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The U.S. District Court for the District of New Mexico found that online travel companies were not liable for city-imposed additional New Mexico lodging tax on the difference between the total price of a hotel room collected from customers and the lower discounted room rate that the travel companies negotiated with the hotel operators. Since the travel companies had previously been ruled not to be vendors, and because the relevant city ordinance states that the tax is imposed on gross taxable rent paid to vendors, the city-level tax should only be assessed on the wholesale room rate paid by the travel companies to the hotel operators. Additionally, the city failed to prove that the travel companies were trustees of any unpaid charged taxes, or that they fraudulently concealed information. (City of Gallup, New Mexico v., L.P., United States District Court, District of New Mexico, No. CV 07-644 JC/RLP, March 1, 2010)


A taxpayer, drop ships tangible personal property to its New Mexico customers, was not liable for New Mexico gross receipts because it did not have nexus in New Mexico. The taxpayer’s sales agreement with its customers provides that the transfer of title, ownership and risk of loss from the taxpayer’s out-of-state location occurs when the taxpayer has received a purchase order from the customer and the customer has received the property. As a result, the property is briefly owned by the taxpayer, even though the taxpayer never takes physical possession of the property in New Mexico. This brief ownership of the property was not considered sufficient ownership of property in New Mexico to establish nexus since there was no physical possession of the property. For that reason, the taxpayer may have gross receipts from selling property in New Mexico, but it does not have nexus and is not liable for gross receipts tax.

Furthermore, the taxpayer is not liable for compensating tax on its drop shipment sales because they are sales of property in New Mexico rather than sales made outside this state. It was also noted that if the taxpayer’s vendor has nexus with New Mexico, the vendor's gross receipts are subject to gross receipts tax unless a statutory deduction or exemption applies to a transaction. However, the vendor does not incur a New Mexico compensating tax liability because it is selling tangible personal property rather than using it in New Mexico. (Ruling No. 401-09-5, December 3, 2009)


Receipts from a cable and satellite television network’s sales of broadcast time to out-of-state advertisers are deductible from gross receipts for tax purposes. However, gross receipts tax is due on receipts from sales of broadcast time to advertisers located in New Mexico. Additionally, sales of online advertising time sold to national and regional advertisers by employees located outside of the state qualify as statutorily exempt sales of services performed outside of New Mexico, provided the website used is on a server located outside the state and the product of the service is not initially used in the state. (Ruling No. 455-08-1, December 31, 2008)


The New Mexico Taxation and Revenue Department issued guidance regarding fees collected for use of wireless internet access while aboard an aircraft. The state claimed that providing internet services was a taxable service and, therefore, gross receipts tax would apply to the charges. Since the company providing the service maintained communication towers in New Mexico, it was deemed to have nexus. The portion of the service subject to tax should be equal to the time that the flight is in New Mexico territory or airspace when the flight arrives or departs in New Mexico. If the flight does not arrive or depart in New Mexico, the services are not subject to gross receipts tax. (New Mexico Taxation and Revenue Department, Ruling No. 401-09-2, March 9, 2009.)


The U.S. Supreme Court has denied review of a taxpayer’s request to determine if the in-state post-sale service activities of a third-party company allow New Mexico to impose gross receipts tax on an out-of-state computer seller’s sales into the state. Although the computer seller does not own or lease property in New Mexico, has no retail stores, employees, or sales agents within the state, and does not franchise or license its trade name in the state, the New Mexico Supreme Court upheld a hearing officer’s decision that the presence of the service provider satisfied the federal constitutional Commerce Clause requirements and established nexus for the seller. The Court determined that the third-parties activities established nexus for the taxpayer because they helped the taxpayer “establish and maintain a market” in the state, and since over 1,000 service calls were made in New Mexico, these activities could not be considered “isolated” or “sporadic”.

The seller asked the U.S. Supreme Court to determine the scope of Tyler Pipe, 483 U.S. 232 (1987) and Scripto, Inc., 362 U.S. 207 (1960), since the U.S. Supreme Court has not previously held that third-party non-agents engaged in activities other than solicitation creates nexus. The taxpayer asserted that since the hearing officer essentially created a new category for establishing a substantial nexus through a third-party, state taxation authority was unconstitutionally expanded. (Dell Marketing L.P. v. New Mexico Taxation and Revenue Department, U.S. Supreme Court, Dkt. 08-770, petition for certiorari denied March 23, 2009)



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