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AAMCO Transmissions, Inc. v. Taxation and Revenue Dept., 93 N.M. 389, 600 P.2d 841, 1979 -NMCA- 092

Facts

AAMCO Transmissions, a Pennsylvania corporation, was assessed a gross receipts tax by the New Mexico Taxation and Revenue Department for franchise fees received from its New Mexico dealers. AAMCO claimed it did not conduct business in New Mexico, having no employees, assets, or property in the state. However, the Department found that AAMCO's activities, including the leasing of its trademark and providing franchise support, constituted engaging in business in New Mexico, thus making the franchise fees subject to the gross receipts tax.

AAMCO Transmissions, a Pennsylvania corporation, was assessed a gross receipts tax by the New Mexico Taxation and Revenue Department for franchise fees received from its New Mexico dealers. AAMCO claimed it did not conduct business in New Mexico, having no employees, assets, or property in the state. However, the Department found that AAMCO's activities, including the leasing of its trademark and providing franchise support, constituted engaging in business in New Mexico, thus making the franchise fees subject to the gross receipts tax.

Issue

Did AAMCO Transmissions engage in business in New Mexico such that the imposition of a gross receipts tax on franchise fees received from New Mexico dealers was proper?

Did AAMCO Transmissions engage in business in New Mexico such that the imposition of a gross receipts tax on franchise fees received from New Mexico dealers was proper?

Rule

The New Mexico Gross Receipts and Compensating Tax Act imposes a tax on the gross receipts of any person engaging in business in New Mexico, defined as carrying on any activity with the purpose of direct or indirect benefit.

The New Mexico Gross Receipts and Compensating Tax Act (ss 7-9-1, et seq., N.M.S.A.1978) imposes a tax on the gross receipts of any person engaging in business in New Mexico. Section 7-9-4 A, N.M.S.A.1978. 'Engaging in business' is defined as 'carrying on or causing to be carried on any activity with the purpose of direct or indirect benefit.' Section 7-9-3 E.

Analysis

The court applied the definitions from the New Mexico Gross Receipts Tax Act to determine that AAMCO's activities, including the leasing of its trademark and the collection of franchise fees from New Mexico dealers, constituted engaging in business within the state. The court noted that AAMCO's operations were not solely interstate commerce, as the franchise fees were directly tied to the operations of the franchisees in New Mexico, thus establishing a sufficient nexus for taxation.

AAMCO is in the business of selling franchises, providing some technical assistance and advice by telephone and brochures to its franchisees, developing and marketing AAMCO parts, creating and distributing advertising copy, and training new franchisees. Its primary source of income, according to evidence given by the AAMCO executive officer at the hearing, is from sales of franchises and sale of transmission parts available only to its franchisees. The value of its enterprise depends upon the business success of its numerous franchisees throughout the various states. Their successes are, in large part, reliant upon the benefits and protections received from the states in which they operate.

Conclusion

The court affirmed the Department's decision to impose the gross receipts tax on AAMCO's franchise fees, concluding that AAMCO was engaged in business in New Mexico.

Thus, if AAMCO is engaged in business in New Mexico and we affirm the Department's finding in that regard it cannot be engaged solely in interstate commerce as it contends.

Who won?

The Taxation and Revenue Department prevailed in the case, as the court upheld the imposition of the gross receipts tax on AAMCO, finding that AAMCO was engaged in intrastate business activities.

The Taxation and Revenue Department prevailed in the case, as the court upheld the imposition of the gross receipts tax on AAMCO, finding that AAMCO was engaged in intrastate business activities.

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