I drive my own truck for one company that pays me on a 1099 with no taxes withheld — am I an independent contractor who owes gross receipts tax, or an employee whose pay is exempt?
Apply this to your situation
This page answers the general question as of 1997. Ezel answers yours, under current New Mexico tax law, with citations.
Plain-English summary
Wheeler & Sons Trucking, an Albuquerque business owned by Stan and Debbie Wheeler, showed up on a 1995 IRS records match: the Wheelers had reported 1991 Schedule C business income federally but hadn't reported it to the state for gross receipts tax. When they didn't respond to the Department's request for information, the Department issued Assessment No. 1956180 for 1991 gross receipts tax plus penalty and interest. Before the hearing, the Department dropped the part based on interstate hauling, leaving $2,172.18 in tax (plus penalty and interest) tied to Stan Wheeler's work driving a dump truck for Western Mobile.
The whole case turned on one question: for that Western Mobile work, was Stan Wheeler an independent contractor (whose receipts are subject to gross receipts tax) or an employee (whose compensation is exempt under § 7-9-17)?
Some facts pointed toward independent-contractor status: Wheeler owned the dump truck (a $10,000-plus "tool"), paid for his own gas and repairs, could send a substitute driver, got no benefits, had no taxes withheld, and was paid on a Form 1099 as "nonemployee compensation."
But Hearing Officer Ellen Pinnes found the degree of control Western Mobile exercised outweighed all of that. Western Mobile:
- forbade him from working for anyone else — even when it had no work for him — so he could no longer hold himself out as an independent business;
- required him to report daily, work full-time, call in if unavailable, and wait in the company yard during slow periods until released;
- assigned every load through its dispatcher (he couldn't refuse one without being fired), set the destinations, set the pay rate, and calculated his weekly pay.
Applying the seven-factor test in Regulation GR 17:1 and the "right to control the means, not just the result" standard from Salter v. Jameson and Harger v. Structural Services, the totality of the circumstances made Wheeler an employee. His pay was therefore employee compensation, exempt from gross receipts tax. The protest was granted and the assessment — tax, penalty, and interest — was abated.
What this means for you
A Form 1099 doesn't decide your tax status
Western Mobile called Wheeler's pay "nonemployee compensation" and issued a 1099, and he still came out an employee. How a company labels you and reports your pay is just one factor — it does not control whether you're an employee or an independent contractor for gross receipts tax. The legal test looks at the real working relationship.
The deciding question is who controls how the work is done
New Mexico (like most jurisdictions) makes "right to control" the decisive factor: does the hiring party control the means of doing the work, or only the result? Being told you can't work for anyone else, having to wait on-site to be released, being assigned each job with no right to refuse, and having your pay rate set for you are hallmarks of control that point to employee status — even if you own your equipment.
Owning your tools and getting no benefits isn't enough on its own
Wheeler owned an expensive truck, covered his own fuel and repairs, and received no benefits — classic independent-contractor markers. They still lost to the control factors. No single factor decides it; it's the totality of the circumstances, so a few "contractor" facts won't save the classification if control cuts the other way.
Why the label matters for the tax
Employee wages, salaries, and commissions are exempt from New Mexico gross receipts tax (§ 7-9-17); an independent contractor's receipts are taxable. So the same paycheck can be tax-free or taxable depending on the classification — which is exactly why the distinction was worth fighting over here.
Common questions
Q: I get a 1099 and no taxes are withheld. Doesn't that make me an independent contractor?
A: Not by itself. The 1099 and the absence of withholding are factors, but the classification depends on the whole relationship — above all, whether the company controls how you do the work. Here a 1099 driver was still held to be an employee.
Q: I own my own truck and pay my own expenses. Am I automatically a contractor?
A: No. Owning your equipment and covering your costs point toward contractor status, but they can be outweighed by control factors, such as being barred from working for others, being assigned every job, and having your pay set for you.
Q: What's the single most important factor?
A: The right to control the means of the work, not just the result. If the company can direct how, when, and for whom you work — and can fire you for stepping outside that — that strongly indicates an employment relationship.
Q: Why does employee vs. contractor matter for gross receipts tax?
A: Because employee compensation is exempt from gross receipts tax under § 7-9-17, while an independent contractor's receipts are taxable. Getting reclassified as an employee here wiped out the tax, penalty, and interest.
Citations and references
Statutes and regulations:
- § 7-9-17 NMSA 1978 — receipts of employees (wages, salary, commissions, or other pay for personal services) are exempt from gross receipts tax
- Regulation GR 17:1 — the seven indicia of employee status (paid a wage/salary; employer required to withhold income tax; employer required to pay FICA; workers' compensation coverage; employer required to make unemployment-insurance contributions; whether the employer considers the person an employee; and whether the employer has the right to control the means, not just the result, of the work)
Cases cited:
- Salter v. Jameson, 105 N.M. 711, 736 P.2d 989 (Ct. App. 1987), cert. denied, 105 N.M. 720, 737 P.2d 989 (1987) — the decisive factor is whether the employer has the right to control the worker as to the means of accomplishing the result or only as to the result
- Harger v. Structural Services, Inc., 121 N.M. 657, 916 P.2d 1324 (1996) — control need not be actually exercised; employee/contractor status is decided on the totality of the circumstances using multiple factors
Source
- Listing: New Mexico Decisions & Orders
- Decision post: Wheeler & Sons Trucking
- Decision PDF: D&O 97-16
Original ruling text
BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO
IN THE MATTER OF WHEELER & SONS TRUCKING, No. 97-16
ID NO. 02-148663-00-8,
Assessment No. 1956180
DECISION AND ORDER
This matter came on for hearing on April 1, 1997 before Ellen Pinnes, Hearing Officer.
Wheeler & Sons Trucking ("the Taxpayer") was represented by Anthony Jeffries, Esq. The
Taxation and Revenue Department ("the Department") was represented by Bruce J. Fort, Special
Assistant Attorney General.
Based upon the evidence and arguments presented, IT IS HEREBY DECIDED AND
ORDERED AS FOLLOWS:
FINDINGS OF FACT
- Wheeler & Sons Trucking is a trucking concern based in Albuquerque and owned
by Stan and Debbie Wheeler, who are husband and wife. Wheeler & Sons Trucking is registered
with the Department as a business and has been issued a tax identification number by the
Department. The Department's records show that the business is a proprietorship that provides
construction services. (See Department Exhibit 1.)
- Pursuant to a records match with the federal Internal Revenue Service (IRS) in
1995, the Department determined that the Wheelers had reported business income on Schedule C in
their federal income tax return for 1991 but had not reported that income to the state for gross
receipts tax purposes. A request for information was issued to the Wheelers, notifying them of the
discrepancy and requesting that they submit applicable documentation. When no information was
received from the Wheelers, the Department on August 26, 1995 issued Assessment No. 1956180
for gross receipts taxes calculated to be owed for 1991, plus penalty and interest.
-
The Taxpayer filed a timely protest of the assessment.
-
Two trucks, a flatbed and a tandem dump truck, are registered with the New Mexico
Motor Vehicle Division in the name of Wheeler & Sons Trucking. -
The flatbed truck is used primarily for interstate hauling by Wheeler & Sons
Trucking. The truck is driven by a hired driver, Paul Elterman. Debbie Wheeler handles most of
the work of the interstate hauling business other than the driving, including contacting potential
customers, arranging for jobs, and dispatching. Stan Wheeler does repairs on the flatbed as
needed, but otherwise does not participate in Wheeler & Sons Trucking's interstate hauling
business.
- Prior to the hearing in this matter, the Department revised the assessment to exclude
receipts from interstate hauling by Wheeler & Sons Trucking. The revised amount of the
assessment is $2,172.18 in principal, plus penalty and interest. This represents gross receipts taxes
on receipts from work performed by Stan Wheeler, driving a dump truck for a company called
Western Mobile.
- The dump truck was purchased in 1990. At some time prior to acquisition of the
truck, Mr. Wheeler had begun working as a truck driver in order to gain experience in that line of
work. He bought the truck, at an auction of used vehicles, from one of the companies for which he
had worked as a driver. The price of the truck was in the range of $10,000 to $12,000.
Mr. Wheeler's intent in purchasing the truck was to use it in the business of hauling.
- After purchasing the truck, Mr. Wheeler sought work hauling loads with the dump
truck and performed such work for a number of entities.
- In mid-1991, Mr. Wheeler heard that Western Mobile was looking for drivers. He
got this information by word of mouth; in approaching Western Mobile regarding work, he did not
respond to any formal advertisement for drivers published by Western Mobile.
- Mr. Wheeler began working for Western Mobile in mid-1991. There was no
written contract or agreement between Mr. Wheeler and Western Mobile at that time. No such
written agreement existed until a "drivers' contract", covering Mr. Wheeler and others referred to by
Western Mobile as "contract drivers", was entered into in 1996.
2
- At the time he began working for Western Mobile, Mr. Wheeler did not discuss
with any Western Mobile representative whether that company considered him to be an employee
or an independent contractor, nor how he considered himself in that regard. No such discussion
took place until the time of the 1996 drivers' contract.
- Mr. Wheeler's work at Western Mobile entails the following: Mr. Wheeler arrives,
with his truck, at Western Mobile's premises, where the truck is loaded. The load is usually
asphalt, though occasionally he hauls sand and gravel. Mr. Wheeler is given a "haul ticket"
prepared by the Western Mobile dispatcher, directing him to deliver the load to the work site
designated on the ticket. Directions for a suggested route to reach the site are included on the
ticket, but Mr. Wheeler is free to travel by an alternate route if he wishes; his directions from
Western Mobile are to get the load to its destination as quickly as possible. At the site,
Mr. Wheeler obtains the signature of the contractor to which the load is delivered, showing that
delivery has taken place. His truck is connected to a "laydown machine", to which the truck
remains connected, feeding the asphalt to the machine as the material is laid.
- Signed copies of the haul tickets are retained by Mr. Wheeler, the contractor
receiving the delivery, and Western Mobile.
- Mr. Wheeler is paid weekly by Western Mobile. Payment is per ton and per mile,
i.e., it is based on the amount hauled and the mileage traveled to deliver the loads. The "haul rate"
for each load is determined by Western Mobile and is stated on the haul ticket given to Mr. Wheeler
in connection with each load hauled. With each weekly check, Mr. Wheeler receives a list of the
haul tickets on which the amount of the check was computed, showing the number of tons hauled in
each load and the rate applicable to that load. No gross receipts tax is shown on the list or on the
haul tickets.
- Amounts paid to Mr. Wheeler in 1991 by Western Mobile and its predecessor
company, Albuquerque Materials, were reported by Western Mobile on IRS Form 1099-MISC
(used to report "miscellaneous income") and not on W-2 forms, which are used to report
3
compensation paid to employees. The amounts paid to Mr. Wheeler were listed on the 1099 forms
in the block for "nonemployee compensation". (See Department's Exhibit 2.) Mr. Wheeler did
not ask anyone at Western Mobile why the pay was reported in this way or discuss with them
whether this manner of reporting accurately reflected his status in performing services for Western
Mobile.
- Mr. Wheeler uses his own dump truck in performing work for Western Mobile.
There is no Western Mobile company logo on the truck, although trucks owned by Western Mobile
and used by it in its business have such a logo.
- Mr. Wheeler, not Western Mobile, pays for gasoline used by the truck in performing
services for Western Mobile. Mr. Wheeler is also responsible for repairs to the truck when they
are needed. Western Mobile does not inspect the truck for safety.
- Mr. Wheeler does not wear a Western Mobile uniform when he is performing
services for Western Mobile. It is not clear whether drivers of trucks owned by Western Mobile
wear such uniforms, though Mr. Wheeler believes they may.
- Mr. Wheeler does not get sick leave, paid vacation time, or other benefits from
Western Mobile. Western Mobile does not deduct federal or state income taxes or FICA taxes
from amounts paid to Mr. Wheeler.
- Mr. Wheeler typically reports for work at Western Mobile's premises around 6:00
a.m. and works until some time between 5:00 and 7:00 p.m.
- Mr. Wheeler tries to get in early because trucks that arrive earlier are loaded earlier.
The Western Mobile dispatcher, not Mr. Wheeler or the other drivers, decides which truck gets
which load. Drivers are not permitted to refuse a load assigned by the dispatcher; Mr. Wheeler
testified that a driver who refused a load would be fired by Western Mobile.
- Mr. Wheeler is required to report for work daily at Western Mobile and to call in if
he is unable to be there or if his truck breaks down and can't be used. However, Mr. Wheeler is
4
permitted to provide a substitute driver to drive his truck for Western Mobile and on a few
occasions has done so, having Paul Elterman, the regular driver of the Wheeler & Sons Trucking
flatbed truck, drive for Western Mobile in his stead. Mr. Wheeler has not been required to obtain
permission from Western Mobile before providing a substitute driver to work in his place on
specific occasions. It is not clear whether this substitution of drivers began as early as 1991 or
whether it occurred only after that time.
-
Mr. Wheeler has been working for Western Mobile continuously since he began in
-
He has not worked for anyone else since he began working with Western Mobile.
-
When there is no work at Western Mobile, the drivers, including Mr. Wheeler, are
required to wait in the yard at Western Mobile's premises until they are told by a representative of
Western Mobile that they are free to leave. This has been the case since 1991.
- After beginning work for Western Mobile in 1991, Mr. Wheeler did not actively
seek other work nor did he advertise the availability of his services. However, he "kept an ear
open" for additional work opportunities and hoped to be able to take advantage of those that he felt
did not interfere with his work for Western Mobile.
- At the time Mr. Wheeler began working for Western Mobile, he was not told that he
would not be free to take work for other concerns.
- Western Mobile has told Mr. Wheeler and other drivers performing services for the
company that they are not free to work for others, and that they will not be permitted to continue
with Western Mobile if they do work for others. This is the case even when there is no work
available through Western Mobile.
- The circumstances of Mr. Wheeler's work for Western Mobile, as described in these
findings, did not change substantially from 1991 through later years. Any changes associated with
the 1996 drivers' contract are not considered here.
- After Assessment No. 1956180 was issued by the Department, Mr. Wheeler and his
tax preparer met with Olivia Loomis of the Department's Tax Compliance Bureau. Ms. Loomis
5
explained how the assessment arose as a result of the tape match with federal tax records.
Ms. Loomis discussed with Mr. Wheeler the requirement that gross receipts tax returns be filed for
his business and the possibility of his obtaining non-taxable transaction certificates to allow
deduction of certain receipts for gross receipts tax purposes. Ms. Loomis assumed that
Mr. Wheeler worked as an independent contractor and did not discuss with him whether that
assumption was correct, nor did she discuss with him or explain to him the distinction between
employees and independent contractors or the legal consequences attaching to that distinction.
- Mr. Wheeler became aware of the legal distinction between employees and
independent contractors only when he contacted an attorney after the assessment was issued and
after his meeting with Ms. Loomis.
- The Wheelers' personal tax returns for 1991 were prepared for them by a tax
preparer called Financial Planners. Mr. Wheeler prepared CRS returns for Wheeler & Sons
Trucking for state tax purposes and did not get any advice from Financial Planners regarding them.
Financial Planners did not advise the Wheelers as to whether receipts from Western Mobile should
be reported as wages or as business income.
DISCUSSION
The issue presented here is whether Stan Wheeler, in performing services for Western
Mobile1, was acting as an employee or an independent contractor. Receipts of employees, whether
in the form of wages, salary, commissions or any other form of remuneration for personal services,
are exempted from gross receipts tax. §7-9-17 NMSA 1978. If Mr. Wheeler was an independent
contractor, gross receipts taxes are due on his receipts from Western Mobile.
The Department's regulations set out seven indicia to be considered in determining whether
a person is an employee, as follows:
- is the person paid a wage or salary;
1
References to Western Mobile include Albuquerque Materials, a business acquired and
continued by Western Mobile which was the payor of a portion of Mr. Wheeler's receipts in 1991.
6
2) is the employer required to withhold income tax from the person's wage or salary;
3) is FICA tax required to be paid by the employer;
4) is the person covered by workers' compensation insurance;
5) is the employer required to make unemployment insurance contributions on behalf
of the person;
6) does the employer consider the person to be an employee;
7) does the employer have a right to exercise control over the means of accomplishing
a result or only over the result to be accomplished by the work.
TRD Regulation GR 17:1. In criteria 2, 3 and 5, the inquiry is not whether the employer actually
withholds income tax, pays FICA tax or makes unemployment insurance contributions. The issue
is whether the employer is "required" to do so.2
Case law makes clear that the decisive factor in determining whether a person is an
employee or an independent contractor is whether the employer has a right to control the worker as
to the means of accomplishing a result or only as to the result to be accomplished. Salter v.
Jameson, 105 N.M. 711, 713, 736 P.2d 989 (Ct.App. 1987), cert. den. 105 N.M. 720, 737 P.2d 989
(1987). Control need not be actually exercised in order to establish that the worker is an employee;
however, exercise of control permits an inference that there is a right to do so. Harger v.
Structural Services, Inc., 121 N.M. 657, 916 P.2d 1324 (1996).
Numerous other factors may be considered in determining whether a person is acting as an
employee or an independent contractor. These include:
1) the right to delegate the work or to hire assistants,
2) the method of payment of compensation,
3) whether the worker engages in a distinct business or occupation,
2
These indicia are therefore somewhat circular -- an employer is required to withhold income
tax, pay FICA tax and make unemployment insurance contributions (criteria 2, 3 and 5) if the
worker is an employee. The criteria thus cannot be used to make the ultimate determination
(whether a person is an employee) until that determination has been made.
7
4) whether the work is part of the employer's regular business,
5) the skill required to perform the work,
6) whether the employer or the worker supplies the tools, instrumentalities and
place of work,
7) the duration of employment,
8) whether the person works full-time or regular hours,
9) the parties' belief as to whether the worker is an employee, insofar as that
belief indicates that one party is assuming control and the other is submitting
thereto.
Harger v. Structural Services, Inc., supra, 916 P.2d at 1334. No single one of these factors
is decisive. Rather, the determination of employee or independent contractor status
must be made based on the totality of the circumstances. Harger, supra.
There are indicia here tending toward a finding that Mr. Wheeler was an independent
contractor in performing services for Western Mobile. The primary "tool" used in the work was
the dump truck, which was owned by Mr. Wheeler, not Western Mobile. Nor was this a small or
incidental item; the truck's purchase price was in excess of $10,000. Mr. Wheeler, not Western
Mobile, was responsible for maintenance and repair of the truck and for purchasing gasoline used in
performing work for Western Mobile.
When Mr. Wheeler was occasionally unable to report for work at Western Mobile, he was
allowed to substitute another driver in his place. Mr. Wheeler, not Western Mobile, selected the
substitute driver.3
Western Mobile reported the amounts paid to Mr. Wheeler as compensation for his work as
"nonemployee compensation" on federal tax forms. The company did not deduct federal or state
income tax or FICA tax withholding from the checks issued to Mr. Wheeler. There is no
3
There is no indication in the record as to whether Mr. Wheeler or Western Mobile paid the
substitute on the occasions when he drove in lieu of Mr. Wheeler.
8
indication that Western Mobile paid FICA taxes or unemployment insurance contributions on his
behalf; it may be inferred from the evidence presented that it did not make such payments.
Mr. Wheeler did not get paid sick leave or paid vacations and received no other benefits from
Western Mobile of the type normally given to employees.
The truck used by Mr. Wheeler in performing services for Western Mobile was registered in
the name of Wheeler & Sons Trucking, the company started by the Wheelers as a trucking business.
Prior to beginning work with Western Mobile, Mr. Wheeler had used the truck to perform services
as an independent contractor for other companies. When he began work at Western Mobile, it was
his intention to continue working as an independent driver and to seek work with others as well as
with Western Mobile.
Despite the existence of the foregoing indicia of independent contractor status, there are
countervailing indicia that Mr. Wheeler's status was that of employee. The degree of control
exercised by Western Mobile over Mr. Wheeler and the manner in which he performed services for
the company points toward a finding of employee status. After beginning to work for Western
Mobile, Mr. Wheeler was told clearly that, as a condition of his work with Western Mobile, he
would not be permitted to work for others -- i.e., that he could no longer hold himself out as being
in the business of offering services as an independent contractor. He was required to report
regularly for work at Western Mobile and has worked full-time there since beginning in 1991.
When he is unable to report for work, he must call in to inform the company that he is unavailable.
During slow periods when there is insufficient work to keep him busy at Western Mobile,
Mr. Wheeler, along with the other drivers, is required to wait at Western Mobile's premises until he
is told he may leave.
The details of Mr. Wheeler's work are controlled by Western Mobile. Representatives of
the company decide which loads Mr. Wheeler will haul, and to which destinations. While
Mr. Wheeler may choose to take another (shorter) route than the one suggested by Western Mobile
in traveling to the assigned destination, he is under orders to deliver the load as soon as possible
9
after it is loaded into his truck. The rate of pay for each load is determined by Western Mobile,
and the haul tickets for each load are prepared by Western Mobile. Western Mobile, not
Mr. Wheeler, calculates the amount to be paid to him each week for the work performed.
Based on the degree of control exerted by Western Mobile over Mr. Wheeler's actions in
performing services for the company, and taking the totality of the circumstances into account, it
appears that Mr. Wheeler was an employee of Western Mobile and not an independent contractor.
Applying the criteria set forth in Regulation GR 17:1 to the facts of this case, virtually all point to a
finding of employee status. Mr. Wheeler was paid wages, determined by Western Mobile and not
by himself, for his services. Although Western Mobile denominated this remuneration
"nonemployee compensation", the company clearly considered Mr. Wheeler to be subject to its
control and therefore considered him to be an employee. Western Mobile had the right to control
Mr. Wheeler's conduct in the performance of his work and not merely as to the result to be
accomplished. Although Western Mobile did not in fact withhold income tax, pay FICA tax, or
make unemployment insurance contributions for Mr. Wheeler, it appears that the company was
required to do so.
Because amounts received by Mr. Wheeler as compensation for his services for Western
Mobile were paid to him as an employee of Western Mobile, such receipts are not subject to gross
receipts tax.
CONCLUSIONS OF LAW
- A timely protest was filed as to Assessment No. 1956180. Jurisdiction thus lies
over the parties and the subject matter of this protest.
- The Department has abated that portion of the assessment that was based on the
Taxpayer's receipts from interstate hauling. That portion of the assessment therefore is not before
the hearing officer for decision.
- As to that portion of the assessment that is based on receipts for services performed
by Stan Wheeler for Western Mobile, such receipts were compensation to Mr. Wheeler as an
10
employee and therefore are not subject to gross receipts tax under the New Mexico Gross Receipts
and Compensating Tax Act.
For the foregoing reasons, the Taxpayer's protest IS HEREBY GRANTED. The
Department IS HEREBY ORDERED TO ABATE ASSESSMENT NO. 1956180 FOR GROSS
RECEIPTS TAXES, PENALTY AND INTEREST ON RECEIPTS FROM MR. WHEELER'S
WORK WITH WESTERN MOBILE.
Done this 30th day of April 1997.
11
Get today's answer for your situation
You just read a 1997 ruling on this question. Ezel checks current New Mexico tax law and answers your specific situation, with citations.
Opens in Ezel Pro. Every answer cites the authority it relies on.