Did a medical-center manager paid on Forms 1099 owe gross receipts tax when she believed she should have been an employee and had no NTTC?

Plain-English summary

Joan Dewbre owed gross receipts tax on management and supervisory services for which she received Forms 1099. Her belief that she should have been treated as an employee did not eliminate the tax, and she never obtained the NTTC needed to deduct a resale of services.

Dewbre worked as a manager and supervisor at a medical center in 2005 and 2006. She did not file gross receipts tax returns for either year and was ultimately treated as an independent contractor rather than an employee.

The Department assessed:

• 2005: $8,380.40 tax, $1,676.08 penalty, and $3,205.35 interest.
• 2006: $6,451.58 tax, $1,290.32 penalty, and $1,502.11 interest.

Her own sale of services was taxable

Dewbre argued that she was supposed to be an employee of an organization that sold her services to the medical center. She believed that organization—not she—should have paid gross receipts tax.

The Department agreed that the organization should have paid tax on its sale. But Dewbre had also sold her services to that organization, and New Mexico services were taxable at that level as well.

No NTTC meant no resale deduction

The Department acknowledged that Dewbre could have deducted her receipts if she had obtained a nontaxable transaction certificate from the buyer. A seller generally should hold the NTTC when the return is due and may have 60 days after a production notice to obtain it.

Dewbre never obtained one. The decision therefore denied the service-resale deduction.

Penalty and interest were upheld

The decision treated a lack of tax knowledge or mistaken belief that no tax was due as negligence. That supported penalty.

Interest was mandatory because the gross receipts tax had not been paid when due. It compensated the state for the time value of unpaid revenue rather than serving as punishment.

The long hearing delay did not provide a remedy

Dewbre protested in March 2009, but the Department did not request a hearing until July 2013. She said witnesses who could have supported employee status had become unavailable during the delay.

The decision found that the law governing the 2009 protest contained no strict hearing deadline. The later 90-day setting requirement did not supply a dismissal remedy for the older case, and an administrative hearing officer could not grant equitable relief.

Result: protest DENIED. The 2005 and 2006 assessments were upheld. Their original amounts totaled $14,831.98 tax, $2,966.40 penalty, and $4,707.46 interest.

What this means for you

Workers receiving Forms 1099

Do not assume that a disputed worker classification eliminates gross receipts tax. Determine how the payer is treating the relationship and address filing obligations while any classification dispute is unresolved.

Businesses reselling services

Obtain the required NTTC within the statutory window. A transaction that might substantively qualify for a deduction can remain taxable when the certificate requirement is not met.

Taxpayers experiencing agency delay

This decision found no administrative dismissal remedy under the law applicable to a 2009 protest. Hearing deadlines and remedies depend on the governing version of the statute.

Common questions

Q: Did the ruling decide that Dewbre was correctly classified under employment law?
A: No. It decided the tax protest based on her taxable service receipts, Forms 1099, and lack of an NTTC.

Q: Could both Dewbre and the organization have taxable receipts?
A: Yes. The decision treated Dewbre's sale to the organization and the organization's sale to the medical center as separate transactions.

Q: Why was the deduction denied?
A: Dewbre never obtained an NTTC from the buyer.

Q: Did the four-year delay cancel the assessment?
A: No. The decision found no applicable statutory or regulatory remedy and no power to grant equitable relief.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-1-17 and 7-1-3 — assessment presumption and definition of tax
• NMSA 1978, § 7-1-13 — taxpayer reporting responsibility
• NMSA 1978, §§ 7-9-43 and 7-9-48 — NTTC timing and service-resale deduction
• NMSA 1978, § 7-1-67(A) — mandatory interest
• NMSA 1978, §§ 7-1-24 and 7-1-24.1 — hearing timing provisions
• Regulations 3.2.1.18(A), 3.1.8.8, and 3.1.8.9 NMAC — taxable New Mexico services and hearing procedure

Cases cited:

• Tiffany Construction Co. v. Bureau of Revenue, 1976-NMCA-127 — mistaken belief about tax as negligence
• Ranchers-Tufco Limestone Project Joint Venture v. Revenue Division, 1983-NMCA-126 — public officers' delay did not create a defense absent a statutory remedy
• AA Oilfield Service v. New Mexico State Corporation Commission, 1994-NMSC-085 — administrative agency could not grant equitable estoppel

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Joan Dewbre
• Decision PDF: D&O 14-18

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
JOAN DEWBRE, No. 14-18
TO ASSESSMENTS ISSUED UNDER
ID NOS. L0297045376 and L0565480832

DECISION AND ORDER

A formal hearing on the above-referenced protest was held March 18, 2014, before Dee

Dee Hoxie, Hearing Officer. The Taxation and Revenue Department (Department) was

represented by Mr. Peter Breen, Staff Attorney. Mr. Tom Dillon, Auditor, also appeared on behalf

of the Department. Ms. Joan Dewbre (Taxpayer) appeared for the hearing and represented

herself. The Hearing Officer took notice of all documents in the administrative file. Based on

the evidence and arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On December 11, 2008, the Department assessed the Taxpayer for gross receipts tax,

penalty, and interest for the tax period ending on December 31, 2005. The assessment

was for $8,380.40 tax, $1,676.08 penalty, and $3,205.35 interest.

2. On December 11, 2008, the Department assessed the Taxpayer for gross receipts tax,

penalty, and interest for the tax period ending on December 31, 2006. The assessment

was for $6,451.58 tax, $1,290.32 penalty, and $1,502.11 interest.

3. On January 20, 2009, the Taxpayer filed a request for extension of time to file protest.

4. On January 26, 2009, the Department granted an extension of time to file.

5. On March 9, 2009, the Taxpayer filed a formal protest letter.

6. On July 29, 2013, the Department filed a Request for Hearing asking that the Taxpayer’s

protest be scheduled for a formal administrative hearing.

7. A hearing was set for October 27, 2013. The hearing was continued upon the Taxpayer’s

request and was reset for March 18, 2014.

8. The Taxpayer was working as a manager and supervisor at a medical center in 2005 and

in 2006.

9. The Taxpayer failed to file gross receipts tax with the Department for 2005 and 2006.

10. The Taxpayer was ultimately treated as an independent contractor by the medical center,

and she was issued 1099s.

DISCUSSION

The issue to be decided is whether the Taxpayer is liable for gross receipts tax, penalty,

and interest for the tax periods ending in December 2005 and December 2006.

Burden of Proof.

Assessments by the Department are presumed to be correct. See NMSA 1978, § 7-1-17.

Tax includes, by definition, the amount of tax principal imposed and, unless the context

otherwise requires, “the amount of any interest or civil penalty relating thereto.” NMSA 1978, §

7-1-3. See also El Centro Villa Nursing Center v. Taxation and Revenue Department, 1989-

NMCA-070,108 N.M. 795. Therefore, the assessments issued to the Taxpayer are presumed to

be correct, and it is the Taxpayer’s burden to present evidence and legal argument to show that

she is not liable for the tax and is entitled to an abatement of penalty and interest.

Gross Receipts Tax.

Services performed within the State of New Mexico are subject to the gross receipts tax.

See 3.2.1.18 (A) NMAC (2003). The Taxpayer’s services as a manager and supervisor at the

Joan Dewbre
Letter ID Nos. L0297045376 and L0565480832
page 2 of 6
medical center are taxable. It is the responsibility of the taxpayer, who is in the position to know

the details of her business activities, to determine accurately and to report her tax liabilities to the

Department. See NMSA 1978, § 7-1-13.

The Taxpayer argued that she was not supposed to be an independent contractor with the

medical center. The Taxpayer was supposed to be an employee of the organization that was

selling her services to the medical center. However, the Taxpayer admitted that somewhere

along the way, they ended up treating her like an independent contractor. The Taxpayer was

issued 1099s and not W-2s. The Taxpayer also failed to obtain any NTTCs. The Taxpayer

argued that the organization should have been paying gross receipts tax and that she should not

be liable for its tax. The Department agreed that the medical organization should have been

paying gross receipts on its sales. However, the Department argued that the Taxpayer was also

liable for gross receipts taxes for the sales of her services to the organization. The Department

conceded that the Taxpayer would have been eligible to deduct her gross receipts taxes if she had

obtained a NTTC. The Department argued that the Taxpayer was barred from claiming the

deduction as she never obtained a proper NTTC.

Again, the Taxpayer’s services were taxable. See 3.2.1.18 (A) NMAC (2003). Services

can be deducted from gross receipts tax when the seller has obtained a NTTC from the buyer.

See NMSA 1978, § 7-9-48 (2000). Sellers should be in possession of a NTTC at the time the

return is due for the transaction. See NMSA 1978, § 7-9-43. However, a seller has sixty days

from a notice requiring production of the NTTC to obtain the NTTC. See id. The Taxpayer still

has not obtained a NTTC. Therefore, the Taxpayer cannot deduct her gross receipts tax.

Assessment of Penalty.

Joan Dewbre
Letter ID Nos. L0297045376 and L0565480832
page 3 of 6
A taxpayer’s lack of knowledge or erroneous belief that the taxpayer did not owe tax is

considered to be negligence for purposes of assessment of penalty. See Tiffany Const. Co., Inc.

v. Bureau of Revenue, 1976-NMCA-127, 90 N.M. 16. Therefore, the exception does not apply,

and the penalty was properly assessed.

Assessment of Interest.

Interest “shall be paid” on taxes that are not paid on or before the date on which the tax is

due. NMSA 1978, § 7-1-67 (A). The word “shall” indicates that the assessment of interest is

mandatory, not discretionary. See State v. Lujan, 1977-NMSC-010, 90 N.M. 103. The

assessment of interest is not designed to punish taxpayers, but to compensate the state for the

time value of unpaid revenues. Because the gross receipts tax was not paid when it was due,

interest was properly assessed.

Timeliness of Hearing.

The Taxpayer argued that she was prejudiced by the Department’s extensive delay in

requesting that the hearing be set. The Taxpayer filed her protest on March 9, 2009. On July 29,

2013, the Department requested that this matter be set for hearing. This matter was promptly set

for hearing after the Hearings Bureau received the request for hearing.

When she filed her protest, the Taxpayer had several witnesses who were prepared to

testify on her behalf. The Taxpayer was confident that the witnesses would have established her

status as an employee rather than independent contractor. However, all of the Taxpayer’s

witnesses have become unavailable in the years between 2009 and 2014. Many have moved out

of state. The Taxpayer argued that she was prejudiced by the Department’s more than three year

delay in requesting a hearing. The Department argued that the Taxpayer’s protest was filed in

2009 and that there was no statutory time limit to hold her hearing.

Joan Dewbre
Letter ID Nos. L0297045376 and L0565480832
page 4 of 6
In 2009, there was not a strict statutory deadline or time frame within which a hearing

must be held. See NMSA 1978, § 7-1-24 (2003). Currently, a hearing must be set within ninety

days of the protest. See NMSA 1978, § 7-1-24.1 (2013). However, there is no statutory or

regulatory authority for the Hearing Officer to dismiss a previously filed protest for unreasonable

and unjustified delays. See id. See also 3.1.8.8 and 3.1.8.9 NMAC. See also Ranchers-Tufco

Limestone Project Joint Venture v. Revenue Div., 1983-NMCA-126, ¶13, 100 N.M. 632 (holding

that public officers’ failure to timely carry out their duties is not a defense to an action by the

state and that the statute does not provide a remedy for failure to set a hearing promptly).

Hearing officers are also unable to grant equitable remedies. See AA Oilfield Service v. New

Mexico State Corp. Comm’n, 1994-NMSC-085, 118 N.M. 273 (holding that an administrative

agency cannot grant the equitable remedy of estoppel because that power is held exclusively by the

judiciary). As there was not a statutory or regulatory violation in failing to refer the Taxpayer’s

protest for such extended period of time, there is no administrative remedy that can be granted.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely written protest to the Notice of Assessment of 2005 and

2006 gross receipts taxes issued under respective Letter ID numbers L0297045376 and

L0565480832, and jurisdiction lies over the parties and the subject matter of this protest.

2. The Taxpayer was properly assessed for gross receipts tax and interest for 2005

and 2006.

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

DATED: May 27, 2014.

Dee Dee Hoxie
DEE DEE HOXIE
Joan Dewbre
Letter ID Nos. L0297045376 and L0565480832
page 5 of 6
Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

Joan Dewbre
Letter ID Nos. L0297045376 and L0565480832
page 6 of 6