If a hospital controlled my hours and patients but paid me on a 1099 as a contractor, do I owe gross receipts tax on that pay?

Plain-English summary

A psychiatrist the hospital labeled an "independent contractor" was really an employee — the hospital controlled his hours, workplaces, and patients, and nothing changed the day it officially made him an employee. Employee wages are exempt from gross receipts tax. But because he had reported the pay as self-employment income on his federal return, he could get the exemption only after amending that return to match. Protest GRANTED IN PART and DENIED IN PART.

Dr. Gilmour began working for St. Vincent Hospital in Santa Fe in late 1995. Through May 15, 1996 the hospital treated him as an independent contractor: he was paid an hourly rate, received a Form 1099 ($24,940 for 1996), and had no tax withholding and no employee benefits. On May 15, 1996 the hospital made him an official employee — withholding taxes, a retirement contribution, accruing sick leave, a W-2 ($44,132.07) — yet "there was no discernable difference" in how he worked. The hospital set his hours, assigned him to its clinics in Santa Fe, Los Alamos, and Española, chose which patients he saw, and scheduled the appointments, both before and after the switch.

Dr. Gilmour reported the pre-May-1996 hospital pay (plus $1,601 from a small private practice) as business income on federal Schedule C and did not pay gross receipts tax. Through an IRS information-sharing program the Department learned of the Schedule C income and, in November 1999, assessed $1,561.24 in gross receipts tax plus penalty and interest. Dr. Gilmour protested, arguing the hospital pay was really employee wages, which are exempt from gross receipts tax under Section 7-9-17. (He did not dispute that his private-patient receipts were taxable.)

He was an employee — the "right to control" test

Because the tax act does not define "employee," the hearing officer applied the common-law right-to-control test (Burruss v. B.M.C. Logging; Harger v. Structural Services, adopting Restatement (Second) of Agency § 220), along with the Department's indicia in Regulation 3 NMAC 2.12.7. Some factors pointed to contractor status (both parties viewed him that way; hourly pay; no withholding or benefits; he reported business income and ran a small private practice). But the hearing officer found the degree of control decisive: the hospital dictated his hours, workplaces, patients, and scheduling — and, tellingly, none of that changed when he was formally converted to an employee. The Department's argument that a doctor's independent medical judgment made him a contractor was rejected: exercising professional judgment is the hallmark of any professional, employee or not, so other aspects of control must be examined. Conclusion: he was an employee before May 15, 1996.

But federal-state consistency blocked the exemption — for now

Winning the classification did not automatically win the exemption. New Mexico requires taxpayers to report a transaction consistently for state and federal purposes (Co-Con, Inc. v. Bureau of Revenue; Stohr v. Bureau of Revenue; Sutin, Thayer & Browne). Having reported the hospital pay as self-employment business income on his federal Schedule C, Dr. Gilmour could not simultaneously call it exempt wages for state gross receipts tax. The remedy: he is entitled to the Section 7-9-17 wage deduction for the hospital pay only if and when he files an amended 1996 federal return treating that pay as employee wages. (The hearing officer noted his private-practice income was properly on Schedule C, and any expenses tied to the hospital work would instead be unreimbursed-employee expenses.)

Result: GRANTED IN PART, DENIED IN PART — he was an employee and the pay is exempt wages, but the exemption applies only upon filing a consistent amended federal return; private-patient receipts stay taxable.

What this means for you

A "1099 contractor" label does not settle the question — control does

Whether you owe gross receipts tax on services turns on whether you are truly an independent contractor or an employee, and that depends on the right to control the manner and details of your work — not on the label the payer uses, the hourly pay, or the absence of benefits. If the payer sets your hours, your workplace, and your assignments, you may be an employee whose wages are exempt, even with a 1099.

Exercising professional judgment does not make you a contractor

Doctors, lawyers, and other professionals always exercise independent judgment in their work. That alone does not make them independent contractors; New Mexico looks at the other elements of control over how and where the work is done.

You are bound by how you reported it federally

Even a correct reclassification will not help your state tax unless your federal return matches. New Mexico requires consistent state and federal reporting, so if you reported income as self-employment on a federal Schedule C, you cannot claim it as exempt wages for gross receipts tax until you amend the federal return to agree. Decide the characterization once, and report it the same way everywhere.

Sort out worker status before the year's returns are filed

The cleanest path is to determine employee-versus-contractor status up front, so the 1099/W-2, the federal return, and the state filings all line up. Fixing it later means an amended federal return and, potentially, moving business expenses to a different place on your return.

Common questions

Q: The hospital paid me on a 1099 as a contractor. Doesn't that mean I owe gross receipts tax on the pay?
A: Not necessarily. If the payer actually controlled your hours, workplace, patients, and scheduling, you may be an employee, and employee wages are exempt from gross receipts tax under Section 7-9-17 — regardless of the 1099 label.

Q: I'm a professional who uses independent judgment. Doesn't that make me an independent contractor?
A: No. Every professional exercises independent judgment; that is expected of employees and contractors alike. New Mexico looks at the broader control the payer has over how and where you do the work.

Q: I was reclassified as an employee. Can I just claim the wage exemption on my state return?
A: Only if your federal return matches. New Mexico requires consistent state and federal reporting. If you reported the pay as self-employment income federally, you must file an amended federal return treating it as wages before you can claim the state wage exemption.

Q: I have both employer pay and side income. Does all of it become exempt?
A: No. Only the true employee wages are exempt. Genuinely independent work — here, the doctor's private-patient receipts — remains subject to gross receipts tax and is properly reported as business income.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-9-17 — receipts from wages, salaries, and other compensation of employees are exempt from gross receipts tax
• NMSA 1978, § 7-9-4 — imposes gross receipts tax on persons engaging in business
• Regulation 3 NMAC 2.12.7 — indicia the Department considers in deciding employee status (wage/salary, withholding, FICA, workers' comp, unemployment contributions, whether the employer treats the person as an employee, and control over the means versus only the result)

Cases cited:

• Burruss v. B.M.C. Logging Co., 38 N.M. 254, 31 P.2d 263 (1934) — the principal consideration in classifying a worker is the right to control the manner and method of the work
• Harger v. Structural Services, Inc., 121 N.M. 657, 916 P.2d 1324 (1996) — adopts the Restatement (Second) of Agency § 220 multi-factor control test
• Co-Con, Inc. v. Bureau of Revenue, 87 N.M. 118, 529 P.2d 1239 (Ct. App. 1974) — taxpayers must treat transactions uniformly for all tax purposes
• Stohr v. New Mexico Bureau of Revenue, 90 N.M. 43, 559 P.2d 420 (Ct. App. 1976) — federal reporting as self-employment income controlled whether pay could be treated as exempt wages for gross receipts tax
• Sutin, Thayer & Browne v. Revenue Division, 104 N.M. 633, 725 P.2d 833 (Ct. App. 1985) — a taxpayer who makes an election for federal purposes is bound by it in calculating state taxes

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Dr. Edward E. Gilmour
• Decision PDF: D&O 00-23

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
DR. EDWARD E. GILMOUR NO. 00-23
ID. NO. 02-363657-00 2, PROTEST TO
ASSESSMENT NO. 2439518

DECISION AND ORDER

This matter came on for formal hearing on April 4, 2000 before Gerald B. Richardson,

Hearing Officer. Dr. Edward E. Gilmour, hereinafter, “Taxpayer”, was represented by Robert N.

Hilgendorf, Esq. The Taxation and Revenue Department, hereinafter, “Department”, was

represented by Bruce J. Fort, Special Assistant Attorney General. After the hearing, the record

was held open for the Taxpayer to submit additional authority for the hearing officer to consider

and this was done. Based upon the evidence and the arguments presented, IT IS DECIDED

AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer is a psychiatrist who moved to New Mexico in 1995.

2. After obtaining his New Mexico medical license, the Taxpayer sought work as a

psychiatrist.

3. In October, 1995, the Taxpayer spoke with Dr. Bill Johnson, the head of the Psychiatry

Department of St. Vincent Hospital in Santa Fe, New Mexico, (hereinafter, “the hospital”), about

obtaining work as a psychiatrist.

4. In October or November of 1995, Dr. Johnson offered the Taxpayer a staff position. The

Taxpayer and Dr. Johnson negotiated an hourly rate at which the Taxpayer would be paid for his

1
services, which was in the $60 to $70 per hour range. They did not discuss whether the

Taxpayer would be an independent contractor or an employee. The Taxpayer understood,

however, that he was not being treated as a hospital employee who would receive employee

benefits, such as retirement, sick leave accrual, workers compensation coverage, etc.

5. In November, 1995, the Taxpayer was granted medical staff privileges in the Section of

Psychiatry of St. Vincent Hospital.

6. The hospital established the working hours and workplaces of the Taxpayer. The

Taxpayer worked three days a week at the Galisteo Clinic, the hospital’s psychiatric clinic in

Santa Fe, one day a week at a clinic in Los Alamos affiliated with the hospital and one morning a

week at the hospital’s clinic in Espanola. The hospital also directed the Taxpayer as to which

patients he would serve and handled the scheduling of appointments with those patients.

7. The Taxpayer’s only remuneration under his agreement with the hospital was the per

hour amount agreed upon between the Taxpayer and the hospital. The Taxpayer received no

reimbursement for his expenses traveling to the Santa Fe, Espanola and Los Alamos clinics.

8. The Taxpayer submitted a statement of hours worked to the hospital for each pay period

and the hospital compensated the Taxpayer on the basis of the statement of hours submitted. The

Taxpayer’s paychecks reflected no deductions for state or federal withholding taxes, FICA, or

other deductions employers are required to make from employee paychecks.

9. In prescribing treatment for his patients, the Taxpayer exercised his own independent

medical judgment.

10. The Taxpayer and the hospital did not have a written contract expressing the terms and

conditions of the Taxpayer’s working arrangement with the hospital.

2

11. The Taxpayer, the other psychiatrists on staff at the hospital and psychiatrists in private

practice with staff privileges at the hospital, all took turns being on rotation or call. They would

be called in to evaluate and possibly admit patients for psychiatric treatment when the crisis

counselors at the hospital determined that this would be appropriate. In such cases, the

examining physician admitting a patient had the option to take the patient as his or her own

private patient, or to admit the patient as a hospital patient. The physician admitting a patient as

his or her private patient would handle all billing and collection for his or her services and these

would not be run through or handled by the hospital.

12. The Taxpayer exercised the option to keep as his own patients one or two patients who he

evaluated and admitted to the hospital when he was on rotation during the period between

October, 1995 and May, 1996.

13. During 1996, the Taxpayer had a few patients who he saw privately, apart from his work

for the hospital.

14. On May 15, 1996, the hospital made the Taxpayer an employee of the hospital. At that

time, it began withholding taxes from the Taxpayer’s paychecks, made contributions to a

retirement plan on behalf of the Taxpayer and the Taxpayer began to accrue sick leave and other

benefits of employees of the hospital. Although the Taxpayer had the option of coverage under

the hospital’s health plan for employees, because the Taxpayer was already eligible for Medicare

coverage, he opted for an hourly wage enhancement instead of health plan coverage.

15. After the Taxpayer became an acknowledged employee of the hospital, he continued to

work the same hours at the hospital’s clinics in Santa Fe, Espanola and Los Alamos. He

continued to receive an hourly wage, he continued to submit periodic statements of his hours

3
worked and except for the deductions now taken from his paycheck for withholding taxes, FICA,

etc., his working conditions remained the same as those previous to being made an employee.

16. Under his arrangements with the hospital, both when he was first engaged by the hospital

and after he was officially made an employee in May of 1996, the Taxpayer was required by the

hospital to carry his own professional liability insurance.

17. For calendar year 1996, the hospital reported the compensation it had paid the Taxpayer

for the period prior to May 15, 1996 in the amount of $24,940 on a Form 1099, as

miscellaneous income. Additionally, the hospital reported the compensation it paid to the

Taxpayer for the period after May 15, 1996 in the amount of $44,132.07 on a Form W-2 as

employee wages, tips and other compensation.

18. The Taxpayer did not dispute with the hospital the manner in which it characterized the

compensation he was paid in 1996 for federal income tax purposes.

19. For tax year 1996, the Taxpayer reported the $24,940 he received from the hospital as

reported on Form 1099 as gross receipts from a business on Federal Schedule C. Those receipts

were designated as a consulting fee from St. Vincent Hospital. Additionally, he reported $1,601

as additional gross receipts from a business on the same schedule C. Those receipts were

designated as fees from patients.

20. On the Taxpayer’s 1996 Federal Schedule C, the Taxpayer claimed business expenses of

$15,739, which included vehicle expenses in the amount of $780, which represented expenses of

travel to and from work.

21. The Taxpayer was not aware that New Mexico imposed a gross receipts tax upon the

receipts of persons engaged in rendering medical or psychiatric services when he was negotiating

4
the terms of his engagement by St. Vincent Hospital in late 1995 and did not take that into

consideration when conducting those negotiations.

22. The Taxpayer remained an acknowledged employee of the hospital during 1997 and until

January of 1998. During the entire period of the Taxpayer’s engagement by the hospital, from

October, 1995 through January, 1998, the Taxpayer maintained a private practice outside of his

work for the hospital.

23. The hospital permitted the physicians who worked for it, either as contractors or

employees, to maintain a private patient practice.

24. The Taxpayer did not report or pay gross receipts taxes to the Department during 1996

upon the compensation he received from either his private patients or the compensation received

from the hospital which was reported on Federal Form 1099.

25. The Department has an information sharing program with the Internal Revenue Service

(IRS) in which the IRS provides the Department with information regarding New Mexico

taxpayers who report business income on Schedule C.

26. As a result of the information received from the IRS concerning the Taxpayer, on

November 4, 1999, the Department issued Assessment No. 2439518 to the Taxpayer, assessing

$1,561.24 in gross receipts tax, $156.12 in penalty and $722.07 in interest based upon the

$26,541 in business income reported upon the Taxpayer’s 1996 Schedule C.

27. On December 1, 1999, the Taxpayer filed a written protest to Assessment No. 2439518.

DISCUSSION

The issue to be determined herein is whether the compensation paid to the Taxpayer by

the hospital and reported by the Taxpayer on Federal Schedule C as gross receipts from a

5
business or profession were subject to the gross receipts tax.1 The Taxpayer argues that, in

actuality, this compensation was wages from employment, which is exempt from gross receipts

tax pursuant to § 7-9-17 NMSA 1978. Thus, the question presented is whether the Taxpayer was

an employee of or an independent contractor for the hospital for the period from January, 1996

until May 15, 1996.

An employee is not defined in the Gross Receipts and Compensating Tax Act, Chapter 7,

Article 9 NMSA 1978, so we will look to the common law definition of employee. In

determining whether a person is an employee or an independent contractor, the rule in New

Mexico and in general is that the principal consideration is the right to control. Thus, the

relationship of employer and employee usually results where there is control over the manner

and method of performance of the work to be performed. Where there is only control over the

results, however, and not the details of the performance, the worker is usually considered to be

an independent contractor. Buruss v. B.M.C. Logging Co., 38 N.M. 254, 31 P.2d 263 (1934). A

more recent pronouncement of this rule can be found in Harger v. Structural Services, Inc., 121

N.M. 657, 663, 916 P.2d 1324, 1330 (1996). In that case the New Mexico Supreme Court

adopted the approach set out in the Restatement (Second) of Agency § 220(1) to determine a

worker’s status as an employee or an independent contractor:

The important distinction is between service in which the actor’s
physical activities and his time are surrendered to the control of the
master, as service under an agreement to accomplish results or to
use care and skill in accomplishing results. Those rendering
service but retaining control over the manner of doing it are not
servants.

Among the factors to be considered are: whether the party employed engages in a distinct

occupation or business; whether the work is part of the employer’s regular business; the skill

1
The Taxpayer does not dispute that gross receipts tax is owing upon his receipts from his private patients.

6
required in the particular occupation; whether the employer supplies the instrumentalities, tools

or the place of work; the duration of a person’s employment and whether that person works full-

time or regular hours; whether the parties believe they have created the relationship of employer

and employee and the manner and method of payment. The totality of all of the circumstances

must be considered in determining whether the employer has the right to exercise that degree of

control over a worker so as to make the worker an employee.

The Department has adopted a regulation under Section 7-9-17 to provide criteria by

which the status of a worker may be determined. Regulation 3 NMAC 2.12.7. provides as

follows:

In determining whether a person is an employee, the department
will consider the following indicia:

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;
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’).
   If all of the indicia mentioned are present, the department will
   presume that the person is an employee. However, a person may
   be an employee even if one or more of the indicia are not present.

In this case, the strongest factor indicating that the Taxpayer was an independent

contractor is that both he and the hospital considered the Taxpayer to be an independent

contractor. The Taxpayer was aware that he was not being treated as an employee by the

hospital. He was paid an hourly wage and was not compensated for his time or travel to the

clinics where he worked. The Taxpayer did not accrue vacation or sick leave. The hospital did

7
not withhold state and federal income taxes, FICA or social security taxes, or any other

deductions which employers are required to make from compensation paid to employees. The

Taxpayer reported the compensation he received from the hospital as gross receipts from the

operation of a business and he claimed numerous deductions from that income, such as his travel

expenses incurred in traveling to the various clinics he was assigned to work at. In addition, the

Taxpayer held himself out as being engaged in the business of rendering psychiatric services.

Although he operated a business in a very small way with only a limited number of patients, he

maintained a private practice outside of the work he performed for the hospital.

There are also factors which are indicative of the Taxpayer’s employee status with the

hospital. Foremost is the degree of control the hospital exercised over the Taxpayer’s activities.

The hospital established the working hours and workplaces where the Taxpayer performed his

psychiatric services. The hospital established the patients who the Taxpayer would see and

scheduled the patient’s appointments with the Taxpayer. Additionally, the hospital provided the

work environments where the Taxpayer performed his services for the hospital. Finally, I find it

significant that none of these things changed in any way when the hospital officially placed the

Taxpayer on employee status after May 15, 1996. There was no discernable difference in the

degree of control the hospital exercised over the Taxpayer and the manner in which he delivered

psychiatric services to the hospital’s patients after he became an acknowledged employee. The

only thing that changed is that the hospital now acknowledged Dr. Gilmour as an employee and

treated him that way for tax reporting, tax withholding and other purposes.

The Department argues that because Dr. Gilmour exercised his professional judgment as

to the treatment and care of the hospital’s patients, he was not under the control of the hospital

such that he must be considered an independent contractor. I do not find this argument

8
persuasive. The exercise of independent judgment is the hallmark of a professional. A medical

professional is always under an obligation to exercise independent professional judgment in

rendering professional services, regardless of whether he renders those as an independent

contractor or as an employee. Otherwise, the mere exercise of independent professional

judgment would mean that professionals could not be considered to be employees subject to the

control of their employers. I know of no authority which would support such a conclusion. In

the case of professionals, other aspects of control over the professional’s work must be examined

to determine employee or independent contractor status.

Although there are facts in this case which weigh on both sides of the determination of

employee or independent contractor status, I find most persuasive the degree of control which

the hospital exercised over the manner in which the Taxpayer was to deliver his services to the

hospital and its patients. This is especially so because there was no discernable difference in the

degree of control exercised once the Taxpayer became an acknowledged employee of the

hospital. Because of the degree of control the hospital exercised over the Taxpayer, the

Taxpayer was an employee of the hospital for the period prior to May 15, 1996.

There remains, however, another legal impediment to the Taxpayer’s claim of entitlement

to the deduction for wages received as an employee pursuant to § 7-9-17. New Mexico’s courts

have required that taxpayers report taxes consistently for both state and federal purposes. The

first case to address this issue was Co-Con, Inc., v. Bureau of Revenue, 87 N.M. 118, 529 P.2d

1239 (Ct. App., 1974), cert. denied, 87 N.M. 111, 529 P.2d 1232 (1974). Co-Con, Inc. was a

wholly owned subsidiary of Universal Constructors, Inc. During the audit period, pieces of

construction equipment common to the operations of both corporations were utilized by both on

their construction projects without regard to which corporation held legal title to the equipment.

9
Each corporation owning the equipment attributed a value to the use of its equipment and

reflected that value as “gross rentals” for federal income tax purposes. The department assessed

gross receipts tax on those gross rental amounts reflected on the federal returns of Co-Con, Inc.

and Universal Constructors, Inc. as gross receipts from leasing property in New Mexico. The

corporations argued that they did not have gross receipts from equipment rental. The Court of

Appeals upheld the assessments, finding that the treatment by the corporations of the transactions

as gross rentals for federal income tax purposes indicated that the intent of the taxpayers was to

treat the arrangements as rentals or leases. The court went on to state:

Taxpayers must treat transactions uniformly for all purposes within
the tax scheme and not attempt to show, first a lease for federal
purposes and second, a non-taxable event for state tax purposes.
We find ample evidence in the record to indicate that taxpayers
engaged in leasing both by intent and within the statutory
definition.

Id., 87 N.M at 121-122.

In Stohr v. New Mexico Bureau of Revenue, 90 N.M. 43, 559 P.2d 420 (Ct. App., 1976),

cert. denied, 90 N.M. 254, 561 P.2d 1347 (1977), the Court of Appeals upheld an assessment of

gross receipts tax against Mr. Stohr on the compensation he was paid by various individuals for

doing carpentry. Mr. Stohr argued that these amounts were wages exempt from gross receipts

tax under § 72-16A-12.5 NMSA 1953, the predecessor to § 7-9-17 NMSA 1978. The court

noted that Mr. Stohr had filed self employment tax returns for social security purposes with the

Internal Revenue Service (“IRS”) for the compensation he received from the customers who did

not withhold FICA tax, and had filed a Federal Schedule C during the audit years, reporting his

compensation as being from a business or profession. In determining Mr. Stohr liable for gross

receipts tax, the court examined the indicia of employment found in the department’s regulation,

10
which are the same ones contained in the current regulation, 3 NMAC 2.12.7. The court,

however, stated:

The controlling factor, however, is that the taxpayer must treat
transactions uniformly for all purposes within the tax laws. The
taxpayer must not attempt to show one scheme for federal tax
purposes and a nontaxable event for purposes of state gross
receipts taxes. (citations omitted, emphasis added).

Thus, the court found that the manner by which Mr. Stohr reported his compensation for federal

purposes controlled the determination of whether that compensation could be considered wages

exempt from gross receipts taxes.

The most recent case to address the issue of whether consistency is required in filing state

and federal returns is Sutin, Thayer & Browne v. Revenue Division of the Taxation and

Revenue Department, 104 N.M. 633, 725 P.2d 833 (Ct. App. 1985), cert. denied, 102 NM 293,

694 P.2d 1358 (1986). That case concerned whether a taxpayer could claim a wage deduction

for state corporate income tax reporting purposes that exceeded the wage deduction claimed for

federal corporate income tax purposes. Under the Tax Reduction and Simplification Act of

1977, Pub. L. No. 95030, a new jobs tax credit was enacted to provide employers with a tax

incentive to create new jobs. Under the act, a corporation could either claim a federal tax

deduction for the wages paid to its employees or elect a jobs credit for wages paid to certain new

employees. New Mexico did not have a similar jobs credit. The taxpayer had claimed a jobs

credit with the IRS, forgoing a deduction for wages paid to those employees for whom the credit

was claimed. Because New Mexico did not have a similar jobs credit, the taxpayer claimed a

deduction for those wages on its New Mexico return that it had not claimed on its federal return,

arguing that to deny it the wage deduction would be unfair and result in overstating its taxable

income for state tax purposes. The court denied the taxpayer’s claim of deduction, stating that,

11
“[A] taxpayer who makes an election for federal purposes is bound by that election in calculating

the amount of its state taxes.” Id., 104 N.M. at 636.

As all of the above cases make clear, when there is a conflict in how a taxpayer has

reported a transaction for federal purposes and how they are requesting that it be treated for state

purposes, they are bound by the manner in which they reported for federal purposes. It should

also be noted that if a taxpayer’s method of reporting does not reflect the true nature of a

transaction or taxable activity the taxpayer has the option, if not the obligation2 to file amended

federal returns. Because in this case the Taxpayer has treated the receipts in issue as gross

receipts from engaging in a business or profession on his Federal Schedule C, the Taxpayer is

not entitled to claim a deduction for those same receipts pursuant to § 7-9-17 NMSA 1978 unless

and until an amended federal return is filed.3

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to Assessment No. 2439518, and jurisdiction

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

2. Although St. Vincent Hospital treated the Taxpayer as an independent contractor for the

period from October, 1995 until May 15, 1996, because of the degree of control the hospital

exercised over the Taxpayer, the Taxpayer was an employee of the hospital.

3. The Taxpayer is not entitled to claim the deduction for wages paid to employees pursuant

to § 7-9-17 NMSA 1978 because of the requirement that taxpayers file consistently for state and

federal tax purposes.

2
Tax reporting, even when it does not distort income or result in tax savings, is not a matter of convenience. Tax
returns should accurately reflect that which is being reported.
3
The Taxpayer did have some receipts from private patients during 1996 which were properly reported on Schedule
C. Thus, the Taxpayer undoubtedly has many legitimate deductions against such income for the expenses related to
his private practice. It would appear, however, that to the extent deductions were claimed for expenses related to the
Taxpayer’s work for the hospital, those would need to be claimed as unreimbursed employee expenses, elsewhere
on his federal return.

12

4. The Taxpayer would be entitled to the deduction provided at § 7-9-17 for the

compensation paid him by the hospital upon the filing of an amended 1996 federal income tax

return which is consistent with his position that the compensation he received from St. Vincent

hospital for services rendered prior to May 15, 1996 was received as an employee.

For the foregoing reasons, the Taxpayer’s protest IS HEREBY GRANTED IN PART AND

DENIED IN PART.

DONE, this 24th day of July, 2000.

13