Did Shawn Edwards prove that his 2005-2006 receipts were exempt employee wages when he did not attend the hearing or submit worker-classification evidence?

Plain-English summary

Shawn and Lindy Edwards lost their gross receipts tax protest because they presented no evidence that Shawn's 2005-2006 receipts were exempt employee compensation. The result turned on failure of proof, not a detailed factual finding about how he performed the work.

The Department assessed the Edwardses for two years:

• 2005: $7,654.52 tax, $1,530.90 penalty, and initially $3,178.84 interest; and
• 2006: $6,767.38 tax, $1,353.48 penalty, and initially $1,798.95 interest.

The protest was pending for several years. A June 2014 hearing was continued specifically to let Shawn Edwards appear and submit an IRS Form SS-8 addressing whether he was an employee or independent contractor.

The promised classification evidence never arrived

Edwards did not file the SS-8 and did not attend the December 11, 2014 hearing. The decision found that the taxpayers had ample opportunity to arrange his attendance and gave no reason for his absence.

Their representative filed a legal and factual argument one day before the hearing. It referred to factual matters outside the record, and its attached “Job Description” was not admitted as an exhibit.

The taxpayers had initially argued that an agricultural exemption applied, but abandoned that argument at the hearing. Employee status was therefore the only remaining basis offered for abatement.

The assessment presumption controlled

Section 7-1-17(C) presumed the Department's assessments correct and placed the initial burden on the taxpayers. Section 7-9-17 exempted employee wages, salaries, and commissions for personal services, while Regulation 3.2.105.7 supplied the fact-intensive employee-status test.

But the record contained no facts showing that Shawn Edwards was an employee. Without testimony, an admitted job description, an SS-8 determination, or other classification evidence, the taxpayers could not rebut the assessment presumption.

Result: protest DENIED. The decision upheld:

• 2005: $7,654.52 tax and $1,530.90 penalty; and
• 2006: $6,767.38 tax and $1,353.48 penalty.

Interest continued to accrue until the principal tax was paid.

What this means for you

Workers disputing contractor treatment

Worker classification is evidence-driven. Bring testimony and documents establishing the facts needed to apply Regulation 3.2.105.7 to how the work was actually performed.

Taxpayers in an administrative protest

Written argument is not a substitute for admissible evidence. If a hearing is continued so you can supply a specific document or testimony, failing to do so can leave the assessment presumption unrebutted.

Accountants and representatives

Build the evidentiary record before the hearing. A late filing that asserts facts outside the record may not establish the client's entitlement to an exemption.

Common questions

Q: Did the AHO conduct the full employee-factor analysis?
A: No. There was no evidence to apply the factors to. The taxpayers lost because they did not carry their initial burden.

Q: Did Shawn Edwards submit the IRS Form SS-8?
A: No, even though the earlier hearing had been continued to give him time to do so.

Q: Was the attached job description treated as evidence?
A: No. It was part of the record but was not admitted as an exhibit.

Q: What happened to the agricultural-exemption argument?
A: The taxpayers abandoned it at the December hearing.

Citations and references

Statutes and regulation:

• NMSA 1978, § 7-1-17(C) — assessment presumption and burden of proof
• NMSA 1978, § 7-9-17 — employee wages, salaries, and commissions for personal services
• Regulation 3.2.105.7 NMAC — employee-status test

Cases cited:

• MPC Ltd. v. New Mexico Taxation and Revenue Department, 2003-NMCA-021 — burden shifts after sufficient rebuttal evidence
• Grogan v. New Mexico Taxation and Revenue Department, 2003-NMCA-033 — assessment burden framework

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Shawn & Lindy Edwards
• Decision PDF: D&O 14-44

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
SHAWN & LINDY EDWARDS No. 14-44
TO ASSESSMENTS ISSUED UNDER LETTER
ID NOs. L1316725632 and L0242983808

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on December 11, 2014 at 1:00

p.m. before Monica Ontiveros, Hearing Officer. This matter was originally heard on June 19,

2014. The hearing was continued to allow Taxpayers to be present at the hearing and to allow

them to file an SS-8 Form with the Internal Revenue Service. The Taxation and Revenue

Department ("Department") was represented by Peter Breen, Esq., and Milagros Bernardo,

protest auditor, appeared as a witness for the Department. Shawn and Lindy Edwards

(“Taxpayers”) were represented by John Lieuwen of the firm of John N. Lieuwen & Associates,

P.A. Taxpayers did not appear at the hearing.

Mr. Lieuwen filed a legal and factual argument one day prior to the hearing or on

December 10, 2014. The Department argued that it had not received the argument prior to the

hearing. More troublesome is that the argument refers to factual matters that are not part of the

record. The argument which consists of four pages was not admitted as an Exhibit, but is part of

this record. Attached to the argument is a document entitled “Job Description.” The Job

Description, while part of the record, was not admitted as an Exhibit.

At the June 19, 2014 hearing, exhibits were introduced into the record. Taxpayer

introduced into the record Exhibits 1 and 2. The Department introduced into the record Exhibits

A and B. Exhibit B is the Internal Revenue Service form or SS-8 form which assists taxpayers in

determining whether they are an employee or an independent contractor. The form introduced

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into the record is the 2014 version of the form. The Hearing Officer made the SS-8 form in

effect in 2006 and revised in November 2006 part of the record. Neither attorney objected to the

SS-8 form revised November 2006 as being part of the record.

Also part of this record is the recording from the June 19, 2014 hearing.

Based on the evidence in the record, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On September 3, 2009, the Department assessed Taxpayers for gross receipts

taxes in the amounts of: $7,654.52 in principal, $1,530.90 in penalty and $3,178.84 in interest

for tax period January 1, 2005 through December 31, 2005; and $6,767.38 in principal,

$1,353.48 in penalty and $1,798.95 in interest for tax period January 1, 2006 through December

31, 2006. Letter ID Nos. L0242983808 and L1316725632.

2. Taxpayers filed an extension of time on September 28, 2009 to file their protest.

3. The protest was filed by Taxpayers on November 30, 2009, which was

acknowledged by the Department on December 3, 2009. Letter ID No. L0092690496.

4. On October 2, 2013, the Department requested a hearing in the protest of the

gross receipts tax assessments for the tax periods at issue.

5. This matter was originally set for hearing on February 14, 2014. The matter was

reset for hearing on June 19, 2014. The matter was reset again for September 30, 2014 after a

brief hearing. Because of a scheduling conflict the hearing was again reset.

6. Taxpayers were given ample opportunity to be present at the hearing held on

December 11, 2014.

7. There were no reasons presented as to why Taxpayers were unable to be present

at the hearing held on December 11, 2014.

8. The June 19, 2014 hearing was continued to allow “Taxpayers … more time to

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submit paperwork to the IRS that Shawn Edwards was an employee rather than an independent

contractor and so that Mr. Edwards could appear to testify.” Continuance Order issued on June

20, 2014 by Hearing Officer VanDenzen.

9. The gross receipts at issue were earned by Shawn Edwards.

10. Mr. Edwards did not file gross receipts returns for the tax periods at issue.

11. Mr. Edwards did not file a SS-8 form with the Internal Revenue Service.

DISCUSSION

The issue to be determined is whether Taxpayers were able to rebut the presumption of

correctness. During the course of the protest, Taxpayers made several arguments regarding why

the assessments were incorrect. At first they argued that the agricultural exemption applied to

them. This argument was abandoned on the record at the hearing held on December 11, 2014.

The argument made at the June and December hearings was that Mr. Edwards was an employee

and not an independent contractor.

Burden of Proof and Standard of Review.

NMSA 1978, Section 7-1-17(C) (2007) provides that any assessment of taxes made by

the Department is presumed to be correct. See, TPL, Inc. v. Taxation and Revenue Dep’t, 2000-

NMCA-083, ¶8, 129 N.M. 539, 542, 10 P.2d 3d 863, 866, cert. granted, 129 N.M. 519, 10 P.3d

843, rev’d on other grounds, 2003-NMSC-7, 133 N.M. 447, 64 P.3d, 474. Accordingly, it is

Taxpayer’s burden to present evidence and legal argument to show that it is entitled to an

abatement, in full or in part, of the assessment issued against it. When a taxpayer presents

sufficient evidence to rebut the presumption, the burden shifts to the Department to show that the

assessment is correct. See, MPC LTD. v. N.M. Taxation and Revenue Dep’t., 2003-NMCA-021,

¶ 13, 133 N.M. 217, 219-220, 62 P.3d 308, 310-311; Grogan v. New Mexico Taxation and

Revenue Department, 2003-NMCA-033, ¶11, 133 N.M. 354, 357-58, 62 P.3d 1236, 1239-40.

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Consequently, Taxpayer has the burden to show that the Department’s assessment is incorrect.

In this case, there is no evidence introduced into the record to prove that Mr. Edwards

was an employee. The general rules is that wages, salaries, commissions for personal services

are exempted from the gross receipts tax pursuant to NMSA 1978, Section 7-9-17 (1969). The

determination of whether a taxpayer is an employee is a fact intensive inquiry. The test to

determine whether a person is an employee may be found in Regulation 3.2.105.7 NMAC

(05/15/01). Mr. Edwards had ample notice of the hearing date to make arrangements to be able

to attend the hearing. He chose not to attend the hearing and present evidence. Without any

facts in the record to support Taxpayers’ argument, Taxpayers are unable to rebut the

presumption. Therefore, without any evidence to rebut the presumption of correctness, the

Departments’ assessments are correct.

CONCLUSIONS OF LAW

A. Taxpayers filed a timely, written protest to the assessments issued under Letter ID

No. Letter ID Nos. L0242983808 and L1316725632 and jurisdiction lies over the parties and the

subject matter of this protest.

B. Pursuant to NMSA 1978, Section 7-1-17(C) (2007), the Department’s

assessments are presumed to be correct, and it is Taxpayers’ burden to come forward with

evidence and legal argument to establish that Mr. Edwards was entitled to an abatement.

C. Shawn Edwards failed to appear at the hearing and failed to provide any evidence

that he was an employee.

D. By electing not to appear at the administrative hearing, Taxpayers have failed to

rebut the presumption of correctness found in NMSA 1978, Section 7-1-17(C) (2007).

E. Taxpayer was not an employee for tax periods January 1, 2005 through December

31, 2006.

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F. Taxpayer owes gross receipts tax in the amounts of $7,654.52 in principal and

$1,530.90 in penalty for tax period January 1, 2005 through December 31, 2005; and $6,767.38

in principal and$1,353.48 in penalty for tax period January 1, 2006 through December 31, 2006.

Interest continues to accrue through date of payment of the principal amount of tax.

For the foregoing reasons, Taxpayers’s protest IS DENIED.

DATED: December 23, 2014.

Monica Ontiveros
MONICA ONTIVEROS
Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

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