AI Generated Opinion Summaries

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 a tax protest by United Parcel Service, Inc. (Ohio) & Affiliates (collectively, Taxpayer) against the New Mexico Department of Taxation and Revenue regarding the assessment of corporate income taxes for tax years 2007-2009. The dispute centered on the Department's use of a special mileage formula to calculate the portion of Taxpayer's multistate sales revenue attributable to its New Mexico business operations. Taxpayer argued that this formula resulted in a gross distortion of its actual business activities in New Mexico, contrary to the fair apportionment requirement of the Commerce Clause of the United States Constitution and New Mexico’s Uniform Division of Income for Tax Purposes Act (UDIPTA).

Procedural History

• Administrative Hearings Office: The Administrative Hearing Officer (AHO) abated the Department’s assessment, finding that the special mileage formula used did not fairly represent Taxpayer's business activity in New Mexico and allowed Taxpayer to use its proposed state-to-state volume method for calculating sales revenue apportioned to New Mexico for the tax years at issue.

Parties' Submissions

• Taxpayer: Argued that the Department's special mileage formula for apportioning income resulted in a gross distortion of its actual business activities in New Mexico, violating the fair apportionment requirement of the Commerce Clause and UDIPTA. Proposed a state-to-state volume method as a more equitable way to calculate its sales revenue attributable to New Mexico.
• Department: Contended that the special mileage formula was constitutional and in compliance with UDIPTA for apportioning the revenue of interstate carriers. Challenged the admission of certain evidence by the AHO and argued that Taxpayer's proposed alternative apportionment method lacked statistical validity.

Legal Issues

• Whether the Department’s use of the special mileage formula to calculate Taxpayer’s New Mexico sales revenue for income tax purposes resulted in a gross distortion of Taxpayer’s actual business activities in New Mexico.
• Whether Taxpayer’s proposed state-to-state volume method for calculating sales revenue apportioned to New Mexico is a reasonable alternative under UDIPTA.
• Whether the AHO erred in admitting certain evidence and in its application of the law governing the apportionment of revenue for a multistate trucking company.

Disposition

• The Court of Appeals affirmed the decision of the Administrative Hearing Officer, allowing Taxpayer to use its state-to-state volume method to calculate the sales revenue properly apportioned to New Mexico for the tax years at issue.

Reasons

• Per Yohalem, J. (Baca and Wray, JJ., concurring):
  The AHO correctly found that the Department’s special mileage formula did not fairly represent Taxpayer’s business activity in New Mexico, as it resulted in a gross distortion of Taxpayer’s actual business activities, violating the fair apportionment requirement of the Commerce Clause and UDIPTA (paras 1, 13-14).
  Taxpayer’s proposed state-to-state volume method was deemed a reasonable alternative for calculating its sales revenue attributable to New Mexico, supported by clear and cogent evidence, including Taxpayer’s business operations and the method's historical use and approval in other contexts (paras 2, 17-18).
  The Court found no error in the AHO’s admission of a closing agreement into evidence, determining it did not prejudice the Department’s case. The agreement was one piece of evidence among many supporting the AHO’s conclusion (paras 4-10).
  The Department’s argument that its special mileage method of apportioning multistate sales revenue could not be challenged was rejected. The Court recognized that a company with an unusual business model must be permitted to challenge the fairness of applying a general formula to its operations (paras 11-13).
  The Court also found no requirement for Taxpayer to validate its alternative apportionment method with expert testimony on "construct validity," as the testimony of Taxpayer’s managers and the practical information about the operation of Taxpayer’s business were sufficient to show that the factors used in the apportionment method proposed by the taxpayer reflected a reasonable sense of how income is generated (paras 20-23).