original had instructions on the back. Furthermore, the hearing officer made no finding that the instructions were missing, nor did he indicate the significance of such a deletion.

The only evidence in the record on this point is that Siemens submitted valid multi-state certificates on the three sales to Triangle referenced by Seabolt. Because there is no evidence to support the hearing officer's finding to the contrary, that finding violates Section 7-1-25(C)(1) and (2). Cf. Union County Feedlot, Inc. v. Vigil, 79 N.M. 684, 686, 448 P.2d 485, 487 (Ct.App.1968) (holding that if order is supported by substantial evidence and is in accordance with law, its entry is not an abuse of discretion).

IV. AN MTC CERTIFICATE IS NOT AUTOMATICALLY INVALID MERELY BECAUSE THE PURCHASER INCLUDES A NEW MEXICO TAXPAYER IDENTIFICATION NUMBER

An MTC certificate contains several spaces to be completed by the purchaser on each transaction that the purchaser represents is entitled to a tax exemption. Among these is a "State Registration or ID No." for each state that accepts such MTC certificates, including New Mexico. 1 State Tax Guide (CCH) p 395, at 435 (Sept. 1993). The seller then must execute the form under the following certification:

I further certify that if any property so purchased tax free is used or consumed by the firm as to make it subject to a Sales or Use Tax we will pay the tax due directly to the proper taxing authority when state law so provides or inform the seller for added tax billing. This certificate shall be part of each order which we may hereafter give to you, unless otherwise specified, and shall be valid until canceled by us in writing or revoked by the city or state.

Under penalties of perjury, I swear or affirm that the information on this form is true and correct as to every material matter.

Id.

The relevant portion of the Compact is contained in Section 7-5-1, Article V, which is entitled "Elements of Sales and Use Tax Laws." The applicable language provides:

2. Whenever a vendor receives and accepts in good faith from a purchaser a resale or other exemption certificate or other written evidence of exemption authorized by the appropriate state or subdivision taxing authority, the vendor shall be relieved of liability for a sales or use tax with respect to the transaction.

The language in this provision has been interpreted to offer a seller who accepts such a certificate in good faith "a safe harbor that provides absolute relief from sales tax liability irrespective of whether the underlying transaction qualified for an exemption." All Star Amusement, Inc. v. Director of Revenue, 873 S.W.2d 843, 844 (Mo.1994) (en banc). Moreover, the good faith belief of the seller "may rest solely upon the representations made by the buyer in the exemption certificate, as such reliance fulfills the function of exemption certificates." Id. at 845 (footnote omitted).

The Missouri Supreme Court's interpretation of the purpose and role of MTC certificates is virtually identical to this Court's treatment of NTTCs, which serve the same purpose in intrastate transactions that are served by MTCs for interstate drop shipments. Regarding NTTCs, this Court stated in Continental Inn v. New Mexico Taxation & Revenue Department, 113 N.M. 588, 829 P.2d 946 (Ct.App.199...