No Tax Owed on Out-of-State Services

Mar 25th, 2016

The New Mexico Administrative Hearings Office ("Office") ruled that a taxpayer proved his receipts were for non-taxable out-of-state services.

The taxpayer was a construction contractor in New Mexico who had family in Minnesota. The Taxation and Revenue Department found a difference between the taxpayer's business income as reported on his federal income tax return and his gross receipts as reported on his state gross receipts tax return. It assessed tax on the difference.

The taxpayer was able to prove that the difference was due to work he did in Minnesota and was therefore not taxable. After a severe storm in Minnesota, the taxpayer went to Minnesota to help his family clean up and repair property. After helping his family, he did emergency repair work on a cash-basis for others in the area. He did not prepare contracts or formal invoices for this work.

The Office ruled that the taxpayer proved his receipts were not taxable. It found his testimony was believable, especially since he reported the income on his federal return. The Office did not require the taxpayer to provide documentation for the services because the emergency nature of the services meant it was reasonable that the taxpayer had no documentation. Because New Mexico does not tax services performed outside New Mexico, the Office overturned the assessment.