My employer put me on a 1099 and I filed a Schedule C by mistake — do I still owe New Mexico gross receipts tax if I was really an employee?

Plain-English summary

A young worker whose employer put him on a 1099 was really an employee, so his pay was exempt from gross receipts tax. The state normally requires you to report the same way on your federal and state returns — but here the worker's mistaken Schedule C gave him no tax benefit, reflected no real choice, and even said "actually an employee," so it did not bar the exemption. Protest GRANTED.

Michael Flure worked full-time for Four Star Builders from January 1992 to November 1993, starting at age 20. His duties ranged from computer drafting and data entry to running errands, greasing machinery, and laying pipe — all assigned day-to-day by the owners. The company set his hours (8:00–5:00, Monday–Friday), paid him $7 an hour, supplied the workplace and equipment, and did not let him delegate his work; he worked for no one else. He believed he was an employee, and the company never told him otherwise. Yet Four Star reported his pay on a Form 1099 as nonemployee compensation ($13,015 in 1992; $13,361.53 in 1993) and withheld nothing.

Confused about how to handle a 1099, Flure went to the IRS office in Albuquerque, where he was directed to report the pay on a Schedule C as business income. He did — but on the Schedule C-EZ line asking for his principal business, he wrote "None—actually an employee," and he claimed no expenses. The resulting federal liability was nearly $7,000; unable to pay, he eventually settled it through an IRS Offer in Compromise for $3,600 (which the IRS warned would be void if he amended those returns). Acting on the IRS information, the Department assessed $733.92 in gross receipts tax plus penalty and interest for 1993. Flure protested, saying he had been an employee.

He was an employee — the right-to-control test

Because the tax act does not define "employee," the hearing officer applied the common-law right-to-control test (Burruss v. B.M.C. Logging; Harger v. Structural Services) and the Department's indicia in Regulation 3 NMAC 2.12.7. Every factor but one showed employment: Four Star set his hours, paid an hourly wage, directed his work, and provided the workplace and equipment — "complete control." The only contrary fact was the company's own 1099 reporting and failure to withhold. The hearing officer gave that little weight, noting (in a footnote) that treating employees as independent contractors saves employers money and that misclassification is a common way employers take advantage of workers' weaker bargaining position. Flure was an employee, and his wages were exempt under Section 7-9-17.

The consistency rule did not bar the exemption here

The Department argued that, because Flure filed a federal Schedule C, New Mexico's rule requiring consistent state and federal reporting (Co-Con; Stohr; Sutin, Thayer & Browne) barred the wage exemption. The hearing officer distinguished those cases. In Co-Con and Stohr the federal filing reflected the taxpayer's intent; in Sutin the taxpayer made a deliberate election to capture a federal benefit. Neither was true for Flure:

• He derived no benefit from the Schedule C — he claimed no expenses (so his whole pay was taxable, just as wages would be), and he actually paid more because of self-employment tax.
• He made no conscious election — a 22-year-old, unsophisticated in taxes, he filed a Schedule C only because the IRS told him to, and he even wrote "None, actually an employee" on the form.

Because the "conceptual underpinnings" of the consistency policy — intent and elected benefit — were absent, the mistaken federal filing did not bar the state exemption.

Result: protest GRANTED — Flure was an employee, his pay was exempt from gross receipts tax, and his federal Schedule C did not defeat the exemption.

This decision is a useful counterpoint to a companion 2000 case, D&O 00-23 (Dr. Edward E. Gilmour), where the same consistency rule did bar the exemption. The difference: Dr. Gilmour deliberately reported his pay as business income and claimed business deductions, while Flure got no benefit and made no real election. Consistency between your state and federal returns still matters; this decision is a narrow exception for a genuinely mistaken, no-benefit filing, not a general escape hatch.

What this means for you

A 1099 does not make you an independent contractor

Whether you owe gross receipts tax on your pay turns on the right to control your work, not on the form the payer issues. If an employer sets your hours, pays you hourly, directs your tasks, and provides the workplace and tools, you may be an employee whose wages are exempt — even if you got a 1099 and no taxes were withheld.

An employer's 1099 choice carries little weight — and misclassification is common

The hearing officer expressly discounted the employer's decision to treat Flure as a contractor, recognizing that employers save money by doing so and sometimes misclassify workers who have little bargaining power. If you were treated as an employee in every way except the tax form, that label alone will rarely control.

Consistency between federal and state returns still matters

The general rule is real: report a transaction the same way federally and for New Mexico tax, or you can lose a state benefit. Flure won only because his Schedule C gave him no advantage, reflected no genuine choice, and even stated he was an employee. Do not rely on this exception if you deliberately reported income as self-employment or took business deductions.

Fix worker status early — later options can close

Flure could not cleanly correct his federal returns: the statute of limitations had run, and amending would have voided his Offer in Compromise. Sorting out employee-versus-contractor status while the return is still open — and, when in doubt, using IRS Form SS-8 promptly — avoids being locked into a costly classification.

Common questions

Q: My employer put me on a 1099 and didn't withhold taxes. Do I owe gross receipts tax on that pay?
A: Not if you were actually an employee. If the employer controlled your hours, work, workplace, and equipment, your pay is exempt wages under Section 7-9-17, regardless of the 1099.

Q: I filed a Schedule C. Doesn't that lock me into being treated as self-employed for state tax?
A: Usually yes — New Mexico requires consistent federal and state reporting. But this decision recognized a narrow exception where the Schedule C gave the worker no tax benefit, involved no real election, and even stated he was an employee. That exception is fact-specific and does not apply to a deliberate self-employment filing.

Q: Does it matter that my employer, not I, decided to use a 1099?
A: Yes, in your favor. The hearing officer gave the employer's 1099 choice little weight, noting employers often misclassify workers to save money. The real question is who controlled the work.

Q: I already settled my federal taxes and can't amend the returns. Am I stuck owing the state tax?
A: Not necessarily. Flure could not amend his federal returns either, yet still won the exemption because his federal filing did not reflect a genuine choice or benefit. The outcome depends on the specific facts of how and why you filed.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-9-17 — receipts of employees from wages, salaries, commissions, or other remuneration for personal services are exempt from gross receipts tax
• Regulation 3 NMAC 2.12.7 — indicia the Department uses to determine employee status (wage/salary, income-tax withholding, FICA, workers' comp, unemployment contributions, whether the employer treats the person as an employee, and control over the means versus only the result)

Cases cited:

• Burruss v. B.M.C. Logging Co., 38 N.M. 254, 31 P.2d 263 (1934) — the principal consideration in worker classification is the right to control the manner and method of the work
• Harger v. Structural Services, Inc., 121 N.M. 657, 916 P.2d 1324 (1996) — adopts the Restatement (Second) of Agency § 220 multi-factor control test
• Co-Con, Inc. v. Bureau of Revenue, 87 N.M. 118, 529 P.2d 1239 (Ct. App. 1974) — taxpayers must treat transactions uniformly for all tax purposes; federal filing evidences intent
• Stohr v. New Mexico Bureau of Revenue, 90 N.M. 43, 559 P.2d 420 (Ct. App. 1976) — a taxpayer must not show one scheme federally and a nontaxable event for state gross receipts tax
• Sutin, Thayer & Browne v. Revenue Division, 104 N.M. 633, 725 P.2d 833 (Ct. App. 1985) — a taxpayer who makes an election for federal purposes is bound by it for state taxes (distinguished here, where there was no benefit or election)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Michael L. Flure
• Decision PDF: D&O 00-24

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
MICHAEL L. FLURE, NO. 00-24
NM ID. NO 02-337541-00 8, PROTEST TO
ASSESSMENT NO. 2129413

DECISION AND ORDER

This matter came on for formal hearing on January 7, 2000 before Gerald B. Richardson,

Hearing Officer. Mr. Michael Flure, hereinafter, “Taxpayer”, was represented by Marshall

Aungier, Esq. The Taxation and Revenue Department, hereinafter, “Department”, was

represented by Mónica M. Ontiveros, Special Assistant Attorney General. The hearing was

adjourned after taking the majority of the evidence to allow the parties to investigate the

consequences of the filing of an amended federal income tax return for the tax year at issue and

to determine if the results of that investigation might allow the parties to arrive at a resolution of

the matter in protest. After some delay, it was determined that the parties would be unable to

resolve the matter. The parties were provided the opportunity to submit argument in writing and

the matter was considered submitted for decision on July 25, 2000. Based upon the evidence and

arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer commenced working for Four Star Builders, Inc. in January, 1992 and

worked for them until November of 1993. The Taxpayer was twenty years old when he began

working for Four Star Builders.

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2. The Taxpayer’s job duties included computer aided drafting, word processing, entering

data in the computer, answering phones, running errands and other duties as assigned, which

could include activities such as running a backhoe, greasing machinery, laying pipe, etc.

3. The Taxpayer’s job duties were assigned on a day to day basis by the two principal

owners of Four Star Builders, Mr. Fred Sanchez and Mr. C.R. Freeman.

4. The Taxpayer’s hours of work were set by Four Star Builders. The Taxpayer was

required to work from 8:00 A.M. to 5:00 P.M, Monday through Friday, with a lunch hour from

noon to 1:00 P.M. every day.

5. The Taxpayer could not delegate the jobs assigned to him to anyone else.

6. During the time that the Taxpayer worked for Four Star Builders, he did not work for

anyone else.

7. The Taxpayer worked in the offices of Four Star Builders and used the office equipment

and other machinery of Four Star Builders.

8. The Taxpayer was paid an hourly wage of $7.00 per hour.

9. The Taxpayer believed that he was an employee of Four Star Builders. Four Star

Builders never informed the Taxpayer that he was an independent contractor.

10. For tax years 1992 and 1993, Four Star Builders reported the compensation it paid to the

Taxpayer on a Federal Form 1099, as nonemployee compensation. The amounts reported were

$13,015 for 1992 and $13,361.53 for 1993.

11. Four Star Builders made no income or other tax withholdings from the compensation it

paid the Taxpayer, nor did it provide worker’s compensation coverage or make contributions to

the Department of Labor for unemployment compensation purposes.

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12. The only previous job that the Taxpayer had was working at McDonalds while going to

school. He had been paid as an employee and his wages were reported on a Federal Form W-2.

The Taxpayer had been able to figure out his federal income taxes and had prepared his own

federal tax return for the wages he received from McDonalds.

13. The Taxpayer was confused by how to report and compute his federal income taxes for

1992 because of the fact that they were reported on a form 1099. Because of this confusion, the

Taxpayer did not initially report or pay income taxes to the Internal Revenue Service (“IRS”) for

1992.

14. Because the Taxpayer’s paychecks from Four Star Builders did not include a pay stub

breaking down the calculation of the amount being paid, the first time that the Taxpayer learned

that Four Star Builders was not making income tax or other withholdings from his pay was when

he was issued a Form 1099 after the close of 1992. Even then, the Taxpayer did not understand

the significance of how his compensation was being reported to the IRS by Four Star Builders.

15. After receiving another Form 1099 for 1993, the Taxpayer decided that he needed to get

assistance with how to report and pay his federal income taxes. The Taxpayer went to the

Albuquerque offices of the IRS and asked for assistance. He was directed to a person who

directed him to report his compensation for 1992 and 1993 on a Federal Schedule C, reporting

the compensation as income from a business or profession.

16. On the Taxpayer’s 1993 Federal Schedule C-EZ, the Taxpayer filled out line A which

requests a listing of a taxpayer’s principal business or profession as “None-actually an

employee”. Additionally, Taxpayer claimed no expenses against his receipts reported on his

Schedule C-EZ.

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17. After filing his 1992 and 1993 Federal income tax returns, the Taxpayer had a fairly

substantial liability of nearly $7,000, including penalty and interest. Because he was unable to

pay the amount, he began making installment payments of $152 per month. After making

payments for several months, he found that he could not really manage to make the payments.

At the suggestion of his father, the Taxpayer approached the IRS about making an Offer in

Compromise based upon his inability to pay. On September 19, 1995, the Taxpayer filed a Form

656, Offer in Compromise, with the IRS, offering to compromise his Federal income tax

liabilities for tax years 1992 and 1993 for the amount of $3,600, based upon his inability to pay

the full liability.

18. Sometime in 1996, the IRS accepted the Taxpayer’s Offer in Compromise and the

Taxpayer borrowed the $3,600 from his father and paid the liability in accordance with the terms

of the Offer in Compromise. When the IRS accepted the Taxpayer’s Offer in Compromise, the

IRS informed the Taxpayer that upon acceptance of the Offer in Compromise, it was a legally

binding contract between the Taxpayer and the IRS and that if he were to amend his federal

returns for the years covered by the agreement, that the agreement would be null and void and

the IRS could hold him liable for the entire amount of his 1992 and 1993 tax year liability.

19. Subsequently, the Department contacted the Taxpayer because of the information it had

received from the IRS showing that the Taxpayer had reported income from a business or

profession for the 1993 tax year, but the Department had no record that the Taxpayer had

reported or paid gross receipts tax for receipts from his business or profession for that year. The

Taxpayer informed the Department’s representative that he was an employee during that year

and was not engaging in business.

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20. On April 17, 1997, the Department issued Assessment No. 2129413 to the Taxpayer,

assessing $733.92 in gross receipts tax, $73.44 in penalty and $408.25 in interest for the 1993 tax

year.

21. On May 14, 1997, the Taxpayer filed a written protest to Assessment No. 2129413.

22. In order to resolve his protest with the Department, on December 21, 1998, the Taxpayer

filed a Federal Form SS-8 with the IRS seeking a determination of his employee work status with

respect to his work for Four Star Builders.

23. On January 15, 1999, the IRS responded to the Taxpayer’s request for a determination

of his work status with Four Star Builders. The IRS informed the Taxpayer that it was prohibited

from issuing a determination due to the fact that the statute of limitations had expired on the

returns filed for the years in question, 1992 and 1993.

24. The Department is willing to treat the compensation the Taxpayer received from Four

Star Builders during 1993 as wages paid to the Taxpayer as an employee if the Taxpayer will

filed an amended 1993 Federal income tax return reporting his compensation as wages from

employment.

25. The Taxpayer believes that he is prohibited from filing an amended Federal income tax

return for 1993 because the statute of limitations for filing 1993 income tax returns has expired

and because it would constitute a breach of the Offer in Compromise agreement with the IRS.

DISCUSSION

The primary issue to be determined is whether the compensation the Taxpayer received

from Four Star Builders was compensation for services performed as an employee or as an

independent contractor. This is because there is an exemption from gross receipts tax for the

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receipts of employees from wages, salaries, commissions or other remuneration for personal

services. Section 7-9-17 NMSA 1978.

An employee is not defined in the Gross Receipts and Compensating Tax Act, Chapter 7,

Article 9 NMSA 1978, so we will look to the common law definition of employee. In

determining whether a person is an employee or an independent contractor, the rule in New

Mexico and in general is that the principal consideration is the right to control. Thus, the

relationship of employer and employee usually results where there is control over the manner

and method of performance of the work to be performed. Where there is only control over the

results, however, and not the details of the performance, the worker is usually considered to be

an independent contractor. Buruss v. B.M.C. Logging Co., 38 N.M. 254, 31 P.2d 263 (1934). A

more recent pronouncement of this rule can be found in Harger v. Structural Services, Inc., 121

N.M. 657, 663, 916 P.2d 1324, 1330 (1996). In that case the New Mexico Supreme Court

adopted the approach set out in the Restatement (Second) of Agency § 220(1) to determine a

worker’s status as an employee or an independent contractor:

The important distinction is between service in which the actor’s
physical activities and his time are surrendered to the control of the
master, as service under an agreement to accomplish results or to
use care and skill in accomplishing results. Those rendering
service but retaining control over the manner of doing it are not
servants.

Among the factors to be considered are: whether the party employed engages in a distinct

occupation or business; whether the work is part of the employer’s regular business; the skill

required in the particular occupation; whether the employer supplies the instrumentalities, tools

or the place of work; the duration of a person’s employment and whether that person works full-

time or regular hours; whether the parties believe they have created the relationship of employer

and employee and the manner and method of payment. The totality of all of the circumstances

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must be considered in determining whether the employer has the right to exercise that degree of

control over a worker so as to make the worker an employee.

The Department has adopted a regulation under Section 7-9-17 to provide criteria by

which the status of a worker may be determined. Regulation 3 NMAC 2.12.7. provides as

follows:

In determining whether a person is an employee, the department
will consider the following indicia:

1. is the person paid a wage or salary;
2. is the “employer” required to withhold income tax from the
   person’s wage or salary;
3. is F.I.C.A. tax required to be paid by the “employer”;
4. is the person covered by workmen’s compensation insurance;
5. is the “employer” required to make unemployment insurance
   contributions on behalf of the person;
6. does the person’s “employer” consider the person to be an
   employee;
7. does the person’s “employer” have a right to exercise control
   over the means of accomplishing a result or only over the
   result (control does not mean “mere suggestion’).
   If all of the indicia mentioned are present, the department will
   presume that the person is an employee. However, a person may
   be an employee even if one or more of the indicia are not present.

Under the facts of this case, it is concluded that the Taxpayer was an employee of Four

Star Builders based upon the degree of control it exercised over the Taxpayer. Other than the

fact that Four Star Builders treated the Taxpayer as an independent contractor in the manner in

which it reported his compensation to the IRS and failed to withhold taxes and pay other

amounts which it would have been required to pay if the Taxpayer was an employee1, all of the

1
In the absence of other factors indicating an independent contractor status, the fact that the entity paying
compensation treats a person as an independent contractor is of little persuasive effect. Treating employees as
independent contractors for tax purposes can result in significant cost savings to employers. See, Nunnally, Why
Congress Needs to Fix the Employee /Independent Contractor Tax Rules: Principles, Perceptions, Problems and
Proposals, 20 N.C. Cent. L.J. 93 (1992). Given the substantial difference in bargaining power between employers
and employees in need of work, I believe that it is not uncommon for employers to take advantage of employees by
misclassifying them as independent contractors in order to benefit from the substantial cost savings available to
them by doing so.

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indicia demonstrate that he was an employee. Four Star Builders set the Taxpayer’s hours of

work, paid an hourly wage, directed his work, provided the workplace and equipment needed to

perform his work and otherwise exercised complete control over the Taxpayer’s work.

The Department argues that even if the Taxpayer is found to qualify as an employee,

because he filed with the IRS as an independent contractor by reporting his compensation from

Four Star Builders on a Schedule C, that he is barred from claiming the exemption provided by

Section 7-9-17 NMSA 1978 by controlling New Mexico precendent. New Mexico’s courts

have required that taxpayers report taxes consistently for both state and federal purposes. The

first case to address this issue was Co-Con, Inc., v. Bureau of Revenue, 87 N.M. 118, 529 P.2d

1239 (Ct. App., 1974), cert. denied, 87 N.M. 111, 529 P.2d 1232 (1974). Co-Con, Inc. was a

wholly owned subsidiary of Universal Constructors, Inc. During the audit period, pieces of

construction equipment common to the operations of both corporations were utilized by both on

their construction projects without regard to which corporation held legal title to the equipment.

Each corporation owning the equipment attributed a value to the use of its equipment and

reflected that value as “gross rentals” for federal income tax purposes. The department assessed

gross receipts tax on those gross rental amounts reflected on the federal returns of Co-Con, Inc.

and Universal Constructors, Inc. as gross receipts from leasing property in New Mexico. The

corporations argued that they did not have gross receipts from equipment rental. The Court of

Appeals upheld the assessments, finding that the treatment by the corporations of the transactions

as gross rentals for federal income tax purposes indicated that the intent of the taxpayers was to

treat the arrangements as rentals or leases. The court went on to state:

Taxpayers must treat transactions uniformly for all purposes within
the tax scheme and not attempt to show, first a lease for federal
purposes and second, a non-taxable event for state tax purposes.
We find ample evidence in the record to indicate that taxpayers

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engaged in leasing both by intent and within the statutory
definition.

Id., 87 N.M at 121-122.

In Stohr v. New Mexico Bureau of Revenue, 90 N.M. 43, 559 P.2d 420 (Ct. App., 1976),

cert. denied, 90 N.M. 254, 561 P.2d 1347 (1977), the Court of Appeals upheld an assessment of

gross receipts tax against Mr. Stohr on the compensation he was paid by various individuals for

doing carpentry. Mr. Stohr argued that these amounts were wages exempt from gross receipts

tax under § 72-16A-12.5 NMSA 1953, the predecessor to § 7-9-17 NMSA 1978. The court

noted that Mr. Stohr had filed self employment tax returns for social security purposes with the

Internal Revenue Service (“IRS”) for the compensation he received from the customers who did

not withhold FICA tax, and had filed a Federal Schedule C during the audit years, reporting his

compensation as being from a business or profession. In determining that Mr. Stohr had gross

receipts subject to tax, the court found that:

The controlling factor, however, is that the taxpayer must treat
transactions uniformly for all purposes within the tax laws. The
taxpayer must not attempt to show one scheme for federal tax
purposes and a nontaxable event for purposes of state gross
receipts taxes. (citations omitted).

Id., 90 N.M. at 46.

The most recent case to address the issue of whether consistency is required in filing state

and federal returns is Sutin, Thayer & Browne v. Revenue Division of the Taxation and

Revenue Department, 104 N.M. 633, 725 P.2d 833 (Ct. App. 1985), cert. denied, 102 NM 293,

694 P.2d 1358 (1986). That case concerned whether a taxpayer could claim a wage deduction

for state corporate income tax reporting purposes that exceeded the wage deduction claimed for

federal corporate income tax purposes. Under the Tax Reduction and Simplification Act of

1977, Pub. L. No. 95030, a new jobs tax credit was enacted to provide employers with a tax

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incentive to create new jobs. Under the act, a corporation could either claim a federal tax

deduction for the wages paid to its employees or elect a jobs credit for wages paid to certain new

employees. New Mexico did not have a similar jobs credit. The taxpayer had claimed a jobs

credit with the IRS, forgoing a deduction for wages paid to those employees for whom the credit

was claimed. Because New Mexico did not have a similar jobs credit, the taxpayer claimed a

deduction for those wages on its New Mexico return that it had not claimed on its federal return,

arguing that to deny it the wage deduction would be unfair and result in overstating its taxable

income for state tax purposes. The court denied the taxpayer’s claim of deduction, stating that,

“[A] taxpayer who makes an election for federal purposes is bound by that election in calculating

the amount of its state taxes.” Id., 104 N.M. at 636.

In Co-Con, Inc. and Stohr, the court considered the manner by which a taxpayer had

filed for federal tax purposes as an indication of a taxpayer’s intention as to how a given

transaction should be treated for tax purposes. In Sutin, Thayer & Browne, the court found it

significant that the taxpayer had made an election for federal tax purposes that entitled it to claim

a federal tax benefit it would not otherwise have been entitled to. This matter is distinguishable

in both respects.

In this case, the Taxpayer derived no benefit from the manner in which he filed his

Federal return. He claimed no expenses against the receipts reported on Schedule C, thus

rendering his entire compensation part of his taxable income, just as it would have been had it

been reported as wages from employment2. Additionally, there was also no conscious election to

file in the manner in which he did and thus, the manner in which the Taxpayer filed cannot be

2
The Department points out that the Taxpayer received a deduction against his taxable income for one half of the
self-employment tax he reported and paid, but when one considers that the Taxpayer became liable for $1,889 in self

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considered to indicate the Taxpayer’s intention to treat his compensation from Four Star

Builders as income received from engaging in business as an independent contractor. Schedule

C, Line A, asks taxpayers to list their principal business or profession as well as its product or

service. The Taxpayer answered this query, stating, “None, actually an employee.” This

Taxpayer3 had no understanding of the distinction between an independent contractor or an

employee when he filed his Federal return or of its tax ramifications. He filed the Schedule C

because he was told that that was the proper manner to file his taxes by the person who assisted

him at the IRS offices. Thus, the fact that the Taxpayer filed a Federal Schedule C reporting his

compensation as gross receipts from a business or profession cannot be considered under the

facts of this case as indicative of the Taxpayer’s intention as to how the compensation at issue

should be treated for tax purposes. Given this and the fact that the Taxpayer did not elect to file

a Schedule C in order to receive a tax benefit from the manner in which he filed with the IRS, the

conceptual underpinnings of the otherwise sound policy which normally requires that taxpayers

file consistently with both the state and federal taxing authorities do not exist in this case. For

these reasons, the Taxpayer’s claim of exemption under Section 7-9-17 NMSA 1978 for the

wages he was paid as an employee of Four Star Builders should not be barred because his

Federal return does not treat his compensation as employee wages.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest of Assessment No. 2129413 and jurisdiction

lies over both the parties and the subject matter of this protest.

employment tax as a result of reporting his compensation on Schedule C and he only received a deduction against
income upon which tax was calculated in the amount of $945, this can hardly be considered a tax benefit.
3
The Taxpayer was only 22 years old, unsophisticated in the ways of business and taxes, and was confused as to
how to file his taxes. His confusion was caused by his own understanding that he was an employee, which was
consistent with how his employer treated him for all purposes except for taxes and employee related expenses.

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2. The Taxpayer was an employee of Four Star Builders.

3. The Taxpayer’s compensation from Four Star Builders is exempt from gross receipts tax

pursuant to Section 7-9-17 NMSA 1978.

4. The Taxpayer’s claim for exemption from gross receipts tax pursuant to Section 7-9-17

NMSA 1978 is not barred due to his failure to treat his compensation from Four Star Builders

consistently for both state and Federal tax purposes.

For the following reasons, the Taxpayer’s protest IS HEREBY GRANTED.

DONE, this 23rd day of August, 2000.

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