Is a person who delivers mail for the U.S. Postal Service under a highway contract route an employee exempt from New Mexico gross receipts tax, or a taxable independent contractor?

Plain-English summary

Cynthia King, who delivered mail for the U.S. Postal Service under a highway contract route, was an independent contractor rather than an exempt employee — so her contract payments were subject to New Mexico gross receipts tax. Protest DENIED.

Ms. King held a Postal Service highway contract route (HCR) in Placitas from 1999 to 2001. She did not pay gross receipts tax on the contract income, arguing she was an employee whose wages are exempt under Section 7-9-17. Acting on IRS information, the Department found she was unregistered and had never paid gross receipts tax, and it assessed $1,080.37 tax, $108.04 penalty, and $337.20 interest on her 1999 receipts.

Employee or independent contractor — the control test

Under Harger v. Structural Services and the Restatement of Agency, the key question is whether the worker's physical activities and time are surrendered to the employer's control, or whether the worker only agrees to accomplish a result. New Mexico courts weigh factors such as control, the right to fire, the right to hire assistants, the method of payment, who supplies the tools, and whether the parties intend an employment relationship (see also Regulation 3.2.105.7 NMAC). No single factor is decisive.

Ms. King pointed to the HCR contract's detailed rules — a set delivery route, an annual vehicle inspection, required training (on new delivery programs, suspicious mail, backing up safely, watching for rattlesnakes), and close monitoring of her hours. But the hearing officer found most of those requirements existed to ensure the safety of the mail and the public and legal compliance, not the kind of control that makes someone an employee. In practice she had latitude in her daily timing — a route survey showed her starting and finishing well ahead of the "required" times without needing permission.

The facts pointing to independent-contractor status — and the decisive one

She provided and maintained her own vehicle; she could operate the route herself or hire employees to do it; the Postal Service did not supply substitute carriers when she was sick or on vacation (she had to arrange her own); she was paid a flat monthly amount based on the negotiated contract price, not on actual monthly costs; no income, Social Security, or workers'-compensation amounts were withheld; and she received a Form 1099, not a W-2. The single strongest factor was her ability to hire employees to fulfill the contract — the right to substitute another to do the work marks an independent contractual relationship rather than the personal service of an employee. Numerous federal decisions (Norton, Tunder, and others) hold that similar mail-delivery contracts do not create an employer-employee relationship, and Regulation 3.2.1.18(Y) NMAC specifically makes a star-route mail contractor subject to gross receipts tax.

The uniform-treatment rule

New Mexico law also requires taxpayers to treat transactions consistently across the tax laws. Ms. King reported her 1999 USPS income as business income on Schedule C after the IRS told her to file as self-employed; she never disputed that status with the IRS or the Postal Service. Under Stohr v. New Mexico Bureau of Revenue, a taxpayer cannot report income as self-employment for federal purposes and then recharacterize it as exempt wages for gross receipts tax. Having reported it federally as business income, she was bound by that treatment.

Result: protest DENIED. Her mail-route receipts were subject to gross receipts tax.

What this means for you

"Detailed contract rules" do not by themselves make you an employee

Requirements that exist for safety, security, and legal compliance — set routes, inspections, training — are not the kind of control that creates employee status. New Mexico looks at the whole relationship under the Harger factors.

The right to hire your own workers is a strong contractor signal

If you can hire employees or send a substitute to do the job, you are likely an independent contractor. Personal, non-delegable service is the hallmark of an employee.

How you file federally can lock in your state treatment

Under the uniform-treatment rule, reporting income as self-employment (Schedule C) for federal tax generally prevents you from calling it exempt "wages" for New Mexico gross receipts tax. To claim the employee exemption, you must first resolve your status and report as an employee federally.

Mail-route and similar contract income is generally taxable

A Postal Service highway or star route contract produces taxable gross receipts. Register and pay gross receipts tax on that income rather than assuming an employee exemption applies.

Common questions

Q: What tax was assessed?
A: New Mexico gross receipts tax — $1,080.37 tax, plus $108.04 penalty and $337.20 interest — on Ms. King's 1999 USPS highway contract route income.

Q: Why wasn't she an exempt employee?
A: Applying the Harger control factors, she provided her own vehicle, was paid a flat contract price with no withholding, received a 1099, and — most importantly — could hire employees to run the route, all pointing to independent-contractor status.

Q: What was the single most important factor?
A: Her ability to hire employees to fulfill the contract. The right to substitute someone else to do the work marks an independent contractor, not an employee.

Q: How did her federal filing matter?
A: She reported the income as Schedule C business income federally. Under the uniform-treatment rule (Stohr), she could not then recharacterize it as exempt wages for gross receipts tax.

Q: Does it matter that she called herself something other than a "star route" contractor?
A: No. The only difference she identified — delivering to Postal Service mailbox units rather than individual boxes — was irrelevant, and Regulation 3.2.1.18(Y) taxes star-route mail contractors.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-9-17 — exemption for receipts of employees from wages, salaries, and commissions
• NMSA 1978, § 7-1-17(C) — a Department assessment is presumed correct; taxpayer bears the burden
• Regulation 3.2.105.7 NMAC — factors for determining whether a worker is an employee
• Regulation 3.2.1.18(Y) NMAC — a star route mail contractor is subject to gross receipts tax

Cases cited:

• Harger v. Structural Services, Inc., 1996-NMSC-018, 121 N.M. 657, 916 P.2d 1324 (1996)
• Benavidez v. Sierra Blanca Motors, 1996-NMCA-045, 122 N.M. 209, 922 P.2d 1205 (1996)
• 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)
• Co-Con, Inc. v. Bureau of Revenue, 87 N.M. 118, 529 P.2d 1239 (Ct. App. 1974)
• Archuleta v. O'Cheskey, 84 N.M. 428, 504 P.2d 638 (Ct. App. 1972)
• Buruss v. B.M.C. Logging Co., 38 N.M. 254, 31 P.2d 263 (1934)
• Norton v. Murphy, 661 F.2d 882 (10th Cir. 1981)
• Tunder v. United States, 522 F.2d 913 (10th Cir. 1975)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Cynthia B. King
• Decision PDF: D&O 02-10

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
CYNTHIA B. KING No. 02-10
ID NO. 02-439721-00-0
ASSESSMENT NO. 2716067

DECISION AND ORDER

A formal hearing on the above-referenced protest was held April 3, 2002, before Margaret B.

Alcock, Hearing Officer. Cynthia B. King (“Taxpayer”) represented herself. The Taxation and

Revenue Department ("Department") was represented by Javier Lopez, Special Assistant Attorney

General. Based on the evidence and arguments presented, IT IS DECIDED AND ORDERED AS

FOLLOWS:

FINDINGS OF FACT

1. In 1999, the Taxpayer entered into a contract with the United States Postal Service

(“USPS”) to deliver mail along a highway contract route (“HCR”) in Placitas, New Mexico, during

the period April 24, 1999 through June 30, 2001.

2. Under the terms of HCR contracts, the contractor is charged with delivering mail into

multiple mail box units the USPS sets up and maintains along the HCR.

3. The contract provides detailed guidelines concerning delivery of the mail. The

contractor must agree to follow the specific HCR established by the USPS, including directions on

where to enter and make turns along the route. The contractor may propose changes to the HCR, but

any changes must be approved by the USPS.

4. The contract includes a daily schedule setting out the average time each task to be

performed by the contractor is expected to take. On a day-to-day basis, the contractor must report to
the Post Office at approximately the same time each morning, but has some flexibility as to the time

spent on each task and is not required to strictly conform to the daily schedule.

5. The USPS may terminate a HCR contract for cause.

6. The UPSP conducts periodic route surveys to determine whether the time it takes the

contractor to perform services under the contract conforms to the number of hours estimated in the

contract bid. A similar review is conducted to determine whether the contractor’s expenses for fuel

and vehicle maintenance conform to the expenses shown on the cost statement used to negotiate the

contract.

7. If the USPS determines that the hours and expenses used to negotiate the contract do

not reflect actual costs and expenses, this will be taken into account when the contract is

renegotiated.

8. The contractor may operate the HCR personally or may hire employees. The

contractor is responsible for supervising his employees and is held accountable for their work.

9. The USPS does not provide substitute carriers to take over when the contractor is ill

or on vacation. Instead, it is the contractor’s responsibility to arrange a substitute to insure the route

is covered.

10. The contractor and his employees are subject to a screening process and must provide

the USPS with a personnel questionnaire and a 5-year motor vehicle record.

11. A contractor whose relief employees drive on a regularly scheduled basis must, by

law, pay the employees the wages and fringe benefits outlined in the “wage determination”

incorporated into the contract. Occasional relief employees are not subject to this law, but must be

paid according to contract provisions.

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12. The contractor is required to provide the vehicle used to deliver mail along the HCR.

The cost of fuel and vehicle maintenance is factored into the contract price and the contractor is not

reimbursed on a dollar-for-dollar basis.

13. The contractor’s vehicle must pass an annual inspection by the USPS. The USPS

also makes periodic checks to insure that no mail is being left in the vehicle and that the vehicle

meets the requirements of the contract.

14. The USPS provides the contractor with other equipment needed to perform the

contract, including mail cases, straps, trays and postal forms.

15. The contractor is required to attend training sessions conducted by the USPS, which

cover such topics as new delivery programs, anthrax, suspicious mail, how to back up a vehicle

safely, watching out for rattlesnakes, etc..

16. The contractor is required to follow instructions received from the USPS’s manager

of transportation contracts and the local administrative official assigned to oversee the contract.

17. The administrative official insures that the contractor reports to the Post Office each

morning and departs on the HCR at the times specified in the contract. The administrative official

also monitors the contractor’s performance and reports any performance or operational failures to the

manager of transportation contracts.

18. The contractor is paid on a monthly basis. The amount of each payment is one-

twelfth of the annual compensation agreed upon in the contract.

19. When the Taxpayer put in her bid for the HCR contract in 1999, she completed an

expense worksheet which was used in negotiating the terms of the contract. The Taxpayer did not

include the cost of the New Mexico gross receipts tax as an expense on her worksheet, but was told

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by the USPS that New Mexico charges gross receipts tax on contract payments and that this item

would have to be taken into account in the final contract.

20. The final contract price was based on various adjustments to the individual expense

categories on the Taxpayer’s preliminary expense worksheet. Among these adjustments was a

decrease in the amount that the USPS would allow for operational costs of the Taxpayer’s vehicle

and an increase in the amount allocated for taxes to include the amount of gross receipts tax the

Taxpayer would owe on the contract payments.

21. In early 2000, the Taxpayer received a Form 1099 from the USPS which reported her

1999 income under the category “other income”, rather than under the category “non employee

compensation.” The Taxpayer was confused as to how to report this income since the IRS manual

described “other income” as income from prizes, awards, and gambling winnings.

22. The Taxpayer contacted the IRS for assistance. After the Taxpayer explained the

source of her income, the IRS instructed her to file as self-employed and report the contract

payments as business income on Schedule C (“Profit and Loss from Business”) to her federal income

tax return. The Taxpayer followed these instructions.

23. The Taxpayer never contacted anyone at the USPS to question how her income had

been reported for federal income tax purposes, nor did she dispute her status as a self-employed

independent contractor.

24. The Taxpayer had previously decided to ignore the information provided by the

USPS concerning her liability for New Mexico gross receipts tax because she believed the USPS

unfairly reduced the amount she bid for operational expenses in order to increase the amount allowed

for payment of the gross receipts tax.

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25. The Taxpayer did not call the Department or consult with an accountant or an

attorney concerning her liability for New Mexico gross receipts tax.

26. At some point during the contract term the Taxpayer became aware that the

Department had assessed other USPS contractors for gross receipts tax, but the Taxpayer still took

no steps to register with the Department or pay gross receipts tax on her own contract income.

27. In 2001, the Department received information from the IRS concerning the business

income reported on the Taxpayer’s 1999 federal income tax return. When the Department

investigated, it found that the Taxpayer was not registered with the Department and had never paid

gross receipts tax on this income.

28. On November 8, 2001, the Department issued Assessment No. 2716067 to the

Taxpayer in the total amount of $1,525.61, representing $1,080.37 gross receipts tax, $108.04

penalty and $337.20 interest on her receipts from performing services for the USPS during tax

periods January through December 1999.

29. On November 27, 2001, the Taxpayer filed a written protest to the assessment.

DISCUSSION

The issue presented is whether the Taxpayer is liable for gross receipts tax on the income she

received under her HCR contract with the USPS and reported as business income on her 1999

federal income tax return. The Taxpayer maintains that she was an employee of the USPS and is

entitled to the exemption from gross receipts provided in Section 7-9-17 NMSA 1978, which states:

Exempted from the gross receipts tax are the receipts of employees
from wages, salaries, commissions or from any other form of
remuneration for personal services.

It is the Department’s position that the Taxpayer performed services for the USPS as an independent

contractor and did not qualify for the exemption provided in Section 7-9-17.

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Burden of Proof. Section 7-1-17(C) NMSA 1978 provides that any assessment of tax by the

Department is presumed to be correct, and it is the taxpayer's burden to overcome this presumption.

Archuleta v. O'Cheskey, 84 N.M. 428, 431, 504 P.2d 638, 641 (Ct. App. 1972). Moreover, where an

exemption from tax is claimed, the exemption is strictly construed in favor of the taxing authority.

Stohr v. New Mexico Bureau of Revenue, 90 N.M. 43, 46, 559 P.2d 420, 423 (Ct. App. 1976), cert.

denied, 90 N.M. 254, 561 P.2d 1347 (1977); Rock v. Commissioner, 83 N.M. 478, 479, 493 P.2d 963,

964 (Ct. App. 1972). Accordingly, it is the Taxpayer’s burden to establish that the Department's

assessment of gross receipts tax, penalty and interest on her 1999 income is incorrect.

Employee v. Independent Contractor. In Harger v. Structural Services, Inc., 1996-

NMSC-018, 121 N.M. 657, 663, 916 P.2d 1324, 1330 (1996), the New Mexico Supreme Court

adopted the approach set out in the Restatement (Second) of Agency § 220(1) (1958) 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, and 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: (1) direct evidence of control; (2) the right to terminate the

employment at will, by either party, without liability; (3) the right to delegate the work or to hire and

fire assistants; (4) the method of payment, whether by time or by the job; (5) whether the party

employed engages in a distinct occupation or business; (6) whether the work is part of the

employer’s regular business; (7) the skill required in the particular occupation; (8) whether the

employer supplies the instrumentalities, tools or the place of work; (9) the duration of a person’s

employment and whether that person works full-time or regular hours; and (10) whether the parties

believe they have created the relationship of employer and employee, insofar as this belief indicates

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an assumption of control by one and submission to control by the other. Harger, supra, 121 N.M. at

667, 916 P.2d at 1334. In determining the existence of an employer-employee relationship, no one

single factor is decisive; rather, all relevant circumstances must be considered. Id.; see also,

Benavidez v. Sierra Blanca Motors, 1996-NMCA-045, 122 N.M. 209, 215, 922 P.2d 1205, 1211

(1996).

Department Regulation 3.2.105.7 NMAC sets out the following questions to be asked in

determining whether a worker qualifies as an employee: is income tax withheld from the worker’s

paychecks; is the worker covered by worker’s compensation insurance; is the “employer” obligated

to pay social security taxes and make unemployment insurance contributions on behalf of the

worker; does the “employer” consider the worker to be an employee; and does the “employer” have

a right to exercise control over the means of accomplishing a result or only over the result?

In this case, there is some evidence to support each party’s position. In arguing that she is an

employee and not an independent contractor, the Taxpayer relies on the detailed requirements set out in

the HCR contract concerning delivery of the mail. The contractor must agree to follow the specific

delivery route established by the USPS, including where to enter and make turns along the route.

The contractor may propose changes to the HCR, but any changes must first be approved by the

USPS. The contractor’s vehicle must pass an annual inspection by the USPS. The contractor is

expected to follow a daily schedule and conform to all USPS regulations and bulletins concerning

handling and delivery of the mail. The contractor must attend training sessions covering such topics

as new delivery programs, anthrax, suspicious mail, how to back up a vehicle safely, watching out

for rattlesnakes, etc. The contractor’s hours are closely monitored by USPS personnel. The

contractor is required to follow instructions received from the USPS’s manager of transportation

contracts and the local administrative official assigned to oversee the contract.

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It is true that the HCR contract requirements are very detailed. However, many of these

requirements are necessary to insure compliance with the law and the safety of both the mail and the

public. The fact that the USPS requires vehicles used on the delivery route to pass an annual

inspection and requires contractors and their employees to provide proof of a clean driving record

does not indicate the type of control necessary to establish an employer-employee relationship. It

should also be noted that while the HCR contract is based on a schedule setting out the average time

the contractor’s route is expected to take, the Taxpayer has some latitude in the daily operation of

her route. This is illustrated by the documents included in Taxpayer’s Exhibit A. The Box Delivery

Contract Route Survey shows that the Taxpayer is “required” to start her delivery route at 11:05

(military time) and return to the Post Office at 13:35 (military time) each day. The Route Data

Volume Count shows that the Taxpayer’s actual times during the survey week of September 25,

2000 were as follows:

Mon Tue Wed Thu Fri Sat

Required Start Time 11:05 11:05 11:05 11:05 11:05 11:05
Actual Start Time 10:20 09:30 09:30 09:35 10:30 10:45

Required End Time 13.35 13:35 13:35 13:35 13:35 13:35
Actual End Time 12:40 11:20 11:35 11:20 12:40 13:10

At the April 3, 2002 hearing, the Taxpayer testified that she had hurried to finish her delivery route

early that morning so she would be on time for the 1:30 p.m. hearing. There is no indication that the

Taxpayer had to obtain permission from anyone at the Post Office before adjusting her schedule in

this manner.

There are a number of other facts supporting the Department’s position that the Taxpayer is

an independent contractor. The Taxpayer is required to provide her own vehicle to deliver the mail

and is responsible for the cost of operating, maintaining and insuring the vehicle. The Taxpayer may

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operate the HCR herself or hire one of more employees to deliver the mail under her supervision.

The USPS does not provide substitute carriers to take over when the Taxpayer is ill or on vacation.

Instead, it is the Taxpayer’s responsibility to arrange a substitute to insure the route is covered. The

contract may be terminated for cause.1 The Taxpayer receives equal monthly payments based on the

parties’ negotiated contract price, rather than on the specific expenses incurred by the Taxpayer

during that month. No income taxes, social security taxes, worker’s compensation or similar items

are deducted from these payments. The USPS reports the contract payments to the Taxpayer on a

Form 1099 rather than on a Form W-2. After the Taxpayer discussed the source of her 1999 income

with the IRS, the IRS told the Taxpayer to report her USPS payments as business income on

Schedule C to her federal income tax return.

Of all the facts listed above, the one that most strongly supports the conclusion that the

Taxpayer is an independent contractor is her ability to hire employees to fulfill her obligations under

the HCR contract. As stated in 41 Am.Jur.2d, Independent Contractors, § 23:

An independent contractor has the right to choose his or her own employees
and servants to carry on the work, being responsible only to the other party to
the contract to produce a result according to the contract.

The right to substitute another to do the work is indicative of an independent
contractual relation, whereas personal service is a marked characteristic of
the relation of master and servant.

The New Mexico Supreme Court has recognized the personal character of service rendered by an

employee, noting: “The employee renders personal service. The independent contractor may or may

not.” Buruss v. B.M.C. Logging Co., 38 N.M. 254, 257, 31 P.2d 263, 264 (1934).

1
The General Contract Administration handbook introduced by the Taxpayer states that the contract may be
terminated for cause “or for the convenience of the Postal Service as specified within the clauses of the contract.”
(Taxpayer Ex. B, page 2 § 131.2(d)). Because the Taxpayer did not introduce the contract itself, it is not possible to
determine the basis for terminating a contract based on convenience. There is no indication, however, that either of
the parties may terminate the contact at will.

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Also significant are the numerous federal court decisions holding that mail delivery contracts

similar to the one at issue in this case do not create an employer-employee relationship. See, Norton

v. Murphy, 661 F.2d 882 (10th Cir. 1981); Tunder v. United States, 522 F.2d 913 (10th Cir.1975);

Fisher v. United States, 356 F.2d 706 (6th Cir.), cert. denied, 385 U.S. 819 (1966); Duncan v. United

States, 562 F. Supp. 96 (E.D. La. 1983); Thomas v. United States, 204 F.Supp. 896 (D.Vt.1962);

Smick v. United States, 181 F.Supp. 149 (D.Nev.1960). In Tunder, supra, the Tenth Circuit Court of

Appeals held that a person delivering mail under a Star Route Contract entered into with the old Post

Office Department was an independent contractor. In Norton, supra, the Tenth Circuit considered

the same issue in connection with the Transportation Services Contract adopted by the new Postal

Service. As the court found:

The old Star Route Contract and the new Transportation Services Contract are
not identical, but they are nonetheless sufficiently similar to the end that we are
disinclined to bring the instant case out from under the rule of Tunder. Both
contracts refer to the mail carrier as a “contractor” and not as an “employee” of
the United States....

While the contract is in considerable detail as to the work to be performed, it
does not provide for detailed supervision or control of the carrier as he proceeds
along his route. Indeed, the very length and detail of the contract entered into by
the United States and Murphy suggests, to us, an independent contractor
relationship between the parties. To us, it is doubtful that a master-servant
relationship, where the master tells the servant what to do and when to do it,
would require a contract of the type here involved.

Other factors which enter into our resolution of the matter are: (1) Murphy uses
his own vehicle in delivering the mail; (2) under the contract, Murphy is required
to provide his own automobile liability insurance; (3) Murphy pays self-
employment Social Security tax, and there is no employee withholding tax on the
monthly contract payments made by the United States to Murphy; (4) Postal
Service regulations prohibit the award of any contract of the type here involved to
employees of the Postal Service; and (5) Murphy has the authority to subcontract
his work to others. (Emphasis in the original.)

Norton, supra, 661 F.2d at 884. The same considerations apply to the contract in this case.

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The Department has also adopted a regulation stating that a person holding a contract for

transportation of United States mail within New Mexico as a “star route contractor” is subject to

gross receipts tax. Regulation 3.2.1.18(Y) NMAC. At the April 3, 2002 hearing, the Taxpayer was

insistent in her position that she is not a star route contractor and that the Department’s regulation

cannot apply to her. The only difference she could identify between a star route and her route,

however, is that star route contractors deliver mail to individual mail boxes put up by homeowners

while she delivers mail to multiple mail box units owned and maintained by the USPS. This

distinction has no relevance in the context of this case.

Consistency in Reporting. Finally, it must be noted that New Mexico law requires taxpayers

to treat transactions uniformly for all purposes within the tax laws. A taxpayer may not report business

income on the taxpayer’s federal income tax return and then recharacterize the income as nontaxable

employee wages for purposes of New Mexico’s gross receipts tax. 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's

compensation from performing carpentry work for various individuals. Mr. Stohr argued that these

amounts were wages exempt from gross receipts tax. In responding to these arguments, the court

noted that during the audit period Mr. Stohr filed self-employment tax returns for social security

purposes and filed federal Schedule C's reporting his compensation as business income. In

determining Mr. Stohr liable for gross receipts tax, the court first examined the indicia of

employment found in the Department’s regulations, and then concluded:

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. (Emphasis added)

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90 N.M. at 46, 559 P.2d at 423. Thus, the court found that the manner in which Mr. Stohr reported

his compensation for federal purposes controlled the determination of whether that compensation

could be considered wages exempt from gross receipts tax. See also, 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).

In this case, the Taxpayer reported her 1999 income from the USPS as business income on

Schedule C to her 1999 federal income tax return. The Taxpayer testified that she was confused by

the USPS’s Form 1099, because it listed the contract payments as “other income”, which is defined

by the IRS manual as income from prizes, awards and gambling winnings. The Taxpayer

subsequently contacted the IRS for assistance. After she explained the source of her income, the IRS

instructed the Taxpayer to file as self-employed and to report her contract payments as business

income on Schedule C to her federal income tax return. Although the Taxpayer now maintains that

she was an employee of the USPS in 1999, she never raised this issue with the IRS. Nor did she

contact anyone at the USPS to ask why she was given a Form 1099 or dispute her status as an

independent contractor.

Only after receiving the Department’s gross receipts tax assessment did the Taxpayer assert

that she was an employee entitled to claim the exemption in Section 7-9-17 NMSA 1978. Based on

New Mexico law, however, the Taxpayer is bound by the manner in which she filed her federal

income tax returns. Before asking the Department to recognize her as an employee exempt from

payment of gross receipts tax, the Taxpayer must resolve her employment status with the USPS and

report her income as employee wages on her federal income tax returns.

CONCLUSIONS OF LAW

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1. The Taxpayer filed a timely, written protest to Assessment No. 2716067, and

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

2. The Taxpayer’s 1999 receipts from her mail delivery contract with the USPS were

receipts from performing services as an independent contractor and not as an employee of the USPS.

3. The Taxpayer is not entitled to claim the exemption from gross receipts provided in

Section 7-9-17 NMSA 1978.

For the foregoing reasons, the Taxpayer's protest IS DENIED.

DATED April 17, 2002.

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