Mind your NTTCs: Avoid penalties by verifying document accuracy


n 2009, Gregg Hull was running a shipping company in Rio Rancho, New Mexico, when he got news that would strike fear into the most lion-hearted soul: The New Mexico Taxation and Revenue Department would be auditing his finances for the past three years.

In a recent interview, Hull related the surprise he felt when the auditors focused on transactions involving non-taxable transaction certificates (NTTC). Surprise turned to despair when the audit expanded to six years – and to shock when Hull was told that he owed the state $120,000 in taxes that he had failed to collect. The amount threatened to shutter his business.

“How was I to know?” Hull recalled asking the auditors. “These customers had official documents stamped by the state of New Mexico saying that they didn’t have to pay tax. Was I supposed to challenge them? I’m no tax expert.”

The burden was on him, said the auditors: If he couldn’t prove that no tax was owed, he was liable for the uncollected amount. Hull spent the next four months tracking down old customers, asking them for the right NTTC or to pay the missing tax, becoming very popular in the process. “This isn’t right,” he remembers thinking. “If I’m ever in a position to do so, I’m going to make some changes.”

Hull’s business survived the tax scare. He is now the mayor of Rio Rancho and a proponent of legislation that would change the laws governing NTTCs.

An NTTC is commonly used to avoid double- and triple-charging gross receipts tax as a product goes through production or manufacturing. Hull, for example, bought cardboard in bulk for his shipping company. If he paid tax to the cardboard supplier, then charged tax again to a customer who paid for a finished box, the GRT would have been collected twice.

In order to avoid that result —“tax pyramiding,” as it’s known — Hull got an NTTC from the state showing that he wasn’t the end user of the cardboard. When he showed that document to the cardboard supplier, he wasn’t charged the gross receipts tax. Similarly, when Hull’s customers gave him an NTTC, Hull wouldn’t collect the tax.

But the process, it turns out, isn’t that simple. There are multiple kinds of NTTCs and an infinite variety of transactions. For someone trying to follow the law, the right course of action can be unclear.

A tax overhaul was passed by the state Legislature in March that included a proposal by Hull that put the onus on the NTTC’s user (the party requesting exemption from taxes via NTTC) to ensure that all is proper. An incorrect NTTC, the proposal stated, would result in the user rather than the recipient being liable for back taxes, interest and penalty.

Though the bill did not survive, Hull is undaunted. If the full tax package isn’t resurrected, he plans to find a sponsor and push his proposal through on its own.

For now, business people beware: The presence of an NTTC that looks official does not absolve one of further inquiry. It’s the NTTC recipient’s responsibility to fully scrutinize the document to make sure it’s being used in the right way and by the right person.

More information on NTTCs can be found at the New Mexico Taxation and Revenue Department website:

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