Does someone doing casual handyman labor — no license, no advertising, paid in cash — owe New Mexico gross receipts tax on that work?

Plain-English summary

Jorge Midon supported himself modestly with casual labor — carpentry, yard cleaning, tree trimming, wood hauling, tile and stone work, ditchdigging, cleaning, painting, repairs, and teaching dance. His only steady job was working as stage manager for the Orchestra of Santa Fe, and he agreed that income was taxable. Otherwise he had no business cards, didn't advertise, held no licenses, got work by word of mouth, was usually paid in cash, and worked sporadically and seasonally. On his federal returns he reported Schedule C income of $11,474 (1993) and $10,320 (1994). After the IRS shared that data, the Department found he wasn't registered and assessed $1,111.66 in gross receipts tax, plus penalty and interest.

The Hearing Officer denied the protest:

• He was "engaging in business." The Gross Receipts and Compensating Tax Act defines that phrase very broadly — "carrying on ... any activity with the purpose of direct or indirect benefit" (§ 7-9-3(E)). No business card, no advertising, no license, and short, sporadic jobs don't take you outside it. Because he did the work to earn money, it qualified, and all his receipts were presumed taxable (§ 7-9-5).
• The occasional-sale exemption didn't apply to the handyman work. Section 7-9-28 exempts isolated or occasional sales by someone not regularly engaged in that business. He estimated doing handyman work up to 20 hours a week in summer — enough to count as "regularly," so the exemption didn't apply.
• The dance lessons might have qualified — but he offered no proof. The Hearing Officer thought the dance teaching, being different and possibly more sporadic, might have been isolated and occasional. But Mr. Midon gave no evidence of how much (if any) he earned from it in those years, so there was nothing on which to base an exemption.
• He wasn't shown to be an employee. Section 7-9-17 exempts employees' wages. Whether someone is an employee turns on factors listed in Regulation 3 NMAC 2.17.7 (wage vs. per-job pay, income-tax withholding, FICA, workers' comp, unemployment contributions, whether the payer considers them an employee, and control over how the work is done). He supplied none of this, the assessment is presumed correct (§ 7-1-17), and his very short-term engagements pointed away from employee status. Burden not met.

What this means for you

Handymen, day laborers, and cash-paid workers

New Mexico's gross receipts tax reaches you even if you feel like you're "not really a business." No storefront, no business cards, no advertising, no license, and getting paid in cash by word-of-mouth referrals — none of that keeps casual, recurring work outside the tax. If you regularly do work for money, plan to register and pay gross receipts tax on it.

If you think an exemption might apply, bring the proof

The most useful lesson here is about evidence. The Hearing Officer was open to exempting the dance lessons as occasional — but the taxpayer produced no numbers, so he lost that point. An assessment is presumed correct, and the burden is on you to show an exemption or deduction fits, with actual records of amounts and dates. A plausible theory without documentation loses.

Employee or independent contractor?

If you want the employee-wage exemption (§ 7-9-17), you have to actually look like an employee under the Regulation 3 NMAC 2.17.7 factors — paid a wage with taxes withheld, covered by workers' comp and unemployment, and subject to the payer's control over how you do the job. Short, self-directed gigs for many different customers are the opposite of that, and the pay is taxable to you as a contractor.

Accountants and tax professionals

Two durable points for advising low-income or gig clients: (1) the § 7-9-3(E) "any activity" standard makes almost all recurring paid work "engaging in business," so absence of the usual business trappings is irrelevant; (2) the § 7-9-28 occasional-sale and § 7-9-17 employee exemptions are fact-specific and evidence-dependent — document hours, frequency, receipts, and the employment indicia, because the presumption of correctness (§ 7-1-17) puts the burden squarely on the taxpayer.

Common questions

Q: I don't have a business — I just do odd jobs for cash. Do I owe gross receipts tax?
A: Likely yes. New Mexico defines "engaging in business" as any activity done for benefit. No business card, advertising, or license is required, and cash payment doesn't change it. Regular paid work is taxable.

Q: My work is sporadic and seasonal. Isn't that an occasional sale?
A: Not if you do that kind of work regularly. Here, roughly 20 hours a week of handyman work in summer counted as "regularly engaged," so the occasional-sale exemption (§ 7-9-28) didn't apply.

Q: One of my activities really is occasional — how do I get it exempted?
A: You must prove it. The taxpayer's dance lessons might have qualified, but he gave no evidence of what he earned from them, so he got no exemption. Keep records of amounts and dates for any activity you claim is isolated or occasional.

Q: Aren't I an employee of the people I work for?
A: Only if the facts show it — wage pay, tax withholding, FICA, workers' comp, unemployment contributions, and the payer controlling how you work. Without that evidence, and with short one- or two-day jobs, you're treated as a contractor whose pay is taxable.

Q: Does this decision apply to my situation?
A: Not directly. A Decision and Order resolves one taxpayer's protest on its specific facts and the law in effect at the time. It illustrates how broadly New Mexico taxes casual labor, but your facts may differ.

Citations and references

Statutes and regulations:

• § 7-9-4 NMSA 1978 — the gross receipts tax is a privilege tax on engaging in business in New Mexico
• § 7-9-3(E) NMSA 1978 — "engaging in business" means carrying on any activity with the purpose of direct or indirect benefit
• § 7-9-5 NMSA 1978 — all receipts of a person engaging in business are presumed subject to the gross receipts tax
• § 7-9-28 NMSA 1978 — exemption for the isolated or occasional sale or lease of property or a service by a person not regularly engaged in that business
• § 7-9-17 NMSA 1978 — exemption for employees' wages, salaries, commissions, and other remuneration for personal services; Regulation 3 NMAC 2.17.7 (formerly GR 17:1) — the indicia the Department weighs to decide whether someone is an employee
• § 7-1-17 NMSA 1978 — an assessment is presumed correct, placing the burden on the taxpayer; § 7-1-24 NMSA 1978 — timely written protest

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Jorge Midon
• Decision PDF: D&O 97-40

Original ruling text

BEFORE OF THE HEARING OFFICER
THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
JORGE MIDON, ID. NO. 02-332414 -00 7 NO. 97-40
PROTEST TO ASSESSMENT . NO. 2125708

DECISION AND ORDER

This matter came on for formal hearing before Gerald B. Richardson, Hearing Officer, on

October 2, 1997. Mr. Jorge Midon, hereinafter, “Taxpayer”, represented himself at the hearing.

The Taxation and Revenue Department, hereinafter, “Department”, was represented by Gail

MacQuesten, Special Assistant Attorney General. Based upon the evidence and the arguments

presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer supports himself modestly by performing casual labor. The types

of work he does is carpentry, yard cleaning, tree trimming, wood hauling, tile and stone work,

ditchdigging, cleaning, painting, repairs and teaching dance.

2. The only work which the Taxpayer performs on a regular basis is he works as the

Stage Manager for the Orchestra of Santa Fe when they perform in concert.

3. The Taxpayer does not advertise his services nor does he have a business card.

He gets his work by referral from those for whom he has worked and word of mouth.

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4. In general, he performs his work for individuals and most of the jobs he gets can

be completed in one or two days.

5. The Taxpayer holds no licenses or professional certifications for the work which

he performs.

6. The Taxpayer is usually paid in cash for the services he performs.

7. The Taxpayer works as often as he can find work, but his work is sporadic and

seasonal.

8. For the 1993 and 1994 tax years, the Taxpayer reported to the Internal Revenue

Service (“IRS”) that he had gross income in the amounts of $11,474 and $10,320, respectively.

These amounts were reported on Schedule C of Federal Form 1040

9. The Department has an information sharing agreement with the IRS whereby

information about taxpayers who are residents of New Mexico is shared between the two

agencies.

10. The Department received information from the IRS about the Taxpayer’s

Schedule C gross income. When the Department investigated, it found that the Taxpayer was not

registered with the Department to pay gross receipts taxes.

11. As a result of the information received from the IRS, the Department assigned a

taxpayer identification number to the Taxpayer and on March 29, 1997 issued Assessment No.

2125708 to the Taxpayer assessing $1,111.66 in gross receipts tax, $111.16 penalty and $504.66

in interest for tax years 1993 and 1994.

12. On April 23, 1997, the Taxpayer filed a written protest to Assessment No.

2125708 with the Department.

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13. The Taxpayer does not dispute that portion of the assessment which relates to his

compensation as a stage manager for the Orchestra of Santa Fe.

DISCUSSION

The Taxpayer disputes his liability for gross receipts tax upon his receipts from what

he characterizes as “casual labor.” The only exception to the Taxpayer’s position that he should

not be subject to gross receipts tax is with respect to his compensation as an independent

contractor doing stage management for the Orchestra of Santa Fe. The Taxpayer agrees that

since he regularly holds himself out as someone who performs stage management for the

orchestra, that his receipts from performing those services should be subject to tax.

New Mexico’s gross receipts tax is imposed upon the privilege of engaging in business in

New Mexico. Section 7-9-4 NMSA 1978. The Taxpayer argues against being subject to the

gross receipts tax because he does not consider that he is engaged in business when performing

casual labor in the manner he does. In support of his argument, the Taxpayer points out that he

has no business cards and he does not advertise himself as performing the services which he

provides when performing casual labor. He also points out the short-term and sporadic nature of

his work as indicating that he is not engaging in business. Additionally, he argues that he holds

no professional licenses or other credentials for the kinds of work he performs.

While holding a license or professional qualification, advertising and having business

cards and otherwise holding oneself out as offering to perform services are certainly indicative of

a person’s being engaged in business, the definition of engaging in business as contained in the

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Gross Receipts and Compensating Tax Act, Chapter 7, Article 9 NMSA 1978 is written even

more broadly. Section 7-9-3(E) defines “engaging in business” to mean, “carrying on or causing

to be carried on any activity with the purpose of direct or indirect benefit.” (emphasis added.)

Because the Taxpayer undertakes the activities he engages in for the purpose of earning money

and because his activities fall under the broad classification of “any activity”, his activities meet

the definition of engaging in business.

Section 7-9-5 provides that, “[T]o prevent evasion of the gross receipts tax and to aid in

its administration, it is presumed that all receipts of a person engaging in business are subject to

the gross receipts tax.” This presumption of taxability applies to the Taxpayer’s activities and

they are subject to tax unless the Taxpayer can demonstrate that they fall under an exemption or

deduction provided by statute.

The Taxpayer argues that his activities should be exempt from tax under the exemption

provided at Section 7-9-28 NMSA for the occasional sale of property or services. It provides as

follows:

Exempted from the gross receipts tax are the receipts from the
isolated or occasional sale of or leasing of property or a service by
a person who is neither regularly engaged nor holding himself out
as engaged in the business of selling or leasing the same or similar
property or service.

Although the Taxpayer performs a number of different services, with the exception of the dance

lessons he offers, all of the activities he performs could be characterized as handyman services.

The Taxpayer estimated that he does that sort of work as much as twenty hours a week in the

summer, and less than that during other times of the year when the weather makes outdoor

activities more difficult. Although this is not a lot of time, it is sufficient to qualify as work

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which is performed “regularly” within the meaning of the statute, since the Taxpayer performs

this work on a regular basis.

With respect to the dance lessons the Taxpayer gives from time to time, this decision

maker thought it might be possible that this was done sporadically enough and the work was

different enough from the Taxpayer’s handyman services, that this work might qualify as isolated

and occasional. The Taxpayer declined to provide any evidence, however, as to whether he had

any receipts from such activities during the tax years in question and as to the amount of such

receipts during those years. In the absence of any proof with respect to those receipts, there is no

evidence upon which to base a conclusion that such receipts would be exempt.

Finally, the Taxpayer argues that his compensation for performing services should fall

under the exemption provided at Section 7-9-17 NMSA 1978 for wages. Specifically, this

section provides:

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. (emphasis added.)

The Taxpayer argues that he qualifies for this exemption as an employee of the individuals for

whom he performs services.

Regulation 3 NMAC 2.17.7, formerly GR 17:1 provides a listing of various indicia which

the Department will consider in determining whether a person is an employee. They are as

follows:

1. is the person paid a wage or salary;

2. is the “employer’ required to withhold income tax from the
   person’s wage or salary;

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3. is F.I.C.A. tax required to be paid by the “employer”;

4. is the person covered by workmen’s compensation insurance;

5. is the “employer” required to make unemployment insurance
   contributions on behalf of the person;

6. does the person’s “employer” consider the person to be an
   employee;

7. does the person’s “employer’ have a right to exercise control
   over the means of accomplishing a result or only over the result
   (control does not mean “mere suggestion”).

Unfortunately, the Taxpayer did not provide information which allows these questions to be

answered. We do not know whether the Taxpayer is paid hourly or by the job. We do not know

the extent to which the Taxpayer’s activities were controlled by the persons for whom he was

working. There is a presumption of correctness which attaches to any assessment of tax pursuant

to Section 7-1-17 NMSA 1978. This means that the burden of proving his entitlement to the

exemption for wages as an employee was on the Taxpayer and this burden has not been met.

Additionally, the very short term nature of the Taxpayer’s work engagements also mitigates

against a conclusion that he was an employee. For these reasons, it is concluded that the

Taxpayer does not qualify for the exemption found at Section 7-9-17.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to Assessment No. 2125708 pursuant

to Section 7-1-24 NMSA 1978 and jurisdiction lies over both the parties and the subject matter

of this protest.

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2. The Taxpayer’s activities constitute engaging in business as defined at Section 7-

9-3(E) NMSA 1978.

3. The Taxpayer’s activities performing handyman services are engaged in on a

regular basis and so the Taxpayer’s compensation for such activities is not exempt as receipts

from the performance of services on an isolated or occasional basis under Section 7-9-28 NMSA

1978.

4. The Taxpayer has failed to present sufficient evidence to rebut the presumption of

correctness which attaches to the assessment at issue herein.

5. The Taxpayer has failed to present sufficient evidence to establish his entitlement

to the deduction for wages paid and employee pursuant to Section 7-9-17 NMSA 1978.

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

DONE, this 27th day of October, 1997.

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