Hazard removal services provided by a taxpayer for the Drug Enforcement Administration (DEA) were subject to New Mexico gross receipts tax since the services were performed in the state. The taxpayer argued that the hazard removal services were not subject to tax in New Mexico because the disposal of hazardous materials occurred outside of New Mexico and the DEA was located outside of New Mexico. The court observed that the taxpayer is never required to travel beyond the boundaries of New Mexico in order to sell its services. It derives the entire benefit of engaging in business in New Mexico without ever leaving the state. It responds to sites within New Mexico, collects and removes hazardous materials from the sites, and stores those materials locally until it ships them out-of-state for final disposal by third-party disposal services. The taxpayer’s contracts with the DEA provide that taxpayer’s primary objective is the removal of hazardous materials from sites within New Mexico, in which the taxpayer is required to adhere to state and local laws and regulations. The inherent purpose of the contract is promoting the health and safety of local law enforcement, the general public, and the protection of the environment in New Mexico. The court observed that the final disposal of hazardous materials (which occurs out-of-state) may be in furtherance of the taxpayer’s objective, but that is not necessarily its predominant objective, simply one of several components comprising the final product of the services it provides. Additionally, the DEA had accepted Certificates of Destruction, issued by at least one entity in New Mexico, that were necessary for the completion of the contract. Therefore, the DEA was not necessarily concerned with the location of where the disposal occurred, and the taxpayer was not required to ship its materials outside of New Mexico.
The taxpayer additionally sought tax deductions on the ground that it provided its services to an out-of-state buyer, the DEA. In New Mexico, businesses are not eligible for a deduction if the out-of-state buyer either makes initial use or takes delivery of the “product of the service” in New Mexico. As a result, the next inquiry in the case concentrated on the initial use of the product of taxpayer’s service and the location where that product was delivered. The court found that the services primarily benefited local law enforcement personnel, including the DEA’s local agents, who could safely proceed with their activities at that site, while potential harm to the public and to the environment could be minimized. Since the benefit received from the taxpayer’s services was not delivered out of state, but delivered in New Mexico, the taxpayer was not allowed to claim the deductions. (In the Matter of the Protest of Advanced Environmental Solutions Inc., New Mexico Taxation and Revenue Department, No. 18-42, December 3, 2018)