Could a New Mexico salon deduct its independent contractors' weekly booth and room payments as receipts from leases of real property?

Plain-English summary

Solutions Salon could not deduct the weekly payments it received from independent contractors for booths and rooms in its salon. The Administrative Hearings Office found that the arrangements were licenses to use real property, not leases, and denied the salon's protest of a $14,274.26 gross receipts tax refund denial.

New Mexico Section 7-9-53 allowed a deduction for receipts from selling or leasing real property. Regulation 3.2.211.17(A) denied that deduction for receipts from a license to use real property. The distinction turned on whether the owner gave the renter possession and use of a defined space with exclusive dominion and control, or merely allowed a limited use of the owner's property.

The salon's contractors had some lease-like features. They paid weekly rather than by each use, could decorate assigned spaces, supplied their own salon materials, and were responsible for cleanliness. Contractors assigned a room could lock it when absent, and the agreements ran week to week.

But the Administrative Hearings Office found stronger license-like features:

• The agreements did not identify the specific assigned space.
• Contractors generally could enter only during the salon's business hours unless the owner gave special permission.
• They could use the space only to provide salon services and had to carry professional products for use and sale.
• The arrangements were personal, could not be assigned or mortgaged, and did not pass to a successor.
• The salon owner retained access, set cleanliness requirements, advertised the contractors' services as the salon's services, and could terminate the right to use the space for "irreconcilable differences."

Because more factors pointed to licenses than leases, Solutions Salon did not clearly establish the Section 7-9-53 deduction. Result: protest DENIED.

The prior abatement did not change the outcome

Solutions Salon argued that the Department had settled the issue when it abated an assessment in 2014. The AHO found insufficient evidence that the earlier abatement concerned the same issue. It also noted that the salon continued paying the tax and sought a refund, which showed it had not relied on that abatement. In any event, the AHO said it lacked statutory authority to grant the equitable remedy of estoppel.

What this means for you

Salon and personal-service business owners

Calling a contract a rental or lease does not control the tax result. If the business retains access and operating control while limiting when, how, and for what purpose a contractor may use a booth or room, the payments may be taxable receipts from a license.

Property owners claiming the real-property lease deduction

Lease indicators include exclusive possession of a specific space, a right to restrict others' entry, assignability, succession, responsibility for maintenance, unrestricted use, and a term longer than day to day. No single factor decided this case; the AHO weighed the arrangement as a whole.

Accountants and tax professionals

The taxpayer bears the burden of clearly proving a gross receipts tax deduction. This decision treated the owner's retained dominion and control as central and distinguished a prior bingo-hall case whose unusual controls were required by the Bingo Act.

Common questions

Q: Were the salon workers employees?
A: The decision identified them as independent contractors. The dispute was whether their weekly space payments arose from deductible real-property leases or taxable licenses.

Q: Why weren't the locked rooms enough to establish leases?
A: A room renter could lock the space, but the salon owner retained access. The contracts also limited business hours and permitted uses, imposed operating requirements, and were not assignable or subject to succession.

Q: Did any facts favor lease treatment?
A: Yes. Weekly fixed payments, week-to-week duration, some responsibility for cleanliness, the ability to decorate, and locks on certain rooms pointed toward leases. The AHO found that the competing license factors outweighed them.

Q: Why was the $14,274.26 refund denied?
A: The salon had paid gross receipts tax on the contractor payments. Because it did not prove those receipts came from leases eligible for the Section 7-9-53 deduction, it was not entitled to a refund.

Q: Did the Department's earlier abatement bind it for this refund period?
A: No. The record did not sufficiently prove that the 2014 abatement resolved the same issue, and the AHO said it lacked authority to award equitable estoppel against the Department.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-9-4 — gross receipts tax on engaging in business in New Mexico
• NMSA 1978, § 7-9-53 — deduction for receipts from the sale or lease of real property
• NMSA 1978, § 7-1B-8 — hearing timing and AHO jurisdiction
• 3.2.211.17(A) NMAC — receipts from a license to use real property are not deductible
• 16.34.7.13 NMAC — cosmetology sanitation requirements considered in weighing control

Principal authorities discussed:

• Quantum Corp. v. State Taxation and Revenue Department, 1998-NMCA-050 — lease requires possession and use; bingo-law constraints distinguished
• Grogan v. New Mexico Taxation and Revenue Department, 2003-NMCA-033 — lack of exclusive possession and access restrictions indicated no real-property interest
• Correctional Corporation of America of Tennessee v. State, 2007-NMCA-148 — lease analysis turns on relinquishing dominion and control
• Ruling 440-92-1 — nonbinding but persuasive lease-and-license factors applied by the AHO

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Solutions Salon Inc
• Decision PDF: D&O 19-24

Original ruling text

1 STATE OF NEW MEXICO
2 ADMINISTRATIVE HEARINGS OFFICE
3 TAX ADMINISTRATION ACT

4 IN THE MATTER OF THE PROTEST OF
5 SOLUTIONS SALON, INC.
6 TO THE DENIAL OF REFUND ISSUED UNDER
7 LETTER ID NO. L0285340464

8 v. Case No. 18.04-086R
9 D&O No. 19-24

10 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

11 DECISION AND ORDER

12 On July 19, 2019, Hearing Officer Dee Dee Hoxie, Esq. conducted a hearing on the

13 merits of the protest to the denial of refund. The Taxation and Revenue Department (Department)

14 was represented by Peter Breen, Staff Attorney. Angelica Rodriguez, Auditor, also appeared on

15 behalf of the Department. Solutions Salon, Inc. (Taxpayer) was represented by its attorney, Max

16 Best. Andrea Gutierrez and Chris Gutierrez, owners of the Taxpayer, also appeared for the

17 hearing. Randall Burnett, the Taxpayer’s CPA, Tina Sorenson-Dill, and Gail Rierson also

18 appeared for the hearing. Mr. Burnett, Ms. Gutierrez 1, Ms. Rierson, and Ms. Sorenson-Dill

19 testified. The Hearing Officer took notice of all documents in the administrative file. The

20 Taxpayer’s exhibits #1 (floor plan), #2 (brochure), #3 (photos), #4 (insurance), #5 (insurance),

21 #6 (insurance), #7 (insurance), #8 (phone bill), #9 (contracts), and #10 (abatement) were

22 admitted. A more detailed description of exhibits submitted at the hearing is included on the

23 Administrative Exhibit Coversheet. After the hearing, the Taxpayer filed a supplemental

1
During Ms. Gutierrez’s testimony, the Hearing Officer asked the witness to speak louder due to the microphone
not registering her voice well. After the hearing, a review of the record confirmed that Ms. Gutierrez’s testimony
was barely audible. The original recording was saved. A second copy was saved after the section of Ms.
Gutierrez’s testimony was run through an audio-enhancement software. No other changes were made to the
recording. A copy of both the original recording and the enhanced version will be included as part of the official
administrative record.
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1 statement. The Department was given the opportunity to respond. The Department’s response

2 was timely filed, but it indicated service to the Taxpayer’s CPA, rather than to its attorney.

3 Therefore, a copy of the Department’s response was forwarded to the Taxpayer’s attorney by the

4 Administrative Hearings Office on August 14, 2019. The Hearing Officer considered all of the

5 evidence and arguments presented by both parties.

6 The main issue to be decided is whether the Taxpayer’s rentals of space in its building

7 should be treated as leases or as licenses. The Hearing Officer finds that there is insufficient

8 evidence to establish that the Taxpayer gave up possession and use of its spaces to the exclusive

9 dominion and control of its renters. Therefore, the rentals are licenses and are not subject to the

10 deduction. Consequently, the Hearing Officer finds in favor of the Department. IT IS

11 DECIDED AND ORDERED AS FOLLOWS:

12 FINDINGS OF FACT

13 1. On January 2, 2018, the Department issued a denial of the Taxpayer’s claim for

14 refund of $14,274.26 of gross receipts taxes for the tax period ending December 31, 2016.

15 [Administrative file].

16 2. On February 27, 2018, the Taxpayer filed a timely protest. [Administrative file].

17 3. On April 19, 2018, the Department filed a Request for Hearing asking that the

18 Taxpayer’s protest be scheduled for a hearing. [Administrative file].

19 4. On May 16, 2018, a telephonic scheduling hearing was conducted. The hearing

20 occurred within 90 days of the protest.

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1 5. On June 29, 2018, the Department filed its prehearing statement. On June 27,

2 2019, the Taxpayer filed its prehearing statement. [Administrative file]. 2

3 6. The Taxpayer is a cosmetology business and offers its clients services that include

4 skin care, massage, nail care, hair care, and waxing. [Testimony of Ms. Gutierrez, Testimony of

5 Ms. Rierson, Testimony of Ms. Sorenson-Dill, Exhibit #2, and Exhibit #9].

6 7. The Taxpayer’s services are provided by independent contractors. [Testimony of

7 Ms. Gutierrez, Testimony of Ms. Rierson, Testimony of Ms. Sorenson-Dill, Exhibit #2, and

8 Exhibit #9].

9 8. The Taxpayer provides a booth or a room to its independent contractors where

10 they can perform the salon services. [Testimony of Ms. Gutierrez, Testimony of Ms. Rierson,

11 Testimony of Ms. Sorenson-Dill, and Exhibit #9].

12 9. The independent contractors enter into agreements with Ms. Gutierrez as the

13 lessor and owner of the Taxpayer and its building. [Testimony of Ms. Gutierrez, and Exhibit

14 #9].

15 10. Ms. Gutierrez and her husband own and operate the Taxpayer and its building.

16 [Testimony of Ms. Gutierrez]

17 11. The independent contractors are assigned a specific space by Ms. Gutierrez, the

18 specific space is not identified in the rental agreements, and the independent contractors may

19 decorate their spaces. The independent contractors provide their own supplies for salon services.

20 The independent contractors may only use their rented spaces to provide salon services.

21 [Testimony of Ms. Gutierrez, Testimony of Ms. Rierson, Testimony of Ms. Sorenson-Dill, and

22 Exhibit #9].

2
Further procedural details are available in the administrative file. At the Taxpayer’s request, the hearing on the
merits was continued twice and a second telephonic scheduling hearing was conducted.
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1 12. The independent contractors who are assigned a room have a door that they can

2 lock when they are not present. [Testimony of Ms. Gutierrez, and Testimony of Ms. Sorenson-

3 Dill].

4 13. The independent contractors have access to the Taxpayer’s building, and some of

5 them have the security code. [Testimony of Ms. Gutierrez, Testimony of Ms. Rierson, and

6 Testimony of Ms. Sorenson-Dill].

7 14. The independent contractors are required to clean their spaces to Ms. Gutierrez’s

8 satisfaction. The Taxpayer provides cleaning supplies to the independent contractors.

9 [Testimony of Ms. Gutierrez, Testimony of Ms. Rierson, Testimony of Ms. Sorenson-Dill, and

10 Exhibit #9].

11 15. Ms. Gutierrez has occasionally reminded an independent contractor to clean their

12 space. [Testimony of Ms. Gutierrez].

13 16. The independent contractors may obtain their own insurance, and several have

14 done so. [Testimony of Ms. Gutierrez, Exhibit #4, Exhibit #5, Exhibit #6, and Exhibit #7].

15 17. The independent contractors are only allowed to be present during the Taxpayer’s

16 business hours unless they obtain special permission from Ms. Gutierrez. [Testimony of Ms.

17 Gutierrez, Testimony of Ms. Rierson, Testimony of Ms. Sorenson-Dill, and Exhibit #9].

18 18. The independent contractors are required to carry a line of professional products

19 for use with their clients and to sell to the Taxpayer’s clients. They must obtain and keep a

20 cosmetology license. [Exhibit #9].

21 19. The independent contractors pay a weekly rental fee for their spaces. Their rental

22 fee includes utilities and the right to use common spaces and equipment. [Testimony of Ms.

23 Gutierrez, Testimony of Ms. Rierson, Testimony of Ms. Sorenson-Dill, and Exhibit #9].

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1 20. The non-payment of rent or “irreconcilable differences” with other independent

2 contractors or with the Taxpayer allow the Taxpayer to terminate the contract and to terminate

3 the independent contractor’s “right to use the space rented.” [Exhibit #9, the fourth and fifth

4 page of each contract].

5 DISCUSSION

6 Burden of Proof.

7 The burden is on the Taxpayer to prove that it is entitled to an exemption or deduction.

8 See Public Services Co. v. N.M. Taxation and Revenue Dep’t., 2007-NMCA-050, ¶ 32, 141 N.M.

9 520. See also Till v. Jones, 1972-NMCA-046, 83 N.M. 743. There is a presumption that receipts

10 are subject to the gross receipts tax, and any exemption or deduction must be clearly established

11 by the taxpayer who is claiming it. See Kewanee Indus., Inc. v. Reese 1993-NMSC-006, ¶ 29,

12 114 N.M. 784. “Where an exemption or deduction from tax is claimed, the statute must be

13 construed strictly in favor of the taxing authority, the right to the exemption or deduction must be

14 clearly and unambiguously expressed in the statute, and the right must be clearly established by

15 the taxpayer.” Sec. Escrow Corp. v. State Taxation and Revenue Dep’t., 1988-NMCA-068, ¶ 8,

16 107 N.M. 540. See also Wing Pawn Shop v. Taxation and Revenue Dep’t., 1991-NMCA-024, ¶

17 16, 111 N.M. 735. See also Chavez v. Commissioner of Revenue, 1970-NMCA-116, ¶ 7, 82

18 N.M. 97. See also Pittsburgh and Midway Coal Mining Co. v. Revenue Division, 1983-NMCA-

19 019, 99 N.M. 545. Because exemptions to gross receipts tax are to be strictly construed, taxation

20 is the rule. See Rauscher, Pierce, Refsnes, Inc. v. Taxation and Revenue Dep’t, 2002-NMSC-

21 013, ¶ 11, 132 N.M. 226.

22 Estoppel.

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1 The Taxpayer argues that the Department already settled the issue of this protest when it

2 abated an assessment against the Taxpayer in 2014. See Exhibit #10. Equitable estoppel may be

3 found against the state where there is “a shocking degree of aggravated and overreaching conduct

4 or where right and justice demand it." Wisznia v. State, Human Servs. Dep't, 1998-NMSC-011, ¶

5 17, 125 N.M. 140. Equitable estoppel against the state is disfavored, especially in cases

6 involving taxes. See Taxation and Revenue Dep’t v. Bien Mur Indian Market, 1989-NMSC-015,

7 ¶9-10, 108 N.M. 228. Equitable estoppel will not apply against the state when it would be

8 contrary to the requirements of statute or law. See Rainaldi v. Pub. Employees Ret. Bd., 1993-

9 NMSC-028, ¶ 18-19, 115 N.M. 650. See also In re Kilmer, 2004-NMCA-122, ¶ 26, 136 N.M.

10 440. The only evidence that Exhibit #10 related to the issue of this protest was during Ms.

11 Gutierrez’s testimony. This evidence was insufficient to prove by preponderance that the

12 Department had already settled this issue with the Taxpayer. Moreover, the Taxpayer clearly did

13 not rely on the abatement because it continued to pay the gross receipts tax, as this protest is to a

14 denial of refund. Also, the issue of equitable estoppel is moot in the context of this protest

15 because the Administrative Hearings Office has not been granted statutory authority to exercise

16 an equitable judicial remedy. See AA Oilfield Serv. v. N.M. State Corp. Comm’n, 1994-NMSC-

17 085, ¶ 18, 118 N.M. 273 (holding that the quasi-judicial powers of an administrative body did

18 not empower it to grant equitable relief, such as estoppel, because the authority is limited to

19 making factual and legal determinations as authorized by the statute). See Gzaskow v. Pub.

20 Employees Ret. Bd., 2017-NMCA-064, ¶35 (recognizing AA Oilfield Serv. for the proposition

21 that an agency with quasi-judicial powers did not have authority to grant an equitable remedy).

22 See also NMSA 1978, § 7-1B-1, et seq.

23 Gross receipts tax and the deduction.

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1 Anyone engaging in business in New Mexico is subject to the gross receipts tax. See

2 NMSA 1978, § 7-9-4. The Taxpayer paid gross receipts taxes on the receipts from its

3 independent contractors’ payments of rent for their spaces. The Taxpayer is now claiming a

4 refund of the gross receipts taxes and arguing that it was entitled to deduct those receipts as they

5 were from the lease of real property. See NMSA 1978, § 7-9-53 (1998). “Receipts from the sale

6 or lease of real property…may be deducted from gross receipts.” Id. However, “[r]eceipts

7 derived from a license to use real property may not be deducted from gross receipts”. 3.2.211.17

8 (A) NMAC (2012). Therefore, the main issue is whether the Taxpayer’s rental agreements for

9 use of specific spaces in its building should be treated as leases or licenses.

10 Leases and licenses.

11 Generally, a lease is an agreement where the property owner gives up possession and use

12 of the property for consideration for a definite term. See Quantum Corp. v. State Taxation and

13 Revenue Dep’t, 1998-NMCA-050, ¶ 9, 125 N.M. 49. In order to be a lease, the tenant must

14 acquire definitive dominion and control over the property. See id. See also Corr. Corp. of Am.

15 of Tenn. v. State, 2007-NMCA-148, ¶ 18-21, 142 N.M. 779. See also Cutter Flying Serv. V.

16 Prop. Tax Dep’t, 1977-NMCA-105, ¶ 16, 91 N.M. 215. See Grogan v. New Mexico Taxation

17 and Revenue Dep’t, 2003-NMCA-033, ¶ 27, 133 N.M. 354. Generally, a license is a permission

18 to do something on the land of another and conveys no interest in the property. See Tarin’s Inc.

19 v. Tinley, 2000-NMCA-048, ¶ 20, 129 N.M. 185. See also S.S. Krege Co. v. Bureau of Revenue,

20 1975-NMCA-015, ¶ 5, 87 N.M. 259. See Grogan, 2003-NMCA-033, ¶ 27. See Cutter, 1977-

21 NMCA-105, ¶ 14. See Quantum, 1998-NMCA-050, ¶ 10. A typical feature of a license is its

22 revocability. See Tarin’s, 2000-NMCA-048, ¶ 21. See Quantum, 1998-NMCA-050, ¶ 15.

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1 The Taxpayer argues that its rental agreements are leases because its rental agreements

2 are not revocable at-will and its independent contractors have control over their spaces. The

3 Taxpayer argues that its independent contractors are comparable to the renters in the Quantum

4 case and in Ruling 440-92-1. 3

5 In Ruling 440-92-1, a space in an indoor mini-mall is leased to a tenant, who is given

6 exclusive possession of a specific space. See Ruling 440-921-1. “Indicia of a lease typically

7 include: the exclusive rights of the lessee to occupy a specific portion of property and to restrict

8 others’ entry thereon; mortgageability and assignability; survival and succession; responsibility

9 of lessee for maintenance and repair; unrestricted use of the property; and duration longer than

10 day-to-day.” Id. A license “is typically revocable, personal, not assignable or mortgageable, not

11 subject to succession upon death of the licensee, paid for on the basis of each use or as a

12 percentage of income from its use, limited to specific purposes, and non-exclusive.” Id. The

13 ruling recognizes that the agreement at issue had elements of both a lease and a license. See id.

14 The ruling ultimately determines that the agreement is a lease that is deductible because the

15 tenant had the exclusive use of the space, was responsible for the maintenance of the space, and

16 had the opportunity to determine the kind of retail of products that the tenant would retail from

17 the space. See id.

18 Where the renters had neither exclusive possession nor the right to restrict access, the

19 contracts did not convey an interest in real property. See Grogan, 2003-NMCA-033, ¶ 27. The

20 contracts simply gave the renters authority to set up or use space in the store. See id. The

21 lessor’s maintenance of the property indicates an equal and independent right to use the property.

3
The Taxpayer referred to Ruling 440-92-7-1 in its prehearing statement. Ruling 440-92-7-1 was not found. Given
the argument made by the Taxpayer on the ruling’s context, as well as the similarity in the citation number, Ruling
440-92-1 was determined to be the correct ruling.
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1 See id. at ¶ 29. Leases give tenants the right to possess the property against the world. See

2 Cutter, 1977-NMCA-105, ¶ 14. Licenses simply authorize a tenant to use the property in some

3 specific way. See id. The determination turns on whether the lessor relinquishes dominion and

4 control over the property to the lessee. See Corr. Corp., 2007-NMCA-148, ¶ 21.

5 In Quantum, the taxpayer rented its building to non-profit organizations for bingo games

6 and only gave up possession and use of its property during brief periods of the tenant’s use. See

7 Quantum, 1998-NMCA-050, ¶ 13. The Bingo Act did not permit a non-profit organization to be

8 a lessor and also conduct bingo games, and it required the organizations to list where they would

9 be conducting the games when they applied for licensure. See id. at ¶ 14-16. Failure to comply

10 with the Bingo Act could result in sanctions or criminal penalties. See id. at ¶ 18. Therefore, the

11 tenant’s lack of exclusive control was necessary to comply with the restrictions of the Bingo Act.

12 See id. at ¶ 17. Payment of rent, possession for definite periods of time, exclusive possession of

13 safes and closets, and the inability to revoke at will were sufficient to conclude that the

14 agreements were leases given the provisions of the Bingo Act that prevented the agreements

15 from conforming to typical leases. See id. at ¶ 21. The Taxpayer argues that the Taxpayer’s

16 control of the premises is akin to the Quantum case because the maintenance of the cosmetology

17 licenses require cleanliness. See 16.34.7.13 NMAC (2001) (requiring cosmetology-licensed

18 establishment owners and individual licensees to maintain standards of sanitation and comply

19 with safety rules). Given the specificity of the Bingo Act, the Quantum case is not applicable to

20 the Taxpayer’s situation. See id. See also Corr. Corp., 2007-NMCA-148, ¶ 20 (noting that the

21 holding of Quantum was dictated by the statutory requirements of regulating bingo gaming). See

22 also Grogan, 2003-NMCA-033, ¶ 30 (noting that the Quantum case was distinguishable and not

23 controlling or even instructive in different circumstances).

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1 The first factor that indicates a lease is the exclusive right to occupy and to restrict the

2 access of others. See Ruling 440-92-1. 4 See also Quantum, 1998-NMCA-050, ¶ 9. See also

3 Grogan, 2003-NMCA-033, ¶ 27. See also Cutter, 1977-NMCA-105, ¶ 14-16. See also Corr.

4 Corp., 2007-NMCA-148, ¶ 21. Non-exclusivity is also the last factor that indicates a license.

5 See Ruling 440-92-1. The independent contractors have access to the Taxpayer’s building, but

6 few, if any of them, appear to have exclusive control and dominion over their space. Ms.

7 Rierson testified that her control of her space relies upon her presence and body language. Ms.

8 Sorenson-Dill testified that she can lock her room so that no one, except the Taxpayer’s owner,

9 can access it when she is not there. The independent contractors can personalize their spaces, but

10 allowing decorations is not enough to prove that the Taxpayer has given up possession and use of

11 the spaces, especially since the Taxpayer dictates what the independent contractors may use their

12 spaces for and advertises all of the services performed by the independent contractors as services

13 that the Taxpayer performs for its clients. See Exhibit #2, and Exhibit #9. The independent

14 contractors may only access the property during the Taxpayer’s business hours unless they have

15 special permission. See Exhibit #9. This factor weighs against finding that the agreements are

16 leases, and it weighs in favor of finding that the agreements are licenses.

17 The second and third factors that indicate a lease are whether it is mortgageable,

18 assignable, and subject to survival and succession. See Ruling 440-92-1. The Taxpayer’s

19 agreements do not meet these criteria. See Exhibit #9. Therefore, these factors weigh against

20 finding that the agreements are leases.

21 The fourth factor that indicates a lease is responsibility of the lessee for maintenance and

22 repair. See Ruling 440-92-1. The independent contractors are responsible for maintaining the

4
Although the ruling is not binding precedent, its factors defining leases and licenses are useful and persuasive on
this issue.
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Case No. 18.04-086R
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1 cleanliness of their spaces. See Exhibit #9. However, the independent contractors must also

2 satisfy the Taxpayer’s demands on their cleanliness. See Exhibit #9. Given the regulatory

3 requirements for sanitation related to cosmetology businesses, this factor weighs slightly in favor

4 of finding that the agreements are leases. See 16.34.7.13 NMAC. See also Quantum, 1998-

5 NMCA-050 (taking into consideration the specific requirements of the Bingo Act in determining

6 whether the agreement was a lease).

7 The fifth factor that indicates a lease is an unrestricted use of the property. See Ruling

8 440-92-1. Again, the independent contractors are restricted to conducting business during the

9 Taxpayer’s business hours unless they obtain special permission. See Exhibit #9. The Taxpayer

10 also dictates how the independent contractors maintain the cleanliness of their spaces. See

11 Exhibit #9. The Taxpayer only allows the independent contractors to use their spaces for the

12 provision of salon services. See Exhibit #9. The independent contractors are required to carry a

13 line of professional products for use and sale. See Exhibit #9. Therefore, the independent

14 contractors’ use of the property is not unrestricted. This factor weighs against finding that the

15 agreements are leases.

16 The final factor that indicates a lease is a duration of more than day-to-day. See Ruling

17 440-92-1. The rental agreements are for a duration of week-to-week. See Exhibit #9. This

18 factor weighs in favor of finding that the agreements are leases.

19 The first factor that indicates a license is revocability. See Ruling 440-92-1. The

20 Taxpayer argues that the parties’ intent governs, and they did not intend for the agreements to be

21 revocable. The intent of the parties is important, but their intent is demonstrated best by the

22 contents of the written agreement. See Quantum Corp., 1998-NMCA-050, ¶ 12. The

23 agreements do not say that they are revocable at-will, but they do allow the Taxpayer to

Solutions Salon, Inc.
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1 terminate the independent contractor’s contract and “right to use the space rented” for

2 “irreconcilable differences” with other independent contractors or with the Taxpayer. See

3 Exhibit #9. Therefore, the Taxpayer’s agreements are revocable for “irreconcilable differences”.

4 See Exhibit #9. This factor weighs slightly in favor of finding that the agreements are licenses.

5 The next several factors that indicate a license are that it is personal, not mortgageable or

6 assignable, and not subject to succession upon death of the licensee. See Ruling 440-92-1. The

7 Taxpayer’s agreements are personal to each independent contractor, are not mortgageable or

8 assignable, and are not subject to succession. See Exhibit #9. These factors weigh in favor of

9 finding that the agreements are licenses.

10 The next factor that indicates a license is payment upon each use or a percentage of

11 income from use. See Ruling 440-92-1. The Taxpayer’s agreements require regularly weekly

12 payments, regardless of income or use. See Exhibit #9. This factor weighs in favor of finding

13 that the agreements are not licenses.

14 The final factor that indicates a license is whether it is limited to a specific purpose. See

15 Ruling 440-92-1. The independent contractors are limited to using their spaces for providing

16 salon services. See Exhibit #9. They are also required to meet other non-regulatory criteria,

17 such as carrying a line of products. See Exhibit #9. This factor weighs in favor of finding that

18 the agreements are licenses.

19 The Taxpayer’s rental agreements have several factors of both a lease and a license.

20 More factors indicate that the agreements are licenses than indicate that the agreements are

21 leases. Again, the Taxpayer has the burden of proving that it is entitled to a deduction. See

22 Kewanee Indus., 1993-NMSC-006, ¶ 29. Since it appears that the agreements more closely

23 resemble licenses than leases, the Taxpayer has failed to meet its burden.

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1 CONCLUSIONS OF LAW

2 A. The Taxpayer filed a timely, written protest of the denial of refund, and jurisdiction

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

4 B. The first hearing was held within 90 days of protest, as required by statute. See

5 NMSA 1978, § 7-1B-8 (2015).5

6 C. The Taxpayer’s rental agreements more closely resemble licenses than leases. See

7 Ruling 440-92-1. See Quantum, 1998-NMCA-050. See Grogan, 2003-NMCA-033. See Cutter,

8 1977-NMCA-105. See Tarin’s, 2000-NMCA-048. See S.S. Krege, 1975-NMCA-015. See Corr.

9 Corp., 2007-NMCA-148.

10 D. The Taxpayer failed to prove that it was entitled to take the deduction. See NMSA

11 1978, § 7-9-53. See also 3.2.211.17 NMAC. See Kewanee Indus., 1993-NMSC-006. See also

12 Sec. Escrow, 1988-NMCA-068. See also Wing Pawn Shop, 1991-NMCA-024. See also Chavez,

13 1970-NMCA-116. See also Pittsburgh and Midway Coal Mining, 1983-NMCA-019. See also

14 Rauscher, Pierce, Refsnes, Inc., 2002-NMSC-013.

15 For the foregoing reasons, the Taxpayer’s protest IS DENIED.

16 DATED: September 20, 2019.

17 Dee Dee Hoxie
18 Dee Dee Hoxie
19 Hearing Officer
20 Administrative Hearings Office
21 P.O. Box 6400
22 Santa Fe, NM 87502

23 NOTICE OF RIGHT TO APPEAL

5
This statute was amended in 2019. The statute referred to is the one in effect at the time this protest was filed.
Solutions Salon, Inc.
Case No. 18.04-086R
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1 Pursuant to NMSA 1978, Section 7-1-25 (2015), the parties have the right to appeal this

2 decision by filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the

3 date shown above. If an appeal is not timely filed with the Court of Appeals within 30 days, this

4 Decision and Order will become final. Rule of Appellate Procedure 12-601 NMRA articulates

5 the requirements of perfecting an appeal of an administrative decision with the Court of Appeals.

6 Either party filing an appeal shall file a courtesy copy of the appeal with the Administrative

7 Hearings Office contemporaneous with the Court of Appeals filing so that the Administrative

8 Hearings Office may begin preparing the record proper. The parties will each be provided with a

9 copy of the record proper at the time of the filing of the record proper with the Court of Appeals,

10 which occurs within 14 days of the Administrative Hearings Office receipt of the docketing

11 statement from the appealing party. See Rule 12-209 NMRA.

12 CERTIFICATE OF SERVICE

13 On September 20, 2019, a copy of the foregoing Decision and Order was submitted to the

14 parties listed below in the following manner:

15 First Class Mail Interdepartmental Mail

16 INTENTIONALLY BLANK
17
18 John Griego
19 Legal Assistant
20 Administrative Hearings Office
21 P.O. Box 6400
22 Santa Fe, NM 87502

Solutions Salon, Inc.
Case No. 18.04-086R
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