TAX COURT OPINION

Case: Shao-Ping & Hiu-Chun Lin Chen
Docket Number: 14769-08S
Judge: Colvin
Opinion Type: bench
Filed: 03/04/2009
Pages: 6

UNITED STATES TAX COURT WASHINGTON , D .C . 2021 7 SHAO-PING & HIU CHUN LIN CHEN, Petitioners, v . Docket No . 14769-08 S COMMISSIONER OF INTERNAL REVENUE , Respondent . O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i s ORDERED that the Clerk of the Court shall transmit herewith to petitioners and .to respondent a copy of the pages of the transcript of the trial of the above case before Judge Diane L . Kroupa at Albuquerque, New Mexico on February 11, 2009, containing her oral findings of fact and opinion rendered at the conclusion of trial . In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155 . (Signed) Diane L . Kroupa Judge Dated : Washington, D .C . March 4, 2009 SERVED Mar 05 2009 3 1 Bench Opinion by Judge Diane L . Kroup a 2 Docket Number 14769-08S February 11, 2009 3 Lin Chen v . Commissione r 4 The Court has decided to render ora l 5 Findings of Fact and opinion in this case, and th e 6 following represents the Court's Oral Findings of Fact 7 and Opinion . The Oral Findings of Fact and opinio n 8 shall not be relied upon as precedent in any other 9 case . 10 This proceeding was conducted as a Small Tax 11 Case under Section 7463 and Rules 170 through 175 . 12 This bench opinion is made pursuant to the authority 13 granted by Section 7459(b) and-Rule 152 . All section 14 references are to the Internal Revenue Code for 2006, 15 the year at issue, and all rule references are to the 16 Tax Court Rules of Practice and Procedure . 17 Mr . Chen appeared on Petitioners' behalf, 18 and Paul Voelker appeared on behalf of Respondent . 19 FINDINGS OF FACT 20 Certain facts have been stipulated . Th e 21 stipulation of facts filed by Petitioner Mr . Chen and 22 Respondent with the accompanying exhibits i s 23 incorporated by this reference . Petitioners"resided 24 in New Mexico at the time they filed the petition . 25 Petitioners claim they paid substantial Heritage Reporting Corporatio n (202) 628-4888 4 1 amounts of taxes and interest during the year at 2 issue, when they closed on the purchase of their 3 principal residence that had been built to thei r 4 specifications by Panoramic Homes, Inc . The parties 5 have agreed Petitioners are entitled to deduc t 6 $12,295 .26 of taxes, plus the amount the Cour t 7 determines is allowable of the $25,297 .10 New Mexico 8 gross receipts tax for construction of Petitioners' 9 principal residence . 10 The $12,295 .26 consists of the $4,888 of 11 agreed-upon real estate taxes and the $7,407 .26 of 12 agreed-upon sales taxes . The parties also agreed that 13 Petitioners are entitled to deduct $47,387 for hom e 14 mortgage interest expense . 15 OPINION 16 This is primarily a case under New Mexico 17 law on whether . Petitioners are entitled to deduc t 18 "gross receipts tax" as defined in New Mexico Statutes 19 Annotated, Section 7-9-4 (Supp .1980) . The parties 20 agree that Situation 2 of the Rev . Rul . 82-173, 1982-2 21 C .B . 58 applies to Petitioners' situation with their 22 builder . 23 The New Mexico gross receipts tax is a 24 general sales tax under Section 164(a)(4) . A taxpayer 25 is entitled to deduct general sales taxes for the tax Heritage Reporting Corporation (202) 628-4888 5 1 year in which the taxpayer pays the taxes . Sec . 2 164 ( a)(4) . In addition , any general sales taxes paid 3 by a consumer of services and tangible persona l 4 property will be treated as a tax imposed on th e 5 consumer , as long as the tax is separately stated and 6 is paid to the seller other than in connection wit h 7 the consumer's trade or business . Sec . 164(b)(5) and 8 Sec . 1 .164 - 5, Income Tax Regs . 9 Sales tax also includes a tax that i s 10 imposed on persons engaged in furnishing services, and 11 that is measured by the gross receipts for furnishing 12 such services . Sec . 1 .164-3 ( e)(1), Income Tax Regs . 13 General sales tax may include a tax imposed on persons 14 engaged in selling property at retail or furnishin g 15 services at retail if the tax is measured by gross 16 prices , or by receipts from sales or services . Sec . 17 1 .164(f)(1), Income Tax Regs . 18 The New Mexico gross receipts tax is imposed 19 on the seller rather than the purchaser . Mescalero 20 Apache Tribe v . O'Cheskey , 625 F .2d 967, (10th Cir . 21 1980) ; United States v . State of New Mexico , 581 F .2d 22 803 ( 10th Cir . 1978 ) . Because New Mexico law imposes 23 the gross receipts tax on the seller rather than on 24 the consumer , the tax must be separately stated for 25 the consumer , Petitioners here, to deduct the ta x Heritage Reporting Corporation (202) 628-4888 6 1 under Section 164 (a) (4 ) 2 Petitioner Mr . Chen provided Exhibit 5-J, 3 which shows the total gross receipts tax that were 4 paid for the property of $25,297 .10 . Mr . Chen also 5 introduced Exhibit 7 - J, showing the closing statement 6 regarding the sale of the lot as well as the sale of 7 the house to Petitioners . Exhibit 8 - J reflects th e 8 adjustment made for the gross receipts tax that was 9 made at closing in 2006 . 10 Respondent disputes that Exhibit 5-J i s 11 dispositive of the amount Petitioners are entitled to 12 deduct . First, Respondent argues, and we agree, that 13 there is an inconsistency between the first page of 14 the exhibit that reflects the builder paid the gross 15 receipts tax on a monthly basis while the second page 16 reflects that the payments were made quarterly . 17 Notwithstanding this inconsistency, we find 18 that the gross receipts tax is separately stated . 19 Petitioners are therefore entitled to deduc t 20 $25,297 .10, even though the builder paid $9,051 .64 of 21 the gross receipts amount in 2005, not 2006 . 22 We allowed the full amount because Exhibit 23 6-J, Division 1, subsection ( e) requires Petitioners 24 to reimburse the builder for the gross receipt s 25 amount . We are satisfied that the entire amount of Heritage Reporting Corporatio n (202) 628-4888 7 1 the gross receipts tax was accounted for and therefor e 2 3 4 paid by Petitioners in the year at issue, 2006, also the year of closing . Moreover, under New Mexico law, the 5 separately stated gross receipts tax Petitioners paid 6 in connection with the purchase of the house materials 7 is imposed on the sale of tangible personal propert y 8 and is treated as imposed on and paid by Petitioners 9 under Section 164(b )( 5) . In addition , the gros s 10 receipts tax Petitioners paid on completion of the 11 house is imposed on the furnishing of services by the 12 builder , Panoramic Homes, Inc . ?,'nd because it i s 13 separately stated, the tax will be treated as paid by 14 Petitioners . 15 To give effect to the foregoing an d 16 Respondent ' s concession , decision will be entered 17 under Rule 155 . This concludes the Court's Oral 18 Findings of Fact and opinion in this case . 19 (Whereupon , at 2 :32 p .m ., the bench opinion 20 in the above - entitled matter was concluded . ) 2 1 22 2 3 24 25 II Heritage Reporting Corporation (202) 628-4888